Banking shares under pressure on inflation worries

At 1033 hours, Bank Nifty was down nearly 2% compared to 0.51% fall in benchmark index CNX Nifty.

Banking shares are under pressure falling by up to 4% on the National Stock Exchagne (NSE) after higher-than-expected inflation data dents hopes for a rate cut.

HDFC Bank, Bank of India, YES Bank, IndusInd Bank, Union Bank of India, Canara Bank and Kotak Mahindra Bank are down 2-4%.

The NSE banking share index Bank Nifty, the largest loser among the sectoral indices was down nearly 2% compared to 0.51% fall in benchmark CNX Nifty at 1035 hours.

The Wholesale Price Index (WPI) based inflation rose an annual 6.46% in September, higher than the previous month's 6.10% and market expectations of 6.0%. Consumer Price Index (CPI) inflation for September 2013 also surprised negatively as it picked up to 9.84% as compared with expectations of a 9.5% print.

Most of the analyst expects the Reserve Bank of India (RBI) bank to hike the repo rate by 25bp to 7.75% in its next policy review due on October 29, 2013.

However, the appreciation of Indian rupee by more than 10% from its record low and is now stabilizing at present levels, providing comfort to policymakers on the currency front, says analyst at Angel Broking in a note.

In view of this, we believe that the RBI is likely to get some headroom for easing some of the exceptional short-term liquidity tightening measures. We expect the RBI to reduce the marginal standing facility (MSF) rate by 25bp. We thus expect the corridor between the repo and MSF to normalize at 100bp from 150bp currently, says analyst.

Among the individual stocks, IndusInd Bank and YES Bank have dipped 4% each at Rs 411 and Rs 336 respectively. Bank of India was down 3% at Rs 182, followed by Union Bank of India and Canara Bank down 2% each at Rs 120 and Rs 239 respectively.