The Hindu Business Line : Mid- and small-cap banks gaining market interest

Mumbai, Jan. 17 Banking stocks in the mid- and small-cap space have outperformed the Bombay Stock Exchange’s Sensex in the last one month. However, in the last few days, select mid- and small-cap banking stocks have been witnessing selling pressure. Market men attribute this to weak international cues and FIIs selling.

However, they said these stocks have tremendous growth potential from the long-term perspective.

Some of the stocks that were in the red on Thursday include: Centurion Bank of Punjab (1.75 per cent), Federal Bank (1.55 per cent) and Andhra Bank (0.44 per cent). Axis Bank, Bank of Baroda and Canara Bank also saw a dip in their share values.

Outperform

However, the banking stocks in the mid- and small-cap space have outperformed the Sensex, say analysts.

“Comparing with the returns of the last one-month, individually these stocks have outperformed the Sensex, which has only increased by 2.23 per cent. Banks such as Centurion Bank of Punjab, Canara Bank, Axis Bank and Bank Baroda have all increased by more than 10 per cent in the last one month,” said an analyst with a brokerage.

Mr Vaibhav Agarwal, Banking Analyst, Angel Broking, explains that a lot of these stocks have robust earnings and growth outlook. Another factor that is favourable for these stocks is the probable softening of interest rates, which will increase their bargaining power.

Market watchers believe there would be re-rating on smaller and older banks. Hopes of consolidation in the banking sector that is expected in 2009 have also lured investors towards these stocks, say analysts.

“There are talks of possible acquisitions that might even take place before 2009. That could be one of the reasons why we are seeing a run up in these stocks,” said a merchant banker.

“We remain positive on these stocks as they managed to grow at a decent rate,” Mr P.R. Dilip, Managing Director of Impetus Wealth Management, said. He also added that these stocks are also immune to the sub-prime issues.

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