The Hindu Business Line : Second-rung bank stocks rule the roost

Mumbai, Sept. 4 The benchmark BSE Bankex has gone up by almost 5 per cent over the past week. The banking sector, which also witnessed sharp downfall on the back of global/political crisis, is now back in the limelight. The rise in stock prices have been substantial in the case of second-rung banking stocks.

Analysts point out GDP growth rate as an essential factor for the banking stocks to do well. There has been a correlation between the GDP and the credit growth of banks, and with India projecting 8.5 per cent plus growth, the sector is expected to do well, said a banking analyst from Kotak Securities.

“Last week, inflation also came under control and overall the economy seems to be growing, so the banking sector has to do well”, says Ms Anita Gandhi, Head of Institutional Business, Arihant Capital Markets Ltd.

“The macro factor of GDP growth is one of the reasons which drive the market sentiment towards the banking stocks,” says Ms Sarika Lohra, banking analyst, Angel Broking Ltd.

The rise in stock price has been substantial in the case of second-rung banking stocks on the whole. Yes Bank has gone up by 10.26 per cent over a week, Axis Bank went up by 10.22 per cent whereas Federal Bank has gone up by 7.93 per cent since the past week.

“The interest in the mid-caps and small caps is picking up as these banks had cut the deposit rate and raised the interest rate thus ensuring a higher net interest margin; so they are expecting high profits in the second quarter earnings report,” adds Ms Lohra.

According to analysts, the valuations in the case of first-rung stocks such as ICICI Bank is higher, their PE (price to earning) ratio is also higher unlike the second-rung stocks which are preferred by the investors as their valuations look more attractive.

Among the stocks that have gained sharply are Central Bank, Dena Bank, Lakshmi Vilas Bank and South Indian Bank.

“The second-rung banking stocks have quite attractive valuations as they are priced at one time adjusted book value,” says Mr Kashyap Jhaveri, Banking Analyst, Emkay Share and Stockbrokers Ltd.

“Although the second rung-banking stocks will not outperform the top rung stocks but the gap between the two will decrease in the near future”, according to Ms Gandhi.

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