 "RBI impact: Bank Nifty tanks 5%")
The National Stock Exchange’s (NSE’s) public and private sector banking index, the Bank Nifty, skidded nearly five per cent, as compared to a 1.2 per cent fall in the benchmark CNX Nifty. Among individual stocks, YES Bank, Canara Bank, IndusInd Bank and Oriental Bank of Commerce (OBC) lost between eight and 10 per cent on the NSE.
State Bank of India (SBI), Kotak Mahindra Bank, Axis Bank, ICICI Bank, Union Bank of India, Punjab National Bank, Syndicate Bank, IDBI Bank, Bank of Baroda (BoB) and Bank of India were among the other notables seeing erosion of four to seven per cent in price. SBI, OBC, Federal Bank and Corporation Bank all hit their one-year lows on the NSE.
Analysts at Angel Broking suggest that although RBI’s move is a positive for the rupee, it is likely to increase the cost of funds for banks.
In terms of direct impact, analysts at Barclays Research believe entities which are most reliant on short-term wholesale funding will be adversely impacted. “YES Bank and IndusInd Bank have significant reliance on these markets. NBFCs (non-bank finance companies) should also be negatively impacted. PSBs, particularly SBI, have little or no reliance on short-term wholesale funding. If the higher rates were to persist (depending on how long RBI adopts this stance) and impact GDP (gross domestic product) growth, then that would impact the entire banking system negatively,” they said in a report.
Says Jyotivardhan Jaipuria, managing director and head of research, Bank of America-Merrill Lynch: “Information technology stocks could correct if RBI’s measures succeed in a rupee pullback. High debt companies could see correction. Some of the large-cap companies with high debt include JP Associates, DLF and Adani Enterprises. Bank stocks are over-owned and could correct due to a rise in bond yield. While HDFC Bank is unlikely to see major correction, we would regard any correction in ICICI Bank as a buying opportunity. Avoid PSBs, which could correct due to a rise in bond yields.”
In the banking and NBFC pack, Ambit Capital maintains a sell rating on Axis Bank and HDFC, and has a buy rating on LIC Housing Finance.
“SBI, BoB and ICICI have limited reliance on short-term funding. So, any major correction in stock prices of these banks would be considered as buying opportunity,” says Daljeet S Kohli, head research, IndiaNivesh Securities.
“Banking stocks have faced the music today on account of key overnight developments. For the Bank Nifty, 11,367 was an important support and it is currently below the same. This level needs to be watched closely on a closing basis. Banking stocks need to be given a few more days to settle before one can take an investment call. SBI has support near Rs 1,800, ICICI Bank at Rs 940 and HDFC Bank at Rs 650,” said Ranak Merchant, technical analyst-strategies, Sushil Financial Services.
E&C firms
Analysts at Ambit Capital believe RBI’s move will be a negative for engineering & construction companies, as their working capital cycles continue to remain stretched due to delayed payments from both public as well as private clients.
“The move will adversely impact our estimates, mostly for the highly leveraged companies such as NCC, Blue Star and Sadbhav Engineering, as this might raise their cost of borrowing and will keep the working capital cycle stretched. On the other hand, Larsen & Toubro, VA Tech, Voltas and EIL will not be impacted significantly, given the low/no leverage on their balance sheets,” says their client note.