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Banks stage ferocious run on M&A nudge

Banking stocks surged to record high on Friday after the merger of Kotak Bank-ING Vysya Bank…

Banking stocks surged to record high on Friday after the merger of Kotak Bank-ING Vysya Bank late on Thursday and interest rate cut by the Chinese cental bank on Friday resulted in across-the-board buying in the sector amid hopes the RBI may also cut rates at its December 2 policy meet.

Bank Nifty touched a new record on Friday. The gauge of banking shares on the NSE closed at a record level of 18,056.30, up 411.25 points or 2.33% from the previous close. Shares of Federal Bank, Kotak Mahindra Bank, ICICI Bank, and State Bank of India (SBI) touched all-time highs.

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“The acquisition of ING Vysya Bank is very strategic… ING Vysya’s acquisition at 2.2x is 10% EPS-accretive and ~15% book-accretive from day one. The acquisition looks very reasonable at 1x Mcap/CASA for ING Vysya and the merger creates arguably one of the best asset franchises,” said Nomura analysts Adarsh Parasrampuria and Amit Nanavati in their note.

The Street also took strength from favourable global economic data and various reports of additional stimulus measures by the central banks in Europe and China. The Sensex advanced 0.95% or 267.07 points to end at a record high 28,334.63 on Friday.

Global equities extended gains after People’s Bank of China cut its benchmark interest rates for the first time since July 2012. The People’s Bank of China lowered its one-year deposit rate and the one-year lending rate, with changes effective tomorrow, according to its website.

European Central Bank President Mario Draghi also said he will do what is necessary to raise inflation in the region as fast as possible. Should the current policy not be effective, the ECB will “broaden even more the channels” through which it intervenes, by adjusting the size, pace and composition of asset purchases, Draghi said in Frankfurt.

Back home, billionaire Uday Kotak’s KMB surged to a record in after it agreed to buy ING Vysya Bank for R15,900 crore. The scrip jumped more than 6% to R1,264.70 per share, but ending the session with net 3.7% gains on the NSE.

ING Vysya, the only Indian lender controlled by an overseas company, gained nearly 4%. The deal, the largest takeover of a lender in India, will create India’s fourth-biggest private sector bank.

The country’s largest lender by assets, SBI advanced nearly 3% on Friday, helping the bank reclaim position as India’s most valuable lender. SBI has risen nearly 72% since the beginning of 2014 as the bank witnessed improvement in asset quality for the third consecutive quarter in September.

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