“The banking space is known as a 'mother sector' as a better performance by banks indicates better days for the economy, but the banking sector is hit hard when the economy does badly," said analysts.
“With the NPA (non-performing assets) scenario having improved and not many cases of major bad loans emerging after a large-scale deleveraging exercise carried out by corporate borrowers, there are few indications that the things can go bad for the sector as is being seen in quarterly results of most banks," said experts.
Ajit Kabi, Banking Analyst at LKP Securities, said “some banks have performed significantly well, factoring the rising interest rate scenario. "ICICI Bank, Bank of Baroda and SBI have performed on expected lines. However, HDFC Bank has underperformed because of merger and margins woes," he further added.
"Banks have done reasonably well in 2022. But we also must understand that there has been a divergence within the banking sector. While, on one hand, banks such as Federal Bank were exceptional performers, others such as RBL Bank, have struggled to get investors' attention. So was the case with IDFC First Bank and India's most valuable bank -- HDFC Bank," said Sunil Damania, Chief Investment Officer, MarketsMojo, a stock advisory and research platform. “All these three banks (RBL Bank, IDFC First Bank and HDFC Bank) are below the level they were quoting at the end of 2021," he further added.
"So, while the Nifty Bank index has done reasonably well and outperformed the broader indices, not all banks have participated, including HDFC Bank. And hence, while some investors are happy, others have been disappointed depending on the stock they have invested in," Damania added.
"It is generally said that the banking sector is the mother sector to give a signal of economic growth and we can clearly see that the Nifty Bank index has outperformed the Nifty-50 index by 300 bps on a month-on-month basis. If we dig more, interestingly we see retail loan book (housing loans) growing faster than industrial loans which is the main driver of bank credit in recent quarters," said Prashanth Tapse, Vice President (Research)," Mehta Equities Ltd.
“In a rising interest rate scenario, banks tend to benefit as the net interest margin expands naturally with their cost remaining stable for a short term. This has helped banks outperform and deliver handsome returns for investors so far," Tapse further added.
Damania of MarketsMojo said “both public and private sectors have seen some banks doing well and others not gaining so much, but PSU banks seem to have done better at a sub-index level."
"The Nifty PSU bank index in 2022 is up by 10.18 per cent versus a rise of 3.5 per cent in the Nifty bank index," he further said.
Cyril Charly, Research Analyst at Geojit Financial Services, said “even though banks showed solid numbers and an optimistic outlook, the performance of banking stocks was hit by a significant sell-off by Foreign Portfolio Investors (FPIs)." However, the recent reversal in FPI trend and attractive valuations have helped banking stocks to outshine other sectors," Charly added.
Charly said “the industry is poised for a solid performance in the second half of 2022 with a greater emphasis on growth owing to the strong resurgence in loan growth, improved asset quality, a healthy provision coverage ratio and strong capital adequacy."
"However, due to its substantial exposure to foreign investments, FPIs will also play a significant role in defining the trend. The recent reversal of FII trend to net buying is a positive development for the sector," Charly added.
Tapse also said that “the bank index is headed for further outperformance as the net interest margins of banks are in expanding mode due to a rising interest rate scenario."
“Besides, NPAs are now at their 10-year low level and the credit growth is getting consolidated in the hands of larger banks," Tapse further added.
Krishnan ASV, Senior Vice President, Institutional Research, HDFC Securities, said, "We remain constructive on the banking sector, with a preference for well-capitalised, strong deposit franchises."
Damania from MarketsMojo, however, said that “despite the banking stocks or index being good performers, banks as an index may underperform in the second half of 2022 for a very simple reason — when the economy slows, it impacts credit growth."
The BSE Bankex index surged by roughly 9.05 per cent in only one month, 5.23 per cent during the course of the previous five trading days, and ended on Friday with an upside gap of 1.49 per cent, demonstrating the exceptionally strong recent performance of the banking stocks. HDFC Bank is down nearly 8 per cent so far this year but is the top gainer on Friday's closing session with an upside gap of 2.34%, while RBL Bank has tanked 30 per cent and IDFC First Bank has plunged 28 per cent on the BSE so far in 2022 on a YTD basis. Under the BSE Bankex index the top gainers on Friday were HDFC Bank up by 2.34%, Axis Bank up by 2.14%, Bank of Baroda up by 1.84%, ICICI Bank up by 1.74%, Kotak Mahindra Bank up by 1.42%, Bandhan Bank up by 1.04% and SBI up by 0.32%. Nifty PSU Bank Index has surged 7.86% so far in 2022 and under the index, the top gainers on Friday were BoB up by 1.89%, JK Bank up by 1.60%, Canara Bank up by 1.24%, Indian Bank up by 0.93%, SBI up by 0.32% and Union Bank up by 0.13%.
(With inputs from PTI)
