India's top bank stocks send mixed signals as RBI meets policy review

Indian banks were among the most active stocks in the market on Sep 29, the first day of the Reserve Bank of India's (RBI) bi-monthly meeting to review interest rates.

While HDFC Bank added 24 points to the Nifty 50, ICICI Bank and Axis Bank dragged the index down by more than 27 points, as at 3 pm on the day before the expiry of September futures and options series.

IndusInd Bank was the top gainer, up 2.68% after Morgan Stanley upgraded the stock to ‘equal weight’ citing attractive valuations. The brokerage has also set a target price of ₹2,785, implying a nearly three-fold increase from Friday's closing price.



On the other hand, the top loser on the Nifty 50 was Axis Bank.

The PSU Bank index was the top sectoral gainer in trade on Monday, followed by real estate, signalling traction for stocks that are sensitive to interest rate changes from the RBI.

It's also important to note that the auto index was the top loser in trade today.

According to a CNBC-TV18 poll, most economists don't expect a cut in repo rate on October 1. However, some expect a dovish commentary from Governor Sanjay Malhotra, which may be soothing for the nervy markets.

"It's really a question of when, rather than if,” said Kamaksha Trivedi, Chief Foreign Exchange and Emerging Markets Strategist at Goldman Sachs, which expects one more rate cut from the Indian central bank in the current cycle. 

Overall, the valuations are in favour of the bank stocks, said Pratik Gupta, CEO and Co-Head at Kotak Institutional Equities, a top broker in Mumbai who recommends large-cap private banks and PSU bank stocks at current levels to his clients.

The price-to-book ratio of Nifty Bank is down to a five-month low, as most of the GST-related exuberance has waned.

While the GST cuts are expected to increase consumption, the market isn't betting on it wholeheartedly. For banks, in particular, lower GST only solves a third of their problems as there are no signs of a broad-based revival in capital expenditure.

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