Why ICICI Bank stock rose amid controversy over Rs 3,250 crore loan to Videocon Group

The ICICI Bank-Videocon loan controversy may have put top officials of the bank and the private firm under the scanner but the stock it seems, has remained oblivious to the matter.

In fact, the stock is up over 4 percent since the matter came into light on March 28, 2018.

On March 28, the stock closed at 278 level on BSE after the bank board countered allegations of a quid-pro-quo in sanctioning of Rs 3,250 crore loan to the Videocon Group ,  and backed CEO Chanda Kochhar, saying that no individual employee, irrespective of his or her position, has the ability to influence credit decision at the bank.

Arvind Gupta, a Videocon investor, had accused Chanda Kochhar of extending loans to the Videocon Group both in India and abroad 'through companies established in tax heavens like the Cayman Islands and Mauritius.

The stock fell over 6% within three trading sessions (March 29, 30 and April 2) due to the controversy.

It fell the most (7 per cent) on April 2 amid reports that the Central Bureau of Investigation (CBI) was set to question ICICI Bank CEO Chanda Kochhar and her husband Deepak Kochhar in connection with the Videocon loan case.

The stock closed at Rs 261 level on the same day.

Since then the stock has been rising amid a flow of negative news for the bank.

As the matter gained traction, ICICI Bank CEO Chanda Kochhar pulled out of high-profile FICCI event on April 4.

On April 7, the government changed its nominee on ICICI Bank board.

On April 9, Fitch Ratings said allegations against ICICI Bank pose reputational risks, corporate governance questions.

Analysts said the stock has become a good buy after falling of its all time high of 365.65 level which it touched on January 29, 2018.  

VK Vijayakumar, chief investment strategist at Geojit Financial said, "ICICI Bank share corrected by more than 20 percent from its recent high. Markets, more often than not, over react: both on the upside and downside. The recent correction to the low of around 257 was a typical over reaction to the controversy involving the CEO and the Videocon loan.

It is important to appreciate the fact that this issue will not impact the earnings of the bank. It is EPS neutral since the NPA has already been provided for. Therefore, the stock quoting at a price to book of around 1.7 has become attractive.  Long-term institutional investors are buying in large quantity since the long-term upside is large."

Vijayakumar said the stock seems a good buy too when compared to its  private peers.

"HDFC Bank and Kotak Bank are quoting at price to book of more than 5. Therefore, the ICICI stock has become a value buy now. This is classic buy on bad news. Another factor pushing up the share price is the short covering in the stock," Vijayakumar added.

Merrill Lynch on April 9 bought nearly 3 crore shares of ICICI Bank for Rs 823.40 crore through an open market transaction.

According to the block deal data available with BSE, Merrill Lynch Markets Singapore Pte Ltd acquired 2.94 crore shares, amounting to 0.46 per cent stake in the bank.

The shares were picked up at an average price of Rs 280, valuing the transaction at Rs 823.40 crore, the data showed. The scrips were sold by Baillie Gifford Emerging Markets Fund.

Deepak Jasani, head of retail research at HDFC securities said, "ICICI Bank after making a low of Rs 258.9 on April 2, has recovered. One probable reason for the recovery is anticipation of top leadership change in the bank which may lead to better performance of the bank and improved perception from investors. One other reason is that about 2.94 crore shares were bought by  Merrill Lynch Singapore a couple of days back resulting in the float in the system getting absorbed to a large extent."