Nifty Bank in bear hug! What’s hurting lenders despite robust Q4 performance?

Nifty Bank – the index gauges to banking counter – has seen a steep and severe correction of 23 per cent in the last eight months, dragging the majority of banks in bear territory since their scaled their all-time peaks.

Among the 23 top listed banks, at least 16 stocks are in the bear grip. Only two lenders –

and – have been able to deliver positive returns since October 2021.



Market experts suggest that despite the stellar performance in the fourth quarter of the last fiscal, amid the strong credit growth and better asset quality, heavy offloading by the global investors have dented the banking names the most.

Asutosh Mishra, Head Of Research, Institutional Equity, Ashika Group said that banking counters have been reeling under the pressure due to change in view of global investors towards equity in general and India, particularly.

“FII are the largest holders of the banking stocks and the sector is witnessing aggressive selling despite delivering best ever quarterly result in the lastest march quarter in the last 5-6 years,” he added.

Market participants said that the banks are facing liquidity pressures following the rate hikes by the Reserve (RBI) and the Federal Reserve. The pressure was anticipated, factoring inflationary environment.

Ajit Kabi, BFSI Analyst at

, said that the fall in Nifty Bank and stocks has made it more attractive. “We may witness some margin pressure across the sector. However, growth and asset quality concerns are behind,” he added.

On technical front, Jatin Gohil, Technical and Derivative Research Analyst,

Securities said that the Nifty Bank index witnessed a pullback with a substantial decline from its peak level amidst weakness in the private bank majors.

He added that a pullback in the banking benchmark, Nifty Bank, cannot be ruled out but a breakdown may lead to a sharp decline till 30,000 levels.

Among the banking counters,

has emerged as the worst performer. The stock has declined by 60 per cent since October 2021, when Nifty Bank scaled its lifetime peak of 41,830.

Market experts believe that the sector is likely to continue its underperformance until the FII selling pressure is not eased down. “However, if the sentiments change, private lenders will rally first, followed by the PSBs,” said Mishra from Ashika.

The net interest margin (NIMs) may squeeze because of higher rates, said experts. “Although, the increase in MCLR may provide downside protection,” LKP’s Kabi said.

According to Gohil, private lenders have crashed between 23-28 per cent, whereas public sector lenders have outperformed the Nifty Bank. “Majority of the private lenders are hovering near their support zones.”

Banking stocks including

, , and Bank of India have tumbled between 32-37 per cent during the period under review.

Top lenders like

, and have also plunged more than 20 per cent since then. and have also eroded in the double digits.

Gohil from Reliance Securities suggested investors to buy state run lenders like State Bank of India and Bank of Baroda on dips. Among the private lenders, ICICI Bank is his preferred choice.

“We expect banks with higher CASA ratio to deliver further improvement in NIMs in FY23, ” said Mishra. “Based upon that our top banking picks are Axis bank, ICICI Bank and State Bank of India.”

Kabi from

Securities is betting on large banks which have the pricing power and digital advantage. “Our top picks include Axis Bank, Kotak Mahindra Bank, ICICI Bank, SBI and HDFC Bank,” he added.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)