Bank Stocks Outlook: Under pressure next wk; CRR, rate hike loom
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N.Sukumar
Jun 21, 2008, 1:59:31 AM6/21/08
to Kences1
MUMBAI - Banking shares will be under tremendous pressure next week
amid fears of another round of monetary tightening after country's
inflation rose to a 13-year high.
Inflation for the week ended Jun 7 shot up to 11.05% from 8.75% in the
previous week, as against Reserve Bank of India's target of 5%. This
is the highest inflation rate since the week to May 6, 1995, when it
was at 11.11%.
Reacting to the latest data, Finance Minister P. Chidambaram told
reporters outside Friday the government will take stronger measures
both on fiscal and monetary side.
"This is a difficult time and I hope the people will understand the
difficulties we face. We will have to take stronger measures on the
demand as well as on the monetary side," Chidambaram told reporters.
The finance minister said 94% of the 1.8% increase in the index for
week to Jun 7 was due to hike in administered prices of petroleum
products on Jun 5.
Market participants expect both a hike in cash reserve ratio and repo
rate by the Reserve Bank of India to tame demand.
"Even before the (inflation) numbers came out, we were expecting 50
basis points more on repo rate and 75 basis points more on CRR.
That is now the minimum we are going to get this year," Robert Prior-
Wandesforde, economist,Hongkong and Shanghai Banking Corp, Singapore,
said.
Bad news on inflation front may continue for some more time as we
expect inflation to stay in double digits for six to nine months.
Wandesforde expects inflation to remain in double digits at least for
the
next nine months.
BANKS TO BLEED
If the central bank hikes interest rates, banks will have no choice
but
to follow.
Murthy Nagarajan, fixed income head at Mirae Asset Mutual Fund,
expects RBI to take action in a week's time to tame inflation.
"We are expecting a repo rate hike of 25 basis points (in a week's
time),and CRR hike by 50 bps in policy (Jul 29)," Nagarajan said.
"The banks cannot ignore the RBI's signal. We have to follow the
regulator," B. Sambamurthy, chairman and managing director,
Corporation Bank.
If the banks choose not the hike lending rates, margins will come
under urther pressure
Equity market reacted sharply Friday to the inflation numbers. The
30-share Sensex tanked 516.70 points or 3.42% from Thursday's close to
end at 14571.29--the lowest level of 2008.
Similarly, Bankex plummeted almost 3% to end at 6804.78.
This week's closing prices of shares of leading banks, in rupees,
compared with a week ago, on National Stock Exchange:
Jun 20 Jun 13 % change
Andhra Bank 64.45 66.70 -3.37
Bank of Baroda 225.30 231.90 -2.85
Bank of India 247.35 268.40 -7.84
Canara Bank 195.45 196.35 -0.46
Corporation Bank 283.95 315.85 -10.10
HDFC Bank 1098.25 1122.15 -2.13
ICICI Bank 732.95 765.30 -4.23
Oriental Bank of Commerce 154.50 155.05 -0.35
Kotak Mahindra Bank 595.00 613.70 -3.05
Punjab National Bank 430.75 436.35 -1.28
State Bank of India 1248.95 1335.20 -6.46
Union Bank of India 123.75 125.25 -1.20
Sensex 14571.29 15189.62 -4.07
Nifty 4347.55 4517.1 -3.75
CNX Bank Index 5758.60 5993.15 -3.91
N.Sukumar
Research Analyst
amid fears of another round of monetary tightening after country's
inflation rose to a 13-year high.
Inflation for the week ended Jun 7 shot up to 11.05% from 8.75% in the
previous week, as against Reserve Bank of India's target of 5%. This
is the highest inflation rate since the week to May 6, 1995, when it
was at 11.11%.
Reacting to the latest data, Finance Minister P. Chidambaram told
reporters outside Friday the government will take stronger measures
both on fiscal and monetary side.
"This is a difficult time and I hope the people will understand the
difficulties we face. We will have to take stronger measures on the
demand as well as on the monetary side," Chidambaram told reporters.
The finance minister said 94% of the 1.8% increase in the index for
week to Jun 7 was due to hike in administered prices of petroleum
products on Jun 5.
Market participants expect both a hike in cash reserve ratio and repo
rate by the Reserve Bank of India to tame demand.
"Even before the (inflation) numbers came out, we were expecting 50
basis points more on repo rate and 75 basis points more on CRR.
That is now the minimum we are going to get this year," Robert Prior-
Wandesforde, economist,Hongkong and Shanghai Banking Corp, Singapore,
said.
Bad news on inflation front may continue for some more time as we
expect inflation to stay in double digits for six to nine months.
Wandesforde expects inflation to remain in double digits at least for
the
next nine months.
BANKS TO BLEED
If the central bank hikes interest rates, banks will have no choice
but
to follow.
Murthy Nagarajan, fixed income head at Mirae Asset Mutual Fund,
expects RBI to take action in a week's time to tame inflation.
"We are expecting a repo rate hike of 25 basis points (in a week's
time),and CRR hike by 50 bps in policy (Jul 29)," Nagarajan said.
"The banks cannot ignore the RBI's signal. We have to follow the
regulator," B. Sambamurthy, chairman and managing director,
Corporation Bank.
If the banks choose not the hike lending rates, margins will come
under urther pressure
Equity market reacted sharply Friday to the inflation numbers. The
30-share Sensex tanked 516.70 points or 3.42% from Thursday's close to
end at 14571.29--the lowest level of 2008.
Similarly, Bankex plummeted almost 3% to end at 6804.78.
This week's closing prices of shares of leading banks, in rupees,
compared with a week ago, on National Stock Exchange:
Jun 20 Jun 13 % change
Andhra Bank 64.45 66.70 -3.37
Bank of Baroda 225.30 231.90 -2.85
Bank of India 247.35 268.40 -7.84
Canara Bank 195.45 196.35 -0.46
Corporation Bank 283.95 315.85 -10.10
HDFC Bank 1098.25 1122.15 -2.13
ICICI Bank 732.95 765.30 -4.23
Oriental Bank of Commerce 154.50 155.05 -0.35
Kotak Mahindra Bank 595.00 613.70 -3.05
Punjab National Bank 430.75 436.35 -1.28
State Bank of India 1248.95 1335.20 -6.46
Union Bank of India 123.75 125.25 -1.20
Sensex 14571.29 15189.62 -4.07
Nifty 4347.55 4517.1 -3.75
CNX Bank Index 5758.60 5993.15 -3.91
N.Sukumar
Research Analyst
N.Sukumar
Jun 21, 2008, 1:59:32 AM6/21/08
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