The Hindu Business Line : Banking stocks wilt on macro economic concerns

Mumbai, July 15 Frontline banking stocks dipped significantly on Tuesday, as investors relentlessly sold due to macro economic concerns. All the 16 stocks in the banking index declined, as the BSE Bankex shed 7.75 per cent on Tuesday.

The three banking stocks belonging to the Sensex were the worst-performing stocks, as the benchmark index dropped 4.91 per cent. HDFC Bank plummeted 11.26 per cent, ICICI Bank fell 8.72 per cent and SBI dipped 6.35 per cent. ICICI Bank and HDFC Banks recorded their new yearly lows on Tuesday. ICICI Bank fell to a new low of Rs 525 and HDFC to Rs 1,750.

The other banking stocks that got battered were Axis Bank (6.17 per cent), Bank of India (5.73 per cent), Kotak Mahindra (6.11 per cent) and Union Bank (7.65 per cent).

Inflation measures

Macro economic concerns are weighing down the financial sector, said analysts. “Given that the second round of domestic fuel price hike – in terms of rising input costs – is beginning to unfold and the surge in global oil prices continues, we expect the inflation to remain high till December. In view of this and the fact that money supply growth is still beyond RBI’s target level, further hikes in policy rates by the RBI are expected. This is likely to further affect demand in interest-sensitive sectors, leading to moderation in IIP (Index of Industrial Production) growth,” said Mr Kaushal Sampat, Chief Operating Officer, Dun & Bradstreet India.

Investors are expecting further rate hikes by the RBI to rein in inflation, which is rising every week, the main reason why the banking sector scrips are getting hammered, said marketmen.

Global uncertainty

It is not just the Indian banking stocks that took a beating today, in other markets, too, the sector witnessed heavy selling. Shares of the US banking companies plummeted on Monday due to concerns about the sector’s stability. Asian banking stocks, especially those in Japan, China and Taiwan, also dipped as investors exited their positions on concerns the local banks’ exposure to the US. European banking scrips too were battered.

“Due to the uncertainty in the global financial sector, FIIs seem to be avoiding this counter and reducing their exposure as much as they can. The overall sentiment toward this sector is negative at least in the near term. Along with the rising inflation, global cues could have also led to the dip in the share prices of the banking stocks today,” said a banking analyst with a Mumbai-based broking firm.

Marketmen also feel that the mark-to-market (MTM) losses reported by the Axis Bank in their Q1FY09 would have also impacted the shares prices of banking stocks on Tuesday. Axis Bank reported MTM losses of Rs 225 crore in its bond and equity books. The bank’s gross NPA increased sharply by Rs 190 crore to Rs 640 crore.

Analysts fear that even the other banks might also report higher MTM losses. Ratings of banks have been reduced by certain brokerages due to likely worsening of NPAs, more monetary tightening and sluggish loan growth.

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