The rating upgrade on domestic government bonds by Moody's will have limited impact on the banking sector and investment outlook, according to bankers and market analysts.
R K Bakshi, executive director of Bank of Baroda, said it did not mean much for investment outlook and the banking sector. "Foreign institutional investors are clamouring to invest in government bonds due to huge interest rate arbitrage. It is safe investment avenue for them."
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Another senior public sector bank executive said banking entities were working in a robust regulatory environment and their financial health was sound. In November, Moody's had changed its outlook on the Indian banking system for the next 12-18 months from stable to negative. It had voiced concerns, saying it expected the operating environment, capitalisation levels, asset quality and profitability to deteriorate.
Jagannadham Thunuguntla, strategist and head of research, SMC Global Securities, said: "I don't think Moody's statement (made on Wednesday) was the reason why the market and banking stocks gained on Wednesday." It is a technical bounce back, as the market has corrected sharply in the previous few trading sessions. In the near term, banking shares will be range-bound. There are a number of challenges that will prevent these shares from outperforming the broader market. Asset quality is a big worry.
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From the asset quality perspective, private banks will perform better than public sector banks.