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Bank Stocks Outlook for the week – 03 to 07.10.2016 Seen volatile next week ahead of RBI policy Tue

Bank Stocks Outlook for the week – 03 to 07.10.2016
Seen volatile next week ahead of RBI policy Tue

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Bank stocks are seen opening volatile next week ahead of the Reserve Bank of India's fourth bimonthly policy statement for 2016-17 (Apr-Mar), due on Tuesday. Market participants are split
between expectations of a status quo and a repo rate cut of 25 basis points on Tuesday. The RBI
stance on policy rate will set the tone for banking stocks for the latter part of the week. We expect
the policy statement to affect the investment decisions of foreign institutional investors. Tuesday's
policy decision will be the first policy statement by RBI Governor Urjit Patel and newly formed
monetary policy committee.

On Sep 22, the government had appointed three academics Chetan Ghate, Pami Dua, and Ravindra
H. Dholakia as government nominees on the Monetary Policy Committee. The other three members
of the Monetary Policy Committee are Patel, Deputy Governor R. Gandhi and Executive Director
Michael Patra. The views of the three external members of the committee on policy issues are not
well known. After Patel's elevation, Gandhi is holding the charge of the monetary policy department
for the first time.

The first comment from Patel after taking charge as governor and his own views on broader issues
including asset quality of banks are widely awaited, as they will have a direct impact on bank stocks.
Broader markets that saw some correction due to risk aversion from both domestic and foreign
investors following India's 'surgical strike' on Pakistan late on Wednesday is also expected to calm
down in the coming week.

The geopolitical concerns between the countries had spooked foreign investors and raised questions
about whether an escalation of such tensions could impact the Indian economy and markets going
ahead. Among individual banks, stocks of South Indian Bank are likely to remain in focus as the
lender will detail its earnings for Jul-Sep on Friday. Kotak Mahindra Bank, which announced acquiring nearly 99.5% stake in BSS Microfinance post market hours yesterday, will also be in focus as a similar buyout by another lender IDFC Bank had pushed its stock sharply higher. There was a
building up of short positions in October series after the rollover from September series in State Bank
of India and Punjab National Bank as the market expects a correction in these stocks.