Market Update; Merger of Capital First with IDFC Bank

Capital First IDFC bank merger

This week also, Nifty saw consolidation around level of 10600. IT Stocks continue to lead the gains while few other sectors also traded actively this week.

Infosys, TCS posted flat growth in revenue number

Infosys this week posted a Sharp rise in its profit which stood around Rs 5100 crore for the quarter ended December. This rise was helped by reversal in tax. Revenue number for the same quarter stood almost same as was in last quarter. TCS, also posted a quite same profit and Revenue number for Q3 as was in Q2. However, both of them expecting good growth in future due to Increasing amount of investments in Digitality.

So, overall it would be correct to say that Leading IT Firms are unable to achieve a good growth rate. But great future of Technology companies and higher number of investments in Digitality would definitely help most of the IT companies to grab some big opportunities.
Also Read: Still Good to hold IT Stocks?

Merger of Capital First with IDFC Bank

Merger of IDFC bank with Capital first was already in trend. It was almost expected that any merger or aquisation news will soon come out. And finally on Saturday, both the Firms declared merger with a swap ratio of 139:10. Means, for every 139 shares of Capital first, investor will get 10 shares of IDFC Bank. This swap ratio clearly favours the investors of Capital first. As this swap ratio shows higher valuations for Capital First. As per ratio, IDFC should trade at around 61 to clear all the differences between valuations.

So, it is obvious that on Monday, we could see some pressure in IDFC bank as compare to Capital First. Meanwhile, I think IDFC bank investors may use this simply strategy to earn some money from announced merger.

Investors can try to sell their shares of IDFC bank on Monday and in return they can instead buy shares of Capital First. However, this option of conversion is applicable only when the difference of gain/loss percentage of both the shares on Monday do not exist the limit of 5 percentage ( current difference in percentage is around 10 percent). Means, if the IDFC share opens lower on Monday with a loss of 4 percent and capital First opens with a gain of more than 5 percent, then there would be no chance to do any conversion of shares. It is because the difference is now 9 percent (4+5=9) which is almost around swap ratio cost i.e 11-12 percent. Also, when will you buy capital first shares by selling IDFC bank, you will receive your IDFC bank shares back in around April.

So overall, I think tomorrow we could see some pressure on IDFC bank share as compare to Capital First where some good buying is expected on moday.

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