Business | Markets
Sensex recovers losses as banks stage strong rally
Indian shares should consolidate after posting their best performance in six months in April amid rising foreign inflows in the market that is still down more than 13 per cent this year.
- By Geetha Bhaskaran, Special to Gulf News
- Published: 00:11 May 4, 2008
Mumbai: Indian shares should consolidate after posting their best performance in six months in April amid rising foreign inflows in the market that is still down more than 13 per cent this year.
Annual inflation that climbed to nearly eight per cent in mid-April, the highest in three and half years, will be a concern though the central bank seems to have taken this in its stride while setting the policy last week.
"Foreigners are returning to the market and that is good sign," said equity trader Ankit Dalal. "Inflation is a worry but this is not unique to India. Prices have hit multi-year highs in many other countries too."
Foreign funds bought shares worth nearly $350 million since mid-April, data from the Securities and Exchange Board of India showed. Quarterly earnings of companies have been better than expected and the outlook is not as gloomy as people had earlier thought. Shares are now reflecting the positives and should head higher after some consolidation, Dalal said.
Economic growth
State Bank of India (SBI), which controls more than a fifth of India's banking assets, posted a 26 per cent jump in quarterly profit to Rs18.83 billion on Friday, beating market expectations for about 17 per cent rise, and it forecast loans to growth by a quarter in 2008-09 against the central bank's estimate of about 20 per cent.
SBI has the cheapest source of funds in India from savings bank deposits that cost about 3.5 per cent a year. Its prime lending rate, which was cut by 50 basis points in February, is 12.25 per cent.
"Bank shares had come off quite sharply this year in the wake of the US subprime fallout and they are good bargains as the market recovers," strategist V. Venugopal said. SBI, which raised $4.1 billion in March through a share sale, is looking for acquisitions in the Middle East as it expands globally.
"We are looking at a couple of banks in the region," chairman O.P. Bhatt said.
The Sensex rose 2.8 per cent last week to 17,600.12, its highest close since February 28, and traders said they expect the benchmark to breach 18,000 after a consolidation.
The index had risen 10.5 per cent in April, the first rise in 2008 and the biggest gain since October.
The Reserve Bank of India (RBI) last week raised the cash reserve ratio (CRR) for banks to a seven-year high of 8.25 per cent, but left interest rates unchanged. "It is critical at this juncture to demonstrate on a continuing basis a determination to act decisively, effectively and swiftly to curb any signs of adverse developments in regard to inflation expectations," the RBI said.
It forecast economic growth would slow in 2008-09 to 8-8.5 per cent from an estimated 8.7 per cent in 2007-08.
The CRR was earlier raised by 50 basis points in April, and the total increase would immobilise Rs275 billion of bank funds.
"By and large banks have welcomed and appreciated the stance of the RBI. They were quite happy that only the CRR had been hiked and policy rates have been untouched," Finance Minister P. Chidambaram said.
"They do not expect the CRR hike to impact the interest rates. So going forward in the reasonable future I don't expect any increase in interest rates by state-run banks."
The government also raised export duties on basmati rice and some steel products and said wheat and rice stocks with were more than adequate. The RBI wants to bring down inflation to around 5.5 per cent by the end of 2008-09.
Heavy dollar purchases by state-run refiners put pressure on the rupee, pushing it down to a near seven-week low of 40.78 per dollar on Friday before finishing at 40.64/65, down 1.3 per cent on the week.
The weaker rupee pushed edible oil prices higher as India imports about 40 per cent of its consumption.
- The writer is a journalist based in India.
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