Banking stocks, the favourite of stock market investors till October last year, have lost sheen on concern that costly deposits may hurt profitability of banks.
Since November 5, the Bombay Stock Exchange (BSE) Bankex, which represents India’s 14 public and private sector banks, has fallen more than 15 per cent. The exchange’s benchmark, Sensex, has declined about four per cent in the period.
“Investors are apprehensive about the rise in deposit rates, which are just 50 basis points below their all-time highs. This will impact banks’ net interest margins (NIMs), hitting profitability,” said Gopal Agarwal, equity head at Mirae Asset Mutual Fund.
Banks have raised deposit rates by 50-150 basis points since October 2010. The country’s largest lender, State Bank of India (SBI), is offering nine per cent on 1,000-day and 555-day deposits. “If banks manage to pass costs to customers, the stocks are likely to bounce bank. But the pace of deposit growth has to be monitored as it is lower than the credit growth,” Agarwal said.
| DOWNHILL RIDE Change in stock price in (%) | ||
| Bank | Dec 31, ’09 Nov 5, ’10 | Nov 5, ’10- Jan 6, ’11 |
| SBI | 53.76 | -24.77 |
| Federal Bank | 110.24 | -24.4 |
| Yes Bank | 40.09 | -24.37 |
| IDBI Bank | 53.75 | -20.01 |
| Bank of Baroda | 103.77 | -19.33 |
| Canara Bank | 94.92 | -18.18 |
| Union Bank | 47.18 | -17.71 |
| ICICI Bank | 44.99 | -17.06 |
| Axis Bank | 56.71 | -15.62 |
| BSE Bankex | 50.2 | -15.79 |
SBI has lost nearly a quarter of its value since November 5. The shares of Federal Bank (down 24.40 per cent), YES Bank (down 24.37 per cent), IDBI Bank (down 20.01 per cent) and Bank of Baroda (down 19.33 per cent) have also been hit.
Navneet Munot, chief investment officer, SBI Mutual Fund, said, “We have been underweight on the banking sector for sometime now as deposit rates have risen almost 200 basis points.”
“Banks are facing a lot of pressure on the NIM front. The December quarter may see NIMs dip around 10 basis points, while in the current quarter, they may fall by 20-25 basis points,” said Ankit Ladhani, research analyst, Sharekhan.
Experts believe select banking stocks offer value after the recent correction. “Banking stocks have fallen from their peak levels over the last two months. Some stocks will be good picks as the long-term outlook for the sector is positive,” he added.
Long-term investors in banking stocks are still sitting on considerable gains. The BSE Bankex had risen over 50 per cent in 2010 till November 5, with the Sensex advancing just 20 per cent. Some like Bank of Baroda and Federal Bank almost doubled between January 1, 2010, and November 5, 2010.
