Weak rupee pushes banks lower; 11 stocks hit 52-week low

NEW DELHI: The rupee continues its bearish trend and breached its key psychological level of 64 against the US dollar pushing rate-sensitive stocks including banks further in red.

Shares of rate-sensitive and capital intensive companies continued to reel under selling pressure on concerns that the Reserve Bank of India might look at the option of a rate hike in order to contain inflation.

The rupee plunged as much as 64.11 to the dollar, breaching its previous low of 63.30 seen on Monday. It had closed at 63.13/14.

Tracking the weakness in rupee, most the stocks in rate-sensitive sectors took a beating 1-2 per cent as compared to 1.1 per cent fall in the benchmark index, Sensex.

As much as 11 banking stocks in the BSE Banking index have plunged to their 52-week lows, which include names like Bank of Baroda, Canara Bank, PNB, Union Bank, ICICI Bank and Union Bank of India.

At 10:00 a.m.; the BSE Auto index was trading 1.9 per cent lower, followed by the BSE Realty Index which was down 1.3 per cent, the BSE Capital Good Index slipped 1.2 per cent and the BSE Banking index was down 1.1 per cent.

The worst hit among the rate-sensitives have been the banking stocks, to which most experts say that the bearish trend has just started.

Bank Nifty was trading 0.2 per cent lower at 9,119 while the BSE Banking Index was trading 0.2 per cent lower at 10,405.67.

The government and the reserve Bank of India have come up with various options to stem rupee’s fall but that hasn’t worked, but it has raised and inverted the yield curve for the second time in 10 years.

Bond yields surged with the 10-year yield surging 15 basis points to 9.38 percent.

Macquarie has put an ‘underweight’ rating on the sector (banking) and expects it to disappoint on all front including loan growth, margins and asset quality.

“A weaker currency doesn’t leave much leeway for monetary policy easing by the RBI. Considering the fact the yield curve is inverted, banking stocks underperforms significantly in that scenario,” added the report.

The global brokerage firm has slashed FY14E EPS sharply by 30 per cent for the PSU banks and around 5 per cent for privates, driven by lower loan growth, margins, treasury profits and higher credit costs.

Recommendation:

Macquarie recommends investors to stay with the good quality private banks. It downgraded SBI to ‘Neutral’ from ‘outperform’, PNB to ‘underperform’ from ‘Neutral’ and upgraded Kotak Mahindra Bank to ‘outperform’ from ‘Neutral’.

Here is a list of top 11 stocks which have hit their 52-week low on BSE Banking index: