Bankex under pressure

The government’s announcement of higher expenditure and tax breaks over the past few weeks have led to concerns on hardening of government securities yields and put pressure on the banking stocks.

The Bombay Stock Exchange’s Bankex has underperformed the market since February 16, with a decline of 11.6 per cent compared to 4.5 per cent fall in the benchmark BSE Sensex.

In the derivatives segment, the Nifty witnessed the creation of shorts as traders expected the banking stocks to underperform.

The open interest (OI) in the March futures of Bank Nifty rose over six times from 146,500 shares to 972,700 shares. The trading in Bank Nifty options was seen at 3,800 put (Rs 150 premium) and 4,000 call (Rs 124 premium).
 

UNDERPERFORMERS
Market price in Rs	Feb 16	Feb 27	% chg

SB of Mysore502.40356.05-29.13 Indian Bank112.1586.65-22.74 Syndicate Bank63.7049.35-22.53 IOB58.4046.15-20.98 Andhra Bank53.9543.00-20.30 ICICI Bank409.2328.10-19.82 Allahabad Bank50.0040.10-19.80 J & K Bank295.70239.15-19.12 Axis Bank418.75347.95-16.91 Vijaya Bank28.4024.00-15.49

The Bank Nifty recovered on Friday from 3,732 to close at 3,875 on Friday, which indicate that the upside for banking stocks is very limited. The key stocks futures, ICICI Bank, HDFC Bank and State Bank also witnessed considerable recovery on Friday due to short covering at lower levels.

The scrip of HDFC Bank rose by 5 per cent over its intra-day low of Rs 837 to close at Rs 878. The bank’s March futures closed at a discount of Rs 10 to spot and added OI of 308,000 shares, indicating short build-up. State Bank futures too closed with discount to spot on fresh short build-up. ICICI Bank March futures closed at premium and added OI of 713,300 shares indicating a long build-up.

Banking analysts believe that the market reaction appears to be excessive and the current prices have factored in the gloomy prospects in perpetuity.

According to a banking analyst at Kotak Securities, earnings estimates for banks assume a sharp rise in stressed assets over the next five quarters, apart from a 20-25 basis points decline in the net interest margin and modest treasury gains in 2010.