According to Nuwama Alternative Research, IDFC First Bank is the top potential contender to be included in the August 2023 Nifty Index, as per the research. However, the stock requires an increase of around 10 percent from its current level to reach 85 rupees per share.
Following the announcement of the share swap ratio for the merger with IDFC Limited, IDFC First Bank’s share price declined by more than 5 percent on July 4. Shareholders of IDFC Limited will receive 155 equity shares of IDFC First Bank for every 100 equity shares held.
Based on the closing price of July 3, IDFC shareholders are receiving a premium of 17 percent. IDFC Limited’s share had already increased by 7 percent earlier on Monday. This indicates a premium of 24 percent based on the closing price on Friday, June 30.
Since the risk-reward ratio is favorable for the parent company, IDFC Limited gained 2 percent on July 4, while IDFC First Bank declined by 5 percent. At 11:15 a.m., IDFC First Bank’s stock on the NSE was at 79.25 rupees, a decrease of 3.25 percent from the previous close.
Currently, IDFC Limited holds a 39.93 percent stake in IDFC First Bank through its non-financial holding company. After the merger, there will be a 4.9 percent increase in the share book value of the bank, as calculated based on the audited financials till March 31, 2023.
Can IDFC First Bank be included in the Nifty Index?
According to Nuwama Alternative Research, IDFC First Bank is the top potential contender to be included in the August 2023 Nifty Index. However, it requires a growth of approximately 10 percent from the current level to reach 85 rupees per share by the third week of July.
“This is based on the latest global cut-off levels, and please note that cut-off levels keep changing on a daily basis. The potential flow can range from $170 million to $180 million,” said Abhilash Pagaria, Chief of Nuwama Alternative and Quantitative Research.
The completion of the merger is expected this year. He said that as the merger progresses, it is expected that the difference between the two shares will decrease according to the ratio.
Pagaria said, “We will recommend any spread trade only when the spread merger is at a sufficient level according to the timeline for the spread merger to close.”
Meanwhile, IDFC Limited has cash reserves of 600 crores, which will be transferred to IDFC First Bank after the merger, as stated by V. Vaidyanathan, Managing Director and CEO of the bank, to CNBC-TV18.
He said, “We will raise capital of 2,000 crores by the financial year 2024. Capital adequacy will increase from the current level of 17.4 percent.”