RBL Bank stock delivers 30% return in 3 days. Should you buy, sell or hold?

NEW DELHI: Racing ahead of its larger peers in a volatile market that looks directionless in the immediate near term, shares of midcap RBL Bank have surprised investors by zooming around 30 per cent in just three trading sessions.

The rally began after the bank’s board approved raising up to Rs 3,000 crore to fund the lender's business growth and was fuelled further after bulk deals by large investors including the US-based College Retirement Equities Fund.

Although not many analysts are positive on the stock, yet some investors find it attractive also because it is the cheapest private bank stock. Trading at a price to book value of 0.58x, RBL Bank is the cheapest among all the 10 Nifty private bank stocks. The 3 most expensive private lenders are Kotak Mahindra Bank, HDFC Bank and ICICI Bank trading above 3x P-BV.

“The bank is expected to adopt a more balanced strategy to expansion in FY23 and beyond, according to the bank MD, who recently met an investor. RBL Bank forecasts FY23 growth of 15 per cent on a low basis, but expects consistent growth of 20-25 per cent going forward,” Mohit Nigam, Head - PMS, Hem Securities, told ETMarkets.

Analysts say positional traders should book profits after the breathtaking rally. Technical data shows the MACD was above its center and Signal Line, which is a bullish indicator. However, the RSI was at 80.4, indicating that it could be in an overbought zone and the stock may show some pullback.

“Given the new management's strategy, which places a greater emphasis on sustainable growth and returns and is more compliant with regulations than the prior approach, which in part led to regulatory involvement, long-term investors may think about adding this company at lower prices,” Nigam said.

The planned Rs 3,000 crore fundraising will boost the bank's Tier II capital and allow it to pursue its lending targets aggressively, Tanusree Banerjee, Co- Head of Research, Equitymaster, said. Investors should, however, keep a close watch on the asset quality of the bank, she warned.

In the June quarter, the bank had reported over 47 per cent decline in standalone net profit at Rs 141.22 crore due to over two-fold jump in provisioning.

Following the Q1 result, HDFC Securities had lowered its FY23 and FY24 earnings forecasts by 8/2 per cent, respectively, and maintained a reduce rating with a revised target price of Rs 105. It signals a potential downside of 22 per cent from Thursday's closing price.

Out of the 17 analysts with coverage on the stock, the consensus recommendation is hold rating.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)