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Bank stocks may take a beating on SBI rate cut

Palak Shah  |  Mumbai 

The latest move of the country’s largest public sector bank, State Bank of India (SBI), is too little, too late and will not have any immediate positive impact on prices of interest rate-sensitive sector stocks, believe market players.

In fact, banking stocks could face the music on bourses as a consequence of this move, says leading stock broker Ramdeo Agarwal of

“The loan profitability of SBI may be impacted as a consequence of this decision. The move shows that banks are under pressure and there is no growth in the business,” says Agarwal. In the domestic market, real-estate sector stocks have declined by 80-90 per cent since January 2008 following a drop in home sales. Even benchmark real-estate stocks like DLF and Unitech have declined by 70-80 per cent, while benchmark indices Sensex and Nifty fell by 60 per cent during the period.

Agarwal further believes that real-estate prices in Mumbai are yet to come down by 40-50 per cent. “While a home loan rate of 8 per cent now seems sensible, real-estate prices in a city like Mumbai are most expensive in the world today,” he says.

Agarwal’s belief that the cut in the across-the-limit home loan rate may not boost home sales immediately lies in the poor job scenario. “At present, people are insecure about their jobs and would not decide to take loans in a hurry,” he adds.

However, Deven Choksey, Managing Director of one of the oldest stock broking firms, K R Choksey Shares and Securities, believes that the condition of the Indian consumer is not as poor as is being projected. “It is necessary to look outside the financial market and Mumbai. People are waiting on the side-lines for interest rates and property prices to fall. Almost all the banks would now follow SBI and cut rates, which is likely to be a relief for property developers in the coming months,” he stresses. Choksey believes that home sales are likely to go up in Tire-II and Tire-III cities in the near term.

First Published: Mon, February 02 2009. 00:28 IST