Bank Nifty falls over 400 points; analysts remain bullish

In three trading sessions, Bank Nifty has lost 815 points from 19,961 on March 3 after the RBI cut the repo rate by 25 bps to 7.5%

Banking shares came under selling pressure on Monday, with the National Stock Exchange (NSE) Bank Nifty slipping three per cent, or 602 points, to 19,146 as compared to the two per cent fall in the CNX Nifty. The banking index had touched a low of 19,113 in intra-day trade.

In three trading sessions, the Bank Nifty has lost 815 points from 19,961 on March 3 after the Reserve Bank of India (RBI) cut the repo rate by 25 basis points (bps) to 7.5 per cent.

Experts suggest the fall is partly due to profit booking, since most of these stocks had seen a good rally ahead of the Union Budget presentation on February 28.

“The correction was overdue since the banking stocks had run-up quite a bit in the past few weeks. As far as public sector banks (PSBs) are concerned, there are still lingering issues over clarity on capitalisation and non-performing asset (NPAs) levels and a lot of these banks are also headless (without top leader),” says U R Bhat, managing director, Dalton Capital Advisors.

Prakash Diwan, director, Altamount Securities, adds: “Banking stocks have got this treatment because the earlier rate cut in interest rates by RBI also came with the commentary that transmission was not happening to borrowers. So for banks, the quality and the quantum of NPAs are not changing, which is not much of an advantage for them. Besides, there is some element of profit booking as well. Post the Union Budget, investors have realised it will take a while for valuations to get justified and earnings to catch up.”

Among individual stocks, Axis Bank, ICICI Bank, Canara Bank and YES Bank slipped four per cent each. Bank of India, Kotak Mahindra Bank, HDFC Bank, Federal Bank, Bank of Baroda and IndusInd Bank were down two–three per cent on the NSE.

Vaibhav Agrawal, vice-president (research – banking) at Angel Broking, also believes there are no negative cues that have led to this correction and it could be profit booking by investors, given the run-up ahead of the Union Budget. “I don’t think any fundamental negatives have evolved over the past few days to warrant this fall. On the contrary, there has been a positive news flow in terms of a rate cut by RBI. This is just the beginning of a rate cut cycle and we expect RBI to cut rates by 100 bps over the next 6 – 12 months. A low inflation scenario will benefit banks. Though we may see NPAs again in the fourth quarter of the current financial year, credit growth and asset quality will improve in 12 – 18 months,” he said.

The road ahead
Despite the fall, analysts remain bullish on banking stocks, especially when RBI could cut key rates helping credit growth. However, investors need to be patient and should buy with a long–term view, they advise.

“Investors can look to add private banks now, given the correction. For PSBs, it is better they wait for clarity on some of these issues (mentioned above) before investing. Overall, there is nothing much to worry about the outlook for the sector,” says Bhat of Dalton Capital.

Diwan of Altamount suggests that investors will get a good opportunity to buy banking stocks if the Nifty corrects to around 8,600. The Bank Nifty would also be responsible for bringing the Nifty lower. The Bank Nifty could lose another 1,200 – 1,500 points from here. That will be a good entry point for investors from a medium–term to long-term perspective.

Agarwal, too, remains positive on the sector, and especially Axis Bank, YES Bank, Punjab National Bank, BOI, Canara Bank, SBI, Indian Bank, Allahabad Bank and Dena Bank stocks. “Based on our current target prices, the upside would range between 15 and 25 per cent over the next one year,” he said.