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Rate cut propels bank scrips

Sowmya Krishnan

THE market witnessed a lacklustre trend during the past fortnight with investors adopting a defensive strategy by staying with select brick-and-mortar stocks.

During the run-up to the announcement of a 0.5-per cent cut in the bank rate and the cash reserve ratio (CRR) by the Reserve Bank of India, the spotlight turned on bank stocks.

The bank rate has been reduced to 7.5 per cent from 8 per cent and the CRR cut to 8 per cent from 8.5 per cent. The rate cut is expected to improve the bottomline of banks as the valuation of securities held by them will improve significantly. The move i s also expected to trigger a downtrend in interest rates in the country, which will improve the profitability of certain companies.

Taking a cue from the rate cut, State Bank of India has reduced its prime lending rate by 50 basis points to 11.5 per cent.

The stocks of public sector banks such as Corporation Bank, Bank of Baroda, Syndicate Bank, Bank of India and State Bank of India have gone up following the rate cut.

The Corporation Bank stock went up by around 11 per cent from Rs 110 to Rs 122, while the Bank of Baroda scrip rose by about Rs 4 from Rs 55 to Rs 59. Another probable reason for the rise in these stocks could be the expected cost savings in the post-VRS regime.

Stocks of financial institutions such as ICICI also went up significantly.

Apart from banking stocks, refinery and PSU stocks saw some heightened activity during the past couple of weeks on expectation of proposals regarding infrastructural investments and PSU divestments in the forthcoming Budget.

Stocks of refinery majors, Hindustan Petroleum Corporation (HPCL) and Bharat Petroleum Corporation (BPCL), rose 20-25 per cent.

The VSNL scrip rose 7.5 per cent, while that of MTNL increased by 1.5 per cent. Other PSU companies such as CMC and BHEL have also appreciated considerably.

Another prominent gainer has been Kodak India. The stock has gone up from Rs 532 to Rs 568. The rise has come on the back of the company reporting an improved performance in the third quarter. Its net profit increased by 37 per cent and the sales grew by 17 per cent.

The other significant gainers were Hindalco, Tata Steel, Tata Engineering, Bajaj Auto, Mahindra & Mahindra, Ashok Leyland and TVS-Suzuki.

Among the losers were infotech stocks such as NIIT, Infosys Technologies, Satyam Computers, Hughes Software, DSQ Software and HCL Technologies.