Af­ter RBI Com­ments, Bulls don’t Find PSBs Bank­able

Nifty, Sen­sex tum­ble as PSU bank stocks crash on NPA & rate fears

The Economic Times - - Front Page - Our Bu­reau

Drop Zone

MA­JOR LOSERS AMONG BANK STOCKS

CMP (`) % Change PNB 149.40 -5.97 Syn­di­cate Bank 69.65 -4.39 Bank of In­dia 154.75 -4.29 IDBI Bank 56.70 -4.22 Union Bank 143.75 -4.19 OBC 138.10 -4.06

MA­JOR SEC­TORAL LOSERS BSE Sec­toral In­dices % Change Metal -1.68 Bankex -1.66 Fi­nance -1.33 Health­care -1.03 In­dus­tri­als -0.89 Ba­sic Ma­te­ri­als -0.75 Mumbai: Public sec­tor bank shares dragged down the Nifty and the Sen­sex by more than half-aper cent on Thurs­day as prospects of more rate cuts re­ceded af­ter the Re­serve Bank of In­dia held on to its ‘neu­tral’ stance in Wed­nes­day’s bi-monthly mon­e­tary pol­icy.

The Nifty stayed above the 10,000 mark, which it had crossed last week, but lost 67 points — or 0.67% — to end at 10013, mark­ing its big­gest fall in two weeks. The Bank Nifty in­dex fell 1.52% as State Bank of In­dia and ICICI Bank fell more than 2% each to .₹ 300.5 and .₹ 295.7, re­spec­tively. The Sen­sex lost 0.74%, or 238 points, to end the day at 32,237.

Re­liance In­dus­tries gained 2% to .₹ 1,664.70 — a new life­time high.

Stocks have been led by a gain in Bank Nifty in the past six months, with the pace of the rally strength­en­ing in past two months. Driv­ing this gain in bank stocks were hopes of a quick end to the bad loans is­sue — af­ter RBI or­dered lenders in June to in­voke bank­ruptcy pro­ceed­ings in cases where nor­mal res­o­lu­tion seemed im­pos­si­ble — and prospects of quick rate cuts.

But RBI’s cau­tious tone in Wed­nes­day’s pol­icy dis­ap­pointed many in­vestors. It cut rates by 25 ba­sis points, but de­clined to change its stance to ‘ac­com­moda­tive’, while warn­ing that in­fla­tion could rise in the com­ing months.

Some in­vestors found this puz­zling, es­pe­cially be­cause the cen­tral bank’s macro-eco­nomic com­men­tary was not op­ti­mistic. RBI said lack of a pick-up in pri­vate capex was a worry while PMI data for July showed a dip due to GST im­ple­men­ta­tion. Man­u­fac­tur­ing PMI fell to an eight-year low, while ser­vices PMI dipped to a four-year low.

“The pol­icy stance was a lit­tle dovish in our view though the rate ac­tion was in line with ex­pec­ta­tions. We con­tinue to avoid public banks though we do feel gov­ern­ment and reg­u­la­tory ac­tion to re­solve banks’ NPA woes are on the right track,” said Vaib­hav Sang­havi, co-CEO, Aven­dus Cap­i­tal.

An­a­lysts said the sell­off in bank shares re­flected the un­wind­ing post the build-up ahead of the RBI meet. The Bank Nifty had risen 6% in the month be­fore Au­gust 2.

Deepak Jasani, head (re­tail re­search) at HDFC Se­cu­ri­ties, said shares of public sec­tor banks would stay buoy­ant till the re­sults sea­son, af­ter which there could be some sell­off. “The street is wait­ing for the re­sults of some of the larger state-run banks such as Bank of Bar­oda and State Bank of In­dia. The trend in PSU banks will be­come clearer af­ter that.”

An­a­lysts said one rate cut of 25-50 bps will not help banks much. “What will be im­por­tant to track is the speed/ex­tent of re­cov­ery from old de­fault­ers un­der the IBC (In­sol­vency and Bank­ruptcy Code) and rate of cre­ation of new de­fault­ers go­ing ahead,” Jasani said.

Rate-sen­si­tive sec­tors such as real es­tate and au­to­mo­biles also fell on Thurs­day due to the un­cer­tainty in mon­e­tary pol­icy. The Nifty Auto fell 0.68% while Nifty Re­alty fell 0.85%.

Stocks of oil mar­ket­ing com­pa­nies cheered the gov­ern­ment’s de­ci­sion to raise kerosene and LPG prices at reg­u­lar in­ter­vals as it would im­prove the tim­ing of cash flows of th­ese firms.

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