The lower projected fiscal deficit level for FY12 and government borrowings was an initial trigger for banking sector stocks. However, the lack of clarity on implementation of the expenditure cuts, chiefly on oil subsidies in the face of rising oil prices moderated the upward move. BNP Paribas’ banking analyst Vijay Sarathi doesn’t see a major impact from the public sector bank recapitalization plan given the relatively low allocation of Rs 6000 crore.
The banking licenses are also a relatively longer term plan and will have limited impact in the near-to-medium term, he believes, adding that lower credit growth and margin compression is factored into current valuations for stocks in the sector as per his estimates.
However, the extension of 1% interest rate subvention for loans upto Rs 15 lakh (for house value of Rs 25 lakh, Rs 5 lakh higher than earlier) and increase in the cap on housing loans qualifying for priority sector tag from Rs 20 lakh to Rs 25 lakh could boost demand, a positive for banks and housing finance companies.
The $20 billion increase in FII investment limits in infrastructure corporate bonds is a distinct positive for infrastructure NBFCs, which have been facing margin pressures from higher funding costs. Key beneficiaries include IDFC, PFC and REC. IDFC rose nearly 5% over previous close, while REC was up 2%.
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