)
The Bank Nifty, the most-traded index after the Nifty, has risen 15 per cent from this month’s low on April 9, while individual banking stocks have gained between 10 per cent and 20 per cent.
Fund managers and analysts said the rally in these stocks were triggered by hopes of a more aggressive monetary policy easing by the Reserve Bank of India early next month, following the drop in gold and crude oil prices. Gold prices have touched a 15-month low, while Brent crude prices fell below $100 a barrel. The wholesale price inflation for March touched a 40-month low.
“The biggest drivers for the rebound have been inflation and interest rates. Bank stocks, being a direct play on this, have gained sharply,” said Apurva Shah, head of research, BNP Paribas Asset Management.
According to brokers, certain well-heeled investors, including a billionaire investor known for his huge bullish bets, have made a killing from this spurt by taking short-term bets in the derivative segment.
“The fall in crude oil and gold prices will result in a saving of $25 billion. If you apply the multiplier impact of 1.2 times, it will translate into incremental GDP of $30 billion. This will benefit Indian companies and banks. The asset quality cycle might reverse and incremental delinquencies will come down, which will help banks save a lot of money,” said Arun Khurana, fund manager of the UTI Banking Sector Fund.
The sharp rally in government bonds in the past few weeks also improved sentiment in these stocks on expectations that banks’ bond portfolios could be boosted.
The yield on the benchmark 10-year bond has come down about 25 basis points this month to 7.756 per cent today. The softening of yield is on the back of anticipation that the central bank may reduce interest rates by a sharper 50 basis points at its meeting on May 3.
The call option contracts of banks have surged 30-40 times in just a matter of two weeks. For instance, the call option of the SBI 2,300 strike price, which was trading at Rs 1.90 on April 9, closed today at Rs 40.10. Further gains from here will hinge on sustainability of lower crude and gold prices, monsoon and also the asset quality of banks.
“For further gains from here, the monsoon has to be good and the prices of major commodities should remain low. If that happens, bank stocks can even add another 20 per cent in the next six months,” said Khurana.
According to Shah of BNP Paribas, apart from these factors, performance of banking stocks will depend on the asset quality. “Banks have been showing an improvement in asset quality in Q4. A similar thing might happen this year as well. This is not the proof that things have turned. One has to look for the numbers during the first quarter,” he added.
