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Bank Stocks Outlook for the week – 09 to 13.01.2017

Bank Stocks Outlook for the week – 09 to 13.01.2017


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Bank Stocks Outlook for the week – 09 to 13.01.2017
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Bank stocks are likely to rise next week, on expectations that the retail inflation data for December will undershoot the Reserve Bank of India's near-term 5% forecast, creating space for a repo rate cut at the February policy review. Oct-Dec earnings of banks will also be eyed for cues on the sectoral trend. Low levels of inflation will provide room for the RBI to ease its inflation focus and support growth with a reduction in repo rate, which will spur lending to productive sectors of the economy. Banks stocks will also take cues from updated data on post-demonetisation deposits and any moves on liquidity tightening by the RBI, which has so far resorted to reverse repo windows and cash management bills issued under the Market Stabilisation Scheme. Banks, led by State Bank of India, have already cut their lending rates by as much as 90 basis points as they passed on the benefits of the enhanced liquidity. However, pointed out that unless the cuts in loan rates lead to a rise in credit growth, there would be a negative impact on net interest margins and thus, on profitability. Activity in banking stocks is likely to revive next week after a period of sparse trade, as the market will start factoring in earnings for the quarter ended December. Upside for the Nifty Bank index is seen capped at 18500-levels. Among individual stocks, IndusInd Bank, which rose over the week, is likely to extend its gains on Monday before it announces positive Oct-Dec earnings on Tuesday, backed by strong loan growth and non-interest income projections.