The Bank Nifty index rallied over 3%.It’s the day for Banking & Financial Services stocks in the stock market.The Bank Nifty index rallied over 3%, all thanks to the HDFC and HDFC Bank merger news, which triggered an over 15% rally in these stocks.Technically, Bank Nifty was trading between the canals as I highlighted in my Telegram post on March 25, 2022.As I indicated, the break of 35,000 or 37,500 would be the breakout from the canals. It opened today at around 37,800 levels. It then rallied higher forming the bullish runaway gap . This was confirmed by the short covering rally to 38,700+ levels.The runaway gap is followed by an island reversal on the chart (red parallel lines). This signals a bullish tone for the April series.As per seasonality analysis, April is the best month for Bank Nifty. The month has 75% strike rate of a bullish close over the last 16 years and an average gain of 4.99%.Add image caption hereThere is minor hurdle at the previous high of around 39,500.Summing it up, the Bank Nifty is ready to head higher thanks to a runaway gap and bullish April data. There is also the news of the HDFC and HDFC Bank merger which adds to the sentiment.Here’s what my colleague and Co-head of Research at Equitymaster Rahul Shah shared on his telegram channel today.Over the last 10 years, HDFC Bank Ltd has traded at a premium of 55% to the marketcap of HDFC Ltd. This is in perfect sync with the swap ratio decided by the management of both the companies. HDFC Bank Ltd will have to dilute 55% of its equity in order to merge HDFC with itself. Thus, the deal seems to be value neutral if one considers the market prices for the last 10 years. However, over the last 3 and 5 years, the gap between the two has widened. Mr Market has given an 80% premium to HDFC Bank over HDFC Ltd on an average. If one considers this premium of 80% then HDFC Ltd shareholders should have gotten only 36 shares of HDFC Bank versus the 42 that they will get for their 25 shares on account of the merger. This difference of 16% could also be because of the increased synergies between the two companies post the merger and the management wanted to reward HDFC Ltd shareholders in advance for it. So, is the deal value accretive to HDFC Bank shareholders? Will the benefits of merging HDFC Ltd with itself be significantly higher than the slightly greater dilution it has agreed to?I do think so. If you’re interested in being part of Brijesh’s charting journey as he shares how to create wealth from profitable trade setups, join his telegram channel – Fast Profits Daily.Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Note: Equitymaster.com is currently not accessible due to technical reasons. We regret the inconvenience caused. Meanwhile, please access our content on NDTV.com. You can also track us on YouTube and Telegram. This article is syndicated from Equitymaster.com(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)
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