Axis Bank, SBI, ICICI Bank, PNB stock futures crash on rising bad loans & high rates

Nihar Gokhale, ET Bureau Dec 20, 2011, 07.00am IST

MUMBAI: Futures prices of select bank stocks crashed on Monday as fears of rising non-performing loans and high interest rates turned sentiment against the sector. 

While bank stocks in the cash market have been touching record lows over the past week, investors offloaded long positions and went short on contracts of large banks like SBI, ICICI Bank, Axis Bank and Punjab National Bank.

At the end of trading hours on Monday, Axis Bank stock futures closed at Rs 835.55, at a significant discount of Rs 15 to the underlying cash price, which hit a 52-week low of Rs 850.65. Axis has been hit by heavy short selling since Friday, when a record 20% addition in open interest positions was accompanied by widening discounts.

"There was a combination of short selling and reduction in long positions, as those overweight on the banking sector cut down on their holdings," said Monal Desai, VP and head – institutional equities (derivatives) at broking house Prabhudas Lilladher.

State Bank of India saw a cut-down in over 1.3 lakh positions in open interest. The contract closed at Rs 1,626.85, down 2.6%. A discount of Rs 10 in early trade shrank to zero later in the day which means that traders closed their short positions. Likewise, ICICI Bank open interest reduced by 2.3 lakh, while the contract price declined by 2.3% to Rs 659.90.

Some of these banks also have huge exposure to the weak power and infrastructure sectors, worrying investors about a possible rise in the number of bad loans. "Large banks always have a large exposure to the corporate sector. When you've an overall negative sentiment, the same will spread to the large banks," said Saday Sinha, analyst at Kotak Securities.

Other stock futures facing the heat were Punjab National Bank, which closed at 3.5% down at Rs 790, and a discount of Rs 5 to the underlying stock.

Shares of large banks, both private and public sector, have plunged in recent days with ICICI Bank and HDFC Bank dipping to their 52-week lows of Rs 641 and Rs 400.25 on Monday.

SBI also slumped to its 52-week low Rs 1,598. SBI too hit a 52-week low of Rs 1,598, accompanied by a large pack of other public sector banks like Canara Bank, Punjab National Bank, Bank of Baroda, Union Bank of India, Indian Overseas Bank, among others. Bank Nifty index too touched its 52-week low of 7,801 on Monday.

But it was Axis Bank which continued to face the maximum heat, at least in futures trading. It continues to trade at a discount of Rs 15. The contract saw 20% addition in open interest on Friday, leading to a record high of over 90 lakh positions. While 6.8 lakh open interest was added on Monday, the total hovered around 90 lakh. This indicates both short selling and exiting in long positions.

Amit Gupta, head, derivatives, ICICI Direct advised clients in a morning strategy report to go short on Axis Bank futures, and long on Bank Nifty. This means Axis Bank may underperform Bank Nifty during the life of the strategy.