The Hindu Business Line : `Bank stocks look weak on uncovered short positions'

Mumbai March 20 Banking sector stocks look bearish given the heavy build up of short positions in Bank Nifty futures. Despite the Bank Nifty index closing up by 2.10 per cent at 5,084.10 points on Tuesday, Bank Nifty futures still remains in discount by about three points. A technical analyst said that the short positions have not yet been covered and the sector looks weak.

Inflation pressure

Analysts attribute the fear of interest rate hike owing to high inflation to put the pressure on banks. However, most mutual funds have not reduced their exposure to banking stocks.

"Inflation was at 6.46 per cent for the week ended March 3. Also, the industrial output numbers are very high. Both indicate inflation is not under control and there could be a possibility of another interest rate hike. This will put banking stocks under pressure and the trend could continue till the annual monetary policy," said Ms Sarika Lohra, banking analyst, Angel Broking.

"High inflation on account of supply-side factors and lack of liquidity will pose challenges to the banking sector. This has put the sector under pressure for the short-term," said an analyst.

Slow credit growth

Analysts say banks could see credit growth decreasing and margins may be hit.

"If there is a hike in interest rates, it will lead to slowdown in credit growth. Also, the sector is bearish as with higher cost of deposits, margins of banks may not be as high as last year," said a banking analyst.

However, mutual funds, which had reduced some exposure to bank stocks for January-February period, have not done so this time.

"We continue to have the same exposure to banking stocks. Credit growth of banks is decelerating and there is actually concentrated selling and no equivalent buying in these stocks," said Mr Prateek Agarwal, Vice-President, Head-Equities, ABN Amro Asset Management.

Mr A. Balasubramanian, Chief Investment Officer, Birla Sun Life Mutual Fund, said banking stocks were facing more of a temporary pressure. Going forward, there should be consolidation and they will be available at attractive values.

Public sector banks could face higher correction as opposed to private sector banks if there is a rate hike.

"If there is a further hike in interest rates, there will be a higher correction in public sector banks at least. We are overweight on private banks," said Mr Nikunj Doshi, Vice-President, Equity Funds, Kotak Asset Management.

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