Banking stocks rise on shortcovering, quarterly results

Buying activity picked up in public sector banking segment during second half of the day

Shares of public sector banks (PSBs) soared on Thursday, owing to shortcovering resulting from an improved outlook for earnings. Market participants said in the public sector banking segment, buying activity picked up during the second half of the day, ahead of the end-of-month Thursday expiry.

“A lot of short positions were created in the banking sector space, especially among public sector stocks and also in the Bank Nifty. Most of these positions were covered, as the numbers announced were better than Street expectations,” said Alex Mathew, head of research, Geojit BNP Paribas Financial Services.

Analysts said foreign institutional investors didn’t have major exposure to banking sector stocks; the largest investor group in this sector was domestic institutions, particularly Life Insurance Corporation of India. The better-than-expected earnings by these banks had prompted several foreign investors to increase exposure to this sector, they added.

“The expectation is now, other PSU (public sector undertaking) banks might also post similar numbers,” Mathew said.

But not all sections of the market are bullish on this sector. “PSBs have moved up due to the government’s assurance to infuse liquidity. But still, there is uncertainty regarding these banks,” said Vivek Mahajan, head of research, Aditya Birla Money.

Shares of PSBs Allahabad Bank, Bank of India, Bank of Baroda and Union Bank rose following the announcement of their September quarter earnings on Thursday. Bank of India gained the most, rising 21.3 per cent, owing to a 106 per cent rise in net profit at Rs 622 crore. With a 13.3 per cent rise, Allahabad Bank was the second-highest gainer; its net profit rose 17.8 per cent to Rs 276 crore on a quarter-on-quarter basis. In case of Bank of Baroda, the stock rose 10.8 per cent, despite a 10 per cent drop in net profit at Rs 1,168 crore. Union Bank of India saw its stock gain 7.4 per cent, even as its net profit fell 62 per cent to Rs 208 crore. Analysts say the figures on incremental bad loans were better than expected, leading to the upside.

On Thursday, the BSE Bankex and the NSE Bank Nifty rose 1.9 per cent each, even as the Sensex and the Nifty’s gains were less than one per cent.