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Banking stocks in India have outperformed the benchmark indices in the past month, on the back of a buoyant growth outlook. They have been driving the gains of the broader market and have been second, only to FMCG stocks in terms of gains. 

For perspective, Nifty Bank gave 7.27 per cent returns in the past month, outperforming the Nifty 50 index which gave 1.26 per cent returns during the same period. 

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In fact, PSU Banks witnessed huge interest among banking stocks, as the Nifty PSU Bank index rallied by a whopping 14.67 per cent in the past month. PSU major SBI’s market capitalization breached the ₹ 5 lakh crore mark last week, making it the seventh largest company. 

Foreign portfolio investors have been loading up on the shares of the banking and financial sector since August and the trend seems to have continued this month as well. 

“Banking stocks have been going up for a couple of reasons – one is the credit growth has now started picking up nicely; the net interest margins (NIMs) are improving; and asset quality, so far, has been stable as there is no deterioration. All three put together have led to re-rating of banking stocks,” said Deepak Jasani, head of retail research at HDFC Securities. 

He added that initially, banks tend to do well when interest rates are hiked. Lending rates grow faster than deposit rates and this leads to an expansion in their margin. However, if this trend continues, then the benefit is nullified beyond a point. Banks can face mark-to-market losses on their investment book. 

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Improved asset quality, rising deposits, an increase in lending and higher interest rates drove their share prices northwards, according to analysts. Banks have cleaned up their balance sheets and an economic recovery has resulted in a rebound in credit disbursal. They said that the festive season is around the corner and the guidance from banks is positive. 

Some of the top gainers in the sector in the past month are Karur Vysya Bank (up 30.66 per cent), Union Bank (up 17.87 per cent), Federal Bank (up 15.19 per cent), State Bank of India (up 11.77 per cent), Axis Bank (up 8.96 per cent), and ICICI Bank (up 7.36 per cent). 

Written by Simran Bafna 


The content in this news article is not investment advice. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution while investing or trading in stocks. Dailyraven Technologies or the author are not liable for any losses caused as a result of the decision based on this article. Please consult your investment advisor before investing.

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