Auto and realty indices gain, but Bankex takes a hit

Written by fe Bureau | Mumbai | Updated: Oct 26 2011, 08:25am hrs
Interest rate sensitive stocks were mostly unhurt by the RBIs move to hike the repo rate by 25 bps as the move was in line with expectations. While realty and auto scrips gained, banking scrips took a beating as the RBIs move to deregulate savings bank deposit rates was seen as a negative for banks profitability.

The RBIs tone has been more dovish than expected, said Navneet Munot, CIO, SBI Mutual Fund. They have given a very clear forward-looking statement by stating that further rate hikes may not be warranted as inflation is projected to decline from December onwards. Added Tarun Kataria, CEO, Religare Capital Markets: The likelihood of a further rate hike is not there. This should bring a much-needed certainty in policy trajectory and could potentially help improve the investment climate.

The BSEs auto index rose 2.85% with three of its 10 scrips ending in the red. The realty index gained 1.19%, with five out of 14 scrips declining. With the RBI indicating a pause in rate hikes, auto and realty scrips saw a sort of relief rally, said DD Sharma, senior VP, research, Anand Rathi. The Bankex index shed 1.22%, with seven out of 14 scrips declining. Banking majors, such as SBI, HDFC Bank, Punjab National Bank and Axis Bank, slipped by more than 3% each. Sandeep Nanda, Chief Investment Officer of Bharti AXA Life Insurance, believes that given the current liquidity environment, the deregulation of savings account rates would likely move up the interest cost curve for the entire banking system and the end-borrowers.

The policy may lead to hikes in bank base rates, increase interest rate volatility and also deal a blow to margins of banks with high savings deposits, he said.

Rajrishi Singhal, head, policy & research, Dhanlaxmi Bank, added: Deregulation of deposit rates is likely to increase costs for most banks, especially those with a high percentage of casa deposits. As such, the market-allocated premium to banks with high Casa ratios might witness some re-rating.

According to a report brought out by SMC Global Securities, deregulation can have serious implications on the profitability of the banking system. Already banks are under pressure with slow growth in the loan books and high interest rate cycle. In that backdrop, this deregulation on savings bank accounts will be a new bullet to bite for the banking system.