The Hindu Business Line : Banking stocks shine ahead of Credit Policy

Mumbai, Jan. 28 Banking sector stocks were flying high on the hope of a cut in credit rates in tomorrow’s credit policy review. The buzz in the market is that the central bank might cut a key interest rate by 25-50 bps. On the BSE, only the auto and bankex sector ended the day in the green.

The BSE-Bankex outperformed the Benchmark index to end the day up 1.24 per cent more than its previous day’s close. Only four stocks declined in the sector and 14 stocks advanced. The country’s largest private sector bank, ICICI Bank, was among the top gainers of the day on the BSE today. It was up 1.15 per cent to close the day at Rs 1273.70.

Other stocks that performed well today in the banking sector include Axis Bank, which surged ahead 3.66 per cent, Bank of India, which raced ahead 3.78 per cent, Canara Bank, which saw an increase in its prices by 5.11 per cent, and Yes Bank, which went up a whopping 5.05 per cent.

“If the RBI cuts the rates then it is positive for the banks as their cost of borrowing will come down. Not just that but also it will improve their bond portfolio,” said Mr Devendra Nevgi, CEO & CIO, Quantum Asset Management Company Private Ltd.

Policy review

The news in the markets for the past few days has been that in tomorrow’s policy review the RBI might cut the reverse repo rate along with the cash reserve ratio. “With cut in these rates, the liquidity of the banks will increase. What we are seeing now is risk taking on the part of the investors a day before the policy review. We will know by 11 a.m. what will happen, if there is a cut then we will see the share prices of the stocks in the banking sector reaching new highs,” said a sub-broker with a brokerage in town.

Market watchers say that a day before the policy review, most of the stocks in the banking sector are trading near their recent 52-week highs.

The scrips that were in the high include Bank of India, PNB, YES Bank and Karnataka Bank. With a cut in the rates, they say that you can expect these scrips to reach new highs.

Mr Gopal Agarwal, Senior Fund Manager, Mirae Asset Global, said that the financial sector as well as the banking sector will do well in the medium to long-term view .

“This sector seems to have good earnings possibilities. The economy seems to be in an investment mode and there is good demand for credit. The credit uptake too looks robust. And also, a cut in interest rates is always good news to the banking sector, as it will increase their ability to give credit,” he said.

An analyst pointed out that another cut by the US Federal Reserve is expected at the end of the month, which is again good for the banking sector. He said that the market will definitely see this sector reaching highs after that announcement as well.

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