>Monthly economic Review(SHAREKHAN)

For the period November 1–14, 2008, the BSE Bankex has seen a rise of 2.9% compared with a decline of 4.1% in the Sensex in the same period. However, against the backdrop of the ongoing global credit crisis, domestic liquidity crunch and a likely strain on the quality of domestic banking assets, the fundamental outlook for the banking sector remains bleak. The credit demand is likely to remain strong in the near term due to the drying up of the alternate sources of funds; however, the credit demand may decline going forward due to the anticipated slowdown in the economic activity. Besides, deceleration in the economic growth poses the risk of higher delinquencies and further deterioration in banks’ asset quality. Hence, we believe that though most of the banking stocks are trading at attractive valuations currently, further downside risks persist in the near to medium term.

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