F&O exposure may hit banking scrips

MARKET WATCH

The selling spree on banking counters is likely to continue next week, weighed down by uncertainties on derivatives exposure, rising inflation and farm loan waiver.

The banking shares have crashed following the news of huge mark-to-market losses that ICICI Bank, State Bank of India, Kotak Mahindra Bank, Axis Bank, HDFC Bank and Yes Bank are likely to incur on their derivatives portfolio as a fallout of the sub-prime crisis.

Credit spreads globally have gone up by more than 300 bps since the breakout of US sub-prime crisis. Private sector banks have been aggressive in making structured product deals for their corporate clients and the sub-prime crisis has also impacted the open positions of these companies.

Despite Finance Minister P. Chidambaram laying down the reimbursement roadmap on the farm loan waiver, there is still confusion on whether the provisions made on these loans are eligible for a writeback.

Most brokerages are maintaining a cautious stance on bank shares and have downgraded the price targets. But, according to some, the stocks are trading at attractive valuations after the sharp decline in the last two months. Analysts are cautious about private sector banks including ICICI Bank, HDFC Bank and Kotak Mahindra Bank.

Steel: Weak on price curb concerns
The shares of steel companies are seen down next week as unexpectedly high inflation rekindled fears that companies may be asked to hold or even cut the product prices.

Inflation has risen due to a rise in the prices of manufactured products, mainly iron and steel. The government has so far been non-committal on the price rise, saying it is difficult to control steel prices as the alloy is a free market commodity.

A higher interest rate, often seen as a remedy for high inflation, will have a direct bearing on industries such as automobiles, consumer durables and real estate, all of which are large consumers of steel. The global financial turmoil, which is unravelling a gloomier picture each new day, is also likely to weigh on India's stock markets.

Oil: Marketing cos weak; upstream firms may gain
The shares of oil marketing companies are expected to remain in negative territory next week as their revenues will be affected by the high crude prices. The upstream companies are, however, likely to see a growth in revenues thanks to the spiralling oil prices.

The benchmark April crude oil futures on New York Mercantile Exchange ended at $104.48 (Rs 4,200) a barrel on Wednesday, down $4.94, on concerns that global economic weakness may hurt the demand for oil.