The Hindu Business Line : Bank stocks gain on hopes of better reforms process

Mumbai, July 23 Banking stocks soared on Wednesday as reform prospects for the sector was expected to get a fillip after the Government won the vote of confidence.

The BSE Bankex surged 10 per cent as all the 16 scrips comprising the banking index ended the day gaining between 5 and 15 per cent. And all the major indices too ended the day in the green.

Gainers list

HDFC Bank ended the day up 9.57 per cent, gaining Rs 105 from its previous close of Rs 1,205. During the last week, the scrip had gained a whopping 33.4 per cent. ICICI Bank closed up 11.64 per cent or by Rs 76.95 at Rs 738.25, its weekly gain being 42 per cent. SBI was up Rs 146 or 10.45 per cent at Rs 1,543.8; the scrip has gained 38.5 per cent in the last seven days. These three stocks were also among the top gainers among the Sensex pack.

The banking index on the whole has gone up 35 per cent during the last one week, while the Sensex has gained 18.82 per cent. Among the other banking scrips that gained on Wednesday include Axis Bank (8.09 per cent), Canara Bank (10.2 per cent), Kotak Bank (13.46 per cent), YES Bank (16.76 per cent) and Karnataka Bank (14.68 per cent).

Financial reforms

“Banking scrips, which from the time of the Budget had been hammered on the bourses due to rising interest rates and non-performing loans, have now been attracting investors’ attention after the Finance Minister said that the Government would introduce financial reforms soon,” said Mr Sanjay Someshwar, a sub-broker with Ventura Securities.

Mr Tushar Poddar, Goldman Sachs’ Vice-President, Asia Economic Research, feels that the Government might seek Parliamentary approval for some of the contentious Bills such as that on pension (enabling private managers to oversee pension assets and invest in equity markets), insurance (increasing the FDI to 49 per cent from 26 per cent) and banking (enabling voting rights in proportion to shareholding). “The coming month is likely to be critical if the Government is to take advantage of the tail-wind and power ahead on reforms,” added Mr Poddar.

Short covering

Marketmen say that the current rise in banking stocks is definitely not just a short lived spurt in reaction to the outcome of the vote of confidence. “With crude prices decreasing, it does not look like as if inflation will go up much, which is another positive for the banking scrips,” said Mr Someshwar.

As for the RBI monetary policy meet next week, analysts say that even if the central bank does hike the CRR or repo rate further, these scrips will not be effected much. “Much of the news of a likely hike in CRR or repo rate is factored in by the market. This sector has been the worst performing one since the Budget. Now there is also a bit of short covering taking place,” said the head of research at a stock broking firm.

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