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Saturday, Sep 04, 2004

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Bank stocks see across-the-board buying

Our Bureau

Mumbai , Sept. 3

BANKS stocks were back in the limelight in today's trading despite rise in inflation rate. Various announcements in the last few days by the Government and RBI have brought interest in banks stocks, brokers and analysts said.

In today's trading there was across-the-board buying in bank stocks. It was seen from the BSE's Bankex Index, which gained 1.30 per cent - the biggest gain among the sectoral indices of the exchange.

Among the stocks that were actively purchased today include Bank of Baroda (up 6.72 per cent at Rs 174.80 on the BSE), Indian Overseas Bank (up 4.98 per cent at Rs 48.45), Andhra Bank (up 3.47 per cent at Rs 46.20), Corporation Bank (up 3.55 per cent at Rs 259.90), SBI (up 2.25 per cent at Rs 462.15) and Oriental Bank of Commerce (up 2.04 per cent at Rs 237.80).

Private sector bank stocks such as ING Vysya Bank, UTI Bank and Kotak Mahindra Bank were also among the gainers list.

Rise in the banks' stock prices in today's trading was despite the inflation rate crossing the 8-per cent mark, which was announced during the market hours.

Bank stocks, particularly of public sector banks, have reacted sharply to concerns on rising interest rates, falling treasury gains, wage settlement and populist government policies. Private banks have weathered the storm relatively better given their low duration bond portfolios.

According to broking firm SSKI: "The market is too focused on inflation and rising yields while completely ignoring the imminent earnings expansion that follows rising interest rates.

"Our sensitivity analysis of banks' earnings to a 100 basis points and 200 basis points increase in 10 year G-sec yield from the current 6.5 per cent throws up a sharp rebound in earnings in 2006 fiscal, driven by expanding net interest margins (NIMs) and strong operating leverage".

According to analysts, banks now have a much stronger, cleaner asset book with positive bias towards higher yielding retail and small and medium enterprises assets, which is a good reason for NIMs to expand sharply. NIM expansion should drive strong growth in net interest income (NII) and overall sector earnings.

Brokers said the recent statements by the Finance Minister, Mr P Chidambaram that the Government is in favour of consolidation of banks have also brought interest in banks stocks.

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