Banking stocks' slide to continue

Analysts expect further decline of 10%

The relative underperformance of the banking stocks as compared to the broader market is likely to continue going ahead as poor asset quality concerns refuse to abate.

According to analysts, stocks of the banking sector could see a further decline of about 10%.

The rising level of non-performing assets as well poor economic growth have hit the financial sector hard, analysts said. Further, the 25 basis points hike in the repurchase rate by the Reserve Bank of India would lead to further deterioration of the banks' asset quality.

"There is a lot of negativity surrounding this sector as the markets continue to underperform. A large number of short positions have been created in the banking sector stocks," said Siddharth Bhamre, head of derivatives, Angel Broking. The derivatives expiry session on Thursday saw a huge number of short positions being rolled over to the February series. The open interest in the Bank Nifty was at a six-month high, analysts said.

In the last one-month period, Bank Nifty has declined by about 11% while the broader Nifty had fallen by about 4%. From the highs touched in December 2013, the banking index has declined by over 13% and underperformed the Nifty by 9%.

Sector analysts said that the banking stocks would continue to be a drag on the indices.

"We could witness a further slide of close to 10% near the 9500 over the next couple of months, said a Nirmal Bang Global report on the sector.

Analysts continue to remain bearish on stocks like ICICI Bank, Union Bank of India, Yes Bank, Bank of Baroda among others. Any intermittent rise in their prices should be seen as an opportubity to trim positions, they said.