The Hindu Business Line : Bank stocks take a beating

Mumbai, Jan. 29 Bank stocks took a beating on the bourses on Tuesday as the Reserve Bank of India’s Credit Policy belied the market expectation of a rate cut.

The BSE-Bankex plunged 3.48 per cent after riding high on Monday on speculation of a possible interest rate cut. The BSE-Bankex had gone up by 1.24 per cent on Monday.

NSE’s Bank Nifty too plunged 3.36 per cent on Tuesday.

“Today’s was a temporary reaction to the Credit Policy in which the RBI has kept its key rates unchanged. A section of the market was expecting a rate cut by the RBI following the US Fed rate cut earlier,” said Mr Rajnish Rangari, Country Head, Investment Banking-CMG, Karvy Investor Services.

The top losers of the day were HDFC Bank, which fell 3.36 per cent; SBI, which dipped 3.58 per cent; and ICICI Bank, which went down 4.19 per cent. However, the status quo on interest rates will not impact the performance of the banks in the long run, felt analysts.

Sustaining margins

“Although there will be pressure on the banking sector, the banks will be able to sustain margins and their profitability will remain intact as the results for this quarter were good even in a rising interest rate scenario,” said a banking analyst with a brokerage.

ICICI Bank’s net profit for the quarter ended December 31, 2007 grew 35 per cent, while SBI’s grew 70 per cent and HDFC Bank’s 45 per cent.

“In spite of credit growth slowing, most banks have shown reasonably good results and some of them have shown good treasury gains, indicating steady performance,” said Ms Anita Gandhi, Head of Institutional Business, Arihant Capital Markets Ltd.

Marketmen agree that this credit policy is more of a move towards managing inflation rather than growth.