Banking stocks extend losses, this major factor is behind their recent slump

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Updated: February 18, 2020 6:21:42 PM

In the fallout of the Supreme Court’s refusal to grant any relief to telecom companies over their adjusted gross revenue (AGR) dues, majority of the banking stocks ended the day in red.

The apex court on Monday directed the government to encash bank guarantees deposited by the telecom companies if they fail to pay their dues.

In the fallout of the Supreme Court’s refusal to grant any relief to telecom companies over their adjusted gross revenue (AGR) dues, majority of the banking stocks ended the day in red. Nifty PSU Bank ended the day down by 0.81 per cent at 2,128 points; Nifty Bank dropped by 0.39 per cent, and Nifty Private Bank slumped 0.71 per cent. The apex court on Monday directed the government to encash bank guarantees deposited by the telecom companies if they fail to pay their dues. According to Emkay Global Financial Services, IDFC Bank has the highest exposure to Vodafone Idea, followed by Yes Bank, State Bank of India, and Punjab National Bank

IDFC First Bank slipped 0.64 per cent; Yes Bank tanked over 6 per cent, while Punjab National Bank and State Bank of India were two of the only three PSU Banks to end the day in green. Nifty PSU Bank hit an intra-day low of 2,078 points which is the lowest the index has gone since 2016. Among the top losers were Union Bank of India which was down 7.27 per cent; UCO Bank which slipped 1.80 per cent; Bank of Baroda was down 1.58 per cent and Central Bank down by 1.20 per cent. “Bank Stocks were down on lingering Telecom sector concerns. The weakness in the rupee is also normally negative for financials and that was seen today,” investment advisor Sandip Sabharwal told the Financial Express online.

Investors fear that the already limping banking sector will see another spike in non-performing assets (NPA) as telecom companies like Vodafone Idea fail to make payments. “Recent AGR related ruling by the Supreme Court and the follow-on rebuke has raised asset quality concerns in the telecom sector, with Vodafone-Idea being the weak link in this space. Banks such as SBI, Yes, IndusInd, ICICI, Axis, PNB, Canara have relatively higher exposure to Vodafone-Idea Group and thus could be at risk,” said analysts at Emkay Global in a research report.

While the current slump in bank stocks can be attributed to the AGR dues of telecom companies and the risk of growing NPAs, Nikhil Kama of Zerodha thinks its banks take a look at their business model. “Business model of banks has to be looked at there are payment companies that are doing better than traditional banks and in the long run banks need to look at their business model,” he told Financial Express Online.

In the near future, analysts think banking stocks will keep feeling the heat of huge government dues that telecom companies like Vodafone-Idea and Bharti Airtel need to pay. “Dues will keep banking stocks volatile impacting the market performance,” said Vinod Nair, Head of Research, Geojit Financial Services.

Bank of Baroda, Punjab National Bank, Oriental Bank of Commerce, Union Bank of India, and Syndicate Bank hit their respective five-year low during the trade today.  Domestic indices ended the day with losses today, the 50-stock Nifty was down 53 points or 0.44 per cent to close at 11,992 points while S&P BSE Sensex witnessed a sharp recovery in the last hour of the trade to end 161 points or 0.39 per cent lower at 40,894 points.

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