Bank Stocks Outlook for the week (25-29.06.2012)

[rupeedesk]

Bank Stocks Outlook for the week (25-29.06.2012)

Stocks of most banks are seen taking direction from the broad market next week amid absence of sector-specific triggers. Expiry of the June futures contract next week will also have an impact on the stocks. Stocks, that ended lower this week after Fitch Ratings Wednesday lowered the outlook on their long-term foreign currency issuer default rating to negative from stable, may extend losses in the next five trading sessions. Fitch Ratings lowered the outlook citing close linkages with the sovereign. The ratings of all the banks remain unaltered at BBB-. Banks affected by the move are State Bank of India, Punjab National Bank, Bank of Baroda, Canara Bank, IDBI Bank, ICICI Bank, and Axis Bank. However, Positive on stocks of State Bank of India, Allahabad Bank, and Andhra Bank, among others.

Developments in the Eurozone and the US may also steer the banks' stocks next week. Any economic data and the outcome of key meetings between the European Union leaders will be awaited. A weak risk appetite globally could send the benchmark indices lower, which in turn may drag down stocks of most banks. We remain cautious on the banking space, given macro uncertainties and low visibility on earnings which we believe could lead the sector to trade within a narrow range, capping upside potential. It retain a preference for private banks over PSU banks where we see relatively higher growth, lower NPL (non-performing loans) risk and earnings resilience.