Shares of rate sensitive stocks rose after the bi-monthly credit policy meeting of Reserve Bank of India (RBI), which left the repo rate unchanged at 6%. Repo rate is the rate at which the RBI lends money to commercial banks in the event of any shortfall of funds.
Shares of rate sensitive stocks rose after the bi-monthly credit policy meeting of Reserve Bank of India (RBI), which left the repo rate unchanged at 6%. Repo rate is the rate at which the RBI lends money to commercial banks in the event of any shortfall of funds. Market participants said the dovish tone of the policy, reduction of the inflation target and the deferral of implementation Ind AS for banks cheered the the market and boosted rate-sensitive stocks. Bank stocks rallied giving a thumbs up to RBI’s decision to defer implementation of Indian Accounting Standards (Ind AS) by one year. The BSE Bankex gained 2.78% to end the session at 27,693. All the constituents of the Bankex ended the session in the green. Bank of Baroda was the biggest gainer in the index rising 5.7% followed by SBI which gained 4.7%. SBI was also the biggest gainer among Sensex stocks. ICICI Bank, Kotak Bank and PNB rose by 3.52%, 3.38% and 3.02%, respectively. Axis Bank, Federal Bank, Yes Bank and IndusInd Bank rose by more than 2%. “Ind AS requires that every quarter the entire investment portfolio needs to be marked-to-market.
Whatever is the gain or loss in every quarter in the portfolio has to be taken to P&L. Now if Ind AS would have been implemented it would meant that the earnings would become volatile at a time when banks are already in a precarious situation. With the delay in implementation, banks get some breathing time. Moreover, the tone was distinctly dovish, and those factors went a long way in helping the banking stocks. The tone being dovish means rates may not rise at least for six months or a year,” said a market participant requesting anonymity. Ashish Gupta, director, Grant Thornton Advisory said, “The postponement of Ind AS provides banks with more time to move their financial reporting processes that would have been significantly impacted due to Ind AS 109. Further, the banks would have more time to prepare for the potential impact on capital due to enhanced provisioning under Ind AS. However, it should be noted that Indian banks will be on a different platform of financial reporting with their global peers who have either moved or shall move to IFRS 9 this year. This reduces the comparability of banking performance vis a vis global peers.” Arun Thukral MD & CEO, Axis Securities said reduction of inflation target has helped banking stocks. “The expectation of soft inflation has led to drop in bond yields which may lead to a drop in the cost of funds for banks and NBFCs. Both these developments have been responsible for a rally in banking stocks,” Thukral said.