More pain for bank stocks to keep the Sensex under pressure

MUMBAI: The recent battering of banking stocks has reduced the influence of the sector on the Sensex. But at 29%, bank stocks continue to hold the highest weightage in the Sensex, keeping the index vulnerable to adverse news flow from the lenders. It would require simultaneous gains in technology, oil & gas and consumer goods stocks, which together account for 38% of the Sensex, to cushion sharp downsides.

“Poor performance by bank stocks was one of the major factors for the sharp decline in the Sensex in the past few weeks,” said Raamdeo Agrawal, joint managing director, Motial Oswal Financial Services. “The worst is not yet over for the banks.”

The BSE Bankex has declined 12% since January 1 as against the 7% fall in the Sensex. The price to earnings (P/E) ratio of the ET Banks Index, which was in excess of 20 times a year ago, is down to just 13 now. The strength in Reliance Industries in oil & gas, Infosys in technology and Hindustan Unilever in consumer goods spaces has managed to avert a sharper falling in the Sensex.

“Oil & gas, FMCG and IT sectors are witnessing better prospects and this bodes well for the Sensex,” said Gopal Agarwal, chief investment officer at Mirae Asset Management Co.