Banks may see short-term rally

STOCK MARKET WATCH

A rally in bank shares is likely to continue next week because of attractive valuations, dealers and analysts said.

However, gains may not sustain as traders, concerned over volatility in the short term, may book profits at every rise, they said.

“Bank shares depend upon how global bank shares fare. With the funds being infused by the (US) Fed and other central banks, it looks like there could be some buying in global financial stocks,” said Hatim Broachwala, a banking analyst at Khandwala Securities.

The US Federal Reserve infused $180 billion into the financial markets to ease the liquidity crisis after big investment banks went bust.

Financial giants like Merrill Lynch, Lehman Brothers, and AIG incurred huge losses because of the US sub-prime mortgage crisis.

Morgan Stanley is likely to be taken over very soon. Banking is the only sector that has seen a lot of two-way trades on a daily basis in the last one month, said Sandeep Shah, head of equity sales, Tower Capital.

“We are optimistic on public sector banks. The valuation gap between private and public sector banks has come down. Going ahead, this differential should come down more,” Shah said. Bank stocks were battered on Wednesday following reports of some Indian banks’ exposure to Lehman Brothers, which has filed for bankruptcy.

ICICI Bank has a debt exposure of $80 million to Lehman Brothers, while State Bank of India has around $5 million.

The Bank Nifty fell by 3.6 per cent on Wednesday, compared with Tuesday, while the Nifty fell 1.6 per cent.

Shares of ICICI Bank were the worst hit amid news of its exposure to Lehman Brothers globally.

IT: US blues

Information technology (IT) shares will continue to languish in the coming week, with spurts of value-buying, as the roil in the US financial markets further weakens business outlook for the industry, analysts said.

This week, Lehman filing for bankruptcy protection and Merrill Lynch’s sale to Bank of America has sent jitters among investors in the tech sector as these are large key clients for offshore IT vendors.

Analysts said talk over the sustenance of Morgan Stanley as an independent entity further undermined sentiment. The investment bank is a large client for Tata Consultancy Services.

A report by brokerage CLSA, based on a survey of campus hiring by technology majors from the batch of 2009, which suggested a fall in recruitment compounded concern over the sector.

“This clearly signals that growth is definitely going to be stalled and even existing order book positions may be slashed,” said an analyst. Recent developments in the US banking sector will affect clients’ budgeting for 2009 in November and December, a note published by Citigroup said.

Several brokerages, including CLSA, have expressed concerns on Infosys Technologies and Satyam Computer Services achieving their 2008-09 guidance in dollar terms.

Analysts said it was likely that earnings per share estimates will be lowered even before July-September results are announced.

Tata Consultancy Services’ and Wipro’s earnings estimates for 2009-10 will also be cut because the companies have so far been saying they expected recovery in demand environment towards the end of FY09, said an analyst.

Thus, FY10 estimates are bullish, he added.

The turmoil at AIG has also put the insurance sector under threat, in turn, raising questions over the business of some smaller players such as Mastek, iFlex Solutions, and perhaps even HCL Technologies, said analysts.

The mid-cap sector should be out of bounds at the moment, said an analyst.