Friday, May 13, 2016

Banking on Banks - Will They Deliver?

Market Direction
Indian markets may open down today. Reasons are as indicated below:-
  • Asian markets are trading in red.
  • SGX Nifty is down 50 points.
  • CPI inflation data has jumped to 5.39%
  • SEBI to introduce KYC norms for P-Notes
  • Dow closed flat yesterday
March Quarter Results
Quarterly results of three banks will be declared today. Market participants are eagerly awaiting the outcome.

Bank of Baroda, Allahabad Bank and Union Bank will be coming out with results of quarter ending March 2016. There is high expectation from these results. If the results are good then entire banking sector will get a boost in coming trading sessions.

Positives For Banking Sector
Results of banks declared today will indicate future direction for banking sector. Good results are expected for following reasons:-
  • Provisioning for NPAs in March quarter will be less, thereby increasing profit for banks. This I had already indicated in my earlier post. Check here.
  • Bank of Baroda should declare very good result since it had fully provisioned for NPAs in December quarter.
Banking stocks should also get fillip from following positive news :-
  • Insolvency and Bankruptcy Code 2016 has been passed by both Houses of Parliament. This will immensely benefit banks in tackling their stressed assets.
  • RBI has tightened norms for aggregate lending to large corporate borrowers. This will lower the risk of defaults of large corporate borrowings being passed on to banking system These rules will apply from next financial year.
Call-to-Action
In my post Markets May Laze - Look Out For 8000 in Nifty , I had given buy call for two banking scrips of May Futures and same were bought as indicated below:-
  1. SBI May Fut bought at 199. Keep sell target at 206. Yesterday it closed at 188.3
  2. Bankbaroda May Fut bought at 160.5. Initial target given was 166. If results are good then extend sell target to 180. Yesterday it closed at 158.4