Bank stocks in focus; Nifty Bank up 2%; Axis Bank, HDFC Bank rally up to 4%

Financial stocks were trading actively on Wednesday ahead of the Reserve Bank of India's monetary policy outcome, due Thursday. RBL Bank, IndusInd Bank, SBI, ICICI Bank & Bandhan Bank gained up to 5%

Banking and non-bank financial companies' (NBFC's) stocks were trading actively on Wednesday ahead of the Reserve Bank of India's monetary policy outcome, due Thursday. Besides, buying in major sector players like Axis Bank and HDFC Bank due to their respective corporate developments, too, lifted the index. 

At 10:20 am, the NSE's Nifty Bank and Private Bank indices were up 2 per cent each, as against a per cent's gain in the benchmark Nifty50 index. That apart, Nifty PSB and Financial Services indices were up 1.34 per cent and 1.74 per cent, respectively.

Among individual stocks, Axis Bank rallied 3.6 per cent to Rs 445 apiece on the National Stock Exchange (NSE) after the lender launched its Rs 15,000 crore qualified institutional placement (QIP) at a floor price of Rs 442.19 per equity share, which is at a 3 per cent premium to Tueaday's close of Rs 428.9 apiece.

"The committee of whole-time directors of the bank at its meeting held today i.e. 4th August 2020, has decided to open the issue for receiving bids. The committee also approved and adopted the preliminary placement document in connection with the issue," Axis Bank said in a regulatory filing. READ FILING HERE

A meeting of the committee is scheduled to be held on August 10, 2020 to consider and approve, among other things, the issue price for the equity shares proposed to be issued, it added.

That apart, HDFC Bank extends its Tuesday's rally and hit an intra-day high of Rs 1,056, up 1.3  per cent. The bank on Tuesday received the RBI's nod to appoint Sashidhar Jagdishan as the new managing director and chief executive officer (CEO) effective from Octover 2020. He would take over from India’s longest-serving CEO Aditya Puri when he retires on October 26.

"In an uncertain environment like this, we believe an internal candidate who is in sync with the outgoing CEO Aditya Puri is the right choice. Sashi comes with a very diverse experience having handled multiple functions in the bank and hence we believe he is the appropriate choice," said analysts at Macquarie Research, They have 'Outperform' rating on the stock with a 12-month target price of Rs 1,114. READ: Brokerages bullish on HDFC Bank

Analysts at Motilal Oswal Financial Services, too, believe that the appointment of Sashidhar Jagdishan addresses a key overhang on the stock’s performance. "HDFCB’s stock price has been under pressure owing to concerns around the succession and the recent attrition in the top management. Thus, the RBI approving the appointment of Mr Sashidhar Jagdishan as new MD & CEO addresses a key overhang. Moreover, succession by an internal candidate augurs well to boost investor confidence and continue the immaculate performance experienced by the bank under the leadership of Aditya Puri," they said in a stock update note dated August 5.

"We expect HDFCB’s strong liability franchise and the fixed-rate nature of the book to support margins even as the bank maintains higher liquidity to navigate through the crisis. On the asset quality front, slippages are likely to pick up in 2HFY21 due to the Covid-19-led disruption, which could keep credit costs elevated. However, higher provisioning buffers should limit the overall impact on earnings," they said with a 'buy' call on the stock with a target price of Rs 1,280.

The rub-off effect was seen in other banking counters which surged up to 5 per cent higher. RBL Bank, IndusInd Bank, State Bank of India, ICICI Bank  and Bandhan Bank were up in the range of 2-5 per cent on the NSE. 

That apart, M&M Finance, Bajaj Finance, Bajaj Finserv, REC Ltd, Cholamandalam Investment and Finance Company, PFC, and HDFC were up between 1 and 4 per cent.

The RBI's Monetary Policy Committee is slated to announce it's interest rate decision on Thursday, August 6 amid dwindling growth and uptick in inflation. Analysts, thus, remain divided on whether the RB could pause its rate cut cycle to address the short-term inflation concern or focus on growth revival amid Covid-19 induced slowdown.

"With the 250 bps reduction in repo rate since January 2019, lending rates are likely to soften. For repo-linked loans, we believe the spread between repo and deposit rates will drive NIM outlook, which at this time is showing positive trends," said analysts at Kotak Institutional Equities in a report dated August 5.

SBI's research report 'Ecowrap' said with the 115 basis points (bps) reduction in repo beginning February, banks have already transmitted 72 bps to the customers on fresh loans in the interregnum which is perhaps a milestone in terms of the fastest policy rate transmission in India. Large banks have transmitted as much as 85 basis points.

"...we believe an August rate cut is unlikely," it said.

It believes the MPC could now well debate what further unconventional policy measures could be resorted to in the current circumstances to ensure financial stability is continued to be addressed.