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Markets extend losses
The Indian stock market continued its roller coaster ride this week, with the
Sensex and Nifty falling by 2.3% each during the week. The market witnessed
weakness in the middle of the week due to the overhang of the housing
loans scam, with the Nifty falling below the 5,800 level, before strong IIP
data published on Friday drove the market higher. IIP growth for October
came in at 10.8% yoy, against market expectations of ~8.5%. Capital goods
index grew by 22.0% yoy, whereas consumer goods index was higher by
31.0% yoy. This week also, BSE mid-cap and small-cap indices
underperformed their large-cap counterparts, dropping by 6.1% and 9.2%,
respectively. During the week, BSE Bankex was the biggest loser, falling by
7.6%. It was followed by the BSE realty index, which fell by 7.1%. However,
BSE oil and gas index supported the market, gaining 1.0%.
Banks under pressure
The BSE Bankex corrected by 7.6%, underperforming the Sensex, which lost
2.3% during the week. Banking stocks have been under pressure since the
news of the bribe-for-loans scam, fast-rising term deposit rates and concerns
on the MFI and telecom-related exposures. We believe term deposit rate
hikes will continue in the near term as deposit growth continues to lag credit
demand. However, the across-the-board correction, in our view, has created
an opportunity to invest in larger banks with a strong CASA ratio. Among
private banks, we have a positive view on ICICI Bank and Axis Bank; amongst
the large PSU banking space, we prefer SBI and BoB; and in the mid-cap
space, we prefer J&K Bank and IOB.
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