Banking stocks to see strong opening on RBI move

However, gains made are unlikely to sustain through the day

Banking stocks are expected to open higher on Tuesday on the back of the RBI’s move to bring down short-term interest rates. The NSE Bank Nifty is expected to open up by about 2%, analysts said. However, the gains made are unlikely to sustain through the day, they added.

 

“The RBI’s measure will help the Bank Nifty to see a strong opening on Tuesday. It could do a peak of 4-5% during the day, but would give away some of the gains by the end of the day,” said Yogesh Nagaonkar, head of equity – institutional broking at Bonanza Portfolio. The NSE Bank Nifty closed Monday's trading session down 1.1% to 10,082.

 

On Monday, the central bank brought down the Marginal Standing Facility, or short-term borrowing rate by 50 basis points to 9%, further reversing measures taken by it in July to curtail the decline in the rupee.

 

Banking analysts said that while the rise could be across shares of all banks, those with higher short-term borrowings would benefit the most.

 

“Banks like Yes Bank, IndusInd bank, which have higher exposure to short-term funds could appreciate more than those with low short-term funding exposure. But the rise in the stock prices may not sustain through the day because the fear of a repo-rate hike by the RBI has still not vanished,” said Sunil Jain, VP-Equity Research, Nirmal Bang Securities.

 

Since July, the share price of Yes Bank has fallen by 37% while that of IndusInd bank has fallen by 22%.

 

“The effort of the newly appointed RBI Governor, Raghuram Rajan, has been to flatten the yield curve and the measure taken by the RBI on Monday is a step in that direction. The rupee stabilising at these levels may have prompted the central bank to take this measure,” said Varun Goel, head of PMS at Karvy Stock Broking.

 

Earlier this year in July, the RBI in its attempt to curb the rupee fall had increased short-term borrowing rates which put liquidity pressure on the system.