GOLDEN RULES FOR TRADING

Bank Stocks Outlook for the week – 04 to 08.04.2016 Trade seen positive next week ahead of RBI policy

Bank Stocks Outlook for the week – 04 to 08.04.2016
Trade seen positive next week ahead of RBI policy

Banking stocks are seen trading positive next week ahead of the Reserve Bank of India's monetary
policy statement on Tuesday, at which the central bank is widely expected to reduce the policy rate by 25 basis points to 6.50%. With the impending RBI policy on Apr 5, expectations of a rate action are running strong and yield on benchmark 10-year G-Sec also has dipped sharply below 7.5% levels.

This is likely to keep sentiments positive for the Bank Nifty. On Thursday, the benchmark 10-year
7.59%, 2026 gilt ended at 100.88 rupees, or 7.4590% yield. The price ratio of Bank Nifty/Nifty has
come up to 2.10 from 2.04, indicating outperformance of Bank Nifty over the Nifty in the recent
period.

For the week, the Nifty Bank rose 1.81%, settling at 16174.90. Yesterday, the National Stocks
Exchange's Nifty-50 ended at 7713.05, down 0.04% on week, while the S&P BSE Sensex closed at
25269.64, down 0.27%.

The fact that Consumer Price Index-based inflation was at a lower-than-expected 5.18% in February,
against 5.69% in January, has fuelled hopes of a rate cut, with some market participants even speaking of a 50-bps rate cut by the RBI on Tuesday. The government's decision to stick to its fiscal
consolidation road map and cut the fiscal deficit to 3.5% of GDP in 2016-17 (Apr-Mar) is also seen as a major reason for the central bank to ease rates. While we accede that stress is likely to be high, ICICI Bank has been able to strengthen its retail business and manage its profitability. Similarly, insurance stake sale and repatriation of capital from overseas branches could help cover credit for cost.