Increase in NSS rates: no major negative impact on stock market and banking sector

The quantum of increase in the rate of National Saving Schemes (NSS) from 8bps to 50bps will not leave any major negative impact on stock market and the banking sector, analysts said here on Tuesday.
"The increase in NSS rates is marginal and the benchmark Defence Saving Certificates rate revised upward by only 15bps, therefore, we do not foresee any major negative impact on stock market and banking sector", Muhammad Imran Khan, head of research, First Capital Equities Limited said.
Major increase in the rate was observed in saving accounts where rate of return is being raised by 50bps to 6.5 percent. Behbood and pension schemes rates are revised up by 12bps to 11.64 percent.
He said the said increase would not affect the deposits mobilisation of the banks due to ample liquidity available in the banking sector. During prevailing fiscal money supply (M2), on the back of growth in net foreign assets, has reached 16.07 percent as on June 09, 2007. Last year's comparable data shows that money supply grew by only 13.2 percent. Deposits, as a function of money supply, have also reached Rs 3.28 billion as on June 16, 2007 - a growth of 18 percent in the FY07 to date. Interestingly last year in same time period deposits grew by 16 percent only.
He said that Special Convertible Rupee Account (SCRA), a proxy of portfolio investments, is all time high at $982 million (on June 25) and as per the latest data, foreign holding as percent of free float of KSE has reached 26 percent. The current rally at KSE is much supported by the foreign portfolio investments, therefore, the increase in rates of NSS will not hurt current momentum the KSE. Moreover, despite the difference in risk profile of stock exchange and NSS rates, the rate of return on KSE (last 10-year return of 30 percent) are far higher than NSS, he added.