The banking index was higher by 6.5% this week, outperforming Nifty’s gains.
By Urvashi Valecha
Banking sector stocks on Friday soared, with the Nifty Bank ending 2.83% higher after RBI governor Shaktikanta Das announced a host of measures to boost liquidity and rein in interest rates. The banking index was higher by 6.5% this week, outperforming Nifty’s gains. The RBI introduced a slew of changes such as an increase in exposure to retail and small borrowers as well as rationalising risk weights for all new housing loans. Experts believe that these changes will benefit borrowers.
Dhiraj Relli, managing director and chief executive officer, HDFC Securities, said: “Announcement to allow banks to increase exposure to retail and small borrowers up to Rs 7.5 crore and rationalising risk weights for all new housing loans till March 31, 2022 are welcome from the borrower’s perspective, but banks need to beef up their credit appraisal processes.” The year to date decline in the Nifty Bank at 26.5% is more than that of the Nifty which is only down by 2.28% till date. In fact, the returns from Nifty Bank over a three-year period continue to remain negative, with its one-year return at negative 17.8%.
Similarly, the two-and three-year returns of the Nifty Bank stand at negative 3.62% and 2.53%. Meanwhile, the returns from Nifty over the same period are positive. Rusmik Oza, executive vice president – head of fundamental research, Kotak Securities, said, “Banks will start performing now, they have been underperforming due to Covid-19-related uncertainty and the overhang in the Supreme Court verdict. Once that comes next week, the banks will start playing catch up… however, they cannot reach the stage of the outperformance that they had between 2016 and 2019. This is because at 22 times forward price earnings multiple, the market is very expensive and so, banking stocks would mostly play catch-up. Markets function on the basis of clarity and once that comes in over the course of the next two to three quarters, then the banking stocks will play catch-up.”
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