The Hindu Business Line : Banking stocks riding low on profit booking

Mumbai, Dec. 19 The banking stocks seem to be riding low on the back of profit booking in overvalued stocks. While the benchmark index Sensex has fallen by 6.30 per cent since a week, BSE-Bankex was down by 8.10 per cent during the same time.

According to analysts, most frontline banking stocks have become highly overvalued and are trading at very high multiples, which seem to have put pressure on the whole sector.

“Most of the frontline stocks have stretched valuations, so there is correction happening in those stocks as people are booking profits on those counters,” said Ms Chandana Jha, analyst, PINC Research.

Market men also feel that financial markets globally are finding some nervousness that is leading to local markets going bearish and this in turn is triggering a correction in major stocks.

“There is profit booking happening in stocks of sectors which have been top performers in the past couple of months, and these also include BSE-Bankex,” said an analyst with a Mumbai-based brokerage firm.

Season drive

The fact that FIIs have started to book profits in time for Christmas and cover their sub-prime losses cannot be discounted, analysts say.

On a weekly basis, ICICI Bank was down by 10.02 per cent, SBI dipped 7.46 per cent, HDFC Bank fell 7.12 per cent and Kotak Bank was down by 14.56 per cent.

The rally which the sector saw in the past couple of months as the market zoomed to newer heights is also another reason why this sector has come under pressure now, according to analysts.

“This sector was doing well continuously for the past couple of months, so now there is pressure building up on those stocks,” said Ms Anita Gandhi, Head-Institutional business, Arihant Capital Markets Ltd.

Sharp spurt in banking stocks in the past couple of months, and huge performance earlier has led to profit booking in the sector for the short term,” said Ms Shahina Mukadam, Head-Research, IDBI Capital Market Services Ltd.

Low-value pick

The frontline banking stocks, which are index heavy weights, have pulled the index down because of a fall in their value, but there are some other low-value stocks which are being picked up, while major stocks see profit booking, say analysts.

“There has been some churning happening in the banking sector itself,” said an analyst.

Finally, there is the whole sentiment of an expected rate cut in the market, which affects the behaviour of the banking index. “The market is anticipating a rate cut after the Fed rate cut, but as the CRR hike has been implemented four times and inflation went up the past week it means the possibility of a rate cut is almost nil, which might trigger negative sentiment in the industry as a whole,” said Ms Jha.