Nifty Bank in bear hug! What’s hurting lenders despite strong fourth quarter performance?

New Delhi: Bank stocks are among the worst victims of the latest Dalal Street chaos. Shares in the sector, both private and public, have taken a beating from their peak, hitting their 52-week low.

Nifty Bank – the bank meter index – has seen a steep and severe correction of 23% in the past eight months, dragging the majority of banks into bearish territory since hitting all-time highs.

Among the top 23 listed banks, at least 16 stocks are in the grip of the decline. Only two lenders

and – have been able to generate positive returns since October 2021.



Market experts suggest that despite last year’s stellar fourth quarter performance, amid strong credit growth and improving asset quality, massive global investor shedding has rattled banking names the most.

Asutosh Mishra, Head of Research, Institutional Equities, Ashika Group, said bank meters have been rattled by the pressure from global investors’ shifting view towards equities in general and India in particular.

“FII are the biggest holders of bank stocks and the sector is seeing aggressive selling despite having the best quarterly result in its history in the last March quarter of the past 5-6 years,” he added.

Market participants said banks are facing liquidity pressures following rate hikes by the Reserve Bank (RBI) and the Federal Reserve. The pressure was anticipated, given the inflationary environment.

Ajit Kabi, BFSI analyst at

, said the fall of Nifty Bank and stocks had made it more attractive. “We could see some pressure on margins across the sector. However, growth and asset quality issues are behind it,” he added.

On the technical side, Jatin Gohil, Technical and Derivative Research Analyst,

Securities said the Nifty Bank index saw a pullback with a substantial drop from its all-time high amid weakness in major private banks.

He added that a pullback in the bank’s benchmark, Nifty Bank, cannot be ruled out, but a breakdown could lead to a sharp drop to as low as 30,000 levels.

Among the bank counters,

emerged as the worst performer. The stock is down 60% since October 2021, when Nifty Bank hit its lifetime high of 41,830.

Market experts believe that the sector should continue its underperformance until the FII selling pressure is not released. “However, if sentiments change, private lenders will rally first, followed by PSBs,” said Mishra of Ashika.

Net interest margin (NIM) could shrink due to higher rates, experts said. “Although the rise in MCLR may provide some downside protection,” said LKP’s Kabi.

According to Gohil, private lenders slumped between 23% and 28%, while public sector lenders outperformed Nifty Bank. “The majority of private lenders hover near their support zones.”

Bank securities of which

and Bank of India fell 32-37% during the review period.

The best lenders like

, and have also fallen more than 20% since then. and have also eroded into the double digits.

Reliance Securities’ Gohil suggested investors buy state-run lenders like State Bank of India and Bank of Baroda on dips. Among private lenders, ICICI Bank is its preferred choice.

“We expect banks with a higher CASA ratio to further improve their NIMs in FY23,” Mishra said. “Based on this, our top banking picks are Axis Bank, ICICI Bank and State Bank of India.”

Kabi of

Securities is betting on the big banks that have the pricing power and the numerical advantage. “Our top picks include Axis Bank, Kotak Mahindra Bank, ICICI Bank, SBI and HDFC Bank,” he added.

(Disclaimer: The recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)

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