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After a “Massive Drop”, This Bank Gears up for Mean Reversion

Published 04/29/2024, 12:50 AM
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Last week, the share price of Kotak Mahindra Bank (NS:KTKM) took a severe hit, tanking 10.2% to INR 1,608.5. The primary reason for a sharp selling spree was the RBI’s directive to restrict the bank from onboarding through online and mobile banking channels and from issuing new credit cards as well.

While the bank hasn’t received any relief from the directive as of now, the sharp cut might now translate into a buying opportunity, on the back of a few reasons.

Firstly, the RSI (daily, 14) depicted a reading of 29.55 on Friday, which is lower than the benchmark oversold reading of 30. Also, there is a strong support level of around INR 1,600 which had been keeping the stock from falling since 2021. As the stock is trading around the same levels, it could now be a probable mean reversion opportunity on the technical front. In fact, ProTips also points out the oversold status of the stock as a part of giving all the necessary information an investor might require.

Image Source: InvestingPro+

From the valuation perspective, the stock is undervalued. How to know about the valuation status? The best and the easiest way is InvestingPro’s fair value feature. It uses multiple financial models to calculate intrinsic values and then takes a mean of all to arrive at a more realistic value of the stock. In the case of Kotak Mahindra Bank, its fair value is INR 1,795.5, translating into a 10.6% upside potential.

Also, if you look at the consensus of analysts covering this counter, their average target price is INR 2,029, even higher than the fair value. In fact, the lowest target price is INR 1,622 which is the current price, so the downside potential is quite low from here on.

You can blend the technical and fundamental approach like seen above to further strengthen your investment decisions, with the help of InvestingPro. Luckily, InvestingPro is now available for a steep discount of 69%, for INR 216/month, for a very limited time. Click here to grab your offer today!

X (formerly, Twitter) - Aayush Khanna

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