While the BSE Bank index has risen by 5 per cent since the beginning of 2022, as against a decline of nearly 4 per cent in the BSE benchmark Sensex, some key banking stocks like
have rallied by 30-40 per cent in the same period, as per the stock exchange data.
Analysts said the banking space is known as a ‘mother sector’ as a better performance by banks indicates better days for the economy, but the banking sector is hit hard when the economy does badly.
With the NPA (non-performing assets) scenario having improved and not many cases of major bad loans emerging after a large-scale deleveraging exercise carried out by corporate borrowers, there are few indications that the things can go bad for the sector as is being seen in quarterly results of most banks, experts said.
Ajit Kabi, Banking Analyst at
said some banks have performed significantly well, factoring the rising interest rate scenario.
Bank of Baroda and SBI have performed on expected lines. However, has underperformed because of merger and margins woes,” he said. Bank of Baroda has zoomed nearly 42 per cent in 2022 so far, by 29 per cent and has climbed 18 per cent.
“Banks have done reasonably well in 2022. But we also must understand that there has been a divergence within the banking sector. While, on one hand, banks such as Federal Bank were exceptional performers, others such as
have struggled to get investors’ attention. So was the case with and India’s most valuable bank — HDFC Bank,” said Sunil Damania, Chief Investment Officer, MarketsMojo, a stock advisory and research platform.
He said all these three banks (RBL Bank, IDFC First Bank and HDFC Bank) are below the level they were quoting at the end of 2021.
“So, while the Nifty Bank index has done reasonably well and outperformed the broader indices, not all banks have participated, including HDFC Bank. And hence, while some investors are happy, others have been disappointed depending on the stock they have invested in, ” Damania added.
HDFC Bank is down nearly 6 per cent so far this year, while RBL Bank has tanked 28 per cent and IDFC First Bank has plunged 26 per cent on the BSE.
has jumped 15 per cent, about 13 per cent and 12 per cent, while ICICI Bank, and Yes Bank are up 7-8 per cent. has risen by over 6 per cent, while is up about 2 per cent.
“It is generally said that the banking sector is the mother sector to give a signal of economic growth and we can clearly see that the Nifty Bank index has outperformed the Nifty-50 index by 300 bps on a month-on-month basis. If we dig more, interestingly we see retail loan book (housing loans) growing faster than industrial loans which is the main driver of bank credit in recent quarters,” said Prashanth Tapse, Vice President (Research), Mehta Equities Ltd.
In a rising interest rate scenario, banks tend to benefit as the net interest margin expands naturally with their cost remaining stable for a short term. This has helped banks outperform and deliver handsome returns for investors so far, he added.
Damania of MarketsMojo said both public and private sectors have seen some banks doing well and others not gaining so much, but PSU banks seem to have done better at a sub-index level.
“The Nifty PSU bank index in 2022 is up by 10.18 per cent versus a rise of 3.5 per cent in the Nifty bank index,” he said.
Cyril Charly, Research Analyst at
said even though banks showed solid numbers and an optimistic outlook, the performance of banking stocks was hit by a significant sell-off by Foreign Portfolio Investors (FPIs).
However, the recent reversal in FPI trend and attractive valuations have helped banking stocks to outshine other sectors, Charly added.
The performance of the banking stocks has been particularly good in the last few weeks with the BSE Bankex index rising by nearly 13 per cent since mid-June.
Charly said the industry is poised for a solid performance in the second half of 2022 with a greater emphasis on growth owing to the strong resurgence in loan growth, improved asset quality, a healthy provision coverage ratio and strong capital adequacy.
“However, due to its substantial exposure to foreign investments, FPIs will also play a significant role in defining the trend. The recent reversal of FII trend to net buying is a positive development for the sector,” Charly added.
Tapse also said that the bank index is headed for further outperformance as the net interest margins of banks are in expanding mode due to a rising interest rate scenario.
Besides, NPAs are now at their 10-year low level and the credit growth is getting consolidated in the hands of larger banks, he added.
Krishnan ASV, Senior Vice President, Institutional Research, HDFC Securities, said, “We remain constructive on the banking sector, with a preference for well-capitalised, strong deposit franchises.”
Damania from MarketsMojo, however, said that despite the banking stocks or index being good performers, banks as an index may underperform in the second half of 2022 for a very simple reason – when the economy slows, it impacts credit growth.