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Bank stocks are likely to trade weak due to the impact of Reserve Bank of India's latest liquidity measures, but markets will hope for some support from State Bank of India's Apr-Jun results that will dictate the trend in the sector stocks. To further contain foreign exchange volatility, the RBI yesterday announced that it will auction 220 bln rupees of cash management bills every Monday. The central bank said that these bills were aimed at effective liquidity management. Bank stocks may face some knee-jerk profit taking due to these measures on Monday after a long weekend on account of trading holiday on Friday. Markets will hope for some surprise on slippages and profitability from State Bank of India to support sentiment in the banking sector.
Weak interest income and higher provisions are likely to drag down SBI's profits on a year-on-year basis. Results of SBI, the country's largest lender, tends to provide directional cues for asset quality and profits of other banks, especially peer state-owned banks and old private banks.
We believe that the asset quality pressures for the banking sector are unlikely to abate as quickly as was expected earlier, considering the recent macro developments amidst an overall weak macro environment. Moreover, Canara Bank's exposure to stressed sectors/companies is also high. The (Oriental Bank of Commerce) stock has taken a beating, underperformed Bankex by 35% over the past three months. It now trades at an attractive Valuation, adequately capturing the risk and leaving limited downside.
Broader markets and bank stocks will also eye key economic data releases for cues on the overall macroeconomic environment. Data on consumer price inflation-based inflation for July and Index of Industrial production for June will be released on Monday, while July Wholesale Price Index-based inflation will be released on Wednesday.
Following yesterday's statements from Arvind Mayaram, secretary of the Department of Economic Affairs, markets are hopeful that the government will come out with a fresh set of measures to contain rupee depreciation. "Markets have been expecting some measures from the government to control the depreciation of the rupee. The government has relaxed some of the FDI rules to encourage more flows to come in. However, these have not had any impact and further steps are needed to either curtail the current account deficit or finance it, and thereby stem the depreciation of the rupee".
Bank stocks are likely to trade weak due to the impact of Reserve Bank of India's latest liquidity measures, but markets will hope for some support from State Bank of India's Apr-Jun results that will dictate the trend in the sector stocks. To further contain foreign exchange volatility, the RBI yesterday announced that it will auction 220 bln rupees of cash management bills every Monday. The central bank said that these bills were aimed at effective liquidity management. Bank stocks may face some knee-jerk profit taking due to these measures on Monday after a long weekend on account of trading holiday on Friday. Markets will hope for some surprise on slippages and profitability from State Bank of India to support sentiment in the banking sector.
Weak interest income and higher provisions are likely to drag down SBI's profits on a year-on-year basis. Results of SBI, the country's largest lender, tends to provide directional cues for asset quality and profits of other banks, especially peer state-owned banks and old private banks.
We believe that the asset quality pressures for the banking sector are unlikely to abate as quickly as was expected earlier, considering the recent macro developments amidst an overall weak macro environment. Moreover, Canara Bank's exposure to stressed sectors/companies is also high. The (Oriental Bank of Commerce) stock has taken a beating, underperformed Bankex by 35% over the past three months. It now trades at an attractive Valuation, adequately capturing the risk and leaving limited downside.
Broader markets and bank stocks will also eye key economic data releases for cues on the overall macroeconomic environment. Data on consumer price inflation-based inflation for July and Index of Industrial production for June will be released on Monday, while July Wholesale Price Index-based inflation will be released on Wednesday.
Following yesterday's statements from Arvind Mayaram, secretary of the Department of Economic Affairs, markets are hopeful that the government will come out with a fresh set of measures to contain rupee depreciation. "Markets have been expecting some measures from the government to control the depreciation of the rupee. The government has relaxed some of the FDI rules to encourage more flows to come in. However, these have not had any impact and further steps are needed to either curtail the current account deficit or finance it, and thereby stem the depreciation of the rupee".
