DCB Bank may remain out of favour for some time; avoid exposure: Harendra Kumar

In a chat with ET Now, Harendra Kumar, MD, Institutional Equities, Elara Capital, shares his view on DCB Bank's aggressive expansion plan.

ET Now: What do you make of that massive monster selling in DCB on Wednesday? The stock has nearly lost its bottom. Do you think market pundits are slightly confused about the bank's renewed strategy and branch rollout plans?

Harendra Kumar: The visibility clearly gets killed over the next two to three years. What could be right for the management in terms of long term structural positive is negative for return ratios in the short term. DCB Bank was one of the most expensive smallcap banking stocks, in line with the City Union Bank and some other south-based niche banks, where there is a lot of institutional ownership. Typically, when there is lot of institutional ownership and the premiums are very high, you see stocks correcting very sharply on one such bad news. Motherson Sumi is a case in mind.

So yes, the risk involved in an overvalued stock in terms of bad news is very high. It was a combination of these factors that actually led to the fall.

ET Now: Will you be a buyer in DCB if the stock cracks another 10-15 per cent? There is nothing wrong with the bank, but the bank is changing their strategy - which they argue is need of the hour - because there is lot of disruption which will happen in the entire mid-tier private banking space because of technology.
Harendra Kumar: So there is always a price, at which we consider any business.

I would expect the whole heat on the expansion to settle down. The stock will be out of favour for some more time, before it finds its own true level. Then potentially, after say two or three quarters, you may find value in the franchise at a price you consider fair. But, at the moment, it is not the right time.