Bandhan Bank, a FPI favourite, is in oversold zone. Can it stage recovery?

Bandhan Bank, a foreign institutional investor (FPI) favourite, has fallen 38 per cent since May high and is in a tight bear grip. Technical indicators suggest the stock is in oversold zone and has a crucial support at Rs 200, failing which the scrip can attract more downside. Upside resistance for the stock is seen in Rs 235-250 range. 

FPIs held 30.15 per cent stake in Bandhan Bank while mortgage lender HDFC and life insurer LIC owned 4.95 per cent and 3.69 per cent stakes, respectively, in this private lender, as of September 30.

On Friday, the scrip fell 2.17 per cent to hit a 52-week low of Rs 216.10 on BSE. The 14-day RSI gave a reading of 26.86 level. A reading below 30 is considered ‘oversold’.

Osho Krishan, Senior Analyst for Technical & Derivative Research at Angel One said the stock has witnessed a significant breakdown from the supporting trendline of Rs 250-odd level.

"Technically, the stock has entered the oversold region and is heading lower toward the next support, which is placed around the Rs 200-odd zone. If it manages to sustain above the subsequent support of Rs 200, some modest recovery could be seen in a comparable period. On the contrary, the intermediate resistance could be seen around the Rs 250 level.," Krishnan said.

Tirthankar Das of Ashika Stock Broking said Bandhan's share price has been on a sequential decline since January 2021 and the slower pace of retracement suggests inherent weakness in the stock. A close below the previous swing low of December 2021 suggests further negative bias. 

Das said the immediate resistance for the stock is seen from the 20-week EMA at Rs 265. But the stock is in the vicinity of the lower band of the falling channel since September 2020, thus providing a favorable risk-reward setup, he said.

"On the oscillator front, in the daily time frame, the 14-period RSI is seen dripping towards the oversold territory thus indicating that sustenance above the support level of 200 can ultimately lead to a pullback. Thus, it would be advisable to approach the stock with the buy-on-strength method i.e. at a decisive trade above 265 one can initiate a buy position with an upside target of Rs 300-320," Das said.

Pavitraa Shetty of Tips2trades said a below average September quarter results despite signs of strong credit growth have dampened investors' spirits, leading to Bandhan Bank seeing relentless selling. She believes traders can buy the stock only on a close above Rs 235,  as a fall till Rs 210 looks likely, she said.

“On a close above Rs 235, the stock can see a bounce back towards Rs 2,56-275 in the near term," Shetty said.

Pravesh Gour, Senior Technical Analyst at Swastika Investmart said the counter has seen a breakdown of a long consolidation pattern formation. 

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"The overall structure is distorted as it Bandhan Bank trades below all its SMA moving averages, and the momentum indicators are also negatively poised. On the downside, Rs 200 is a strong and significant psychological support level from which we can expect a bounce-back up to Rs 230; below this, Rs 150," Gour said.

Bandhan Bank reported a net profit of Rs 209 crore for the September quarter compared with Rs 3,009 crore loss in the year ago period due to higher asset quality stress, percolating into high interest income reversals and increased write-offs.

"High slippages fed into higher interest income reversal ensuing a 100 bps sequential NIM dip, thus lowering NII (down 13 per cent QoQ). Notwithstanding weak H1FY23, we believe, the end of asset quality uncertainty seems nigh. That said, recovery trends are far slower than anticipated. Volatile performance dented investor confidence. A re-rating hinges on consistent earnings delivery," Elara Securities said in a post earnings note.

Jitendra Upadhyay, Senior Equity Research Analyst at Bonanza Portfolio Management said said Bandhan is well placed to deliver ROA/ROE in excess of 2.1%/13.5% on a sustained basis as compared to MFI industry peers. The company offers a price-adjusted book (multiple of 2.5 times, he said, noting that the stock is trading at a discount to its peers.

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