Shares of financials including banks, non-banking finance companies (NBFCs) and housing finance companies (HFCs) are in focus as they rallied up to 6 per cent on the National Stock Exchange (NSE) in Thursday’s intra-day trade, extending gains of their past two sessions on value buying.
Axis Bank, Cholamandalam Investment and Finance Company, Bajaj Finserv, State Bank of India (SBI) and Mahindra & Mahindra Financial Services were up 5 per cent to 6 per cent. Bajaj Finance, ICICI Bank, HDFC Bank, Kotak Mahindra Bank and Housing Development Finance Corporation (HDFC) were up in the range of 3 per cent to 4 per cent.
At 11:53 am; Nifty Bank, Nifty Financial Services, Nifty PSU Bank and Nifty Private Bank indices were up 4 per cent, as compared to a 2.3 per cent rise in the Nifty50 index. In the past three trading days, financial sector indices have gained 7 per cent, as compared to a 5 per cent rise in the benchmark index.
Prior to that, in the past one month, financials had underperformed the market by falling 13 per cent, as against a 8 per cent decline recorded by the Nifty50 index, on the back of heavy foreign portfolio investor (FPIs) selling.
Despite a strong Q3, banking stocks have seen a 10-20 per cent correction amid macro risk fears (business disruption/higher inflation) due to the Russia-Ukraine conflict and frantic FPI selling. However, the banks' direct corporate exposure to these countries (including Indian entities with exposure) is limited, while concerns around payments too will be soon addressed by the government, according to Emkay Global Financial Services.
Assuming a cut in GDP/systemic credit growth by 50bps and an increase in bond yields by 25bps, indicates a 3-4 per cent impact on earnings of Nifty banks, which may not materialize if the conflict ends soon, the brokerage firm said in a BFSI-Banks sector update.
The brokerage expects Q4 results to be healthy for financiers given improving growth/asset quality trends, and thus, believes that the recent correction offers a good entry point into quality stocks like ICICI, Axis, SBI and Federal Bank.
FII selling has accentuated HDFC Bank’s weakness due to a continued embargo on digital initiatives and margin/fee concerns, but valuations at 2.4x FY24E ABV look attractive given its potential to overcome these issues in the medium-to-long run and deliver healthy return ratios, the brokerage said in report dated March 8, 2022.