Mumbai: The slide in Indian banking stocks may continue for some more time as they are susceptible to tightening liquidity, although the tide should turn for corporate banks on more stressed-asset resolutions and a halt to the upward movement in bond yields.

The BSE Bankex, which fell 1.6 per cent on Thursday, plunged nearly 11 per cent since September 1. Stocks such as Yes Bank, Central Bank, Indian Bank, and Bank of Baroda have lost between 30 per cent and 40 per cent this month.

On Thursday, RBI allowed banks to access more funds to help calm the money markets; the move has been welcomed by analysts.

“Going ahead, with increase in the probability of a rate hike and progress of several stressed assets to resolution, the scenario for corporate banks has improved” said Lalitabh Shrivastawa, AVP – Research, Sharekhan. “It may be a good time to start nibbling on some of the quality corporate banks, with a long-term investment horizon.”

Top private sector banks such as ICICI Bank, IndusInd Bank, and Kotak Mahindra Bank have declined more than 10 per cent since September 1. The banking sector will rebound as soon as the yield normalises, said fund managers.

“A revival depends on how quickly CP/CD rates and yield curve cools off, and how fast some of the pending resolutions on big corporates comes through,” said Gopal Agarwal, senior fund manager, DSP Mutual Fund.

The yield on the benchmark 10-year bond has moved 69 bps since January 1 to 8.03 on Monday. Recent corporate actions, such as only a limited extension to the tenure of Rana Kapoor as Yes Bank CEO and the merger of Bank of Baroda, Dena Bank and Vijaya Bank, have also hurt investors.

“Its difficult to predict the short-term outlook for banking stocks but the slide could continue in the coming days until the dust settles down,” said Gautam Duggad, head of research, Motilal Oswal Securities. “However, its a good time to buy top corporate banks”.

The US Federal Reserve raised the reference rate by 25 bps from 1.75-2 per cent to 2-2.25 per cent on Wednesday, in line with expectations. The Fed rate action will strengthen the dollar and higher interest rate along with elevated crude oil prices will likely lead to an outflow of foreign capital, weakening the Indian rupee further in the short term. This could prompt Mint Street to increase rates in its October meeting, which is bad for credit growth, said analysts.

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