Bank stocks poor picks despite good Q2

Bank stocks poor picks despite good Q2
REUTERS

MUMBAI, NOV 3: Banks showed a sharp rise in earnings for the second quarter of 2000/01 (April-March) but their shares are poor investment options because of concerns over sluggish economic growth, analysts said on Friday.

Within the banking sector, the new generation private sector banks that are quick to react to change and have exploited technological changes well are seen as better stock picks than state-run banks. "Lower volumes growth will hurt state-run banks more than private sector banks," said Manish Karwa, banking analyst at Pranav Securities.

This is likely to translate to lower volumes for banks as companies will shy away from building inventories. "The slowdown in the economy could have an impact on credit growth in the next six months and this is likely to hit profits in the longer term," said Seshadri Sen, banking analyst at SG Asia Securities.

The Reserve Bank of India last month cut its 2000/01 gross domestic product estimates to 6-6.5 per cent from its previous forecast of 6.5-7.0 per cent while the independent Centre for Monitoring Indian Economy slashed its forecast to 5.8 per cent from seven.

Reflecting these concerns, SBI's shares have shed nearly 22 per cent in the second quarter of 2000/01 while the main 30-share Bombay index fell 14 per cent during the same period. On Friday afternoon, the shares were up Rs 3.80 at Rs 176.10, but off nearly 40 per cent from their 2000 high of 293 in February.

NO TRIGGER FOR BANK STOCKS: Analysts said they saw little chances for investors flocking to buy state-run bank shares despite low valuations unless there was an upturn in economic activity.

"There is no trigger for state-run bank stocks. Although valuations are low, there is little chance investors will buy unless the public sector character is removed," Karwa said. Private sector UTI Bank, HDFC Bank and Global Trust Bank (GTB) were the stocks to pick, he said. On Friday, shares of HDFC Bank traded at Rs 252, off calendar 2000 highs of Rs 295.85, while GTB shares at Rs 89 were lower by 15 percent from their high of Rs 104.50 hit on February 3.

UTI Bank shares were trading at Rs 38.75, gaining about 22.5 per cent in the past three weeks, but off 14 per cent from their high of 45.35 in February. The benchmark Bombay index was up 1.61 per cent at 3,936.76 points in afternoon trade on Friday - off 36 per cent from its year high of 6,150.69 on February 14.

Analysts said the tech-savvy private sector banks like HDFC Bank, ICICI Bank and UTI Bank will nibble away market share from the larger state-run banks. Since the central bank allowed new generation private sector banks to set up shop in 1994, their share of business has grown significantly to 20 per cent - mainly at the expense of the state-run banks.