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Bank stocks are likely to show a firm trend in the coming week on expectations that the Reserve Bank of India may decide to reduce policy rates at its third-quarter policy review on Tuesday. We expect the Reserve Bank of India to cut repo rate by at least 25 bps (basis points) and keep CRR (Cash Reserve Ratio) unchanged in its monetary policy review meeting on Jan 29. The cut is highly anticipated as following its explicit guidance of rate cut in Jan-Mar, inflation (on trend basis) has come off sharply and also the government has continued its reform momentum (special focus on curtailing fiscal deficit and boosting investments).
Currently, the repo rate is 8.00% and CRR 4.25%. The key trigger for most companies and banks will be the RBI monetary policy meet, and if there is no rate cut on Tuesday then interest sensitive stocks may decline.
Stock specific cues will also be eyed from Oct-Dec earnings of a clutch of private and public sector banks that will be released in the coming week. ING Vysya Bank, State Bank of Travancore, State Bank of Mysore, Bank of India, Central Bank of India, Dena Bank, ICICI Bank, Allahabad Bank, Punjab National Bank, Union Bank of India and Corporation Bank.
Some volatility is also likely in banks stocks ahead of January derivatives expiry on Thursday.
