BFSI stocks flex muscles in Nifty50 this year, but still short of 2019 peak

The combined m-cap of 11 BFSI companies in Nifty50 is up 12.3% so far this year

The banking, financial services and insurance (BFSI) sector has turned out to be the top performer on the bourses during the current calendar year after a poor showing in 2021.

This, in turn, has resulted in a sharp rise in the BFSI sector weighting in the benchmark Nifty50 index.

The BFSI sector now has a 36.7 per cent weighting in the index, up sharply from its four-year low of 33.7 per cent at the end of December 2021.

The sector will, however, require a much bigger rally to recover its past glory.

At their peak, companies in the BFSI sector were the biggest market movers with a 40.6 per cent weighting in the Nifty50 index.

Big increase in market capitalisation 

The combined market capitalisation (m-cap) of 11 BFSI companies in Nifty50 is up 12.3 per cent year-to-date, compared to 6.6 per rise in the combined m-cap of the 50 stocks that are part of the index.

BFSI companies had a combined m-cap of Rs 42.45 trillion on Thursday, up from Rs 37.8 trillion at the end of December 2021.

During the same period, the combined m-cap of all 50 index stocks rose to Rs 147.2 trillion from Rs 138.06 trillion at the end of December 2021.

The rise in m-cap of BFSI companies, which are part of the index, is far muted compared to the overall rally in banking stocks during the current calendar year so far.

Analysts attribute this to a relatively smaller rise in the share price and m-cap of private banks and retail non-bank lenders that dominate the BFSI space in the index.

“The biggest rally in the BFSI space has been in the public sector banks (PSBs) while the rally has been relatively muted in case of private banks.

PSBs, however, have a smaller presence in benchmark indices due to their small market capitalisation,” said G Chokkalingam, founder & managing director (MD), Equinomics Research & Advisory Services.

State Bank of India (SBI) is the only PSB to be part of the Nifty50 index.

SBI’s share price is up 31 per cent during the calendar year so far. However, it’s neither the most-valuable bank nor its weighting in the index is very high.

At its current m-cap and non-promoter shareholding, SBI has 2.8 per cent weighting in the index, a fraction of the weighting of its private peers such as HDFC Bank and ICICI Bank.

HDFC Bank tops the charts with an m-cap of Rs 9.1 trillion and index weighting of 8.5 per cent. It is followed by ICICI Bank with an m-cap of Rs 6.33 trillion and index weighting of 7.5 per cent.

Both these private banks have underperformed their PSB peers such as SBI in 2022 so far.

This is also indicated in the sectoral indices. The NSE PSU bank index is up 71.3 per cent year-to-date compared to a 22.2 per cent rally in the NSE private bank index.

By comparison, the Nifty Bank index — that has both PSBs and private banks — is up 21.8 per cent.

Reclaiming past glory?

Analysts doubt if the BFSI sector can reclaim its past glory in 2023.

“Bank margins have begun to come under pressure from higher deposit and borrowing costs. And, one-off gain from decline in bad loans is behind them.

This may weigh on their earnings and share price in 2023,” said Dhananjay Sinha, director and head of equity and strategy at Systematix Institutional Equity.