Bank scrips slip on hike, futures expiry

Brokers, however, say medium term outlook remains good.

A day after the RBI hiked the repo and reverse repo rates by 25 basis points each, bank stocks tumbled on Wednesday.

Analysts attributed the fall to the increase in rates by the central bank, even as the expiry of January derivatives contracts played their role in the downward spiral.

The biggest losers were UTI Bank (down 4.6 per cent to Rs 325.35), OBC (down 4.58 per cent to Rs 242.8), Bank of India (down 3.86 per cent to Rs 124.6), IndusInd Bank (down 3.79 per cent to Rs 52.05), Union Bank (down 3.77 per cent to Rs 119.85) and Vijaya Bank (down 3.55 per cent to Rs 61.05). Most of these stocks have lost ground over the past week as well, with a few gaining marginally.

Even as most public sector banks lost ground, Bank of Baroda went up by 5.01 per cent to Rs 249.35. HDFC Securities head-retail research, Deepak Jasani says, "The increase in repo and reverse repo rates is the main reason behind the fall in banking stocks on Wednesday, as it could affect the interest spreads of banks. There could be a scramble for deposit mobilisation, looking at the aggressive loan growth figures seen till now. Moreover, the expiry of January futures & options contracts led to a lot of unwinding of positions. Ahead of the budget month, futures outstanding positions may get lightened."

Brokers felt that the last day of January futures attracted more attention on the stocks in that segment, which affected prices in the cash segment.

Some feel that the increase in rates by RBI is unlikely to have caused the fall on the bourses, as the move would affect the borrower more than the banker.

Jasani added that the banking stocks have taken a hit in the near-term, even as the medium-term outlook for the sector continues to be good.

Brokers also vouch for the sound fundamentals of the sector. Going forward however, traders will build fresh positions in public sector bank stocks when there are expectations of fresh policy initiatives.

ICICI Bank rose 4.52 per cent to Rs 597.35 and HDFC Bank inched up 0.38 per cent to Rs 718.6.

The volumes in ICICI Bank were about 26.8 lakh shares on BSE. Analysts said there may not be much effect on private banks as their dependency on interest income is lesser. Moreover, foreign fund buying continues in these stocks.

Public sector banks may be hit harder as they have started raising their deposits rate while the lending rates have been gone up to that extent.

This means their margin will be under pressure. Moreover, with bond prices going down and yields moving northwards, their treasury income will be hit.