Bank shares recover on bargain hunting

ICICI Bank (up 5.52%), Canara Bank (up 3.11%), Bank of Baroda (up 3.10%), Axis Bank (up 2.89%), Bank of India (up 2.63%), Union Bank of India (up 2.42%), HDFC Bank (up 2.29%), Yes Bank (up 1.83%), State Bank of India (up 1.83%), Punjab National Bank (up 0.71%) and Federal Bank (up 0.47%), edged higher.

The BSE Bankex was up 2.76% at 9,222.36. It outperformed the Sensex, which was up 1.63% at 15,423.19.

The Bankex fell 14.95% in the preceding nine sessions to 8,975.01 on 20 December 2011 from a recent high of 10,552.51 on 7 December 2011. The stock had underperformed the market over the past one month until 20 December 2011, falling 11.67% compared with the Sensex's 7.31% decline. The scrip had also underperformed the market in past one quarter, sliding 20.24% as against 11.25% fall in the Sensex.

The recent fall in bank shares was triggered by the central bank leaving cash reserve ratio (CRR) unchanged after the mid-quarter monetary policy review on Friday, 16 December 2011.

The Reserve Bank of India (RBI) left its main lending rate unchanged in order to support faltering economic growth as inflation shows signs of cooling. The central bank also refrained from cutting the CRR despite tight liquidity in the system. The repo rate was left steady at 8.5% after increasing it 13 times since March 2010. The bank rate also remains static at 6%. The central bank kept its end-March 2012 inflation forecast unchanged at 7%.

While inflation remains on its projected trajectory, downside risks to growth have clearly increased, RBI said in a statement. The guidance given in the second quarter review of the monetary policy was that, based on the projected inflation trajectory, further rate hikes might not be warranted. In view of the moderating growth momentum and higher downside risks to growth, this guidance is being reiterated, RBI said. From this point on, monetary policy actions are likely to reverse the cycle, responding to the risks to growth, RBI said.

However, it must be emphasised that inflation risks remain high and inflation could quickly recur as a result of both supply and demand forces, the central bank said in statement. Also, the rupee remains under stress, RBI said. The timing and magnitude of further actions will depend on a continuing assessment of how these factors shape up in the months ahead, RBI said. The RBI has raised rates 13 times since March 2010.

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