Last few months have not been good for banking stocks, as the Bankex — the banking index of Bombay Stock Exchange (BSE) — has fallen around 15% since October. The benchmark Sensex has fallen by around just 7% in the same period.
This can be a good time to pick banking stocks for the long-term, experts said.
“If some one has an investment horizon of 12 months to 24 months, then one should start accumulating banking stocks because the current correction is due to macro economic factors such as monetary tightening and inflation concerns,” said Dinesh Shukla, banking analyst in brokerage house Sharekhan. “But one should invest after the monetary policy is released on January 25 as the picture will be more clear.”
The Bankex closed at 14,252 while the Sensex at 20,445 on 1 October 2010. On Wednesday, the Bankex closed at 12,053 and Sensex at 18,978.
The current correction is the result of liquidity tightening, rise in inflation and hardening of interest rates in the second half of 2010. Banks increased deposit rates in November and December last year, raising funding costs.