The commercial banking sector in India consists of public sector banks, old private sector banks, new private sector banks, foreign banks, cooperative banks and regional rural banks. Of these, cooperative banks and regional rural banks are not listed on the stock exchanges. Among the remaining banks, some are listed. The Bankex is a sectorial index of BSE that provide a proxy for banking stock. The BSE 30 company index, Sensex, reflects the overall market sentiment. In the recent past, in a span of 194 days, from October 28, 2005 to May 10, 2006, the BSE Sensex rose from 7686 to 12612, a gain total of 4926 points. It then fell very fast to the level of 8929 on June 14, 2006, i.e., a loss of 3683 points in 35 days. It again reached a level of 12928 on October 16, 2006, a gain of 3999 points in a span of 124 days. It has continued to increase and has reached a level of 13703 on November 24, 2006. Along with this movement in the BSE Sensex, the BSE Bankex, also increased from a level of 4305 to a level of 5809 during October 28, 2005 to May 10, 2006 and then fell to a level of 4017 on June 14, 2006. Subsequently it rose to a level of 6256 on October 2006 and continued to increase to 7150 on November 24, 2006. This is shown in chart 1. Let us now seek to answer the reasons as to why the prices of banking stocks been increasing consistently in the recent past? If compared, its movement with the BSE IT Index, Bankex has surpassed it. Its growth has been more than the sectors like FMCG, Metal, and Capital Goods. This is represented in chart 2.
Till January 2006 all the indices moved in tandem with the Bankex. However, from February to May 2006, the FMCG and the Capital Goods Sector performed better. After that, they all fell and in the recent run, the Tamal Datta Chaudhuri Chief General Manager, Industrial Investment Bank of India Ltd. (IIBI), Kolkata. |
