Bank Stocks Outlook: Choppy next week; Axis Bank earnings eyed

[suguhopes]

MUMBAI - Bank shares are seen moving sideways and earnings of private
sector Axis bank may hold the key.

"There are no positive news right now. At the same time, the market
has factored in the negative news. If the macro economic picture
worsens further, then banks will be affected negatively," said Ravi
Shankar, analyst, Religare Securities.

With inflation and oil price showing no signs of decline, there are
fears
Reserve Bank of India may resort to further monetary tightening even
before the first quarter review of its annual policy on Jul 29.

India's headline inflation scaled a new 13-year-high at 11.89% for the
week ended Jun 28 from 11.63% in the previous week, according to
government data released yesterday.

This is the highest inflation rate since the new WPI series was
introduced in 1994. The rise is mainly on account of increase in
prices of primary articles and manufactured products.

To make matters worse, industrial growth in May was sharply lower at
3.8% as against 10.6% a year ago, data yesterday showed. This pulled
down the stock market today.

"If inflation rate moves further up, we expect further monetary
tightening by RBI, which is not a good news for the banking sector".


AXIS BANK EARNINGS

All eyes will be on Apr-Jun earnings of Axis Bank to be announced Mon,
and we feel it will set the tone for the banking counters in the
coming days.

"We will have some indication (after the Axis Bank results) on how
much banks have lost due to market fluctuation.

With the decline in both stock and government securities markets this
quarter, banks are likely to post high mark-to-market losses.

State Bank of India, the country's largest lender, has indicated it
may
have to provide 10 bln rupees for MTM losses.

"Earnings for this quarter are also likely to be muted. HDFC Bank
(earnings per share growth of 14% year on year) and Axis Bank (EPS
growth of 10% year on year) - to very weak - ICICI Bank (EPS decline
of 20% on year).

This is due to potential losses on government bond portfolios given
the spike in yields in F1Q09 (first quarter of FY09)".

There is some positive for the private sector banks, as loan
growth has not slowed down considerably for them and non-interest
income growth continue to be robust.

It is state-run banks that may be affected more this quarter due to
pressure on their margins and provisioning for the MTM losses.

Kolkata-based UCO Bank has also said it has to provide 1.3 bln rupees
for the MTM losses.

This week's closing prices of shares of leading banks, in rupees,
compared with a week ago, on National Stock Exchange:

Jul 11 Jul 4 % change

Andhra Bank 51.30 56.65 -9.44
Bank of Baroda 213.20 204.70 4.15
Bank of India 247.50 225.10 9.95
Canara Bank 167.00 178.45 -6.42
Corporation Bank 274.60 251.70 9.10
HDFC Bank 1067.80 1021.60 4.52
ICICI Bank 591.60 652.15 -9.28
Oriental Bank of Commerce 134.95 131.25 2.82
Kotak Mahindra Bank 506.50 490.60 3.24
Punjab National Bank 395.75 402.05 -1.57
State Bank of India 1220.85 1161.20 5.14
Union Bank of India 112.75 110.85 1.71

Sensex 13469.85 13802.22 -2.41
Nifty 4049.00 4136.65 -2.12
CNX Bank Index 5240.70 5210.90 0.57


N.Sukumar
Research Analyst