PSU banks trade weak; SBI, Bank of Baroda down over 3%

On Thursday, the Reserve Bank of India (RBI) lowered its gross domestic product (GDP) growth forecast for the financial year 2019-20 (FY20) to 5 per cent, from the previously estimated 6.1 per cent.

Shares of public sector banks were trading lower for the second straight day, with Nifty PSU Bank index down 3 per cent on Friday, as investors booked profit on fears of weak economic growth.  The index was ended 2 per cent lower on Thursday.

In comparison, the benchmark Nifty 50 index was down 0.43 per cent at 11,967 at 11:45 am, falling less than 1 per cent in the past two trading days.

In the past three weeks, the Nifty PSU Bank index rallied 10 per cent, as compared to a 1.7 per cent rise in the benchmark index till Wednesday.

Individually, State Bank of India (SBI) declined the most on the exchange, down 3.9 per cent. This was followed by Union Bank of India (3.8 per cent), Bank of Baroda (3.7 per cent), Indian Bank (3 per cent), and Canara Bank (2.17 per cent). Besides, J&K Bank, Central Bnak of India, Oriental Bank of Commerce, Syndicate bank, and Allahabad bank were down in the range of 1 to 2 per cent today.

On Thursday, the Reserve Bank of India (RBI) retained status quo on rates, against expectation for a 25bps cut, on inflationary concerns. The accommodative stance was maintained on rising output gap.

The RBI also lowered its gross domestic product (GDP) growth forecast for financial year 2019-20 (FY20) further by 110bps to 5.0 per cent from 6.1 per cent on substantially weaker growth in Q2FY20 and incremental data on Q3 suggesting that the slowdown is still persisting.

Amid exacerbating growth concerns and with inflation remaining below target for the rest of FY20, the RBI’s statement clearly indicated that there exists policy space for further rate action to reinvigorate domestic demand.

“Overall, we believe that a cut of 50bps more is likely in this rate cycle as inflation still remains benign and negative output gap has widened. The monetary policy committee (MPC) might have taken a pause observing the fiscal slippage, impact of telecom price increases on inflation, and some amount of rate transmission of the earlier cuts to happen,” analysts at Emkay Global Financial Services said in Monetary Policy update.