Bank scrips in focus on high credit demand

With the domestic banks planning to raise nearly Rs 50,000 crore from the market over the next six months, analysts expect banking stocks to be at the centrestage at least for the medium term.

Analysts see banking stocks being re-rated and attracting investments as they will earn higher profits by lending more money to consumers and companies, which will be investing in a big way in infrastructure and manufacturing.

The banks have lent 30 per cent more this year despite a series of measures by the Reserve Bank of India (RBI) to curtail credit supply, aimed at bringing down inflation. ICICI Bank, which is slated to come out with the country's biggest follow-on public offer of Rs 10,062 crore, expects that the core sector will need around $500 billion over the next three years.

The Bombay Stock Exchange Bankex has outperformed the benchmark Sensex, which is currently revolving around its all-time high levels. The sectoral index has gone up by 2.7 per cent since January, whereas the 30-stock Sensex moved up half a per cent during the period.

"Banks have demonstrated the ability to pass on incremental cost to their customers. Falling inflation has reduced fears of a rate hike. Their credit disbursement has been going up. Despite volatile markets, the banking stocks have been giving good returns and it makes these stocks a better buy for investors," said a top executive of private sector IndusInd Bank.

Following ICICI Bank, State Bank of India, the country's biggest lender, is expected to raise $400 million from the market, while HDFC will be selling shares worth $420 million to garner more funds for its future expansion plans. Central Bank of India will be tapping the capital market to add capital worth $197 million, while UTI Bank also has similar plans to raise $240 million.

"Once money is deployed in the banking business, there would be improvement in return ratios. This would be the key trigger to re-rate banking stocks," said Sarika Loha, banking analyst, Angel Broking.

Mutual funds also have plans to launch exchange-traded funds (ETFs) for the banking sector. Currently, there is one such fund, Bank BeES of Benchmark Mutual Fund, whose corpus grew by 52 per cent in May as investors continued to rely on banking stocks despite fears of a correction. Besides, there are two banking sector funds, which gave annual returns of up to 60 per cent last year.

Bank BeES, which has emerged one of the largest equity schemes in the country, has seen huge participation from foreign investors, who are not permitted to hold more than a certain limit in the banking stocks. Kotak Mutual Fund and Reliance Mutual Fund have sought regulatory permission for launching banking ETFs.

"Banking will remain an attractive sector as it will be fuelling the future growth of the economy. Nobody can ignore the potential of this sector," said a fund manager at SBI Mutual Fund.

IN THE LIMELIGHT

Analysts see banking stocks being re-rated and attracting investments as they will earn higher profits by lending more

Banks have lent 30 per cent more this year despite a series of measures by the Reserve Bank of India to curtail credit supply, aimed at bringing down inflation