Derivatives and Quantitative Strategist

Gaudenz Schneider

Equity Bottom-Up

<ul>
<li>
Context: The <a href="https://www.smartkarma.com/entities/bank-of-baroda" target="_blank" data-smartkarma-citation="entities:545:1" rel="noopener">Bank of Baroda (BOB IN)</a> vs. <a href="https://www.smartkarma.com/entities/canara-bank" target="_blank" data-smartkarma-citation="entities:543:1" rel="noopener">Canara Bank (CBK IN)</a> price ratio has deviated more than two standard deviations from its one-year average, presenting a potential relative value opportunity.</li>
<li>
Highlights: Going long Bank of Baroda (BOB IN) and short Canara Bank (CBK IN) targets a 9% return.</li>
<li>
Why Read: Essential for quantitative traders seeking mean-reversion opportunities, with detailed execution framework, risk management protocols, and historical simulation showing the statistical basis for this relative value play.</li>
</ul>



Context: The Bank of Baroda (BOB IN) vs. Canara Bank (CBK IN) price ratio has deviated more than two standard deviations from its one-year average, presenting a potential relative value opportunity.

Highlights: Going long Bank of Baroda (BOB IN) and short Canara Bank (CBK IN) targets a 9% return.

Why Read: Essential for quantitative traders seeking mean-reversion opportunities, with detailed execution framework, risk management protocols, and historical simulation showing the statistical basis for this relative value play.


Stat-Arb Pair Trade: Long Bank of Baroda (BOB IN) Vs. Short Canara Bank (CBK IN)

Financials & FinTech research, Galliano’s Financials Research

Victor Galliano

Financials & FinTech research

Financials & FinTech, EM & Developed Markets

Galliano’s Financials Research

Galliano's Financials Research provides fundamental research in Emerging Markets financials, including FinTech, as well as financials in select Developed Markets.

The investment style applied is generally value oriented, although Growth At Reasonable Price (GARP) strategies can also be used where appropriate. 

Our investment research approach aim is often contrarian, looking to capitalise on overly sceptical or optimistic consensus views. In terms of valuation techniques, the focus is on PBV ratio to ROE, PE multiples and dividend yield, as well as the application of PEG ratios and, where appropriate, Sum of the Parts (SOTP) valuations.

<ul>
<li>We focus on the five Indian public sector banks under our coverage in this report, and we identify growing credit and political risks for this group, including Bank of Baroda</li>
<li>Political risk, in the form of a potential new round of public sector bank consolidation, could cut shareholder returns in the larger public sector banks absorbing the smaller banks</li>
<li>Bank of Baroda is prominent – and well capitalised – amongst the larger public sector banks; we downgrade it to a neutral from a buy, locking in profits</li>
</ul>


We focus on the five Indian public sector banks under our coverage in this report, and we identify growing credit and political risks for this group, including Bank of Baroda
Political risk, in the form of a potential new round of public sector bank consolidation, could cut shareholder returns in the larger public sector banks absorbing the smaller banks
Bank of Baroda is prominent – and well capitalised – amongst the larger public sector banks; we downgrade it to a neutral from a buy, locking in profits


Indian Public Sector Banks: Taking Profits on Bank of Baroda (BOB IN)

<ul>
<li>We cut our losses on our long position on Union Bank of India (UBI), whilst sticking with our core conviction buy name Bank of Baroda</li>
<li>UBI has a slightly higher structural credit risk profile than Baroda, in our view, with UBI’s slightly bigger share of exposure to agriculture and MSME credit</li>
<li>Baroda is now our sole buy in Indian banks; it has lesser credit quality headwinds than UBI for similar valuations, whilst having potential to expand returns over the medium term</li>
</ul>


We cut our losses on our long position on Union Bank of India (UBI), whilst sticking with our core conviction buy name Bank of Baroda
UBI has a slightly higher structural credit risk profile than Baroda, in our view, with UBI’s slightly bigger share of exposure to agriculture and MSME credit
Baroda is now our sole buy in Indian banks; it has lesser credit quality headwinds than UBI for similar valuations, whilst having potential to expand returns over the medium term


Exiting the Long Position “pain Trade” on Union Bank of India; Stick with Long Position on Baroda

<ul>
<li>We take profits on our Canara Bank buy recommendation, due to adverse credit quality trends, and we stick with our two high conviction buy names UBI and Bank of Baroda</li>
<li>UBI ranks top in our proprietary scorecard, replacing Canara Bank; UBI has high earnings and dividend yields; it ranks highly on NPL coverage and it has a well-controlled write-off ratio</li>
<li>Baroda remains our core value pick; it has attractive valuations and potential to expand returns which we expect to emerge over the medium term, especially given its control of write-offs</li>
</ul>


We take profits on our Canara Bank buy recommendation, due to adverse credit quality trends, and we stick with our two high conviction buy names UBI and Bank of Baroda
UBI ranks top in our proprietary scorecard, replacing Canara Bank; UBI has high earnings and dividend yields; it ranks highly on NPL coverage and it has a well-controlled write-off ratio
Baroda remains our core value pick; it has attractive valuations and potential to expand returns which we expect to emerge over the medium term, especially given its control of write-offs


Indian Banks: Stick with Baroda and UBI on the Buy List, Downgrading Canara

<ul>
<li>Our proprietary scorecard applies a series of metrics related to valuation, returns, capital adequacy, funding, liquidity and credit quality to generate rankings in an investment valuation scorecard</li>
<li>Driven by the scorecard results, we keep Baroda on the buy list adding Canara and UBI, with the latter two replacing Bandhan and PNB previously on the buy list</li>
<li>We remove Kotak Mahindra from the sell list; IndusInd ranks bottom on the scorecard, but we feel that a lot of bad news is now discounted, limiting further downside risk</li>
</ul>


Our proprietary scorecard applies a series of metrics related to valuation, returns, capital adequacy, funding, liquidity and credit quality to generate rankings in an investment valuation scorecard
Driven by the scorecard results, we keep Baroda on the buy list adding Canara and UBI, with the latter two replacing Bandhan and PNB previously on the buy list
We remove Kotak Mahindra from the sell list; IndusInd ranks bottom on the scorecard, but we feel that a lot of bad news is now discounted, limiting further downside risk


Indian Banks: Adding Canara and UBI to the Buy List, Dropping Bandhan and PNB

India

Bank of Baroda owns and operates commercial banks in India.  The Group's banks provide the traditional forms of banking services, including CD's, Credit Card services and a variety of car loans, in addition to gold banking and a range of insurance services.  The Group also owns IBU International Finance Limited, an international banking company in Hong Kong.

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Bank Of Baroda (BOB IN)

Stat-Arb Pair Trade: Long Bank of Baroda (BOB IN) Vs. Short Canara Bank (CBK IN)

Pair trade with a 9% target-return amid significant deviation of the price ratio between Bank of Baroda and Canara Bank. Opportunity for...

Gaudenz Schneider

Indian Public Sector Banks: Taking Profits on Bank of Baroda (BOB IN)

Growing political risks in Indian public sector banks, including Bank of Baroda, may impact shareholder returns due to public sector bank merger...

Victor Galliano

Exiting the Long Position “pain Trade” on Union Bank of India; Stick with Long Position on Baroda

We cut our losses on the Union Bank of India long position, sticking with our sole buy in Indian banks, Bank of Baroda, for its lower structural...

Victor Galliano

Indian Banks: Stick with Baroda and UBI on the Buy List, Downgrading Canara

We downgrade Canara Bank to neutral due to credit quality concerns, focusing on our conviction buys UBI and Bank of Baroda with their attractive...

Victor Galliano

Indian Banks: Adding Canara and UBI to the Buy List, Dropping Bandhan and PNB

Our proprietary scorecard places Baroda, Canara, and UBI on the buy list, replacing Bandhan and UBI; Kotak Mahindra is no longer on the sell list....

Victor Galliano

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Stat-Arb Pair Trade: Long Bank of Baroda (BOB IN) Vs. Short Canara Bank (CBK IN)

Pair trade with a 9% target-return amid significant deviation of the price ratio between Bank of Baroda and Canara Bank. Opportunity for...

Gaudenz Schneider

Indian Public Sector Banks: Taking Profits on Bank of Baroda (BOB IN)

​Growing political risks in Indian public sector banks, including Bank of Baroda, may impact shareholder returns due to public sector bank merger...

Victor Galliano

Exiting the Long Position “pain Trade” on Union Bank of India; Stick with Long Position on Baroda

​We cut our losses on the Union Bank of India long position, sticking with our sole buy in Indian banks, Bank of Baroda, for its lower structural...

Victor Galliano

Indian Banks: Stick with Baroda and UBI on the Buy List, Downgrading Canara

​We downgrade Canara Bank to neutral due to credit quality concerns, focusing on our conviction buys UBI and Bank of Baroda with their attractive...

Victor Galliano

Indian Banks: Adding Canara and UBI to the Buy List, Dropping Bandhan and PNB

​Our proprietary scorecard places Baroda, Canara, and UBI on the buy list, replacing Bandhan and UBI; Kotak Mahindra is no longer on the sell list....

Victor Galliano

Growing political risks in Indian public sector banks, including Bank of Baroda, may impact shareholder returns due to public sector bank merger...

We cut our losses on the Union Bank of India long position, sticking with our sole buy in Indian banks, Bank of Baroda, for its lower structural...

We downgrade Canara Bank to neutral due to credit quality concerns, focusing on our conviction buys UBI and Bank of Baroda with their attractive...

Our proprietary scorecard places Baroda, Canara, and UBI on the buy list, replacing Bandhan and UBI; Kotak Mahindra is no longer on the sell list....