Banking stocks in India have been taking a drubbing since yesterday,and are expected to do so for some more time.The main reason seems to be the indication by the RBI Governor that the days of an easy monetary policy are numbered, and there is likely to be a tightening of the same in the next review that is to happen in January.Another reason is the higher provision for loan losses that the banks are supposed to make now.A tight monetary policy will be an imperative in order to control the inflation which is hurting the poor.The interest rates will rise due to lesser liquidity and increased cost of funds for the banks,and the credit which is the lifeline of the economy will slow down.As of now the rates of Cash reserve ratio, Repo rate and reverse repo rate have been left untouched, unlike the government in Israel and Australia.The knee jerk reaction on account of raising of the Stauatory Liquidity ratio from 24 to 25% was unwarranted as the banks are already maintaining this ratio at 27% which is more than that required by the statute.Sentiment in case of the banking stocks has been affected,and may be rightly so.
Advise: Buy on dips for margin trading,but exercise caution while investing
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