NS nifty bank indexIn the last one month, 12 bank stocks have lost over 8 per cent. It has given a negative 1.5 per cent in three months and has grown only 1.5 per cent in the last six months. In comparison, Nifty has gained 3 per cent in one month, 1 per cent in three months and around 10 per cent in the last six months. In the longer term, before the pandemic began, the NSE Bank Index has rallied the Nifty 50 by 19% since February 2020.
Punters from Dalal Street have highlighted various “technical” reasons for the poor performance, including the current overweight position of institutional investors and selling by foreign portfolio investors (FPIs). In fact, bank stock is the biggest holding for FPIs and recently they are selling it.
But some analysts say that there is not much essence behind the poor performance, but only a story that may not have much to do with the facts. “underperformance of banks “The emerging environment versus fintech and big tech reflects the global narrative of existing banks being poorly prepared,” says Sanjeev Prasad, Kotak Securities. “The market has also fueled the success of fintech in lending payments. There are two issues with this narrative in the Indian context; One, the standalone payments business is not very profitable, and second, the lending space is already overcrowded where there is no real benefit in lending to fintechs.
The emergence of new-age fintech firms has puzzled many, especially when these institutions have also ventured into lending. Investors and traders say they could disrupt the lending business, as has changed how buying and paying for groceries and clothing has changed.
Worth noting is that payments companies in developed markets have largely focused on payments, limiting lending with buy-now-pay-later plans. The Indian payments industry does not appear to be very profitable given the large number of payment options, consumers’ reluctance to transact alone, very low switching costs for consumers and high costs for merchants.
Lending, on the other hand, is a different kind of game that people paying will defend more strictly as opposed to paying. “Lending fintech has primarily focused on subprime borrowers (personal unsecured loans), given the plethora of options for prime and super-prime borrowers. This strategy emphasizes its own exposure to borrowers and fintechs with a limited dataset on the risk profile of borrowers; A Covid-19-type situation would result in an increase in credit cost,” says Prasad.
So, in short, banks are not going out of business.
Add to this the improvement in the health of traditional lenders. Analysts expect a sharp rise in banks’ profit-to-return ratio as provisions lag behind growth in net interest income and pre-provisioning operating profit.
Thus, they have bullish targets for banks. The average 12-month upside potential for largecap banks is up to 44 per cent. IndusInd Bank, Axis Bank, HDFC Bank, SBI and ICICI Bank are among the top stocks in the sector.
“Banks are waiting for stocks to re-rate and the moment you see a drop in FII sales, exactly one day, you can also see some big banks moving up like 5-7 per cent in a day. Huh. I am very bullish on banks.
VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services also says that the poor performance of banking stock As asset quality concerns ease and credit growth picks up, this is bound to change. “Therefore, investors can use this correction to buy higher quality banking stocks,” he says.