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Shares of banking counters remained attractive at the bourses on Tuesday, with Bank Nifty hitting a new high of 16,702.30 intraday and closing with gains of over 100 points at 16,667.
PSUs join bandwagonState Bank of India led the rally with 2.4 per cent gain (or ₹63.20), while ICICI Bank gained 1.83 per cent at ₹1,601.90.
According to analysts, PSU banks, which till now did not participate in the rally, also joined the bandwagon, after the inflation data was announced last week.
According to the Reserve Bank of India’s data released on October 14, inflation dropped to a five-year low of 2.38 per cent in September. Since then, the Bank Nifty gained 7.2 per cent.
Healthy rolloverThe continuing decline in food prices, including those of vegetables, has greatly contributed to the drop, as food inflation fell to a two-and-a-half-year low of 3.52 per cent after decreasing steadily since May. Bank Nifty futures witnessed a healthy rollover of 38 per cent to the November series.
The current month (October) contracts are expiring on Thursday. It is not just Bank Nifty, even individual counters such as Kotak Mahindra Bank, IndusInd Bank and Axis Bank have seen high rollovers to the next month series. Ramesh Chordia, an independent analyst based out of Chennai, cites four reasons for the interest in banking stocks. According to him, moderating inflation and decent numbers for the July-September quarter from the banking space have helped improve the sentiments.
Stock splitThe recent Supreme Court verdict cancelling coal blocks, which eliminated the uncertainty dodging the sector over the last two-three years, has also contributed in a major way. Recent stock-split proposal announcements also attracted a few retail investors into the banking space, he added.
A slew of banks including SBI, ICICI Bank, Bank of Baroda, Punjab National Bank, Canara Bank and Corporation Bank have announced stock splits.
Most of these stocks did not participate in the wider rally, as uncertainty impacted them. Some of these stocks, particularly from the PSU pack, continue to rule far below their 52-week highs, he added.
Indranil Sen Gupta and Abhishek Gupta, economists at Bank of America Merrill Lynch, in their recent research report said they expect RBI Governor Raghuram Rajan to cut rates in February.
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