Banking shares staged a sharp rally on Thursday and regained their lost ground from last week, led by gains in Union Bank of India, Axis Bank and Bank of Baroda. The banking index, together with realty stocks, surged more than 2% as high beta stocks outperformed on hopes of possible rate cut by the Reserve Bank of India on Oct 30.
Banking stocks outperformed benchmark indices, with the NSE Bank Nifty ending the Thursday’s session at 13,307.99, up 271.85 points or 2.09% from Wednesday. The 50-share Nifty ended the day at 5,718.70, up 58.45 points of 1.03%, while the Sensex settled at 18,791.93, up 181.16 points or 0.97% from the previous close.
Union Bank of India surged over 5% with a combined volume of 16 lakh shares on both BSE and NSE. Axis Bank gained 4.2% with a combined volume of 47 lakh shares, while Bank of Baroda gained nearly 4% with a volume of 15 lakh shares. Other names like Canara Bank, State Bank of India, Bank of India, Punjab National Bank, ICICI Bank, and HDFC Bank, all gained in the range of 1-3% Thursday.
Analysts were of the view that sharp rise in bank’s borrowing from the RBI’s repo tender gives an indication that the central bank may consider cutting the Cash Reserve Ratio (CRR) during its upcoming credit policy meet.
Banks borrowed a little over R1 lakh crore from the RBI’s daily repo tender on Thursday, the highest since Jun 26.
?Market is expecting a 25-50 basis point cut in interest rates as well a cut in CRR. However, a cut in CRR makes more sense at this point of time. Further, likelihood of big bond purchases in the open market could have also led to the rally,? said Rajesh Cheruvu, chief investment officer, RBS Private Banking.
Analysts also stated the underlying market trend indicates an upside and high beta stocks may continue to lead the future gains because of their beaten down valuations, especially those of public sector banks.
?The sector has done well recently and the market is expecting decent earnings and okay asset quality,? said Citi in its September quarter earnings preview. The brokerage expects stable NIMs, decent asset expansion and some bond investment gains in the quarterly numbers while sees private banks sustaining their outperformance over PSU banks (ex-SBI) largely on continued lower credit costs.
According to Cheruvu, besides rising credit costs, the public sector bank?s earnings performance may also be affected by on-going restructuring issues delinquencies may continue in the September quarter as well.
