Bank stocks dip on RBI policy

Investors seen booking profits after sharp rally

Bank stocks declined on Tuesday after the Reserve Bank of India (RBI) decided to leave rates unchanged, as investors pared gains in these stocks, which had seen a sharp run-up in the recent rally. The CNX Bank Nifty and the BSE Bankex fell by a little over one per cent on a day when the benchmark indices ended on a positive note.

The Bank Nifty ended at 12,588, down 1.2 per cent. Bankex was also down 1.2 per cent at 14,400. The NSE Nifty closed at 6,721, up 0.3 per cent from its previous close. The BSE Sensex ended at 22,446, up 0.3 per cent. Market watchers said profit-booking was seen at the banking counters, especially those of private banks.

“The fall today was due to profit booking as the RBI move was largely in line with the market consensus. Most private banks have already touched or are near their 52-week highs, thanks to the rally in the last couple of months,” said Rikesh Parikh, vice-president (research) at Motilal Oswal Securities.

The decline was led by losses in private sector names such as Kotak Bank, Federal Bank, ICICI Bank and HDFC Bank, each of which fell about two per cent. State-owned banks were down about one per cent. “While markets already expected RBI to do nothing on the rate front, what surprised markets was the hawkish tone adopted by the central bank. That also added to the profit-booking that we were seeing in the market,” said Nirmal Rungta, director and head (private client group), CIMB Securities.

Bank stocks had been gaining since the beginning of the year in anticipation of a new stable government at the Centre led by Bharatiya Janata Party’s Narendra Modi, considered to be business-friendly. Since January this year, the Bank Nifty has risen about 12 per cent, while the BSE Bankex is up 11 per cent.

Some sections of the market are, however, skeptical about the rally in these stocks.

“Traders looking for a further five per cent gain in these stocks could continue investing until the election results are out. After the elections, the worries about NPAs (non-performing assets) and poor growth in these banks will come back to the fore,” said Mehraboon Jamshed Irani, principal and head, Nirmal Bang.

The risk-reward ratio is not in favour of investors, he said."It is possible that the Bank Nifty could shed about 1000 points more in the following sessions. Traders could start unwinding positions ahead of the first phase of the elections in the North-East and Delhi among others, where exit polls may not that favourable to the BJP," said Rungta.