Bank Stocks Outlook for the week – 31.07.2017 to 04.08.2017

Bank Stocks Outlook for the week – 31.07.2017 to 04.08.2017

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Bank Stocks Outlook for the week – 31.07.2017 to 04.08.2017 )

Bank stocks are likely to rise next week, but the mood will be cautious ahead of the Reserve Bank of India's monetary policy statement on Wednesday. Stock-specific triggers are also likely as some banks are due to announce their Apr-Jun earnings during the week. The repo rate announcement on Wednesday could lead volatility in Nifty Bank index as the week progresses. The price performance trend (the ratio of Nifty Bank level to Nifty 50 level) has moved towards 2.49 levels. We feel a leg of profit booking is due which could push price ratio towards 2.47 levels. However, RBI policy reaction will be the key for direction. Falling retail inflation numbers, which reached even below the 2% lower threshold limit in June, have created a case for a 25-basis-point repo rate cut when the Monetary Policy Committee meets on Aug 1- 2. However, surprises sprung by the panel in the past are keeping most analysts and brokerages cautious. Earnings due over the weekend and in the coming week, such as those of Dena Bank, Central Bank of India, Bank of Maharashtra, Punjab National Bank, UCO Bank and Andhra Bank, will lead to stock-specific action. Ujjivan Financial Services, the holding company of Ujjivan Small Finance Bank, will be in focus too following weaker earnings by most lenders with presence in microfinance, farm and rural lending space. This week, a strong performance by HDFC Bank in its Apr-Jun earnings was overshadowed by a 20-bps increase in
bad loans due to farm loan waivers given away in some states. There is a certain amount of irrationality in the way markets have handled bank earnings. HDFC Bank's gross bad loans go up 20 basis points and markets reacted badly but much higher bad loan ratios at other banks have been ignored or shrugged off. It shows the higher expectations from HDFC (Bank) but indicates a schizoid view in general. Our confidence in the long term is underpinned by gradual healing in the corporate segment, monetisation in subsidiaries, healthy capital position and sustained build-up in retail franchise (asset, liability and fees). Further, Current valuation (discount to peers) adds comfort. Investors will also be attracted to Axis Bank after a news-driven week for the lender. The bank announced its decision to buy wallet company Freecharge for 3.85 bln rupees in an all-cash deal, and also extended Shikha Sharma as managing director and chief executive officer by three years.
Her term was due to end in June 2018. Considering how Axis has lagged peers and not built a franchise that is unique like HDFC Bank has, the board should have looked at bringing in a fresh chief to jolt things up.

Source : Cogencis Information Services Ltd.