Experts differ on outlook for banking sector

RBI's CRR hike was all but forgotten as the indices surged ahead on the back of strong global cues. The Nifty closed at 5,037 up 79 points, while the Sensex shut shop at 16,739 up 258 points.

Prabhat Awasthi, Head of Equity Research, Lehman Brothers, said technology results and global rally have provided relief to our markets. “Technology stocks have surprised positively given the poor expectations. The markets may have seen the bottom, but upside looks limited from here."

However, Awasthi said, negative surprises on inflation and interest rates remain a matter of concern. “Large weightage of high food prices in Consumer Price Index is causing a spurt in inflation. Inflation and Monetary Policy will remain an overhang for the next 3-6 months.”

Awasthi is bearish on IT and banks. “The outlook for tech companies in Q1 FY09 remains poor. The upside of banks will be capped as results so far have not shown large scale provisioning. We still see regulatory uncertainty over the Mark-To-Market losses of banks.”

Anish Damania of Emkay Stock Brokers said pessimism in the market has lifted a bit. The market is shifting from defensive to aggressive companies in the capital goods, infrastructure, or metal space, he said. “The next in line could be banking after the Axis Bank results. Defenses like FMCG, tech, and a little bit of pharmaceuticals should start taking a back seat one after the other. That is what we probably see over the next few weeks."

He expects RBI to leave rates untouched at its April 29 meet. Damania said the fear factor as far as forex losses are concerned, and whether the CRR increase would impact their cost have abated. “Banks are flush with funds, so they will be looking to cut down the cost of deposits to help them tie over the increased costs of funds with the CRR hike. Banks are looking okay and valuations are reasonable, so I am looking at banks to outperform.”