The Hindu Business Line : Banking stocks tank on negative psychology

THE public sector banking stocks on Monday saw significant selling pressure. The SBI counter, leader in the banking pack, breached the recent price bottom created on May 17. The BSE Bankex lost 1.07 per cent, SBI declined by 4.8 per cent and Bank of Baroda by 5.3 per cent.

According to market persons, the selling was more a reflection of a confused market rather than a call based on fundamentals. Negative investor psychology is forcing sale in the overbought banking stocks, market players pointed out.

An analyst with an institutional brokerage said: "In this depressed and unsure market, the positive news causes selling, while a negative development prompts aggressive selling".

The RBI Governor's hint that interest rates may firm up and Centre's plan to increase agricultural credit has been viewed by the market as negative factors.

However, the senior bankers feel that the market apprehensions about increase in NPA in the agri sector and margin squeeze was unfounded and misplaced.

Mr S.S. Kohli, CMD of Punjab National Bank, told Business Line that NPA levels were the lowest in the agricultural sector - varying between 5 and 7 per cent. "Recovery in the agriculture sector for the banks has constantly been substantially higher than that in the industrial sector. Moreover, it has always been seen that if rates go up, the credit offtake too goes up," he added.

Mr Ramesh Damani, a BSE member, said that SBI, for example, quoting at a P/E of 4 was definitely value for money. "But at the current confidence level, it is becoming a difficult call".

He felt that views on the concept of directed lending by the PSU banks tend to get subjective. In his opinion, if rates go up, the return from the treasury income will fall and margins would also fall.

The bankers differ on the effect on the impact of the recent initiatives by the authorities.

"Returns from the bond market may fall if rate rises, but that will be handsomely compensated by the higher margin and offtake", the CMD of PNB argued.

Mr Devarsh Vakil of Anagram Stockbroking said that 5.5 per cent WPI rise last week was higher that the market expectation of rise at 5.08 per cent.

"A signal from RBI of changing monetary stance and higher than expected inflation data pointed towards a rate hike and dampened sentiment", he added.

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