The Hindu Business Line : Inflation puts bank stocks under pressure

Banking stocks succumbed to the relentless selling pressure . The BSE Bankex was among the worst-performing indices during the week, as it shed close to 8 per cent against the Sensex’s fall of 4.5 per cent.. Though the index opened in the green on Friday, after an hour into the trading, the index started falling and when trading closed, it lost 143 points or 1.72 per cent from the previous day’s close.

SBI and ICICI Bank were the biggest losers among the Sensex stocks. While SBI dipped 2.10 per cent to close the day at Rs 1,573.25, ICICI Bank dropped 1.89 per cent to close at Rs 863.75.

Heavy selling

Among other banking stocks that took a beating today include Axis Bank, which fell 3.45 per cent, Federal Bank (3.57 per cent), Kotak Mahindra Bank (2.08 per cent) and Punjab National Bank (4.45 per cent).

One of the reasons for large selling in the banking counter, say marketmen, is because of the increasing inflation figures. “Increasing inflation has a direct impact on the banking stocks, which is why we have been seeing such heavy selling in the banking scrips,” said Mr Sanjay Someshwar, sub-broker with Ventura Securities. But on Friday, the banking index tanked mainly due to the Government’s announcement to increase the net amount of farm loan waiver, said analysts.

The Finance Minister on Friday announced that the Government will now waive Rs 71,600 crore of agricultural loans to help farmers trim debt. The amount announced is close to 20 per cent more than the original estimate announced during the Budget this year.

“We will have to see by when and how the Government is planning to compensate banks. Banks are not non-profit organisations and with this announcement, the banks now run the risk of an increase in the NPA figures. The banks that will be most impacted will be the PSU banks and those with larger portfolios,” said a banking analyst with a brokerage. Analysts say that until there is clarity regarding the reimbursements of the loan amount to the banks, there will be quite a bit of negativity around the banking stocks. “It might take up to another two quarters for the Government to give proper clarity regarding the loan waiver. Since this is an election year, the Government has to act in order to retain the confidence of the people. It would not do anything to put pressure on the fiscal,” said the head of research at a stock broking firm.

“Adding to this, the Kerala-based Federal bank declined to Rs 263.35 after it announced its Q4 results during the day,” said Mr Alex Mathew, Head-Research Centre, Geojit Financial services Ltd. The bank reported a rise of just 3.63 per cent in its net profit.

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