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Banks stocks are likely to continue to recover as a sharp recovery in the rupee against the dollar yesterday, eliminates the risk of more liquidity tightening measures by the Reserve Bank of India. Most market participants expect the sector to rise from their oversold zone on the back of recovery made by banking stocks leading to gains in the broader market. Yesterday, rupee posted its highest gain in a single session in the last four years. It ended at 63.20 to a dollar, breaking its six-day losing streak. New measures announced by RBI on Aug 20 to ensure that liquidity tightening to curb rupee volatility does not harden the longer-term yields sharply also helped improve sentiment towards banking stocks. In a bid to cut the mark-to-market losses of banks, RBI allowed banks to
hold their statutory liquidity ratio gilts under the held-to-maturity category at 24.5% of their net demand and time liabilities.
While stocks of private sector banks are seen trading with a positive bias, stocks of public sector banks are seen weak due to a worsening asset situation. Overall economic slowdown affecting the credit pick-up is also weighing on the state-owned banks. Our preference towards private sector banks over public sector banks continues to remain intact. Turning positive towards PSU banks was (and is) slightly difficult due to worsening asset quality, frequent management change as well as greater dilution risk. Public sector banks will also be in focus next week on the announcement of capital infusion plans by the government. A finance ministry official told Cogencis on Thursday that the government is looking to tap Life Insurance Corp of India's funds to capitalize public sector banks.
Finance Minister P. Chidambaram had earmarked 140 bln rupees for capital infusion in public sector banks in the Budget for 2013-14 (Apr-Mar). On stocks of specific banks, Lakshmi Vilas Bank will be in focus as it yesterday announced a 25-basis-point hike in Base Rate to 11.25%, effective from Monday. The sentiment may remain negative towards some banks after RBI, yesterday said it penalized them for flouting know-your-customer and anti-money laundering norms. Allahabad Bank, Bank of Maharashtra, Corporation Bank, Dena Bank, IDBI Bank and Indian Bank were penalized, said RBI.
Banks stocks are likely to continue to recover as a sharp recovery in the rupee against the dollar yesterday, eliminates the risk of more liquidity tightening measures by the Reserve Bank of India. Most market participants expect the sector to rise from their oversold zone on the back of recovery made by banking stocks leading to gains in the broader market. Yesterday, rupee posted its highest gain in a single session in the last four years. It ended at 63.20 to a dollar, breaking its six-day losing streak. New measures announced by RBI on Aug 20 to ensure that liquidity tightening to curb rupee volatility does not harden the longer-term yields sharply also helped improve sentiment towards banking stocks. In a bid to cut the mark-to-market losses of banks, RBI allowed banks to
hold their statutory liquidity ratio gilts under the held-to-maturity category at 24.5% of their net demand and time liabilities.
While stocks of private sector banks are seen trading with a positive bias, stocks of public sector banks are seen weak due to a worsening asset situation. Overall economic slowdown affecting the credit pick-up is also weighing on the state-owned banks. Our preference towards private sector banks over public sector banks continues to remain intact. Turning positive towards PSU banks was (and is) slightly difficult due to worsening asset quality, frequent management change as well as greater dilution risk. Public sector banks will also be in focus next week on the announcement of capital infusion plans by the government. A finance ministry official told Cogencis on Thursday that the government is looking to tap Life Insurance Corp of India's funds to capitalize public sector banks.
Finance Minister P. Chidambaram had earmarked 140 bln rupees for capital infusion in public sector banks in the Budget for 2013-14 (Apr-Mar). On stocks of specific banks, Lakshmi Vilas Bank will be in focus as it yesterday announced a 25-basis-point hike in Base Rate to 11.25%, effective from Monday. The sentiment may remain negative towards some banks after RBI, yesterday said it penalized them for flouting know-your-customer and anti-money laundering norms. Allahabad Bank, Bank of Maharashtra, Corporation Bank, Dena Bank, IDBI Bank and Indian Bank were penalized, said RBI.
