Bank stocks miss rally, but survive market fall

Factors like high interest rates, worse than expected results and sector-related pessimism have pushed banking scrips out of the bull run since the beginning of the year "� also out of the crash in the last fortnight.

While the Sensex has gained 15.58 per cent since January this year, the BSE Bankex has lost 2 per cent during the same period.

Speaking about the large private sector players, while HDFC Bank has appreciated 6.59 per cent since January, its nearest rival ICICI Bank has gone down 4.86 per cent.

Among public sector banks, while State Bank of India has shed 2.54 per cent, smaller-sized players Union Bank and Karnataka Bank have lost over 7 per cent each.

Analysts attribute the banking sector's underperformance to several factors. Some feel that the sluggishness was due to the fears of effects that a rising interest rate regime would have on margins.

As has been the case in the last couple of quarters, net interest margins of the banking sector are likely to come under pressure in the next two years.

Kanan Shah, senior analyst at Networth Stock Broking, said, "Banks underperformed the market owing to the anticipated negative growth in net profits for FY06 against FY05. Banks faced net interest margin pressure as the deposit growth rate was slower than advance growth rate and deposit rates had to be hiked to attract more deposits."

The December 2005 quarter saw the redemption of India Millennium Deposits, thus creating liquidity pressure.