Thursday, January 27, 2011

How to trade in banking space now?

Forced by rising food prices, the Reserve Bank of India (RBI) today announced a hike in the repo and reverse rate by 25 basis points to 6.50% and 5.50% respectively. BSE Bankex drop 2.34% led by ICICI Bank. It has raised its baseline inflation forecast for March 2011 to 7% from 5.50%.

Shares of ICICI Bank (-4.21%), State Bank of India (-0.51%) Punjab National Bank (-1.17%) and Allahabad Bank (+1.69%).

In an exclusive interview with, Prashanth Tapse, Sr Research Analyst at Mehta Equities shares his views on sector stock specific trading strategy.

Sectoral view: Banking counter is in action in last couple of days mainly on the back of impressive earnings growth reported by some of the leading banks for the quarter ended December 2010 had triggered short covering and fresh buying in the banking sector stocks. So far SBI, ICICI Bank, Indian Bank, Union Bank and Vijaya Bank all reported good quarterly numbers cheering street sentiments. The Reserve Bank`s decision to hike short-term borrowing and lending rates will help contain inflation and was in line with the government`s policy. We believe that the policy change is aimed at giving a strong signal to tackle inflationary pressures.

Stock Specific View:

ICICI Bank: Hold with a target of Rs 1,166 and a stop loss of Rs 990.

SBI: Buy with a target of Rs 2,760 stop loss Rs 2,620.

Punjab National Bank: Hold above 1180 with a target of Rs 1,214 stop loss Rs 1,120

Allahabad Bank: Buy with a target of Rs 232 stop loss Rs 207.

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