The recent frenzy surrounding the Karnataka Bank stock has come under a regulatory glare. The Securities and Exchange Board of India (Sebi) is investigating the share price movement in recent weeks, driven by speculation about the bank's possible merger with a private-sector player.
Sebi is said to have sent letters to some traders and investors with sizeable positions, seeking an explanation about the nature of their transactions.
Karnataka Bank shares, which closed at Rs 174.55 on Wednesday, had hit the year's high of Rs 195.50 on December 10, after rising almost 140 per cent in three months. The jump was fuelled by speculation that the Mangalore-headquartered bank was in merger talks with ICICI Bank, the country's largest private sector lender. Both firms had vehemently denied this.
Sources said the stock could have come under Sebi's scanner after its tumble last week. The scrip had, unexpectedly, plunged 14 per cent on December 13, catching several traders on the wrong foot. Many retail traders are said to have lost heavily on their stock futures bets on the bank in the decline.
A theory doing the rounds was that some Mumbai-based operators with sizeable stakes in the stock had orchestrated the sudden drop during the day. Brokers said the stock's fall was made to look like a disappointment due to absence of any merger announcement' from ICICI Bank, which held a conference call that day to announce growth plans.
The speculation about merger with a larger bank has been a trigger for a surge in Karnataka Bank shares in the past, too. Brokers said the stock had jumped on at least two occasions in the past few years following such rumours.
This time, operators relied on the optimism surrounding the banking (amendment) Bill, which was passed in Parliament yesterday, to drive the stock up. Brokers said there were hopes the Bill would spark mergers and acquisitions among smaller private-sector banks like Karnataka Bank.
According to a news report, Karnataka Bank Managing Director P Jayarama Bhat had last week said: "Many rumours are doing the rounds in this regard. There is no need for panic. Your Karnataka Bank will remain yours."
Brokers said the bank was seen by traders and investors as an acquisition target because of its healthy financials and absence of a country-wide network. The bank reported a net profit of Rs 246 crore for the year ended March 2012, compared with Rs 204 crore last year.