Rakesh Jhunjhunwala's this bank stock will give 16% return in 3 months - Why you should buy | Analysis

The big bull Rakesh Jhunjhunwala is known for his interesting patterns of investment, and most of them likely give the fruits of his seed invested. Interestingly, the ace investor increased his holding massively in one bank during Q3FY19, and guess what, it is already seen as a money making stock in just 3 months. Analysts have given a buy rating on Federal Bank, with an expectation that the stock will jump by nearly 16% by next quarter end. If this is the case, then Jhunjhunwala is the man who sets to gain heavy crores in his portfolio. On Wednesday, the share price of Federal Bank was trading on a negative note, so much, that it even tumbled by over 2% with an intraday low of Rs 87.15 per piece. However, at around 1202 hours, the stock is performing at Rs 88.25 per piece gradually below 0.96% on Sensex. 

Marginal drops and volatility in short term is not a big deal for Jhunjhunwala, he sees a bigger and long term pictures for his stocks. Among many quotes, the Warren Buffett of India rightly says, “Successful investors are opportunistic and optimistic ones. Anticipate trend and benefit from it. Traders should go against human nature.”

Hence, considering that Federal Bank is trading in red, this makes it a stock to buy as the buying price becomes cheaper for investors. 

Research Analysts at ICICI Securities say, “In the last couple of weeks, broader markets have shown some signs of a recovery. Midcap banking stocks seem to be the major gainers in the current recovery. Among private sector midcap banks, Federal Bank is one such stock that has shown significant outperformance with respect to the broader markets. Despite the midcap index retesting its October lows, Federal Bank has been consolidating at higher levels. We expect the positive bias in the stock to continue as fresh longs are likely to be added in the stock.”

These analysts revealed exciting trading in Federal Bank. According to them, the open interest in the stock has remained almost unchanged near 45 million shares since September 2018 despite high market volatility. Marginal addition of short positions added in the January sell-off was also quickly squared off with a sharp recovery in the stock. The relatively low leverage is also likely to keep downsides limited. We expect fresh longs to be added as it continues to find support above Rs 80 levels.

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Post its quarterly results, in ICICI’s views, Federal Bank witnessed delivery based selling pressure as it moved below Rs 85 levels. In the recent recovery, the stock was able to surpass these levels. We expect the ongoing positive bias to remain intact in the stock in the near future as well.

Hence, they added, “We expect the stock to remain positive until it holds these levels.”

ICICI Securities have given a target price of Rs 101 on Federal Bank. If we take this target and compare it with intraday low, then the bank is surely set to make many investors rich including Jhunjhunwala by nearly 16%. 

Coming back to Jhunjhunwala, he between October to December 2018 quarter, increased his holding the highest in Federal Bank compared to other stocks. He raised his stake by another 1.71%, taking overall holding at 3.45% with 67,471,060 shares aggregating up to Rs 598.5 crore. This bank is among most favorite stocks, after Titan, NCC, Escorts and Lupin.