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The Nifty Bank Index ended over four per cent lower today, largely dragged by a slump in shares of index heavy weight HDFC Bank post the lender’s Q3 results.
As such, negative sentiment regarding pressure on private banks’ margins and slower deposit growth weighed on overall sentiment for the sector with lenders such as ICICI Bank, Kotak Mahindra Bank and Axis Bank also ending lower.
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“Banks are underperforming as growth/return ratio has peaked for the sector and there are no re-rating triggers in the near term. While headwinds such as NIM compression, emerging concerns in some segments resulting in a tighter regulatory stance and slower deposit momentum are emerging,” said Rahul Malani, Deputy VP Fundamental Research, Banking and NBFC Analyst, Sharekhan-BNP Paribas.
On January 17, Bank Nifty ended 4.3 per cent lower at 46,064.45. Analysts have pegged 45,500 to 47,000 as the range for Bank Nifty in the coming weeks.
Shares of HDFC Bank closed 8.2 per cent lower at ₹1,542.15 on the NSE, below the crucial support of ₹1,550 due to sell-off in the stock.
“The sharp fall in HDFC Bank shares pulled other financial stocks as well, subsequently dragging the Nifty Bank index. For the first time in two months, Nifty Bank closed below its 50-day moving average,” said Sheersham Gupta, Director and Senior Technical Analyst, Rupeezy.
Major concerns
Underperformance in the net interest margins (NIM), muted deposit growth and slower-than-expected retail growth reflecting stagnant growth, were the major concerns raised by investors post the lender’s Q3 results.
“The higher credit-deposit ratio (110 per cent) and lower LCR (110 per cent in 3Q against 126 per cent in 2Q) are cause of concerns. The lower LCR and slower deposit growth may limit NIMs expansion going forward even as the reported NIMs of 3.6 per cent (for interest earning assets) came below expectations,” said Ajit Kabi, Research Analyst at LKP Securities.
Naveen Kulkarni, Chief Investment Officer, Axis Securities PMS added that the higher CD ratios is the case for most other banks as well and markers expect banks to either report margin pressure, or if they opt for aggressive deposit mobilization then a slowdown in lending growth, or both. “This development can lead to some de-rating of the sector.”
In addition to HDFC Bank, shares of all other 11 constituents of Nifty Bank were in the red, ending 0.6-3.7 per cent lower. Losses were led by shares of Kotak Mahindra Bank, IDFC First Bank and Axis Bank which fell over 3 per cent.
On the other hand, analysts are more positive on PSU banks with Vinod Nair, Head of Research, Geojit Financial Services saying that PSU banks still have room for growth given their comparatively lower loan-to-deposit ratio and as they traditionally trade at a discount to private banks.
“Currently, they are trading close to their historical average of price-to-book value. The evident eagerness of PSU banks to expand their balance-sheet suggests that this momentum is likely to persist,“ he said.
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