Banks prove to be market-savvy traders

Banks have turned out to be the best class of traders on the Indian secondary market, sticking strictly to the sell at the peaks and buy at the lows philosophy.

According to transaction data from the two premier exchanges, NSE and BSE, banks have consistently sold when the markets were going up and bought feverishly at every dip over the last one year.

They are also seen to be stocking up majorly on the suddenly-become-cheap stocks since the correction began two months ago.

For example, as a class, they have been breaking all their net-outstanding records in the last two months as they pumped in Rs 1,900 crore (Rs 19 billion) to help themselves to very attractively priced stocks.

Against this, they have been net sellers for every month since May last year, with the exception of January and October.

Not surprisingly, in October last year, when most of the indices corrected by 10 to 20 per cent, they moved from being net sellers to net buyers, snapping up equities worth Rs 465 crore (Rs 4.65 billion) on both the exchanges.

However, some banking sources indicated that the current voracious appetite may have more to do with the Government's priorities than any desire to profit by cheap valuations.

Since the correction started in May, banks have invested Rs 2,200 crore (Rs 22 billion) in buying stocks at nearly double the rate they had been selling them off till then.

"It is extremely unlikely that the current buying is a sign of sound investment strategy," said an investment officer at a private sector bank.

"It is more likely to be the result of efforts by the public sector banks to bring in some buying support into the free-falling markets," he added.

Another official with a private sector bank too pointed to the government controlled banks.

"There is a cap of between 5 to 8 per cent of total advances applicable to bank's exposure to equities. This figure had already been reached for both the two big investing banks in the private sector. Besides, there have been various concerns on high exposure to equities by private banks. In such a case, it is unlikely that private banks are trying to take advantage of the cheap valuations," he added.

However, there were also others who refused to take the transaction figures at face value. "It seems impossible that banks would pump in Rs 2,200 crores into equities at this time," said an official with a new generation private bank.

"My hunch is that a large part of it is actually custodian transactions where the broker punches in the code of the bank which is actually trading on behalf of FIIs or high networth clients in India," he added.