Bank stocks climb amid soaring rates, driving healthy NPA; Experts remain optimistic

“The banking space is known as a ‘mother sector’ because better performance of banks indicates brighter days for the economy, but the banking sector is hit hard when the economy is bad,” the analysts said.

“With the NPA (non-performing assets) scenario having improved and few cases of major bad debt emerging after a large-scale deleveraging exercise led by corporate borrowers, there is little indication that things can go wrong. for the sector as is in the quarterly results of most banks,” the experts said.

Ajit Kabi, Banking Analyst at LKP Securities, said that “some banks performed very well given the scenario of higher interest rates.” ICICI Bank, Bank of Baroda and SBI performed as expected. However, HDFC Bank underperformed due to merger and margin issues,” he added.

“Banks have done reasonably well in 2022. But we also have to understand that there has been a divergence within the banking industry. While on the one hand banks such as Federal Bank have been performing exceptionally , others, such as RBL Bank, have struggled to obtain so have IDFC First Bank and India’s most valuable bank, HDFC Bank,” said Sunil Damania, Chief Investment Officer at MarketsMojo. , an equity research and advisory platform. “These three banks (RBL Bank, IDFC First Bank and HDFC Bank) are below the level they were quoting at the end of 2021,” he added.

“So while the Nifty Bank Index has done reasonably well and outperformed the broader indices, not all banks participated, including HDFC Bank. And so, while some investors are happy, to others were disappointed based on the stocks they invested in,” Damania added.

“The banking sector is usually said to be the parent sector to give a signal of economic growth and it is clearly seen that the Nifty Bank index has outperformed the Nifty-50 index by 300 basis points on a monthly basis. If we dig Moreover, it is interesting to note that the portfolio of personal loans (housing loans) is growing faster than industrial loans, which is the main driver of bank lending in recent quarters,” said Prashanth Tapse, vice- President (Research), “Mehta Equities Ltd.

“In a scenario of rising interest rates, banks tend to benefit as the net interest margin naturally rises as their costs remain stable in the short term. This has helped banks outperform and deliver handsome returns. to investors so far,” added Tapse.

MarketsMojo’s Damania said that “both the public and private sectors have seen some banks doing well and others not earning as much, but PSU banks seem to have done better at a sub-index level.”

“The Nifty PSU Banking Index in 2022 is up 10.18% versus a 3.5% rise in the Nifty Banking Index,” he added.

Cyril Charly, research analyst at Geojit Financial Services, said that “although banks posted strong numbers and an upbeat outlook, the performance of bank stocks was hurt by a sell-off by foreign portfolio investors (REITs). .” However, the recent reversal in the REIT trend and attractive valuations have helped banking stocks outperform other sectors,” Charly added.

Charly said that “the industry is poised for a strong performance in the second half of 2022, with an increased focus on growth due to the strong recovery in loan growth, improving loan quality assets, a healthy provision coverage ratio and strong capital adequacy”.

“However, due to their substantial exposure to foreign investment, REITs will also play an important role in setting the trend. The recent reversal in the net buying trend of FIIs is a positive development for the sector,” said added Charlie.

Tapse also said that “the banking index is heading for further outperformance as banks’ net interest margins are in expansion mode due to a higher interest rate scenario.”

“Additionally, NPAs are now at a 10-year low and credit growth is consolidating in the hands of big banks,” Tapse added.

Krishnan ASV, Senior Vice President, Institutional Research, HDFC Securities, said, “We remain constructive on the banking sector, with a preference for strong, well-capitalized depository franchises.

MarketsMojo’s Damania, however, said that “although banking stocks or the index may perform well, banks as an index may underperform in the second half of 2022 for a very simple reason – when the economy slows, it has an impact on credit growth.

The BSE Bankex Index jumped around 9.05% in just one month, 5.23% in the previous five trading days, and ended Friday with a bullish spread of 1.49%, showing the recent exceptionally strong performance of the banking sector. shares. HDFC Bank is down almost 8% so far this year but is the biggest gainer in Friday’s closing session with a spread up 2.34%, while RBL Bank has fallen 30 % and IDFC First Bank plunged 28% on BSE. away in 2022 on a YTD basis. According to the BSE Bankex Index, Friday’s top gainers were HDFC Bank up 2.34%, Axis Bank up 2.14%, Bank of Baroda up 1.84%, ICICI Bank up 1. .74%, Kotak Mahindra Bank up 1.42%, Bandhan Bank up 1.04% and SBI up 0.32%. The Nifty PSU Bank Index has jumped 7.86% so far in 2022 and under the index, top gainers on Friday were BoB up 1.89%, JK Bank up 1.60%, Canara Bank up 1.24%, Indian Bank up 0.93%, SBI up 0.32% and Union Bank up 0.13%.

(With PTI entries)

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