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ICICI sale of bank stake to have little impact on stock prices

Priya Ganapati

ICICI's announcement on Thursday that it has further divested 3.60 per cent stake in ICICI Bank to Capital International, a leading foreign institutional investor is not expected to have any impact on the market sentiment for both ICICI and ICICI's Bank.

"I don't think this makes much of a difference. In the short term, it is not going to have any impact. The market is grappling with external factors like rumours of payment crisis and a bearish sentiment. And this is being perceived as a rather routine development," an analyst at a domestic brokerage firm said.

ICICI's move is in keeping with Reserve Bank of India directive to reduce its holding in ICICI Bank to 40 per cent over a period of time. Through the offer for sale to Indian public in 1997, the American Depositary Shares (ADS) issue in 2000 and the merger of Bank of Madura with ICICI Bank, ICICI had finally brought down its share to 55.59 per cent last year.

In a letter dated February 8, RBI insisted that ICICI further reduce its interest in the bank. On March 15, ICICI sold 10.99 million equity shares, representing 4.99 per cent of ICICI Bank's equity capital, to Prudential Assurance Company Limited at an average price of Rs 170 per share.

On Thursday, ICICI sold 7.97 million equity shares at an average price of Rs 175 per share. That transaction is thus the second huge sale in the last two weeks. "Basically, they are doing what was required by RBI. They are only complying with the regulations. There is no significance beyond that," commented an analyst at Kotak Securities on the timing of the divestment.

After these two sales, ICICI has realized gross capital gains of Rs 3.03 billion.

Agreed another analyst with a foreign brokerage firm, "This does not materially change anything. The fundamentals remain the same and the market sentiment will not be affected by this."

The premium paid on the share in this transaction too does not seem to excite analysts either. At an average price of Rs 175 per share, the divestment is at a premium of about 16 per cent to the average closing share price of the last six months and a premium of about 8.6 per cent to the average closing share price of the last three days.

"A premium of about 10-15 per cent is all right. All banking stocks were doing well. There has been only some change now and stocks have dipped in the last three to four months because of the low market sentiments," the analyst said.

"In transactions where such huge sums are involved, there is always a premium," agreed the Kotak Securities analyst.

The market with a few exceptions continues to be bullish on ICICI and ICICI Bank stocks. "I am bullish on ICICI and ICICI Bank because even apart from these things both entities are doing well. ICICI Bank is a leading private sector bank. It is aggressive and is doing very well. As for ICICI itself, I see a lot of hidden value in the stock. There is its stake in ICICI Ventures and its infotech company. So the stock has a lot of value. I would give a rating of 7 out of 10 for both stocks now," an analyst at Dalal and Broacha Stock Broking firm said.

Kotak Securities too remains bullish on the stock. The firm has given a positive rating to ICICI Bank and has put out a buy tag on it, while ICICI itself has been rated as market outperformer.

But not all brokerages are bullish. Credit Lyonnais Securities has a 'sell' tag on both ICICI and ICICI Bank. The analyst there declined to comment.

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