Banking stocks likely to move up

MARKET WATCH

Hopes of rate cut by lenders may fuel sentiment.

Banking shares are likely to rise next week on hope of banks cutting home loan rates to boost credit demand, according to analysts and bankers.

"HDFC, despite being so conservative, has gone ahead and cut rates. So, other housing finance companies may also cut rates," said Sandeep Shah, head of equity sales, Tower Capital.

Housing Development Finance Corporation cut its lending rates by 25 bps for its existing customers, taking cues of moderation in the Reserve Bank of India's monetary policy stance after the central bank left its key rates unchanged at the third quarter review of its Monetary and Credit Policy for 2007-08.

Though the market was initially disappointed after RBI Governor Y V Reddy did not cut interest rates, rate cut hopes are still alive as the rate differential between India and the US has widened further.

"The rate differential is now 125 bps. There should be 25-bps cut in interest rates by RBI next week," Shah said. The US Federal Reserve cut interest rates by 75 bps on January 22 and followed it by another 50-bps cut on Wednesday, leading to a higher interest rate differential with India.

IT: Information technology (IT) shares are likely to remain range-bound next week, according to analysts. On Monday, technology stocks could see a negative bias as last Friday's unexplained sharp rise may get corrected at the begnning of the week.

The CNX IT index was up 6 per cent on Friday, with HCL Technologies rising 10 per cent and Satyam Computer Services 7 per cent. Some analysts said this could be value buying in the run-up to Cognizant Technologies' 2007 financial result due on Thursday.

While IT shares have been beaten significantly, and valuations are definitely at a 52-week low, analysts said there was little news to cheer the sector.

TCS announced a reversal of variable pay this week. Stray talk of large multinationals laying off bench employees has been doing the rounds. And the latest is that a large MNC and one Indian IT company have deferred induction of campus graduates who received offer letters.

Pharma: A likely weakness in the broad market next week might lead to buying in select pharmaceutical shares as defensive bets, dealers said. Ranbaxy, Sun Pharmaceutical Industries and Cipla are seen strong on the charts, according to a technical analyst at ICICI Direct.

Dr Reddy's Laboratories looked weak on the chart, but any downside in the stock looked limited, said an analyst at a domestic brokerage. The stock may see sideways movement, after a 12.7 per cent drop this week.

The Hyderabad-based company had reported a net loss of Rs 84.66 crore for October-December, according to the US accounting standards.

Cipla is seen strong on the charts, but reports of Roche seeking the high court's stay to prohibit the company from selling anti-cancer drug Erlotinib in India may dampen the sentiment for the stock next week, analysts said.

Ranbaxy and Sun Pharma look strong on the charts also for fundamental reasons.