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Bank stocks are likely to maintain their positive bias in the coming week on rising expectations that favourable macro-economic data, along with falling gold and oil prices, will prompt the Reserve Bank of India to reduce policy rates. The Reserve Bank of India is set to announce its annual monetary policy statement for 2013-14 (Apr-Mar) on May 3. We have increased our expectation of a RBI rate cut this fiscal to 100 bps vs our earlier expectation of a 75 bps cuts following the decline in commodity prices globally. However, some volatility will be seen ahead of the expiry of the April derivatives contracts on Thursday and could lead to some short-term profit sales in some banks.
Positive Jan-Mar earnings performance from YES Bank, Development Credit Bank and IndusInd Bank reported so far have also raised expectations from upcoming bank earnings. We expect private sector banks to report strong operating performance, and their outperformance to public sector banks (at operating front) would continue. Market expects HDFC Bank to post a 53rd consecutive quarter of 30% growth in net profit when it announces its Jan-Mar results on Thursday. We expect HDFC Bank to post a Jan-Mar net profit of 18.84 bln rupees.
ICICI Bank, Axis Bank and State Bank of Travancore stocks may also see rise in volumes ahead of their earnings announcement next week. While HDFC Bank, ICICI Bank and Axis Bank will be in focus on account of their Jan-Mar earnings that will be reported next week, negative cues on account of the ongoing probe into alleged money laundering will be closely eyed. Rajiv Takru, financial services secretary, Thursday said that the RBI probe into the allegations had shown aberrations in the functioning of the three banks named in the case and added that the government would take action. While the material fines may not be high for these banks, the reputation risk and also the increased regulatory scrutiny may impact investor sentiment for these banks.
