Synopsis:
State Bank of India, HDFC Bank, Bajaj Finance, and seven other companies saw significant gains on Monday after GST slab cut speculation, followed by S&P Global rerating after 18 years.
- NIFTY Bank gained over 800 points or 1.5 percent on Monday. Additionally, FINNIFTY gained over 500 points or 2 percent.
Why Banking Stocks Surged Today?
S&P Global Ratings has just upgraded India’s sovereign rating from ‘BBB-’ to ‘BBB’, a significant move that hasn’t happened since 2007. The agency pointed to strong economic fundamentals, effective measures to control inflation, and ongoing structural reforms as the main drivers behind this upgrade.
According to S&P, Indian banks and financial institutions are poised to gain from robust domestic growth, lower credit risks, and enhanced loan recovery systems. They also praised the Insolvency and Bankruptcy Code (IBC) of 2016 for transforming the credit landscape by fostering better payment habits and promoting restructuring over liquidation
According to the agency report, the seven Indian banks that received the uptick were State Bank of India, ICICI Bank, HDFC Bank, Axis Bank Ltd, Kotak Mahindra Bank, Union Bank of India, and the Indian Bank. Additionally, three finance companies, namely Bajaj Finance, Tata Capital, and L&T Finance, were also upgraded during their rerating procedure.
Additionally, one more reason behind the rally in the banking stocks can be attributed to the prime minister’s announcement of reducing GST slabs to only two from the existing four slabs. PM Modi cited that only the 5 percent and 12 percent GST rate slabs will be operational, with a separate 40 percent slab for luxury and sin goods.
If GST slabs were reduced to just 5 percent and 18 percent, as PM Modi suggested. This change could put more money back into consumers’ hands, encouraging them to spend and save more.
With increased spending, businesses would likely see a boost in activity, and the extra savings could find their way into bank deposits. This could spark credit growth and help strengthen the balance sheets of our banks.
In light of this optimistic outlook, Indian banks and non-banking financial companies (NBFCs) saw a surge today, as investors celebrated the prospect of improved profitability, stronger capital positions, higher disposable income, and reduced credit stress.
Written by Satyajeet Mukherjee
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