According to the data collected by
“The banking sector has shown strong resilience so far this year, supported by multiple factors. 1. Strong quarterly results driven by robust credit growth, margin expansion, improved asset quality and lower provisions; 2. FIIs return to buying mode due to favorable economic conditions 3. Attractive Valuation. We believe the rally is still in its early stages and valuations have room to climb further given the improved fundamentals,” said Vinod Nair, Head of Research at Geojit Financial Services.
According to the ICICI Securities report, the banks covered by their coverage reported 16 percent annualized and 2 percent quarterly growth in net interest income in Q1 FY23. Core operating income grew 17 percent year-on-year, while
However, the profits of State Bank of India, HDFC Bank and Kotak Mahindra Bank fell short of I-Sec expectations due to higher-than-expected treasury losses and increased opex.
G-sec yields rose 65 basis points from March to 7.5 percent through June and corporate bond yields rose 70 basis points. This put pressure on treasury profits for banks that dragged on overall earnings growth.
Having 25-60 percent of the investment portfolio in AFS/HTM with 1-2 years modified duration led to a treasury knockout. Banks with relatively higher investments in corporate bonds (credit substitute) suffered an unexpected blow. Banks posted an average loss on Treasury bills equivalent to high single digit sales and 15 percent of core operating income.
Banks’ optimistic stance on growth was reflected in forward-looking quarter-on-quarter growth of 2-4 percent in the first quarter of FY23, otherwise a seasonally sluggish quarter. The growth was mainly led by the retail sector and the share of unsecured advances in the retail sector increased. The growth momentum of sequential credit growth was dragged by the 2-wheeler segment and agri (in some banks).
While the influx of foreign investors into the Indian stocks has hitherto been Rs 21,252.60 as of July 28. Foreign investors became buyers since late July after remaining sellers in the stock for nearly 9 months.
Experts believe that foreign investors have returned to the Indian market as India is the preferred destination as the country has the best growth prospects among the major economies of the world. FPIs have made net buyers in automobiles, capital goods, FMCG and Telecom.
As a result, the Sensex is now trading above 60,000 and Nifty above 17,900.
Going forward, bank profitability is expected to improve with a robust outlook for credit growth and an improvement in asset quality. In addition, banks with a higher share of flexible loans will show margin expansion in the rising interest rate scenario.
“We expect the mark-to-market impact of rising bond yields on treasury yields to hurt banks, especially near-term PSUs, which have higher investment in bonds. We continue to recommend top private sector banks that are more capable The benefits of economic recovery with stronger balance sheets and clean loan portfolios are to gain from the industry is currently trading near its 5-year averages, indicating significant room for expansion, however the near-term trend will be driven by movements in FII activities,” Nair added.
ALSO SEE :
Zomato’s fast trading app Blinkit to deliver prints to your door in 11 minutes
Rupee expects to trade around $79/$ on FII inflows, pushing crude oil prices down: BoB