Banking shares extend rally; SBI, Kotak Mahindra Bank hit 52-week highs

Banking shares extended gains for the second straight day on the bourses after the Government of India declared on Tuesday that the five hundred and one thousand rupee notes will no longer be legal tender from midnight, 8th November 2016.

The public sector undertaking (PSU) banks, the largest gainer with the Nifty PSU Bank index was up 4.4%, as compared to 1.8% rise in the Nifty Bank and 1.3% gain in the Nifty50 index at 09:41 am.

State Bank of India (SBI), Indian Overseas Bank (IOB), Vijaya Bank, Uco Bank, United Bank of India, Syndicate Bank, Punjab & Sindh Bank, Union Bank of India and Allahabad Bank from the PSU banks were up between 5%-7%.

SBI (up 4.4% at Rs 272) and Kotak Mahindra Bank (up 1.3% at Rs 833) hit their respective 52-week highs on the NSE in intra-day trade.

According to rating agency CARE, “As directed by the Government, the 500 and 1000 Rupee notes which now cease to be legal tender are to be deposited or exchanged in banks (subject to certain limits). This will automatically lead to more amounts being deposited in Savings and Current Account of commercial banks. This in turn will enhance the liquidity position of the banks, which can be utilized further for lending purposes.

However, to the extent that households have held on to these funds for emergency purposes, there would be withdrawals at the second stage, it added.

“The government’s move to phase out high denomination currency notes augurs well for long-term prospects for the banking, financial services and insurance (BFSI) industry. The banks should benefit from higher deposits (savings) and transaction volumes and investment entities such as insurance, mutual fund and wealth management companies should benefit from higher share of financial savings,” Kotak Institutional Equities said in a note.

State Bank of India

Kotak Mahindra Group