Bank Stocks Outlook: Seen up next week on lending rate cut hope

[K.Karthik Raja]

Bank Stocks Outlook: Seen up next week on lending rate cut hope

Bank shares are likely to rise next week on hope of banks cutting home
loan rates to boost credit demand.
"HDFC, despite being so conservative, has gone ahead and cut
rates. So, other housing finance companies may also cut rates
Housing Development Finance Corp Ltd cut its lending rates by 25
bps for its existing customers, taking cues of moderation in Reserve
Bank of India's monetary policy stance after the central bank left its
key rates unchanged at the third quarter review of its monetary and
credit policy for 2007-08 (Apr-Mar).
Though market was initially disappointed after RBI Governor Y.V.
Reddy did not cut interest rates, rate cut hopes are still alive as
the rate
differential between India and U.S. has widened further.
"The rate differential is now 125 bps. There should be 25-bps cut
in
interest rates by RBI next week.
U.S. Federal Reserve cut interest rates by 75 bps on Jan 22 and
followed it by another 50-bps cut Wednesday, leading to a higher
interest rate differential with India.
"Though overall market fell in last 15-20 days, there was no major
selling in bank shares. Quite a few FIIs continue to hold their
position
in bank shares.
In January, FIIs net sold Indian shares worth 3.78 bln rupees.
Wednesday, Securities Exchange Board of India Chairman M.
Damodaran said
"one shouldn't read too much into the stock market fall, as the
volume
was quite low."
On Jan 22, trading on stock exchanges was halted after a 10% fall
with marginal volume within one minute of commencement of trade.
"There is no bad news or good news. Absence of bad news is good
news for the market. There can be some domestic institutions
participating next week.

POLICY SIGNAL
Banks are likely to cut deposit and lending rates in April, after
RBI
hinted a softening bias.
In fact, some banks like Canara Bank are already mulling a cut in
home loan rates and may make an announcement on Saturday.
RBI's indication to banks regarding a benign interest rate regime
has also fuelled hopes that the central bank may cut rates soon.
However, the two largest lenders--State Bank of India and ICICI
Bank--have not yet indicated any cut in lending or deposit rates.
.
TOP PICKS
We are expecting shares of housing finance companies like LIC
Housing Finance, HDFC, and mid-cap stocks like Allahabad Bank and Dena
Bank to perform next week.
"Allahabad Bank and Dena Bank are close to their adjusted book
value of FY09. So, there is room for them to rise.
Friday's closing prices of shares of leading banks in rupees,
compared with a week ago, on National Stock Exchange:
.
Feb 1 Jan 25 % change
.
Andhra Bank 91.95 94.45 -2.65
Bank of Baroda 408.25 420.30 -2.87
Bank of India 361.65 395.85 -8.64
Canara Bank 295.40 290.45 1.70
Corporation Bank 334.75 350.40 -4.47
HDFC Bank 1,571.00 1,608.45 -2.33
ICICI Bank 1,198.15 1,261.30 -5.01
Oriental Bank of Commerce 247.35 273.25 -9.48
Kotak Mahindra Bank 972.65 1,087.65 -10.57
Punjab National Bank 648.90 667.85 -2.84
State Bank of India 2,184.60 2,407.40 -9.25
Union Bank of India 192.90 203.00 -4.98
.
Sensex 18242.58 18361.66 -0.65
Nifty 5317.25 5383.35 -1.23
CNX Bank Index 9327.05 9752.25 -4.36