Bank stocks are expected to see some profit sales in the coming week with state-owned lenders likely to see selling at every rise. However, the trend will closely tail movements in broad markets, industrial production data and also take cues from Jul-Sep bank earnings. Broad markets are expected to eye cues from a meeting between officials of the government and the Securities and Exchange Board of India on today (Saturday) which will set the tone for Indian equities early next week. In a bid to boost flows into equities, the government and the SEBI are likely to announce some investor-friendly steps. Valuations of state-owned banks are cheap and attractive but continued issues on asset quality and constant concerns surrounding management change linked profitability shocks, are likely to ensure that private banks remain more preferred over PSU banks. Developments on Kingfisher Airlines are also likely to impact the stocks of all banks that have cumulatively lent over 80 bln rupees to the beleaguered airline. The carrier has declared a temporary lockout and has now been served a regulatory notice on why its licence should not be revoked. All banks have declared it as a non-performing asset, but State Bank of India has made a 100% provision for its loan exposure so far. Higher provisions are expected to impact stocks of nearly all banks.
IndusInd Bank will report quarterly earnings on Wednesday and HDFC Bank on Oct 12. We expects state-owned banks to report muted operating profits. A moderate NII growth and a flat performance on the other income front are expected to result in a modest 7.5% year-on-year growth in pre-provisioning profits for PSU banks; while private banks are expected to report healthy performances on the pre-provisioning profit front, with growth of 24.1% on year. However, concerns over asset quality and rising non-performing asset ratio of banks continue to be a cause for concern for all brokerages.
Net non-performing assets of Indian banks may cross 2 trln rupees by Mar 31, up from 1.57 trln rupees as on Jun 30. Existing exposure of banks to poor performing sectors like power, aviation, highways, micro-finance institutions, ports, telecommunication and others have led to high levels of stress assets. Investors in rate sensitive stocks like banks will also eye cues from the Reserve Bank of India's meeting with the finance minister today, and also comments from RBI officials in the coming week. Recent comments from RBI officials have indicated a concern over growth but the central bank's continued focus on inflation has led it to maintain a status quo on policy rates over the last six months. Yesterday, most bank officials sought a further cut in cash reserve ratio from the RBI, while some bank officials favoured a cut in repo rate at the pre-policy consultations with the Indian Banks' Association. The RBI's next policy review is slated for Oct 30.
