Bank Stocks Outlook for the week – 25 to 29.01.2016
Bias
positive; Oct-Dec results, F&O expiry eyed
( www.rupeedesk.in )
Bank
stocks are expected to continue their positive momentum from yesterday's trade
into
the next week, with stock-specific movements linked to Oct-Dec earnings
announcements
of top private banks. Apart from earnings cues, bank stocks will also
track
expected volatility in broad markets ahead of the January futures and options
contracts
expiry on Thursday in a truncated trading week. Financial markets in India
will
be closed on Tuesday for Republic Day.
The
Bank Nifty has shown some resilience in the second half of the week but is
still
not
out of woods, at least till expiry. HDFC Bank, ICICI Bank, YES Bank and IDFC
Bank
are among the large private banks that will announce their Oct-Dec earnings in
the
coming week. A key factor that the market will track will be the asset quality
of
these
larger private lenders as there is growing pressure from the government and the
Reserve
Bank of India on banks to improve their asset quality. RBI Governor
Raghuram
Rajan has set banks the steep task of cleaning up their balance sheets by
March
2017, which has sparked concerns that banks may have to sacrifice profits for
higher
provisions in the coming quarters.
Axis
Bank, the largest private lender to declare its earnings so far, had to make
higher
provisions
on account of the RBI insisting on classification of some loans as
nonperforming
assets.
"On the asset quality, the bank has fully recognized the necessary
impairment
and the resultant provisioning impact of the asset reclassification as per
the
RBI's assessment in 3QFY2016 which provides comfort with respect to the asset
quality.
However, the management remains cautious on its asset quality outlook in the
near term.