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Nifty Bank index up more than 11% so far this year, BoB outperforms index

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useful Bank, which is made up of India’s most liquid and large-capitalized banking stocks, is up 11.76 percent so far this year, thanks to robust bank earnings growth, returns from foreign investors in Indian stocks since July and attractive valuations.



Currently, the Handy sofa index trades at 39,656.15, compared to 35,481.70 as of December 31, 2021.

According to the data collected by Geojit Financial Services As it turned out, the three largest banks that outperformed the index were Bank of Baroda with a YTD return of 47.90 percent, Federal Bank with 21.20 percent and IndusInd Bank with 21.10 percent.

On Thursday, Kotak Mahindra BankBandhan Bank, Federal Bank, National Bank of IndiaIndusInd Bank, HDFC Bank, AU Small Finance Bank, ICICI Bank, Axis Bank, PNB, IDFC First Bankand Bank of Baroda were stocks in the Nifty Bank index.

“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 treasury the loss dragged operating profit back 13 percent year-over-year and 18 percent quarter-on-quarter. Falling cost of credit and lower base supported earnings growth of 35 percent year-over-year.

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.

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