Profit booking coupled with falling currency and hopes of a further rate hike by the Reserve Bank of India (RBI) on September 30 dragged the banking stocks down in the past nine sessions. The Nifty Bank index plunged nearly 10 per cent to 37,759.85 on September 28 against its all-time high level of 41,840.15, scaled on September 15, 2022.
On the other hand, the benchmark NSE Nifty index retreated around 6 per cent during the same period.
Commenting on the fall, Ajit Mishra, VP-Research, Religare Broking said, “The decline can largely be attributed to the profit taking in private banking majors after the phenomenal surge.”
Stock performance
Data available with Ace Equity showed that private sector lender Bandhan Bank and Au Small Finance Bank declined the most 16.60 per cent and 14.10 per cent, respectively, since September 15. Other private banks including IDFC First Bank, Axis Bank, HDFC Bank, The Federal Bank, ICICI Bank, Kotak Mahindra Bank and IndusInd Bank also lost between 4.5 per cent and 12 per cent.
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On the other hand, public sector lenders such as State Bank of India, Bank of Baroda and Punjab National Bank also plunged between 8 per cent and 14 per cent.
Narendra Solanki, Head- Equity Research, Anand Rathi Shares & Stock Brokers said, “Global headwinds and tightening liquidity along with higher rates capping gains as seen in recent selling by foreign funds. Financial stocks are also under pressure due to recent volatile move in currency ahead of RBI monetary policy.”
Should you buy the dip?
While sharing his views on the sector, Nikhil Kamath, co-founder, Zerodha and True Beacon said, “Interest rates may continue to rise due to high inflation. Interest rates beyond a point may bring down demand for real estate and many other sectors on which the banking sector is directly dependent on. Hence the outlook on Nifty Bank is not very optimistic.”
He further added that inflation is not short-term. “It will stay on coming quarter. We don’t see any buy-on-dip opportunity in the sector. India market seems overvalued as compared with global peers,” Kamath said.
The domestic equity market has managed to outpace global markets on a year-to-date basis. Where the NSE Nifty index lost nearly 3 per cent YTD, the well-known equity index of the US market Dow Jones declined 20 per cent YTD.
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On the other hand, Mishra sees buy on dip opportunity in the banking space. “Market participants should continue with the “buy on dips” in private banking majors and be selective into the PSU basket with a medium to long term view,” he said.
Solanki added that financials were one of the main contributors to the recent market rally. In the near term, the global liquidity and interest rates environment may act as headwinds for the sector. However medium term continues to remain positive supported by good credit growth and the ongoing festive season.
