However now, say analysts, the interest cycle is peaking out and the RBI may start reducing rates come April-May, say banking stock analysts. Some say that by March 31, 2013 the RBI reference rate — the repo rate — will be down by one per cent. (Repo rate is the rate at which the RBI lends to other banks.)

Also, inflationary pressures have also started tapering off adding to further optimism, according to analysts. December 2011 inflation numbers touched 7.4 per cent - a two-year low – down from 9.1 per cent the month before.

Poor assets

Nirmal Bang in a report, however, pointed out that poor asset quality will continue to be a worry for banks, but the markets will not be perturbed by it any further.

“Asset quality pressures are likely to continue for banks with greater exposure to risky sectors like SME, real estate, textiles, aviation, steel, power, infrastructure and higher restructured loan book. The impact of slowdown has been clearly visible in the performance of the businesses as well as the stock prices of banks.

“We believe that the stock prices have already discounted the expectation of higher slippages in the quarter and thus the stocks are available at an attractive valuation. The bankex is expected to outperform once RBI starts easing out the monetary policy,” said the report.

>sneha.p@thehinud.co.in

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