scorecardresearch50% of Nifty Bank stocks lost their value by 3-6% in last 5 days; 6 banks are trading close to their 52-week lows
FPI sold  <span class='webrupee'>₹</span>1,90,000 crore worth of stocks, the biggest annual figure ever and more than double the previous high of  <span class='webrupee'>₹</span>80,917 crore recorded in 2018.

50% of Nifty Bank stocks lost their value by 3-6% in last 5 days; 6 banks are trading close to their 52-week lows

Updated: 20 Jun 2022, 08:05 AM IST
TL;DR.
Since the RBI rate hike of 40 bps on May 4th, Bank nifty has corrected by almost 15%. So far, the Nifty bank index has dropped 21% from its 52-week high of 41,829.60. Nearly half of the Nifty bank stocks are trading close to their 52-week lows and three stocks fell 40% from their 52-week highs.

When central banks raise interest rates, businesses typically dislike the move because it raises their cost of capital and reduces margins; however, one sector stands to benefit from rate hikes: the banking sector. When rates are raised, banks may be able to earn more money on net interest margins. Margin spreads will widen as interest income from loans and investments rises faster than interest expense paid to depositors as interest rates rise.

But since the RBI rate hike of 40 bps on May 4th, Bank Nifty has corrected by almost 15%. The Nifty bank index has dropped 21% from its 52-week high of 41,829.60. The current scenario in the banking sector is that nearly half of the Nifty bank stocks are trading close to their 52-week lows and three stocks fell 40% from their 52-week highs and six stocks lost their value by 2-6% in the last 5 trading sessions despite delivering the best quarterly results in the latest March quarter. The main reason behind the fall is high selling pressure from foreign portfolio investors. According to media reports, FPIs sold 12,000 crore worth of financial stocks in May alone. Banks have the biggest weight on the benchmark indices, which means selling in them impacts the entire market.

Further, FPI sold 1,90,000 crore worth of stocks, the biggest annual figure ever and more than double the previous high of 80,917 crore recorded in 2018, TOI reported.

The relentless selling by FPIs is on the back of high commodity inflation that happened due to the Russian-Ukraine War, which led to a spike in interest rates and, in turn, led to a jump in bond yields in the US and other developed markets.

Foreign Holdings (%)Mar -22Mar-21
HDFC  Bank35.6%39.8%
ICICI Bank44.0%47.8%
Kotak Mahindra Bank40.86%44.2%
Axis Bank46.9%51.4%
IndusInd Bank46.3%50.9%
IDFC First Bank13.5%11.9%

Source: ICICI Securities, 

Geojit BNP Paribas

  

Foreign institutional investors invest in Indian stocks or other emerging markets when they have excess liquidity (low borrowing costs). If bond yields rise in the US, money will move away from emerging markets.

Improved Performance

The banking sector witnessed an improved performance in Q4FY22 on various parameters like credit growth, asset quality, and profitability. On an overall basis, asset quality saw improvement as healthy recoveries and fewer slippages helped. According to the ICICI Securities report, the GNPA ratio for banks declined in the range of 10–70 bps, with the average drop being at 40 bps.

Even on an absolute basis, GNPA fell 3% QoQ and 11% YoY for the banking sector. The provision coverage ratio (cover against NPA) has inched up 150 bps QoQ to 72%. The restructured book also declined by an average of 25 bps QoQ, thus indicating an overall reduction in stress. Kotak Mahindra Bank saw the highest reduction in GNPA at 37 bps QoQ among private peers, said ICICI Securities.

In the PSU space, SBI continued to maintain its healthy run on the asset quality front as GNPA was down 42 bps while restructuring also declined 10 bps QoQ.

NIM increased at Kotak, IDFC First, and Indusind, while it decreased at HDFC Bank and Axis Bank.

ICICI Securities believes that the next year will be a year of normalisation. It says the overall margins remain steady with some deviations among peers.

Meanwhile, Moody's has maintained a ‘stable' outlook for India's banking system. Moody's said in a statement that bank operating conditions will be stable, underpinned by improved consumer and business confidence as well as increased domestic demand.

Financial fundamentals in the banking sector will improve. It said the profitability of banks would be boosted by lower loan-loss provisions and higher net interest margins.

As per Moody's, bank loan growth would accelerate to 12–13 per cent in fiscal 2023, up from 5% in fiscal 2021.

52-week Lows

Nearly four Nifty Bank stocks hit new 52-week lows in Friday's trading session. However, brokerages remain bullish on banking stocks and raised their target prices.

IndusInd Bank

IndusInd Bank, India's 5th largest private sector bank, hit a 52-week low of Rs. 796.8 in Friday's trading session.

The stock has dropped 35.66% since its 52-week high of 1,242, touched on October 28, 2021. In the last six months, the stock gave a negative return of 8.62%. It is down 11.62 per cent year to date.

Further, the stock gave a 3-year return of-42.16% as compared to the Nifty 100, which gave a return of 33.41%.

The stock quoted a price-to-earnings (PE) ratio of 13.01, which is low when compared to the sector PE of 21.58.

Earnings per share (EPS) stood at 62.03 and a price-to-book value (PB) of 1.37, while the return on equity (ROE) stood at 9.66%.

The bank reported a strong set of earnings in the March quarter. It reported a 51% increase in consolidated net profit to 1,401 crore in Q4, owing primarily to lower provisioning.

The private sector lender's post-tax profit was 4,805 crore for fiscal 2021-22, up from 2,930 crore.

Interest earned for the quarter rose 5.93 per cent YoY to 7,859.89 crore, compared with 7,419.36 crore in the same quarter last year.

Meanwhile, the bank held the No. 1 position in terms of credit transactions in the month of March 2022. The bank processed nearly 5,700 crore worth of credit transactions, according to data released by the RBI.

Prabhudas Lilladher is bullish on IndusInd Bank and it recommended a'BUY' rating on the stock with a target price of 1297, in its research report dated April 30, 2022.

"We expect a loan CAGR of 15% over FY22-24E with declining provision costs, while expanding LDRs over the same time frame might drive an uptick in margins. RoE may scale up from 10% in FY22 to 15% in FY24E," said Prabhudas Lilladher.

Scrip Name LTP (June 17 2022)52-Week LowPrevious 52-Week Low Date% Distance from 52-Week Low52-Week High % Fall from 52- Week high
IndusInd Bank 806.90796.7517 Jun 20221.27%1242.0035.03%
Axis Bank 635.20626.6017 Jun 20221.37%866.9026.73%
HDFC Bank 1289.751271.6017 Jun 20221.43%1725.0025.23%
Punjab National Bank29.0528.6512 May 20222.11%48.2039.73%
IDFC First Bank31.6530.9517 Jun 20222.26%59.5046.81%
Kotak Mahindra Bank1673.601626.0030 Jul 20212.93%2253.0025.72%

HDFC Bank

HDFC Bank's shares closed at Rs. 1289.75 (up 0.66 per cent) on the BSE. In Friday's trade, the stock reached a fresh 52-week low of Rs. 1,271.

The stock has fallen 25.80% from its 52-week high. In the last six months, the stock dropped by nearly 12.44%.

At the prevailing price, the stock traded at 18.80 times its trailing 12-month EPS of 68.62 per share and 2.86 times its book value.

Furthermore, the stock has dropped 22% since the announcement of the merger with the housing finance company.

On April 4, HDFC Bank approved the amalgamation of HDFC Investments and HDFC Holdings with HDFC and that of HDFC into HDFC Bank.

The HDFC-HDFC Bank merger is expected to be completed by the second or third quarter of FY24. After the merger, HDFC Bank will be 100 per cent owned by public shareholders and the existing shareholders of HDFC Limited will own 41 per cent of HDFC Bank.

The share exchange ratio for the amalgamation of HDFC with and into HDFC Bank will be 42 equity shares of the face value of 1.

HDFC Bank's net profit for the March quarter increased 22.8 per cent year on year to 10,055.20 crore. The bank reported a profit of 8,187 crore in the year-ago quarter.

Net interest income rose 10.2 per cent to 18,872.70 from 17,120.20 crore in the year-ago quarter.

Meanwhile, HDFC Bank has announced a dividend of 15.50, or 1,550%, per equity share with a face value of 1 each for FY22, the highest in rupee terms in the last 11 years.

ICICI Securities has maintained a 'BUY' recommendation on the stock with a target price of 1,955, representing a 51.66 per cent upside potential from the last traded price of 1,289.

Axis Bank

Axis Bank stock is down 14 per cent in the last one year. Year to date, it is down 7.8 per cent. Axis Bank shares closed at Rs. 635 on the BSE in Friday's trade. During the day, the stock moved between Rs.626 and Rs.640.

Axis Bank hit a new 52-week low of Rs.626.6 in Friday's trading session.

The stock has fallen 27.10% from its 52-week high of 866.90, which it reached on October 25, 2021.

The bank reported a 54 per cent year-on-year (YoY) rise in net profit at 4,118 crore compared with 2,677 crore in the same quarter last year.

Net interest income (NII) increased by 17% year on year to 8,819 crore. The net interest margin (NIM) for the quarter came in at 3.49 per cent.

Meanwhile, Axis bank acquired Citibank’s consumer banking businesses in India for 12,325 crore.

According to market experts, Citi transaction would help Axis since it gives access to 2.6 million Citi cards, which have a greater average expenditure than cards from competing Indian banks.

After the latest deal, brokerages have turned bullish on the Axis bank, They see an up to 40 per cent rally in the private sector lender.

Global brokerage firm Morgan Stanley maintained its "overweight" rating on the back of the lender's robust asset quality, improved balance sheet, and revenue granularity.

The brokerage firm has a target price of 910 on Axis Bank's shares, an upside of 43 per cent from its current market price

Ventura Securities has a 24-month target price of 901.1 on Axis Bank, which hints toward an upside of 41 per cent from its latest close.

IDFC First Bank

The current market price of IDFC First Bank is Rs. 31.65 apiece. The stock hit a new 52-week low of 31.00 in Friday's trade. At its prevailing price, the stock traded at 148.97 times its trailing 12-month EPS of 0.21 per share and 0.93 times its book value. The return on equity (ROE) stood at Rs. 0.69%.

The stock has dropped 47.06% since its 52-week high of 59.50 on June 22, 2021. In the last one year, the stock gave a negative return of 45.24%. Year to date, it is down 34.13 per cent.

The bank posted an over two-fold rise in net profit to 343 crore in the March 2022 quarter on the back of strong core operating income and lower provisioning for bad loans. The private sector lender reported a net profit of 128 crore in the same quarter of the previous fiscal.

The total income during the January-March quarter of 2021-22 rose to 5,384.88 crore from 4,811.18 crore in the same period of FY21.

The net interest income (NII) during the quarter increased by 36 per cent to 2,669 crore, while fees and other income jumped 40 per cent to 841 crore.

ICICI Securities retains its 'BUY' rating for IDFC First Bank with a revised target price of 56/per share, with an upside potential of 80% from the current market price.

IDFC First Bank was formed by the merger of the erstwhile IDFC Bank and Capital First in 2018. At present, the bank’s total number of branches stands at 641, with total funded assets of Rs. 1,31,951 cr.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.

We explain here how can one deal with the stock market losses.&nbsp;
We explain here how can one deal with the stock market losses.