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Bank stocks are largely seen trading in a narrow range as most market traders and investors would await the release of economic data, earnings of private banks, and update on dividend announcement by public sector banks. Major private sector banks including YES Bank, Axis Bank, and HDFC Bank will detail their Oct-Dec earnings on Wednesday, Thursday and Friday, respectively. Federal Bank is schedule to detail its quarterly results on Friday. Earnings growth for private banks, particularly HDFC Bank and Axis Bank, will moderate to 25% YoY and 11% YoY, respectively. Fee income growth is expected to be muted and with a lag in asset growth. Stocks of public sector banks would be in focus, as most banks would take a decision on distribution of dividend next week. Mid-size public sector banks including Dena Bank, Oriental Bank of Commerce, Allahabad Bank, Indian Overseas Bank, IDBI Bank and UCO Bank will take a decision on dividend payment to shareholders next week. Bank of Baroda would be among the large state-owned banks to declare interim dividend on Wednesday. Most banks would declare their dividend in the first two days of the week and post that, traders will take bets on the basis of the dividend announced by these banks. Expectations that the December inflation number may be lower month-on-month may see some positive movement in bank stocks. India's annual inflation rate based on the Consumer Price Index (Combined) is seen falling to 10.0% in December due to lower food prices. The CPI inflation rate had hit a lifetime high of 11.24% in November due to high food inflation. The Central Statistics Office will detail the CPI (Combined) inflation rate for December at 1730 IST on Monday, while the commerce ministry will detail the Wholesale Price Index-based inflation for December on Tuesday. If the inflation comes down, we may see an up tick in bank stocks as the chances of RBI's monetary tightening would reduce. However other factors like earnings and dividend announcement would also decide the future course of action. In the previous policy review, the Reserve Bank of India maintained status quo on rates, but warned that it will act on off-policy dates. If the expected softening of food inflation does not materialise and translate into a significant reduction in headline inflation in the next round of data releases, or if inflation excluding food and fuel does not fall, the Reserve Bank will act, including on off-policy dates if warranted. The RBI is scheduled to detail its third quarter monetary policy review on Jan 28. Increasing concerns over non-performing assets could weigh on PSU banks' net profits going ahead, and impact shares of these banks. The RBI also said in its Financial Stability Report that if macroeconomic conditions deteriorate further, the gross non-performing asset ratio of banks could rise to up to 7% by March 2015. We estimate PAT for PSU banks will be weak (8% to -7%) on a YoY basis, except for Union Bank of India, which has exceptionally weak comparatives. The index yesterday ended at 10805.30, down 165.15 points or 1.51% from Thursday and down 3.37% from the previous week.
Bank stocks are largely seen trading in a narrow range as most market traders and investors would await the release of economic data, earnings of private banks, and update on dividend announcement by public sector banks. Major private sector banks including YES Bank, Axis Bank, and HDFC Bank will detail their Oct-Dec earnings on Wednesday, Thursday and Friday, respectively. Federal Bank is schedule to detail its quarterly results on Friday. Earnings growth for private banks, particularly HDFC Bank and Axis Bank, will moderate to 25% YoY and 11% YoY, respectively. Fee income growth is expected to be muted and with a lag in asset growth. Stocks of public sector banks would be in focus, as most banks would take a decision on distribution of dividend next week. Mid-size public sector banks including Dena Bank, Oriental Bank of Commerce, Allahabad Bank, Indian Overseas Bank, IDBI Bank and UCO Bank will take a decision on dividend payment to shareholders next week. Bank of Baroda would be among the large state-owned banks to declare interim dividend on Wednesday. Most banks would declare their dividend in the first two days of the week and post that, traders will take bets on the basis of the dividend announced by these banks. Expectations that the December inflation number may be lower month-on-month may see some positive movement in bank stocks. India's annual inflation rate based on the Consumer Price Index (Combined) is seen falling to 10.0% in December due to lower food prices. The CPI inflation rate had hit a lifetime high of 11.24% in November due to high food inflation. The Central Statistics Office will detail the CPI (Combined) inflation rate for December at 1730 IST on Monday, while the commerce ministry will detail the Wholesale Price Index-based inflation for December on Tuesday. If the inflation comes down, we may see an up tick in bank stocks as the chances of RBI's monetary tightening would reduce. However other factors like earnings and dividend announcement would also decide the future course of action. In the previous policy review, the Reserve Bank of India maintained status quo on rates, but warned that it will act on off-policy dates. If the expected softening of food inflation does not materialise and translate into a significant reduction in headline inflation in the next round of data releases, or if inflation excluding food and fuel does not fall, the Reserve Bank will act, including on off-policy dates if warranted. The RBI is scheduled to detail its third quarter monetary policy review on Jan 28. Increasing concerns over non-performing assets could weigh on PSU banks' net profits going ahead, and impact shares of these banks. The RBI also said in its Financial Stability Report that if macroeconomic conditions deteriorate further, the gross non-performing asset ratio of banks could rise to up to 7% by March 2015. We estimate PAT for PSU banks will be weak (8% to -7%) on a YoY basis, except for Union Bank of India, which has exceptionally weak comparatives. The index yesterday ended at 10805.30, down 165.15 points or 1.51% from Thursday and down 3.37% from the previous week.
