What should you do with Tamilnad Mercantile Bank shares after lacklustre listing?

The IPO had received a subscribe rating from the brokerages, given the strong financials, The IPO received a ‘subscribe’ rating from securities firms, given the bank’s strong financials, improving asset quality with declining non-performing assets and growing deposits.

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Tamilnad Mercantile Bank (TMB), a private sector lender focussed on South India, made a lacklustre debut on September 15 amid concerns over legal challenges and a lack of sufficient clarity on management’s long-term performance.

The bank listed at a minor discount of 2.94 percent to issue price. The stock listed at Rs 510 on the BSE, and the opening tick on the NSE was Rs 495 against its issue price of Rs 510 per share.

Most analysts tracking the issue say that if you had been looking for listing gains, you should exit the stock if it falls a bit more. Long-term investors can wait and watch.

“Those who applied for listing gains can maintain a stop-loss of Rs. 470,” said Santosh Meena, Head of Research, Swastika Investmart. “Long-term investors should wait for some quarters to let the dust settle, and in the meanwhile, we suggest investors go for the existing listed banks where the management’s track record and performance during multiple credit cycles are visible.”

Manoj Dalmia, founder and director, Proficient Equities, said long-term investors can wait for the stock to gain because the Nifty Bank index looks bullish.

Even those looking for listing gains can hold on for a few weeks, but with a stop-loss in place based on their risk appetite, he added.

The initial public offering (IPO) received a ‘subscribe’ rating from analysts at securities firm, given its strong financials, improving asset quality with declining non-performing assets and growing deposits.

The IPO was subscribed 2.86 times, with qualified institutional investors buying 1.62 times the allotted quota, non-institutional investors 2.94 times and retail investors 6.48 times. The response was much lower than had been expected.

Given the muted overall response of investors, a flat to moderate listing gain had been in store for TMB, said Prashanth Tapse, Research Analyst and Senior Vice President (Research), Mehta Equities.

“We advise allotted investors to think of booking whatever marginal profits are generated,” he added.

Tamilnad Mercantile Bank’s 37.73 percent paid-up equity share capital or 53.76 million equity shares is subject to outstanding legal proceedings at various forums, in connection with which proceedings against the bank have been initiated by various regulatory authorities.

They include the Reserve Bank of India and the Directorate of Enforcement; some of the regulators have imposed or sought to impose penalties on the bank in the past.

The bank cannot assure investors that these matters will be resolved in a timely manner or at all. Any adverse developments in such proceedings may result in the imposition of injunctions or penalties and require it to incur significant costs to contest them, which could have a material impact on its reputation, business, finances and operations, Arihant Capital Markets said recentlt.

To be sure, TMB is one of India’s oldest banks with a legacy of about 100 years. It is focussed on diversifying its product portfolio to access more clients and continues to expand relationship banking facilities to increase its network.

The lender intends to focus more on fee-based products such as debit cards, credit cards, insurance and online bill payment.

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