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.
Showing posts with label ICICI. Show all posts
Showing posts with label ICICI. Show all posts
Sunday, December 25, 2011
Shorts surge on ICICI Bank on bad loan fears
Nihar Gokhale, ET Bureau Dec 14, 2011, 01.29am IST
MUMBAI: Traders mounted their bearish bets on ICICI Bank on Tuesday, taking cues from the plunge in its American Depository Receipt (ADR) the previous night, as they speculated that the private lender's bad loans may increase with the Indian economy weakening.
Short positions in ICICI Bank stock futures surged after the five-year credit-default swaps (CDS) on the lender rose 88 basis points to 483 points in a week--one of the fastest increases among Asian banks.
ICICI December stock futures, which closed at Rs 708 against the share price of Rs 709.30, added around 4,500 contracts in open interest. While the contract was trading at a premium of almost Rs 4 for most of the day, it slipped into a discount of Rs 1 at close. ICICI Bank shares hit a 52-week low of Rs 690.25 earlier in the day.
"It is the largest private sector bank and when sectors like power, infrastructure and aviation are stressed, it is bound to increase worries about asset quality," said Saday Sinha, analyst at Kotak Securities.
ICICI Bank's CDS —the cost of insuring debt of the lender against non-payment— is still 13 points away from the record level of 496 on October 10. The country's largest lender State Bank of India's CDS, which has risen 43 basis points to almost 370 points, is about 26 points away from the high of 396 in October.
Analysts said the sudden pessimism about ICICI Bank has resulted in traders incurring losses in a trading strategy involving SBI. Many derivatives traders have been selling SBI contracts and buying ICICI Bank contracts, as part of a pairtrade strategy. They expected SBI to outperform ICICI Bank.
"There have been renewed concerns over ICICI Bank, and this is unlike a few weeks ago when it was trading at comfortable levels. Its correlation with SBI futures has been disturbed," said a derivatives head of a Mumbai-based institutional brokerage, who declined to be named.
A recent study by IDBI Capital Market shows the estimated Corporate Debt Restructuring (CDR) referrals of ICICI Bank in the second quarter of 2011-12 was Rs 1,170 crore.
The percentage of ICICI's estimated CDR referrals to its cumulative restructured book was at 46.9% in the quarter, the brokerage said. In comparison, this ratio was 2.5% for SBI, with its estimated CDR referrals at Rs 900 crore.
The percentage of ICICI's estimated CDR referrals to its cumulative restructured book was at 46.9% in the quarter, the brokerage said. In comparison, this ratio was 2.5% for SBI, with its estimated CDR referrals at Rs 900 crore.
"Our estimated Q2FY12 CDR referral as a percentage of cumulative restructured assets for some of the banks is quite high. This estimated CDR amount is likely to have been referred in Q2FY12, so banks are staring at atleast this amount for conversion to either restructured assets or NPAs in coming quarters," said Sandeep Jain, analyst at IDBI Capital, in a client note.
Some analysts are less worried about the likelihood of the surge in bad debts of Indian banks. "There are asset quality issues and if people are worried about it, then it is rightly so. But, we are of the view that Indian banks, and especially ICICI, will manage these asset issues well.
Here, the question is whether there will be earnings growth or not," said Rajat Rajgarhia, head – institutional research at Motilal Oswal Financial.
MUMBAI: Traders mounted their bearish bets on ICICI Bank on Tuesday, taking cues from the plunge in its American Depository Receipt (ADR) the previous night, as they speculated that the private lender's bad loans may increase with the Indian economy weakening.
Short positions in ICICI Bank stock futures surged after the five-year credit-default swaps (CDS) on the lender rose 88 basis points to 483 points in a week--one of the fastest increases among Asian banks.
ICICI December stock futures, which closed at Rs 708 against the share price of Rs 709.30, added around 4,500 contracts in open interest. While the contract was trading at a premium of almost Rs 4 for most of the day, it slipped into a discount of Rs 1 at close. ICICI Bank shares hit a 52-week low of Rs 690.25 earlier in the day.
"It is the largest private sector bank and when sectors like power, infrastructure and aviation are stressed, it is bound to increase worries about asset quality," said Saday Sinha, analyst at Kotak Securities.
ICICI Bank's CDS —the cost of insuring debt of the lender against non-payment— is still 13 points away from the record level of 496 on October 10. The country's largest lender State Bank of India's CDS, which has risen 43 basis points to almost 370 points, is about 26 points away from the high of 396 in October.
Analysts said the sudden pessimism about ICICI Bank has resulted in traders incurring losses in a trading strategy involving SBI. Many derivatives traders have been selling SBI contracts and buying ICICI Bank contracts, as part of a pairtrade strategy. They expected SBI to outperform ICICI Bank.
"There have been renewed concerns over ICICI Bank, and this is unlike a few weeks ago when it was trading at comfortable levels. Its correlation with SBI futures has been disturbed," said a derivatives head of a Mumbai-based institutional brokerage, who declined to be named.
A recent study by IDBI Capital Market shows the estimated Corporate Debt Restructuring (CDR) referrals of ICICI Bank in the second quarter of 2011-12 was Rs 1,170 crore.
The percentage of ICICI's estimated CDR referrals to its cumulative restructured book was at 46.9% in the quarter, the brokerage said. In comparison, this ratio was 2.5% for SBI, with its estimated CDR referrals at Rs 900 crore.
The percentage of ICICI's estimated CDR referrals to its cumulative restructured book was at 46.9% in the quarter, the brokerage said. In comparison, this ratio was 2.5% for SBI, with its estimated CDR referrals at Rs 900 crore.
"Our estimated Q2FY12 CDR referral as a percentage of cumulative restructured assets for some of the banks is quite high. This estimated CDR amount is likely to have been referred in Q2FY12, so banks are staring at atleast this amount for conversion to either restructured assets or NPAs in coming quarters," said Sandeep Jain, analyst at IDBI Capital, in a client note.
Some analysts are less worried about the likelihood of the surge in bad debts of Indian banks. "There are asset quality issues and if people are worried about it, then it is rightly so. But, we are of the view that Indian banks, and especially ICICI, will manage these asset issues well.
Here, the question is whether there will be earnings growth or not," said Rajat Rajgarhia, head – institutional research at Motilal Oswal Financial.
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