Bank stocks get FDI boost

Bank stocks, led by HDFC Bank, rose sharply on Friday, as investors perceived the permission for FDI (foreign direct investment) and FII (foreign institutional investor) investments in bad loans a major opportunity for banks to clean their balance sheets.

The Bombay Stock Exchange's Bankex jumped 2.46 per cent to 4,724.12 points. The bank stock index gained 4.34 per cent since November 9. Bankex outperformed the Sensex, which rose 2.12 per cent since November 9.

HDFC Bank shares rose 6.56 per cent to Rs 676.90. Oriental Bank of Commerce (OBC), Bank of Baroda (BoB) and ICICI Bank shares also gained. OBC shares were up 4.25 per cent to Rs 259.00, BoB up 3.01 per cent to 239.75 and ICICI Bank up 2.29 per cent to Rs 527.00.

"FDI and FII investments will help free up value locked in bad loans with banks and generate funds to meet the increasing credit demand. This scenario has made bank stocks an attractive value proposition," an analyst with a foreign brokerage said.

Bank stocks have been on an uptrend since November 9, when the government allowed 49 per cent FDI in asset reconstruction companies (ARCs) and FIIs to buy 49 per cent of the securities issued by ARCs. Bankex rose by 4.31 per cent since November 9.

Another analyst with a domestic investment bank said, "The move to finally allow foreign investment in bad loans will prove a great avenue to exit bad loans. Banks cashing in on the opportunity will get directly reflected in their bottomlines."

The biggest gainer among bank stocks in the bull run has been HDFC Bank. HDFC Bank shares rose 7.19 per cent to Rs 676.90 from Rs 631.45 on November 9. And again on Monday, the stock shot up 6.56 per cent.

ICICI Bank shares were the next biggest gainer with a rise of 4.29 per cent to Rs 505.30. While State Bank of India shares rose 4.16 per cent to Rs 881.85, Punjab National Bank shares were up 2.52 per cent to Rs 415.15.