Myiris.Com: How to trade in banking stocks now?

Myiris.Com: How to trade in banking stocks now?

http://www.myiris.com/newsCentre/storyShow.php?fileR=20110104164905198&dir=2011/01/04&secID=livenews

The inflation is above the tolerance level of Reserve Bank of India (RBI) and may rise further due to high food prices and the impact of recent petrol price hike. The inflation rate based on the wholesale price index (WPI) was 7.48% in November 2010, well above the RBI`s estimate of 5.5% by March 2011-end. This is an indicative that RBI may hike term rates in the upcoming monetary policy and a likely reason why banking stocks were down.

In an exclusive interview with Myiris.com, Sr Research Analyst, Prashanth Tapse shares his trading strategy on the sector and key private sector banks which witnessed a downfall in their trade. The same are as under:

Sectoral view:

Banking stocks succumbed to the relentless selling pressure due to tight liquidity concern and increasing cost of funds. Margins of banks have peaked in 2010 and protecting the same in current level will be a challenge one for the banks. We expect year 2011 is likely to be tough in terms of profitable margins which is been discounted in the current price counters. Banks also saw cost of funds increase in the second half of 2010 due to shortage of liquidity as a result of a tight monetary policy announced by the RBI. The RBI hiked the short-term lending (repo) and borrowing (reverse repo) rates six times in 2010 in order to tame the inflation.

We advice traders to stand cautious on banking index in the short term ahead of higher inflationary pressure. The above rationale may force the RBI to hike the policy rates in the third quarter monetary policy review scheduled on Jan.25, 2011.

Stock Specific View:

ICICI Bank:

Shares of the bank declined Rs 39.5, or 3.45%, to settle at Rs 1,104.10. It touched a high of Rs 1,147 and a low of Rs 1,100.The total volume of shares traded was 615,734 at the BSE (Tuesday).

Recommendation: Sell ICICI Bank with a short-term target of Rs 1,042 and stop loss of Rs 1,135.

HDFC Bank:

Shares of the bank declined Rs 47.1, or 1.97%, to settle at Rs 2,343.40. It touched a high of Rs 2,388.95 and a low of Rs 2,332. The total volume of shares traded was 68,512 at the BSE (Tuesday).

Recommendation: Hold HDFC Bank with a short-term target of Rs 2,495 and stop loss of Rs 2,315.

State Bank of India:

Shares of the bank declined Rs 87.25, or 3.09%, to settle at Rs 2,733.60. The total volume of shares traded was 734,998 at the BSE. It touched a high of Rs 2,834.30 and a low of 2,727.35 The total volume of shares traded was 734,998 at the BSE.

Recommendation: Hold SBI with a short-term target of Rs 3,038 and stop loss of Rs 2,667.

Axis Bank:

Shares of the bank declined Rs 20.2, or 1.48%, to settle at Rs 1,347.40. It touched a high of Rs 1,377 and a low of Rs 1,342.35. The total volume of shares traded was 211,118 at the BSE (Tuesday).

Recommendation: Trade Axis Bank with a medium term target of Rs 1,434 and stop loss of Rs 1,312. The stock should find some kind of support at current levels. It is a buy signal but then possibly if one look at the sector how it is panning out, And hence we think it will consolidate a bit more before it reverses completely.

YES Bank:

Shares of the bank declined Rs 9.25, or 2.93%, to settle at Rs 306.30. It touched a high of Rs 317.70 and a low of Rs 306. The total volume of shares traded was 170,131 at the BSE.

Recommendation: Sell YES Bank with a short-term target of Rs 287 and stop loss of Rs 317.

Disclaimer: IRIS has taken due care and caution in compilation of data for its web site. Information has been obtained by IRIS from sources which it considers reliable. However, IRIS does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. IRIS especially states that it has no financial liability whatsoever to any user on account of the use of information provided on its website.