There's been a lot of talk of M&A in the Indian banking sector recently. Just today the Mint came out with an article stating that larger private sector banks in India are considering purchase of smaller banks.
Essentially the trade idea is to go long small banks with a view that they'll get sold at 4x book..most of them are currently trading at 1-2x book. simultaneously, one can short larger pvt sector banks which are trading between 3-4x book.. The trade should yield between 33% to 100% depending on basket selection..
The main problem with the trade is timing. There is a great deal of uncertainty over when the merger activity in the pvt banking space will expedite. That will determine the annualized yield on the trade.
I'm going to be analyzing this trade in detail over the next week or so.. and am looking to put it on my account depending on the results..