Bank stocks' $95 billion rout may deepen as risks mount amid Iran war

Global investors withdrew a record ₹32,700 crore from the shares of financial services companies in the first two weeks of March, according to National Securities Depository data

By Alex Gabriel Simon

   

India’s bank stocks are likely to face further losses as the central bank tightens its grip on rupee trading and rising energy prices weigh on profit outlooks, analysts say.

 

Jefferies estimates banks may face up to ₹5,000 crore ($537 million) in losses from the unwinding of currency trades due to central bank directives.

 

Already, global investors withdrew a record ₹32,700 crore from the shares of financial services companies in the first two weeks of March, according to National Securities Depository Ltd. data. The Nifty Bank Index has lost $95 billion in market value since the start of March, narrowly avoiding a bear market — defined as a 20 per cent drop from a recent high.

 

 

“There could be further pressure on these stocks in the short-to-medium term as monetary policy can remain tight,” said Kranthi Bathini, an equity strategist at WealthMills Securities.  

 

Fitch Ratings sees net interest margins of lenders shrinking 20 to 30 basis points in the year ending March 2027 — potentially undershooting the credit rating agency’s 3.1 per cent forecast — as tighter financial conditions weigh.

 

At stake is the outlook for India’s $4.5 trillion stock market, given banks account for nearly a third of the benchmark index. A sustained weakness in shares of lenders risks undermining a broader market that is already among the worst performers in the region, down 13 per cent for the year.

 

The Reserve Bank of India’s defence of a record-low rupee has constrained its ability to inject liquidity, tightening financial conditions that are likely to weigh on banks over the coming quarters. A prolonged conflict in West Asia also risks derailing India’s nascent credit recovery, threatening loan growth as the broader economy cools.

 

To be sure, Bathini said valuations are becoming attractive after the correction. Bulls also point to India’s long-term economic growth, which remains among the fastest globally. The Nifty Bank Index trades at 1.5 times one-year forward price-to-book, its cheapest level since 2020, signaling an attractive risk-reward profile.

 

Citibank Inc. is already prioritizing private-sector banks over state-run lenders, betting that the former can better absorb the macroeconomic stress that is now the prime concern for investors.

 

“Banks will definitely take some hit on their investment book,” said Rajat Agarwal, an Asia strategist at Societe Generale SA. “We recently saw a pickup in credit growth — what remains to be seen is how much of that gets pushed back” by the war, he said.