Bank stocks rise stumps analysts

Bankex jumped up 4.51% or 194.78 points in the single session on Monday

The BSE Bankex hit its record high of 4510.59 points, with the index spiralling by about 4.51 per cent or 194.78 points in the single session. Following the surge, the Bankex has posted a 75.32 per cent rise from 1,937.79 points on July 23, 2004.

But the performance of bank stocks has divided analysts on whether this is anything to do with their expectations from the quarterly review of the RBI, particularly on hiking interest rates.

If at all, rising interest rates should mean bad news for banks' treasury income. A strong economy and rising credit could, however, be an indicator of better lending opportunities for banks in the coming quarters, said an analyst.

The rise in prices was, however, mostly limited to private banks on Monday. ICICI Bank, with a 7.6 percent weightage in the 30-stock Sensex, rose by 5.2 per cent to Rs 478.50, while HDFC Bank with a 3.7 per cent weightage in the index, gained 6.1 per cent to Rs 688. And State Bank of India, with a 3.8 per cent index weightage, was up 1.6 percent at Rs 732.60.

Kshitiz Prasad of Anand Rathi Securities said, "The market is expecting no hike in the interest rates by RBI. This view flows from the recent rupee rise, which has put a stop to inflationary expectations. Now, it is said that the firming up of rupee will bring down costs of imports, which in turn will lead to lower production costs."

Rajat Rajgarhia of Motilal Oswal Securities, however, feels the rise in banking stocks was nothing to do with the quarterly review by RBI.

"Entire market was up and there is nothing in particular about the RBI- related issues. Tomorrow they can be down also," he says.

Sharmila Joshi of Asit C Mehta was also of the same view, but for a different reason. "The price rise was not across the board in banking stocks. Only leading private sector banks and a few public banks such as SBI and PNB have witnessed gains. Thus, it seems nothing to do with the RBI policy review, particularly on interest rates," she said.

"The market expectation was mostly on liberalization of merger and acquisition policy in the sector," she added.

But for some intermittent corrections the rise in the banking stocks during the last 12 months had been steady. The index gained 7.15 per cent in a week and 13.80 per cent over the last one month.