20% Upper Circuit PNB Housing Finance Stock Trap for Retail Investors

The market is seeing a sudden rally in PNB Housing Finance and awarding it with upper-circuits. Is this a good time to invest or it is a Trap for Retail Investors?

Introduction:

PNB Housing Finance Stock has hit 2 upper-circuits each of 20% in the 2 continuous sessions starting from Monday. The retail investors are running to buy the stock to gain sudden returns. But this can prove to be a trap for retail investors.

Whats’s the Play?

• Recently there is news that Carlyle Group and Aditya Puri's company Salisbury Investment will buy the majority stake in PNB Housing Finance.
• Post this transaction, Carlyle Group and Associates will have a controlling stake of over 50%, as the Group already holds around 32% stake.
• This is a very positive sign, but there's a catch in this which retail investors might be overlooking.
• The market rewarded the stock and investors by hitting back-to-back upper-circuits of 20% each, seeing this, the retail investors can feel FOMO (Fear Of Missing Out) that they should also enter the stock and enjoy the party.
• The company Salisbury Investment is buying a stake in PNB Housing Finance for Rs. 390 per share. Currently, the stock price is at Rs. 630 which is already trading at a premium of around 60% from the deal price.
• Retail investors might feel that it's a good time to enter and take a position in the stock, but they need to think that this is just the deal! After that, the management will change and other things will subsequently happen which is unknown to the market.
• One thing to also note that the stock was previously also not trading at alarming levels, the P/E of the stock was still below 10 after a 20% rally on Monday.

Conclusion:

A retail investor should not hurry just after seeing the rally and news to go and buy the stock. Instead, a proper analysis needs to be done in the upcoming time to see how the company is performing after getting new management. And one should refrain from taking a new position as the market has already given a huge premium to the stock.