Odds are in favour of RBI rolling back some of liquidity tightening measures - Angel Broking

Odds of RBI rolling back some of the liquidity tightening measures appears favorable; could likely result in sharp rally in rate-sensitive names (incl. beaten down PSU banks)

Recent economic data release by the Commerce Ministry shows that Indian exports have grown at double digits for second straight month in August 2013, while imports have remained largely stable. The outlook for export growth has improved now on back of increased expectations of economic recovery in advanced economies like U.S, Japan and Eurozone to some extent, along with steep INR depreciation and has evidently supported the recent appreciation in INR (which we believe is more in sync with its fundamentals now than in recent past). Hence, we are of the view that the odds of RBI rolling back some of the stringent liquidity tightening measures have turned favorable, which makes an opportune case for sharp near term rally in rate-sensitive names (incl. beaten down PSU banks).

We are cognizant of the fact that medium term sectoral challenges (like weakening growth and deteriorating asset quality) requires many other things to fall in place (exports being the one) and would ensure that the earnings pressure for the banking sector prevail. Hence, it would be too early to revise our medium term cautious call on the sector, however, as the odds of RBI rolling back some of the stringent liquidity tightening measures appears favorable now, we would recommend investors to built in fresh longs into the beaten down PSU banks, while maintaining our Buy rating on HDFC, ICICI and Axis Bank.

Source : Equity Bulls

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