Bank Stocks Outlook for the week – 20 to 24.02.2017

Bank Stocks Outlook for the week – 20 to 24.02.2017


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Bank Stocks Outlook for the week – 20 to 24.02.2017
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Stocks are seen taking cues from broader markets in the truncated week starting Feb 20, on absence of sector specific cues. Markets will be closed on Friday on account of Mahashivratri. Some volatility is also likely in bank stocks in the coming week, ahead of the expiry of the February derivative contracts on Thursday. Nifty Bank is expected to find support at 20200 as maximum concentration of open interest is seen in strike puts at those levels while the rally on the upside can be seen moving towards 20800-20900. However, stocks are offering opportunities on both sides so trade should focus more on stock selection while keeping a check on leveraged positions. Gains in the private sector banks are likely to continue next week following a report by brokerage CLSA Asia Pacific Markets saying that a possible merger between Kotak Mahindra Bank and Axis Bank will be positive. However, Kotak bank dismissed the news about merger as speculative. In what could be negative development for public sector banks, yields on government securities are likely to harden at current levels as the Reserve Bank of India has changed its stance from accommodative to neutral. Currently profitability of public sector banks is heavily dependent on gains from the rally in government securities. The rise in yields will put pressure on banks' bottom line along with low credit growth. However, bankers expect yields to cool down in the next month such that they will not suffer any mark-to-market losses in March. However, With the added pressure of rising inflationary pressures, tightening global financial conditions and absence of aggressive open market operations in 2017-18 (Apr-Mar), yields on the sovereign debt instruments is likely to increase. We believe G-sec yields to harden in range of 7.5-7.8% in 2017-18. In an interview, Reserve Bank of India Governor Urjit Patel yesterday said that the Monetary Policy Committee may raise, lower, or maintain status quo on policy rates depending on the evolving inflation trajectory. Banks' income from fee is also likely to get impacted in the near term because of lower merchant discount rates on digital transactions. Currently, banks are charging lower rates till Mar 31 to support the push for less-cash economy. However, the Reserve Bank of India has proposed to restructure merchant discount rates for payments made through debit cards on the basis of turnover of merchants.