After falling for four consecutive months, India’s banking stocks have surged in September on value buying and recent measures announced by the new Reserve Bank of India chief, but analysts remain cautious.
On his first day in office, RBI chief Raghuram Rajan announced measures to prop up the rupee and liberalise the banking system, including higher overseas borrowing limits for lenders and simpler branch opening processes.
The BSE banking index has gained more than 14 percent this month after losing nearly 30 percent during the April-August period, with stocks such as ICICI jumping 20 percent and YES Bank climbing more than 27 percent. The benchmark Sensex has gained around 6.5 percent in September. However, analysts believe the rally could lose steam.
“I don’t think the same rally at this stage is possible to continue. We don’t see too much of an upside for the short-term period because the pressures of liquidity, NPA (and) restructuring are still high,” said Kajal Gandhi, assistant vice-president of research at ICICI Direct. NPA refers to non-performing assets or bad loans.
After rising over 50 percent in 2012, the BSE banking index had struggled this year, especially in recent months when the RBI tightened liquidity by raising short-term interest rates to support the falling rupee.