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Banking index slides for 4th day in a row

August 7, 2009

The BSE Sensex closed 2.28 percent lower on Friday, extending losses for the week to 3.25 percent.

Leading financial stocks like ICICI Bank and SBI pulled the Banking Index down, which registered a drop of nearly 4 percent – its 4th fall this week.

The banking sector has seen an upsurge of almost 53 percent for the period December 31, 2008 to August 6, 2009.

Correspondingly, there has been an increase in Sensex heavyweights like ICICI Bank, which has gained over 70 percent, and SBI which has seen a growth of almost 40 percent over the same period.

The recent decline in banking stocks poses a concern. It could well be attributed to heavy selling by FIIs in almost all counters today.

Data from SEBI shows FIIs sold a net of $51.8 million on August 7 vs $100.8 million in the previous session.
Rising NPAs, slow loan growth, central bank guidelines on reducing interest rates (thus resulting in reduced spread) and access to outside markets with competitive rates, all indicate reduced margins for banks.

Over the past few months, we have seen a record number of companies taking the equity route of QIP (qualified institutional placement) as a better means of raising funds than approaching banks for the same.

Do you think it’s a good time for investment in banking stocks, especially when corporates are looking at sources other than banks for raising funds?

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