Bank Stocks Outlook: Down next week as CRR hike worries loom

[B. Karthick]

Bank Stocks Outlook: Down next week as CRR hike worries loom

Bank shares are likely to be down next week on worries over
further liquidity tightening measures from Reserve Bank of India.
Money and equity markets were abuzz with talk of the central bank
hiking cash reserve ratio to impound excess liquidity in the economy
and, in turn, contain inflationary expectations.
Concerns over a slowdown in India's economic growth is likely to
keep foreign institutional investors off equities.
"India growth story is losing all of its charm. Most of the
foreign
investors are feeling the India growth story is losing its promise and
are
pulling out," said Priyadarshi Srivastava, vice-president,
institutional
sales, at Anand Rathi.
So far this month, FIIs have net sold $879.1 mln worth of shares.
The country's growth momentum has been slowing down mainly on
account of a steady rise in interest rates, high crude oil prices and
global uncertainties.
The economy growing at 8.00% or below in 2008-09, compared with
9.00% in the previous year. However, RBI expects the gross domestic
product to grow at 8.0-8.5%.
"In India, the fundamental drivers of growth continue to be
strong. As of now, subject to monsoon conditions being normal, GDP
growth is expected to be as anticipated in the range of 8.0-8.5%," RBI
Governor Y.V. Reddy said on Thursday.
.
CRR, RATE TREMORS
Reddy emphasised that liquidity management will remain the top
priority for the central bank.
Some sections of the market feared a hike in interest rates after
Reddy said the central bank will take recourse to a full range of
instruments to contain inflationary expectations.
The hike in fuel and cooking gas prices is expected to exert
further
pressure on inflation, and it can top 9.00% in June.
Inflation for the week to May 24 was 8.24%, compared with 8.12% in
the previous week.
Further hike in CRR or interest rates will exert upward pressure
on
banks' lending rates, and thereby hit credit growth.
.
ATTRACTIVE VALUATIONS
Despite bank shares being available at attractive valuations,
investors are not flocking to them because of the uncertainty on the
interest rate front.
Though there is no fundamental change in view, there is no case
for earnings disappointment. But if interest rates rise, government
bond yields will rise, which will have negative impact on banks'
earnings.
.
This week's closing prices of shares of leading banks, in rupees,
compared
with a week ago, on National Stock Exchange:
.
Jun 6 May 30 % change
.
Andhra Bank 71.25 75.85 -6.06
Bank of Baroda 228.40 272.35 -16.14
Bank of India 263.05 294.85 -10.79
Canara Bank 203.05 214.95 -5.54
Corporation Bank 319.35 342.45 -6.75
HDFC Bank 1232.45 1368.70 -9.95
ICICI Bank 769.40 788.60 -2.43
Oriental Bank of Commerce 160.25 171.80 -6.72
Kotak Mahindra Bank 638.40 692.95 -7.87
Punjab National Bank 448.85 487.05 -7.84
State Bank of India 1335.20 1445.00 -7.60
Union Bank of India 124.50 137.35 -9.36
.
Sensex 15572.18 16415.57 -5.14
Nifty 4627.80 4870.10 -4.98
CNX Bank Index 6140.05 6584.35 -6.75
.
End

B.Karthick
Research Analyst