Banking stocks drag markets lower

Markets continued to trade in red in mid-morning trades. The Sensex dropped to a low of 20,374 on weak Asian cues and selling pressure on banking stocks. The index was down 106 points at 20,392.

Nifty slipped 35 points at 6,111.

Asian markets traded in red as stronger $ hit commodity prices. Markets in China, Japan and Korea dropped as much as 1.5% today. However, Straits Times edged up in trades.

Markets will be looking at the December earnings for direction.

"We are positive on this earnings season. It would be led by the financial sector, followed by IT and auto. The only drag may be capital goods and engineering", said Gopal Agrawal, Deputy CIO and head-equity, Mirae Asset MF.

While most of the sectoral indice traded flat, BSE Bankex extended Tuesday's losses and dropped 1.7% to 12,894. Investors are worried that with inflation rising continuously, the Central Bank may hike interest rates.

Among the banking stocks, Axis Bank dropped 2.3% to Rs 1,317. ICICI Bank shed 2.3% to Rs 1,079.

Oriental Bank of Commerce, Canara Bank, Punjab National Bank, SBI, HDFC Bank and IDBI were down 1-2% each. Nine of the stocks were trading in the positive zone.

"One can get reduce exposure to banks now and enter at lower levels. But, in FY12 one number everyone will watch out for would be the corporate credit offtake. This year, it was supported by the 3G auctions. My sense is that if it continues to stay healthy this year, the stocks will do well too", added Agrawal.

The FMCG and realty sectors were also weak.

Sterlite dropped 2% to Rs 190. Bajaj Auto slipped 1.7% to Rs 1,406. HDFC was down 1.5% at Rs 716.

DLF, ONGC, Reliance Infrastructure, Tata Steel and BHEL shed 1% each in trades. Other stocks on the losers side incuded Hero Honda, Hindustan Unilever, ITc and Cipla.

Meanwhile, Tata Power gained 1.5% at rs 1,398. Jaiprakash Associates added 1.5% to Rs 110. Hindalco, Jindal Steel and Reliance were in green.