Banks stocks crash on RBI move

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Banking stocks corrected an average of over 4% on the back of liquidity tightening by the Reserve Bank of India, under-performing the broader market on Wednesday.

Valuations may now be attractive enough to act as an entry opportunity for investors building a long term portfolio though short-term volatility cannot be ruled out, suggest experts.

J Venkatesan, Fund Manager – Equity, at Sundaram Asset Management Company said that while short term risks remain, the fall is based on sentiment.

'It is very clear that the sell-off in wholesale funded banks is panic-selling. We still like banks from a medium to long-term perspective. We like private sector banks for growth and the public sector banks from the perspective of valuations,' he said.  

Wholesale funded banks refer to banks which depend on raising money through issuing debt instruments rather than through savings or current accounts maintained by their customers. The cost of funding for such banks rises with tightening liquidity conditions.

Yes Bank was the top loser amongst the banking pack on Wednesday, falling 12.63%.

R. Murali Krishnan, Head – Institutional Equities at Karvy Stock Broking pointed out that dividend yields on banks are climbing higher.

'The downside looks limited with the way that the stocks have been beaten down. The dividend yield on these banks is between five to seven%.  One could look at the large-cap private sector banks or some of the bigger public sector ones,' he said.

'The RBI is worried about currency and further tightening of liquidity cannot be ruled out,' added Krishnan. However, he felt that there is little room for much further correction.

All forty-five listed banks fell more than the Sensex on Wednesday, down between 1.51% to 12.63%, compared to just over a one% decline on the Sensex.

Seventeen of these stocks ended with losses of five% or more.

In addition to Yes Bank; Bank of India, IndusInd Bank and Canara Bank fell in excess of eight%.

The BSE Sensex was down 1.04% or 211.45 points to close at 20,090.68. The index tracking banking stocks was down 4.61%.  

Currency will be amongst the factors that would affect how bank stocks will move, according to Venkatesan.

'One will watch to see if the rupee is stabilizing as well as   keep an eye on deposit growth and credit growth,' he said.