Banking Index'S Record High May Be An Early Sign Of Fresh Peaks In Nifty50

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Record highs in stocks such as SBI, ICICI Bank and Bank of Baroda have created just that in the Nifty Bank: a (much awaited) record high. Many prominent voices on Dalal Street are reading this as an early sign of fresh highs in headline index Nifty50.

Banking stocks are back in vogue on Dalal Street thanks to record highs in State Bank of India (SBI), ICICI Bank and Bank of Baroda, which have powered the Nifty Bank’s run to a lifetime high. The phenomenal run in the banking index — which tracks the performance of 12 major lenders in the country including HDFC Bank, ICICI Bank, Kotak Mahindra Bank and Axis Bank — may be an early sign of fresh al-time highs in headline indices.

Financial services carry the maximum weight in the Nifty50, followed by IT, which is one of the worst performing spaces on Dalal Street since October 2021 — a month that saw the last of record highs in both Sensex and Nifty following a liquidity-driven rally that lasted for 18-odd months.

Andrew Holland, CEO of Avendus Capital Alternate Strategies, expects momentum in banking stocks to continue on Dalal Street, he told CNBC-TV18.

Here’s what’s aiding the surge in banking stocks

The banking space is riding on the back of healthy loan growth, optimistic management commentary and endorsements by brokerages, say analysts.

“The Nifty Bank may outperform the market for the next 6-8 months, given its outperformance to the market year to date… SBI has already become the seventh largest company by market value,” AK Prabhakar, Head of Research at IDBI Capital Markets, told CNBCTV18.com.

SBI shares have scaled a number of peaks recently, with the market value of the country’s largest lender by assets crossing the Rs 5 lakh crore mark for the first time ever on Wednesday. That cemented the bank’s position as the seventh largest company of the country in terms of market capitalisation, behind Reliance, TCS, HDFC Bank, ICICI Bank, Infosys and HUL.

Giving the rationale behind his optimism, Prabhakar said: “If banking segment is growing at 15 percent, stocks are not priced for that growth.”

RBI data released during the weekend showed credit growth in the country’s commercial banks — a key measure of demand for financial institutions — surged to a nearly nine-year high of 15.5 percent in the week ended August 26.

The data comes at a time when the lenders are hopeful of a pickup in business momentum on the back of aggressive hikes in COVID-era interest rates and the onset of the festive season, which typically aids consumer demand as people tend to borrow more.

SBI is seeing uniform loan growth across retail segments, its Chairman Dinesh Kumar Khara told CNBC-TV18 in an exclusive interaction last week, sounding confident that his bank will finish clock loan growth of at least 15 percent in the year ending March 2023.

“We have very clear visibility of the demand, which is there, and hopefully going forward, as the busy season kicks in, and of course, already the festival season has kicked, I am quite confident that we will continue to have decent retail growth,” Khara said.

Meanwhile, Morgan Stanley has maintained an ‘overweight’ rating each on SBI and IndusInd, with target prices of Rs 675 and Rs 1,400 apiece respectively.

“The Bank Nifty is being driven by strong fundamentals. Bank credit growth around 16 percent and bank non-performing assets (bad loans) at 10-year lows are adequate positive triggers when a strong rally is on,” said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

He also pointed out that banking stocks were depressed by the relentless selling by FII from Oct 2021 to July this year.

“Now that FIIs have joined the party, banking stocks are getting their due. India’s capacity utilisation crossing 75 percent and green shoots of a capex cycle also bode well for banking stocks,” he told CNBCTV18.com.