Banking indices on the BSE and the National Stock Exchange (NSE) hit their respective 52-week highs during Tuesday’s intraday trade. This happened amid strong retail loan growth while private banks continue to see improving profitability on account of lower slippages.
The BSE Bankex closed the session on Tuesday on a flat note, down 0.03% at 33,401.58 points, while the Nifty Bank index ended 0.22% higher at 29,832.20 points.
The Nifty Bank index has gained 10% year to date (YTD), while the Nifty private bank index has increased 11.08% YTD, with the Nifty 50 making 6% gains. Yes Bank has been the best performing stock in the Nifty Bank index with 38.7% returns. Other gainers include Axis Bank, IDFC, Punjab National Bank (PNB), RBL Bank, ICICI Bank and HDFC Bank.
Since the beginning of 2019, several brokerages have been bullish on bank stocks owing to improved Tier-I ratios and better opportunities for loan growth. “We note that the current domestic macro set-up looks better than in 2014 – given improving economic activity, lower inflation and rates, stronger bank balance sheets,” said Goldman Sachs in the India strategy report. The US-based brokerage has upgraded the Indian market from ‘marketweight’ to ‘overweight (OW)’.
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Retail loan growth has remained strong while private banks continue to see improving profitability on account of lower slippages. Goldman Sachs has upgraded PSU banks to ‘overweight’ given sharp improvements in asset quality trends, attractive valuations and a likely pick-up in credit growth.
However, it has downgraded non-banking financial companies (NBFCs) to ‘underweight’ given lingering concerns about liquidity, lack of clarity over regulatory changes around asset and liability management (ALM) norms and potential asset quality issues from real estate exposure.
With regard to real estate, Jefferies believes that the contagion of the stressed real estate sector should be manageable even as the RBI continues to ease with a likely rate-cut in April. “This should support earnings growth and valuation,” the report said. Additionally, brokerages remain optimistic on real estate. In fact, the Nifty Realty index has given the highest returns with 14.18% gains since the beginning of the year.
Brokerages are comfortable with banks that have only grown the real estate portfolio through less-risky lease rental discount (LRD) in the last three-four years. “We continue to like both Axis and ICICI Bank. Within HFCs, we prefer both HDFC and LIC HF with their ability to distribute loans and ability to fund the growth cheap,” Jefferies said.
The RBI on March 13 announced an additional liquidity management tool (long dated dollar swaps) to infuse further rupee liquidity. “This should aid bank deposit growth. Private sector banks have raised deposit rates materially, and should gain greater share in incremental deposits,” Jefferies said in a report.
Jefferies expects private sector banks to be a net beneficiary as they have been particularly focused in raising long-term deposits by raising term-deposit rates. Private sector banks have raised their deposit rates by 27 bps in the 2-3-year bucket, compared with a mere 5 bps for state-owned banks.