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Bank stocks are likely to remain muted and trade with a downward bias next week on continued concerns over asset quality, especially of state-owned banks, and fears that slowing economic growth will slow down the pace of loan growth. Expectation that selling pressure will continue in the market, will also keep stocks of banks subdued in the coming week.
Investors will also eye India's industrial output data for December, due on Tuesday. Industrial growth is likely to rise 1.0% in December following a contraction of 0.1% in November.
Focus on asset quality has increased due to rise in non-performing assets and restructured loans of most banks, especially state-owned, over the last 2-3 quarters. The Reserve Bank of India's decision to increase provision requirements for stressed loans has also contributed to a hit on bank's profitability in Oct-Dec and will hurt profits over the coming two years.
In the case of state-owned banks, the issue of management change leading to a sharp decline in profitability due to surge in non-performing assets re-emerged after Bank of Baroda's Oct-Dec profit plunged 22% on year. S.S. Mundra took charge as chairman and managing director at the bank in January after the retirement of M.D. Mallya on Nov 30.
We noted that similar surge in non-performing assets and fall in profits have been seen in State Bank of India, Indian Bank and many other state-owned banks in the last couple of years. With quick changes at top posts in state-owned banks, investors are once again growing wary of investing in state-owned bank stocks and preferring more stable private banks like ICICI Bank, HDFC Bank and Axis Bank.
SBI shares are also likely to be in the limelight ahead of the bank's Oct-Dec earnings on Thursday.
Bank stocks are likely to remain muted and trade with a downward bias next week on continued concerns over asset quality, especially of state-owned banks, and fears that slowing economic growth will slow down the pace of loan growth. Expectation that selling pressure will continue in the market, will also keep stocks of banks subdued in the coming week.
Investors will also eye India's industrial output data for December, due on Tuesday. Industrial growth is likely to rise 1.0% in December following a contraction of 0.1% in November.
Focus on asset quality has increased due to rise in non-performing assets and restructured loans of most banks, especially state-owned, over the last 2-3 quarters. The Reserve Bank of India's decision to increase provision requirements for stressed loans has also contributed to a hit on bank's profitability in Oct-Dec and will hurt profits over the coming two years.
In the case of state-owned banks, the issue of management change leading to a sharp decline in profitability due to surge in non-performing assets re-emerged after Bank of Baroda's Oct-Dec profit plunged 22% on year. S.S. Mundra took charge as chairman and managing director at the bank in January after the retirement of M.D. Mallya on Nov 30.
We noted that similar surge in non-performing assets and fall in profits have been seen in State Bank of India, Indian Bank and many other state-owned banks in the last couple of years. With quick changes at top posts in state-owned banks, investors are once again growing wary of investing in state-owned bank stocks and preferring more stable private banks like ICICI Bank, HDFC Bank and Axis Bank.
SBI shares are also likely to be in the limelight ahead of the bank's Oct-Dec earnings on Thursday.
