The Bank Nifty fell 0.8% to close at 50,888 after dropping as much as 1.5% earlier in the day. The Nifty ended marginally lower at 24,406. In the previous three trading sessions, the Bank Nifty has declined 2.7% as against the 0.4% drop in the Nifty. The sentiment has also taken a hit following the budget proposal to increase short-term and long-term capital gains tax.
Analysts said June quarter profits of some private lenders missed estimates, prompting investors to cut their bets for now.
Agencies“Major private banks like Kotak, Axis and HDFC have reported their earnings which have not been up to the mark and most missed estimates,” said Shreyansh Shah, Research Analyst, Stoxbox. “Investors have booked profits following the results leading to the decline in the index.”
Out of the 12 banking stocks in Bank Nifty, 4 advanced while 8 declined on Thursday. Axis Bank dropped 5.1%, AU Bank fell 4.7% and ICICI Bank declined 2.1%.Bank of Baroda, IDFC First Bank and IndusInd Bank fell over 1% each while Kotak Bank, Federal Bank, and Punjab National Bank advanced over 1%.While the first quarter is usually a soft one for banks, analysts said the slippages on account of the increase in unsecured loan book were disappointing and deposit growth was also not encouraging.Shreyansh Shah said that although the credit growth story remains intact, the slippages need to be monitored especially when RBI’s stance has been increasingly cautious.
The Bank Nifty closed at a record high of 53,103.7 on July 4, while HDFC Bank hit a one-year high of 1,794 on July 3 due to expectations of increased weightage in the MSCI Index on account of reduced foreign shareholding that could lead to inflows up to $4 billion.
“Bank Nifty surged to fresh highs when index heavyweight HDFC Bank moved up significantly on MSCI inclusion news. Now that the bank has corrected post results, the index has also topped out,” said Kaitav Shah, lead BFSI Analyst, Anand Rathi Institutional Equities.
The index is down 2,214.42 points or 4.17% from the record closing high of 53,103.70 on July 4. In the last five sessions, Bank Nifty slumped 3.12% while benchmark Nifty fell 1.47%.
“The subsequent quarters are expected to see no significant decline in NIMs for private banks, however growth prospects seem limited,” said Shreyansh Shah of Stoxbox.
Private vs PSU Banks
Fund managers have been buyers of large private lenders such as ICICI Bank and HDFC Bank of late as they found value in them following their underperformance to their public sector peers. In the past year, the Nifty Private Bank index has gained 8% as against the 59%jump in the Nifty PSU Bank index.
“Sustaining growth at current levels seems difficult for private players,” said Shah of Stoxbox. “PSU banks like Bank of Maharashtra and UCO bank have improved asset quality and have posted encouraging numbers.”
On a historical valuation basis, PSU banks remain more attractive and SBI’s results will set the tone for PSU banks, he said
Shah of Anand Rathi Institutional Equities said that PSU Banks are at valuations where they need to demonstrate the next leg of return on assets (RoA) to sustain the current valuations.