Axis Bank triggers sell-off among banking stocks

Axis Bank closed 7.5% lower at Rs 483 levels on NSE

Banking stocks came under pressure on Wednesday with most of the frontline stocks closing lower by up to seven per cent on the National Stock Exchange (NSE).

ICICI Bank, YES Bank, IndusInd Bank, Bank of Baroda, Union Bank of India, Punjab National Bank, State Bank of India, Bank of India and Canara Bank lost two to eight per cent.

Bank Nifty, the banking share index, was the largest loser among sector indices, down 2.4 per cent or 433 points compared to 0.75 per cent decline in the benchmark CNX Nifty.

According to analysts, the fall was triggered by a steep decline in Axis Bank that closed 7.5 per cent lower at Rs 483 levels on the NSE, after the bank classified two power sector exposures worth Rs 1,820 crore as non-performing assets and sold them to asset restructuring companies (ARC). The stock had hit a low of Rs 476.55 intra-day on the NSE.

Vaibhav Agrawal, vice-president (research – banking) at Angel Broking, says: “The fall in the banking stocks on Wednesday was partly triggered by Axis Bank in terms of what they disclosed as sale to the ARC. The amount came in as a negative surprise for the Street. I feel the selling is a bit overdone. Axis Bank has been providing for that account. That apart, they had around Rs 850 crore of contingent provisions, which the bank was able to utilise. The impact on profit & loss was, to that extent, cushioned. But it was the large amount of Rs 1,800 crore that spooked the market.”

He adds: “Asset quality concerns are there across the banking industry and this is a well-known fact now. Despite this, we like Axis Bank, ICICI Bank, HDFC Bank and YES Bank. One can buy these stocks at lower levels.”

On the other hand, IIFL analysts expect the asset quality pressures to persist for the sector given the slower-than-expected recovery in economic activity.

“The dichotomy of high duress in corporate, agri, small-and-medium sized enterprises portfolios and relative resilience of the retail portfolio would also continue,” they point out in a results preview note.