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Banking shares continued their rally on Monday, with the Bank Nifty hitting a new high of 16,664 in intra-day trade and closing about a per cent higher, against the benchmark Nifty’s 0.29 per cent fall. In the past six trading sessions, the Bank Nifty has gained 1,015 points, or 6.5 per cent, from 15,542 on October 16; in the same period, the Nifty has risen 3.1 per cent.
Among individual stocks, while Kotak Mahindra Bank, IndusInd Bank, YES Bank and Axis Bank gained one-two per cent each to hit their respective record highs on the National Stock Exchange (NSE), HDFC Bank and ICICI Bank neared their lifetime highs. Among public sector banks, State Bank of India, Union Bank of India, Andhra Bank, Bank of India, Bank of Baroda, Oriental Bank of Commerce and Canara Bank rose one-three per cent on the NSE.
“In the past few months, banking stocks saw huge correction, after a sharp rally. Despite the appreciation in the past few sessions, a lot of these stocks are still below their 52-week highs. Economic data, such as that on inflation numbers, has been good and this has increased the possibility of a rate cut, which could help boost credit growth. As the economy revives, PSU (public sector undertaking) banks could start recovering some NPAs (non–performing assets). For a lot of these banking stocks, valuations are quite low compared to what they trade at during an up-cycle,” said Vaibhav Agrawal, vice-president (research-banking), Angel Broking.
Indranil Sen Gupta, India economist at Bank of America Merrill Lynch, expects Reserve Bank of India (RBI) Governor Raghuram Rajan to cut rates in February. The December policy review, he says, might be more dovish, with growth in gross domestic product in the September quarter likely to slip to about five per cent from 5.7 per cent in the June quarter.
Stock strategy
Analysts say in terms of performance, private banks are steering well on all fronts --- growth, earnings and asset quality. Further, the RBI notification regarding the retirement age of chief executives of private bank has addressed concerns about continuity of current managements.
“Banks across the segment had lost pricing power during FY11-14, primarily due to sharp moderation in industrial loan growth. However, we believe various initiatives by the new government will revive economic activities and lead to a revival in the capex cycle and, in turn, boost credit growth,” says a Karvy Stock Broking report.
Agrawal of Angel Broking prefers Axis Bank, ICICI Bank, YES Bank, South Indian Bank, Bank of India, Bank of Baroda and Punjab National Bank.
“Kotak Mahindra Bank trades on a par with HDFC Bank on P/B (price-to-book) and at a Rs 30 per cent premium to HDFC Bank on P/E (price-to-earnings). We, thus, prefer HDFC Bank (buy rating) from a valuation perspective,” Adarsh Parasrampuria and Amit Nanavati of Nomura said in a report.
