The shares of Mahindra & Mahindra conglomerate declined by at least by 7% after the company announced it has acquired a 10% stake in RBL Bank to expand its footprint in the banking sector.
M&M shares lost nearly 7% to Rs 1,438.80 in the early morning session on Thursday amid a spurt in volumes by 5 times. This is the biggest single day drop in the share price of M&M since February 2022.
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"We may consider further investment subject to pricing, regulatory approvals and required procedures. However, in no circumstance will it exceed 9.9 percent," the company said in its filing.
On the other hand, the shares of RBL Bank had a positive impact as the stock gained around 3.4% at 10:25 am IST on Thursday, after ending Wednesday's session with a 6.3% upside.
"The move is not welcomed by the market because banking is not a core business for M&M. Market expects them to deploy money in the core business especially when the company is doing well. Putting cash in a non-core business is against the company's philosophy," Varun Baxi, analyst at Antique Stock Broking was quoted as saying by Moneycontrol.
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After the market closed yesterday, the Group said, in its filing, it has acquired a 3.53% stake in RBL Bank at a cost of Rs 417 crore and may consider further investment subject to pricing, regulatory approvals and required procedures.
The Mahindra Group also owns NBFC Mahindra Finance, and has plans to buy a nearly 10% stake in the bank. However, approval from the RBI to further acquire a 5% stake in the bank is pending. If approved, M&M will become the biggest shareholder in RBL Bank along with investment fund Maple.
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The interest of the Mahindra Group to invest in the banking sector came after Reliance Industries demerged Jio Financial Services this month and plans to launch various businesses including consumer and merchant lending.
“Is it going to be just an investment or are there any further plans to really get into the banking business per se? Hemang Jani of Motilal Oswal, was quoted as saying by The Economic Times, further stating that this move by the conglomerate to buy such a small share is unclear.