The Hindu Business Line : Bankex outperforms Sensex on better Q2 hopes

Bankex has outperformed Sensex by around 9 per cent over the past one month. Banking stocks have witnessed an upward rally on strong credit growth, lower bond yields and enhanced treasury incomes.

Most of the bank stocks have been in the limelight since September on expectations of a healthy set of numbers in the second quarter. "Enhanced treasury profits for banks will lead to good results in Q2," said a banking analyst. There was hardly any income from the treasury in the earlier quarters.

"Banking stocks are performing well on expectations of good year-on-year and quarter-on-quarter results. The RBI stance on interest rates has helped banks to mark up benchmark Prime Lending Rates. Also, the net interest margins of banks should continue to do better in the quarter, driving the stocks," said Ms Sarika P. Lohra, Banking Analyst, Angel Broking.

"The bank expects the Q2 results to be better than Q1," said Mr M. Balachandran, Chairman and Managing Director, Bank of India, on the sidelines at a banking seminar recently. Credit offtake is expected to be around 25 per cent year on year, with deposit growth at 15 per cent, he added.

Lower bond yields have firmed up treasury incomes. With the drop in yields on the ten-year bonds from 8.40 per cent to 7.50 per cent, prices of gilts have gone up. Stable equity markets are also adding to banks' business.

"The treasury income is expected to show a rise this quarter," said Mr J. Moses Harding, Executive Vice President, Head - Wholesale Banking, IndusInd Bank.

Net interest margin is expected to be higher this quarter with the lowering in cost of deposits and rise in yields on advances," said Mr Harding.

Banks such as Punjab National Bank and Canara bank should benefit the most on lower bond yields, said a banking analyst.

Mark to market losses are not expected in Q2, aver most banking analysts. "The rally in bond yields in Q1 had lead to mark to market losses for banks which is not so in Q2," said Ms Lohra of Angel Broking.

Stocks of UTI Bank, Punjab National Bank and Oriental Bank of Commerce look attractive, she added.

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