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Don’t try to catch PNB's falling knife: Analysts

The market capitalisation of the country’s second-largest public sector bank has fallen to Rs 23,856 crore.

, ET Bureau|
Feb 28, 2018, 07.59 AM IST
Mumbai: Fraud-ridden Punjab National Bank extended its losing run on the bourses with the stock falling below Rs 100 on Tuesday for the first time since June 2016. With the stock falling 39 per cent since the scam broke out on February 14, and 50 per cent off its 2018 peak on January 25, investors may be tempted to include PNB in their share portfolio. But, analysts warn that buying the stock could be akin to catching a falling knife.

Prima facie, the numbers for PNB might look tempting. The market capitalisation of the country’s second-largest public sector bank has fallen to Rs 23,856 crore, bringing them almost on a par with some of the smaller private sectors banks. RBL’s market value is Rs 20,600 crore and Federal Bank’s Rs 18,900 crore. The market value of PNB Housing Finance, in which PNB holds almost 33 per cent as the biggest shareholder, is Rs 20,300 crore. Its price to book value is 0.54 times. A reading below 1 is considered attractive.

PNB snip 3

Still, analysts are not convinced if these factors are enough to make the stock a value buy. “It is not a value play. For the time being it is like a falling knife,” said Suresh Ganapathy, head of financial services research at Macquarie. “The problem is that the extent of fraud is in question.”

Investors were in for a shock on Tuesday after the lender said that the quantum of fraud in the Nirav Modi case could be Rs 1,300 crore more than the amount of Rs 11,400 crore disclosed by it earlier this month. PNB shares tumbled 12.2 per cent to Rs 98.35 on Tuesday, dragging down other PSU bank shares. The Nifty PSU Bank index fell 3.5 per cent. The Bank Nifty fell 1.2 per cent.

Sanjiv Bhasin, executive VPmarkets and corporate affairs at IIFL, said the stock has been a value play for many years but it has failed to deliver consistently.

“After the disclosures it is in an uneasy spot. Its fair value is close to Rs 80. One should avoid Punjab National Bank and look at better banks which are into corporate lending,” said Bhasin.

The disclosure of additional fraud amount has only made things worse and investors will watch out for clarity on the extent of the fraud.

“Until we know that this is the end of fresh shocks, it is not a good buy. Market doesn’t like uncertainty,” said SP Tulsian, founder of Premium Investments, an advisory firm.
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