GTB knock for banking stocks

Sentiment turns distinctly sour in the last 15 days

Mid-cap bank stock are reeling under selling pressure, as sentiment for banking stocks has turned cautious after the Global Trust Bank (GTB) fiasco and the overwhelming concerns over the rising interest rates.

Markets sources have confirmed that large investors have been churning their portfolio of bank stocks in the last 15 days and are choosing only those banks which can withstand an interest rate shock.

The chief investment officer with a domestic mutual fund said on conditions of anonymity, "We are not very positive on the banking sector and the GTB fiasco has further dampened the sentiment for smaller bank stocks which are under shadow of scepticism."

Overall, analysts expect banks' treasury profits to turn negative this year specially since there are still no signs of credit picking up.

The scrips of smaller bank have been the worst hit. They have witnessed a sharp fall since July 26, 2004, when the RBI announced a moratorium on. GTB

The GTB stock has been the biggest loser as it crashed a whooping 79.98 per cent to Rs 2.11 from Rs 10.54 on July 26. Other smaller banks also suffered a similar fate. United Western Bank (down 18.44 per cent to Rs 24.10), IndusInd Bank (down 17.81 per cent to Rs 41.30), Dhanalaxmi Bank (down 17.46 per cent to Rs 18.20), Bank of Punjab (down 13.83 per cent to Rs 16.89), Dena Bank (down 12.52 per cent to Rs 22), Bank of India (down 11.65 per cent to Rs 45.90), City Union Bank (down 11.58 per cent to Rs 58.10), Indian Overseas Bank (down 10.94 per cent to Rs 40.79) and Bank Of Rajasthan (down 10.74 per cent to Rs 30.75) were among the biggest losers.

Even the larger bank stocks have underperformed the broader market and provided negative returns due to the selling pressure. Federal Bank stock lost more than 12 per cent to Rs 269 from Rs 305.95, ING Vysya Bank stock was down 9.70 per cent to Rs 287.39, Corporation Bank was down 9.32 per cent to Rs 214.45 during the period between July 26 and August 13, 2004.

Morgan Stanely in its latest report on Indian Banking sector said, "We had downgraded the financial sector to 'neutral' from 'overweight' due to the concerns over interest rates, foreign investment flows and the reform process. Whilst the Indian bank share prices have fallen by 31 per cent from their peak in April , we are not changing our sector stance at this time due to continued investor concern towards the impact of rising interest rates and worries over the pace of reform. However, over the medium term (6-12 months), there is optimism about the financial stocks given their leverage to India's domestic growth."

Among the private sector banking stocks, only IDBI Bank (up 2.07 per cent to Rs 44.35) and ICICI Bank (up 6.86 per cent to Rs 274.95) managed to buck the negative trend.