Good sector to be in - Banking

Bank on the banking space, say experts. With interest rates going down and the liquidity scene much under control, banks are attracting investor attention.

Banking shares posted significant gains on Monday compared with the rest of the market. At 1:15 pm, the BSE Bankex was up nearly one per cent. The index touched a high of 9, 043.57.

ICICI Bank rose 2.25 per cent, Union Bank gained 1.59 per cent, Yes Bank climbed 5.19 per cent and State Bank of India was up 0.67 per cent.

"Increase in comfort levels on the liquidity front has boosted the banking sector," said Alpesh Mehta, banking analyst with Angel Broking.

Foreign institutional investors, major drivers of liquidity in the market, have pulled out over Rs 4,500 crore ever since the Securities and Exchange Board of India's clampdown on participatory notes, sucking out the increased liquidity in the system.

According to reports, the market is expected to maintain an average surplus liquidity of Rs 20,000-25,000 crore.

"Stellar performance from premier banks this quarter has also boosted sentiment," Mehta said.

ICICI Bank's net profit rose 32 per cent to Rs 1,002.60 crore for the July-September quarter compared with Rs 755.01 crore for the same previous period. HDFC Bank's second quarter net profit was up 40 per cent at Rs 368.48 crore.

All eyes are on Reserve Bank's review of the monetary policy on Oct 30.

A cash reserve ratio hike appears unlikely following SEBI's proposed measures on participatory notes. The measures are meant to moderate capital inflows.

“The sudden crash in the stock market and the subsequent weakening of the rupee has now reduced the chances of a fresh CRR hike. But the RBI is known to spring surprises, so nothing can be predicted" said Mehta.

Kashyap Jhaveri, banking analyst with Emkay Share and Stock Broking feels that even if the RBI were to hike CRR, banks will remain unaffected.

“RBI may hike CRR by 50 basis points considering the current liquidity in the system. However, it will not really affect the banking space as it is not likely to affect their profitability," he said.

Angel Broking has recommended investors to buy ICICI Bank with a target price of Rs 1,240 and Punjab National Bank with a target of Rs 615 while Emkay Share is positive on midcaps like Bank of Baroda and Union Bank of India.