HDFC Bank and ICICI Bank led the turnaround in private banks with strong support coming from other heavyweights like Axis Bank, Kotak Mahindra Bank, Bandhan Bank and IndusInd Bank.
While HDFC Bank shares have risen 8%, ICICI Bank has rallied nearly 12% in the past one month. The rest have gained between 6% and 8%.
Meanwhile, PSU banks which have maintained their lead over private banks in terms of stock returns over the last one year, are now trailing the latter on a one-month basis. Index returns of last one year by the Nifty PSU Bank is to the tune of 32% versus 16% given by Nifty Private Bank, which represents scrips of 10 private lenders.
Expert V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services attributed two main reasons behind the new found vigour in private banks. “One, the FIIs which were major sellers early this year have turned buyers and they are likely to buy more banking stocks which are even now fairly valued in this highly valued market. Second, the credit-deposit gap which has been impacting banks’ margins has started narrowing. In brief, accumulation is likely in banking stocks and this has the potential to push the market up,” Vijayakumar said.
Expert Aamar Deo Singh, Senior Vice President-Equity, Commodity & Currency at Angel One, said private sector banks have “definitely” started appealing more to the investor community as compared to PSU banks as the overall private banking space was underperforming for quite some time and it appears now that it is taking the lead, he added.
The last one-month returns by Nifty Private Bank are not just superior to PSU banks but have also grown at a faster clip than the broader Nifty (5%) and Nifty Bank (6.8%).
While all above names are also part of the Nifty Bank index, the difference has been the underperformance of PSU bank stocks viz. State Bank of India (SBI), Bank of Baroda (BoB) and Punjab National Bank (PNB) which have fallen between 4% and 6%. At an index level, PSU Bank has fallen 4.3%.
On a one-month basis, index returns by private banks are inferior only to Nifty Consumer Durables (9.3%) and Nifty Financial Services (8.1%).
NSE data as of August 30, 2024, reveals HDFC Bank (Wt:11.02%) carrying the highest weight in Nifty and Bank Nifty (Wt:28.06%). ICICI Bank is the third largest in Nifty (Wt:7.73%) and second largest in Nifty Bank (Wt:24.44%) in terms of weight and with both of them moving in tandem, Indian benchmark indices have looked unstoppable despite the underperformance of RIL.
Among private banks, ICICI Bank has outshined all its peers in terms of returns in most time frames. The second largest private lender has seen its market capitalisation swell past Rs 9 lakh crore. Over a 1-year period, it has yielded 33%.
But, for Nifty Private Bank to rise to the top three, HDFC Bank had to throw its weight around and other top banks like Kotak Bank, Axis Bank, IndusInd Bank and Bandhan Bank joined in.
HDFC Bank and Kotak Bank’s rally in the last one month has improved their one-year returns to high single digit versus low single digit prior to the rally period.
Deo feels that the action in Nifty Bank will hinge on the HDFC Bank sustaining above Rs 1,800 mark along with the decision of the Reserve Bank of India (RBI) whether to cut rates in India following the Fed rate cut.
Fundamentally, private banks are likely to benefit from the private sector capex cycle, which is on the verge of picking up, Ravi Dharamshi, CIO, ValueQuest Investment Advisors told ET Now.
“That means the re-leveraging in the economy will start. In a scenario like that, where credit is growing fast, it is going to be the leaders that are going to do well, which is the private sector banks,” he added.
Private sector banks are well capitalised with a clean balance sheet and have capital to grow as well going forward, he vouched.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)