https://t.co/38CWim8k3q This article is really funny … #economictimes needs to work on the quality of their articles…
Article aside, is there something wrong with the calculation?
Yes follow the tweet neatly explained.
To realize such a gain dont you need to execute the other side of trade?
Do you have any plan to square you short position in F & O and sell you share where you wish to take the delivery?
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Why There Is No 66% Arbitrage With Karnataka Bank’s Rights Issue
By Deepak Shenoy - August 11, 20161609
There’s a little bit of confusion going around because Economic Times had published this article: (You can make upto 66% by participating in Karnataka Bank rights issue).
They mention that you could buy 4000 Karnataka Bank shares and short 6000 or the futures appropriately but also buy the remaining shares at 50% lower in the 2:1 rights issue announced recently. That would give you a fancy arbitrage.
This arbitrage doesn’t exist.
Because when such rights issues happen, two things change.
NSE adjusts the futures price downwards. So if you sold at 140, your selling price will be adjusted down so that it comes to Rs. 116. (Calculations later)
NSE increases the lot size appropriately. The 6000 lot would go to around 7200 shares per lot.
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Effectively, if you shorted 6000 futures of KTKBANK at 140, you would, post the record date, have a short of 7200 shares at 116 each.
The Calculations
Assume you have 2 shares of Karnataka Bank. You get 1 at Rs. 70 in the rights issue. NSE has an adjustment factor for the downward adjustment of the future price and upward adjustment of the lot size. See here for a recent example with GMRINFRA.
So if the price is Rs. 140, that means you invested Rs. 280 for two shares. You get one more share at Rs. 70. So you have invested Rs. 350 for three shares. That is Rs. 116.67 per share.
Therefore the price should fall to Rs. 116.67 per share. From Rs. 140. That’s a downward adjustment of 0.83333 on the futures price (adjusted 83% lower) and the lot size will be increased to 6000/0.8333 = 7200.
No arb in Karnataka Bank So in effect you don’t make any money in this “arbitrage”.
Just clearing out the confusion, since a lot of twitter traffic has erupted on this note.
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@chintri Thanks, Somewhere in my mind I knew that such an opportunity can’t exist, wanted to clear the doubts.
Hi @Gaurav_Agarwal
The short position initiated in October contract will be covered by delivering current holdings, however as @chintri pointed out, the lot size will change or the futures price will adjust accordingly.
All these calculation aside, KTK bank looks attractive currently specially when Bank Like RBL offer price is 225.
Anybody has an idea on the subscription figures of the rights issue?
Vijay Kedia is piling it up again (feb17)
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https://twitter.com/VijayKedia1/status/823782200906809344
That too after twitting this ^
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What surprises me is his 25cr personal investment and 10cr Kedia Securities investment in it, totalling 35cr
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Something that did not get as much notice but a good event nevertheless. Bharatbenz sold 14000 vehicles in 2015.
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Heard on the streets. Karnataka Bank to merge with Kotak Mahindra bank with swap ratio 5:1.
This is my first post. I might be wrong.
Can somebody confirm this?
If this ratio exists I believe we should buy this.
Can anybody suggest if is it worth a buy?
Disclosure: Not Invested.
#Q1 FY18
Provisions up 45.9% YOY
Net NPA @ 3.20% vs 2.61% YOY
Mgt unable to control NPAs despite earlier promises.
http://www.bseindia.com/xml-data/corpfiling/AttachLive/c2718153-b1a6-47de-9bb5-b6a66d4054d6.pdf
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Reason for increase in NPA due to one of the companies exposure of Rs 48 crore to one of the 12 accounts identified by the Reserve Bank of India under insolvency and bankruptcy law.
Managing Director and Chief Executive Officer MS Mahabaleshwara confident enough for 15% growth in this year.
Hope for the best.
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#KEY POINTS FROM Q1 FY18 CONCALL
Apart from the financials discussed in concall
Regarding NPA’s
- Npa was high due to a steel a/c with which bank was dealing with from last 10 years turned bad this quarter.
Total Exposure of Steel company to banking sector is Rs.3000Cr
And Share of KTK bank was Rs.122cr & Provision for same Rs.18cr
Mgt Expects this account to get upgraded and therefore it was only temporary effect.
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Component of NPA’S as of june 17
65% of NPA represent SUBSTANDARD ASSET requiring 15% provision -
Target of 2% NNPA REMAINS INTACT.
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Precaution against slippages- Credit Monitoring Department For Loans more than Rs 1Cr and regional Managers for less than Rs.1cr
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Regular review of all account and have recovery strategy to recover the account.
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No account for ARC in Q1
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Fully Provisioned Gross Npa - Rs.32.91Cr
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3 a/c in SDR out of which 2 have got resolved (Rs.378cr Exposure of 2 a/cs Resolved)
-Have exposure of Rs.49 Cr. to 1 out of 12 accounts identified by RBI
- 7 a/cs under 5/25 scheme - Exposure of Rs.195Cr.
CREDIT GROWTH
- Target of 15% minimum credit growth this fiscal
- Identified 117 branches to implement SPECIAL CREDIT AUGMENTATION STRATEGY
- Street level Executive Targeting across India for Credit Growth.
Overall Management seems confident enough of achieving 2% NNPA target by Q4 FY18 and remains committed towards achieving VISION 2020.
Especially CEO Mahabaleshwara MS is passionate to take Karnataka Bank to new Heights even in his interview to ET , the statements given by him were very bold although seems to be far from reality but not impossible.
NOTE: These are highlights of concall may have missed some points.
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The new MD is quite upfront and active with respect to achieving THE VISION 2020
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The banks growth seems good and as per the 2020 commitment of a turnover of 1,80,000 Cr, In this Q118 not so impressive growth with the NII and Loan book , The current turnover of the bank is around 94000 Cr so it says a 26% growth from here in 3 years that is a 26% CAGR in turnover in 2020.
The current ROA at 0.74% vs 0.76% in 2015-16 and ROE 10.24% . Asset quality seems to be deteriorating in this Q118 the GNPA and NNPA have raised with increase in provisioning, AS per the managements guideline if NPA are contained below 2% in Q418 then i would expect a 44500 Cr advance by then and a NPA of just 900 cr (J.A Assumption) which will then improve my Book value and return ratios with lesser provisioning and Written backs if any.
Current 13.30 % CAR looks well capitalized but with improved returns i would safely assume that by Q418 the banks CAR will improve if the NPA’s are resolved. The banks CD ratio is just 68.44% which i could say is under loaned which should be improved to generate more Interest.
Adjusted Book value for the bank for Q118 is at 138.5 which and currently the stock trades around 160 levels, seems to be fairly priced as the ROE is just about 10.2% with above said commitments lets hope the bank can deliver on the promise.
Disclaimer : Invested in KTK bank, Opinions are my own,
Source of Data from Q118 report , 2016 Annual report .
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