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Be careful about banking sector

2008-04-08 14:58:21 Source : Bazaar/CNBC-TV18

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CNBC-TV18�s Executive Editor, Udayan Mukherjee - It is a relief rally in the banking space and it is overdue too. Just look at how much these PSU bank stocks and even some of these private bank stocks have got hit. They have got completely crushed - most of the PSU banks are trading at probably three-quarters of their book value. When prices fall that much there will always be bounces and this round of bounce might have been on the expectation that the Reserve Bank of India (RBI) will not do anything dramatic with their rate signal though fingers are crossed on that. I don�t think any analyst is made a lot of money betting on the Reserve Bank of India. They always do things, which surprise the street.

So just be a little careful about what one is doing on the banking sector. As long as inflation persists at this kind of high level and bond yields remain significantly high it will be a very difficult and uphill task for bank stocks. Can they have two-three days out in the sun? They should because they have got hit really badly and their valuations are quite compelling. But to me it looks like an underperforming sector, which is getting in a midst of a pullback rally because valuations got hit too hard. A day or two like this like yesterday and I would start getting a bit cautious again.