Karnataka Bank Downgraded to 'Hold' by MarketsMOJO Despite Strong Lending Practices and Positive Results

Karnataka Bank, a midcap private bank, has recently been downgraded to a 'Hold' by MarketsMOJO. This decision was based on the company's strong lending practices, with a low Gross NPA ratio of 3.53%, and its healthy long-term growth, with a 22.24% CAGR growth in net profits. The company has also declared positive results in Jun'2024 after two consecutive negative quarters, with its NII(Q) at the highest at Rs 903.36 cr and INTEREST EARNED(Q) at the highest at Rs 2,277.99 cr. Additionally, its CASH AND CASH EQUIVALENTS(HY) are also at a record high of Rs 7,656.07 cr.
However, the technical trend for the stock is currently sideways, indicating no clear price momentum. The technical trend has also deteriorated from Mildly Bullish on 01-Oct-24 and has generated a return of 0.87% since then. With a ROA of 1.2, the stock is currently trading at an attractive valuation with a 0.8 Price to Book Value. However, it is important to note that the stock is currently trading at a premium compared to its average historical valuations. Over the past year, while the stock has generated a return of -3.92%, its profits have fallen by -7%.

One positive aspect for the company is its high institutional holdings at 41.91%. These investors have better capability and resources to analyze the fundamentals of companies compared to most retail investors. Their stake in the company has also increased by 3.91% over the previous quarter.

Despite these positive aspects, Karnataka Bank has underperformed the market in the last 1 year. While the market (BSE 500) has generated returns of 39.61%, the stock has hugely underperformed and has generated negative returns of -3.92%. With this in mind, MarketsMOJO has downgraded the stock to a 'Hold' and advises investors to carefully monitor its performance in the future.