With an improving labour market in the US fuelling fears of a Fed rate hike by as early as June, banking stocks ended 1-4% lower on Monday on profit-taking. The Bank Nifty ended 3.05%, or 602.45 points, lower at 19,145.55.
On Friday, data from US Labor Department showed that the unemployment rate in February had fallen to its lowest level in six-and-a-half years. The improvement in labour market led to concerns that the US Fed could raise the interest rates at the June Federal Open Market Committee meeting.
Experts attributed the correction in banking stocks to profit-taking. “In the last few weeks, banking stocks have run up a lot. Most banks have been trading 3-3.5-times their book value,” said B Gopkumar, executive vice-president and head (broking), Kotak Securities. The Bank Nifty is currently trading 1,409 points from all-time highs.
Gopkumar added that the markets declined on Monday as the economy is yet to show clear signs of recovery. “Markets have fallen as concrete signs of economic recovery are yet to be seen. Our stance is that it will take at least another two quarters before the economy starts recovering,” he said.
The HSBC Manufacturing Purchasing Managers’ Index (PMI) for February grew at 51.2, its slowest pace in five months. Reserve Bank of India (RBI) governor Raghuram Rajan, while announcing a 25-basis-point rate cut last week, said the central bank was being pre-emptive, given the low capacity utilisation, weak indicators of production and credit offtake.
On Monday, among the banking stocks, Axis Bank (-4.3%), ICICI Bank (-4.3%), Canara Bank (-4.13%), Yes Bank (-3.9%), Bank of India (-3.2%), Kotak Bank (-3%) and SBI (-1.2%) ended lower.
Market observers believe that a rate hike by the US Fed could soften the rupee, but don’t see a direct impact on banks.
“If interest rates are raised, it could lead to FII outflows, which would have a negative impact on the currency. However, we don’t see banks getting directly impacted by the hike,” said Rikesh Parikh, vice-president, Institution Corporate Broking, Motilal Oswal Financial Services.