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Nifty PSU Bank index hits fresh 9-month low

The fall on Wednesday was triggered by Axis Bank that lost nearly 9% to Rs 468 levels following its September quarter numbers that showed worsening asset quality

Deepak Korgaonkar & Puneet Wadhwa  |  Mumbai / New Delhi 

Banks
Banks

Shares of public sector banks (PSBs) came under pressure with the hitting fresh nine-month low on the National Stock Exchange (NSE). The index hit an intra-day low of 2,958 - its lowest level since January 6, 2017 - and has slipped 20% from its recent closing high of 3,723 on July 31, 2017.

By comparison, the benchmark Nifty 50 was up 1.4%, while Nifty Bank (down 3%) and Nifty Private Bank index (down 1%) were down less than 4% during the period.

Among individual stocks, State Bank of India (SBI), Oriental Bank of Commerce and have lost 20% to 23% in past two-and-a-half months. Union Bank of India, Vijaya Bank, Punjab National Bank, Punjab & Sind Bank, Bank of India, Bank of Baroda and Canara Bank down 16% to 19% during the period.

Graph
Data compiled by BS Research

The fall on Wednesday was triggered by that lost nearly 9% to Rs 468 levels following its September quarter numbers that showed worsening asset quality. The bank's gross non-performing assets (NPAs) and net NPAs stood at 5.9% and 3.12% in Q2FY18 against 5.03% and 2.30% in Q1FY18, respectively. In the year-ago quarter, gross NPAs were at 4.17% and net were at 2.02% of the loan book.

"The non-performing asset issue with is already known. What's surprising is de-growth / subdued growth in the business itself. For some, the problem is not peaking out at all. If the credit growth is not picking up, it is difficult for high debt laden to come out of the mess they are in. That apart, select stocks had a good run recently and now investors are taking cognizance of these factors and selling," explains G. Chokkalingam, founder & managing director,

Besides Axis Bank, ICICI Bank, YES Bank and IDFC Bank from the private sector were down 2% to 4% on the

The September quarter results of Axis Bank, analysts say, have yet again highlighted the problems banking sector is plagued with. That apart, lack of credit growth remains a concern.

"Even though retail segment continues to strengthen for Axis, visibility in corporate earnings is weak. RBI's stress reporting divergence again raises a question on recognition of corporate stress, which may be a near term overhang (for corporate focused banks)," says Kunal Shah, an analyst tracking the sector with Edelweiss in a co-authored result review report with Prakhar Agarwal and Malav Simaria.

Ajay Mohanty
Illustration: Ajay Mohanty

Going ahead, analysts expect banks' earnings to remain under pressure due to sustained pace of high non-performing loan (NPL) accrual and the accelerated provisioning requirement.

"We expect significant increase in loan loss provisioning for wholesale-lending-oriented private sector and state-owned banks, due to a sharp increase in NPLs and crystallisation of losses over FY18-20. We lower earnings forecast for wholesale-lending-oriented private sector and state-owned banks by up to 42% and 88%, respectively. Return on equity (ROE) would likely remain subdued over FY18-19 for these banks," at point out analysts at Institutional Equities in a report.

In this backdrop, Chokkalingam says investors should be cautious while investing in these scrips at the current levels.

"Investors should look at price-to-book value (P/BV), which should be less than 2-3x; the net percentage should not be above 4 - 5%; and there has to be some visibility of credit growth. Look at these parameters before taking an investment call," he advises.

 

First Published: Thu, October 19 2017. 00:52 IST
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