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Sensex Opens Flat; Bandhan Bank & Gruh Finance Plummet after Merger Deal
Tue, 8 Jan 09:30 am | Rini Mehta, TM Team

Asian stock markets are higher today as Japanese and Hong Kong shares show gains. The Nikkei 225 is up 0.8% while the Hang Seng is up 0.2%. The Shanghai Composite is trading down by 0.3%. Meanwhile, US stocks rose in choppy trading on Monday as investors bet on US-China talks on trade.

Back home, India share markets opened flat with a negative bias. The BSE Sensex is trading down by 17 points while the NSE Nifty is trading down by 16 points. The BSE Mid Cap index opened up by 0.1% while BSE Small Cap index opened down by 0.1%.

Sectoral indices have opened the day on a mixed note with realty stocks and healthcare stocks witnessing maximum buying interest. While, power stocks and energy stocks have opened the day in red.

The rupee is currently trading at Rs 70.08 against the US$.

The Indian rupee was trading lower against the US dollar in the early trade today after crude oil prices surged in eight out of nine trading sessions.

Market participants awaited the outcome of the US-China trade talks and President Donald Trump's speech.

In the early trade, the rupee was trading at 70 a dollar, down 0.5% from previous close of 69.68. The home currency opened at 69.84 a dollar and touched a low of 70.01 a dollar.

Brent crude jumped eight out of nine trading sessions and rose over 14% in this period on optimism that the US and China may reach a trade deal and American crude inventories may fall.

US expressed optimism it can reach a reasonable trade deal with China as President Xi Jinping dispatched one of his top aides to the negotiations in Beijing.

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Traders will also be monitoring Trump's televised address today to see what he says about the government shutdown before he travels to the US-Mexico border later in the week.

So far this year, the rupee has declined 1.3%, while foreign investors have sold US$203.80 million in equities and bought US$43.50 million in the debt markets.

The dollar index, which measures the US currency's strength against major currencies, was trading at 95.827, down 0.2% from its previous close of 95.666.

Moving on to the news from banking sector. In the latest development, Bandhan Bank said on Monday Gruh Finance would merge with it in an all-share deal valued at approximately Rs 818 billion based on the closing prices of shares of the two players.

Reportedly, shareholders of Gruh will get 568 shares of Bandhan for every 1,000 shares held.

The transaction helps lower the promoter stake in Bandhan Bank to 61% from 82%. This means the outstanding number of shares of Bandhan Bank will go up to close to 1.6 billion shares post the merger.

Moreover, the merger will see HDFC Limited owning close to 15% in Bandhan Bank via its holding in Gruh Finance.

Further, the micro credit or unsecured portfolio of bandhan bank will fall from the current levels of 86% to 58%, thanks to the presence of secured home loans in the combined portfolio. Also, the average tenure of the loans will also go up since Gruh loans tend to have tenure of three years whereas we give loans of one-year.

Note that, the swap ratio was slightly in favour of Bandhan Bank. RBI's banking licence rules require the promoters of Bandhan Bank, Bandhan Financial Holdings to lower its stake from 82.3% to 40% within three years of starting a business.

The central bank had penalised the lender for failing to comply with the guidelines within the stipulated timeline by freezing branch expansion and remuneration of founder and chief executive.

Reportedly, the share swap ratio set for the Bandhan-Gruh Finance merger ensures HDFC has got itself a sweet deal.

Note that, the HDFC Group stocks have been such phenomenal wealth-creators that no investor wants to miss any opportunity to pick up a stock with the HDFC brand tag.

The chart below shows the number of times you could have multiplied your wealth by being an early investor in any HDFC Group company.

The HDFC Group of Multibaggers...

Bandhan Bank share price opened the day down by 4.9%, while Gruh finance share price fell over 13% in the opening session.

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

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