The Hindu Business Line : Short covering helps public sector banks recover

Mumbai, July 3 After getting hammered by the bears in the recent market fall, short covering by investors helped the share prices of select public sector banks to stage a recovery.

Bank of Baroda was up 2.75 per cent from its previous close at Rs 210.85, Bank of India gained 0.6 per cent at Rs 224.9, Corporation Bank moved up 0.75 per cent to Rs 263.1, Union Bank jumped 6.19 per cent to Rs 112.45 and SBI was up 2.07 per cent at Rs 1,101.55.

In contrast, private sector banks witnessed a sharp decline, pushing down the BSE Bankex by 4.69 per cent. Axis Bank declined 8.82 per cent, HDFC Bank 3.69 per cent, ICICI Bank 7.89 per cent, Karnataka Bank 9.28 per cent, Kotak Mahindra Bank 11.02 per cent and Yes Bank 8.12 per cent.

Marketmen say that value buying lifted up the share prices of these public sector bank stocks today. “The share prices of most of these stocks have fallen below their book values, making them an attractive buy. There was also some genuine buying by fund houses as well,” said Ms Anita Gandhi, Head of Institutional Business at Arihant Capital Markets. There was quite a bit of short covering in the F&O segment, especially in the SBI and Punjab National Bank counters, said brokers.

According to an Emkay Global recent research report, “while the credit quality has not taken a beating for most of the banks till date (except for few), we believe that with any upward pricing of loans from hereon, the credit quality may suffer. Some of private sector banks like ICICI Bank and HDFC Bank have already started witnessing stress on high priced non-collateralised portfolio. With rise in PLR, deterioration in other portfolios can not be ruled out.”

Cheap Prices

“Short covering by investors is the only reason for the share prices of these stocks to rise today, as there have been no fundamental changes or announcements made to boost the prices,” said a banking analyst with a stock broking firm.

In the last one month, Bank of India has shed 23.25 per cent, Corporation Bank (21.93 per cent), SBI (20.49 per cent), Bank of Baroda (14.95 per cent) and Union Bank has fallen 12.9 per cent. The share prices of these banks recorded their new lows at the beginning of the month.

Though the stocks did close positive, they could not be sustained at higher levels, said Mr Alex Mathew, Head of Research at Geojit Financial Services. “The share prices started falling post lunch,” added Mr Mathew.

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