Weakness in banking stocks is weighing on overall market performance

The weakness in banking stocks is weighing on overall market performance. The financial sector accounts for a third of the weight in the benchmark Sensex and Nifty indices. The Nifty 50 index is down nearly eight per cent or 880 points from its all-time high of 11,130 on January 29. The bulk of the decline is on account of a slump in share prices of the leading banks, including State Bank of India (SBI) and ICICI Bank. Four of the five biggest losers on the Nifty since January 29 are bank stocks.

The Bank Nifty index, which has high correlation with the Nifty, is down 11 per cent from its peak. All the 12 components have come off sharply from their one-year highs. State-owned Punjab National Bank (PNB), Canara Bank and Bank of Baroda have declined the most, between 35 per cent and 58 per cent. 

Private sector peers such as ICICI Bank, YES Bank and Axis Bank are currently down 15 per cent from their one-year highs.

In the past month, banking stocks and the overall market have remained weak, after PNB announced it had been hit by a $2-billion fraud. The Street fears spillover of the fraud to other banks. Also, the asset quality problem and tighter Reserve Bank of India norms around bad loan disclosure would lead to drop in earnings at banks in the coming quarters, say analysts. Samie Modak