India's Mahindra and Mahindra shares slump after RBL Bank stake buy stirs concern

BENGALURU (Reuters) - Shares of India's Mahindra and Mahindra fell nearly 7% on Thursday after the conglomerate's stake purchase in private lender RBL Bank raised concerns about the rationale of its capital allocation strategy.

Analysts at Macquarie said that the investment and Mahindra's intention to invest further in RBL creates near-term uncertainty around the company's capital allocation.

"The intention of Mahindra is not yet clear with the acquisition of stake in RBL bank, if it will only remain as an investment book or if Mahindra will extend the stake purchase to take control over RBL Bank going forward," said Prashant Tapse, senior vice president of research at Mehta Equities.

Mahindra said it bought a 3.53% stake in RBL for 4.17 billion rupees ($51 million) with plans to further raise it to 9.9%, subject to regulatory approval.

Analysts also flagged that the acquisition may not benefit the tech-to-tractor conglomerate, considering its primary business is in the automobile industry.

"The investment may be non-synergetic with its core business of automobile manufacturing, which may be a concern for the market," said Anita Gandhi, director at Arihant Capital.

Gandhi also cited the weak earnings of M&M-backed information technology company Tech Mahindra on Wednesday.

Tech Mahindra's shares fell as much as 5.3% on Thursday after posting a 39% drop in profit hurt by reduced client spending.

The automaker led the losses on the benchmark Nifty 50 index after logging its worst decline since March 7. It pared some of the early losses and was trading down 5.9% at 1,454.05 rupees apiece by 11:55 a.m. IST.

The mean rating of 39 analysts is between "buy" and "strong buy," with a median price target of 1,608.5 rupees, per Refinitiv data.

($1 = 81.9850 Indian rupees)

(Reporting by Varun Vyas in Bengaluru; Editing by Dhanya Ann Thoppil)