The bank stocks had significantly declined in March as the Iran-US war spooked investors about the possible impact of a prolonged rally in oil prices on India’s macroeconomics following the closure of the Strait of Hormuz. Persistent FII selling in these stocks also dampened sentiment, with foreign investors slashing their stake in HDFC Bank by 4%.
The strong selloff saw Nifty Bank plunging 17% in March. Nifty PSU Bank crashed nearly 20% to emerge as the worst performer. Nifty Financial Services fell 15.6% as the broader Nifty crashed over 11%. Analysts, however, noted that the sharp corrections may have created strong buying opportunities for investors.
Bulls return in April
Dalal Street rebounded sharply in April so far, with Sensex and Nifty surging more than 3% each on Wednesday morning after Iran and US announced a two-week ceasefire and temporary reopening of the Strait of Hormuz, a critical waterway for the passage of oil and other shipments.
Nifty Bank was also part of the rally, jumping nearly 5% to 55,240, as seen at 10.40 am on Wednesday. This is the highest level seen by the index in nearly four weeks. IndusInd Bank, Union Bank of India and AU Small Finance Bank shares rallied more than 6% each, while Bank of Baroda, Canara Bank, Axis Bank and Punjab National Bank (PNB) gained over 5% each.
IDFC First Bank, HDFC Bank and ICICI Bank shares rallied around 5% each, while SBI, Yes Bank, Federal Bank and Kotak Mahindra Bank shares gained around 4% each. Nifty PSU Bank and Nifty Private Bank indices surged more than 5% each.
What lies ahead?
“Banking is one segment that is attractively valued now,” said VK Vijayakumar, Chief Investment Strategist at Geojit. “Sustained selling by FPIs in leading large private sector banks has made the valuations in the segment attractive. This segment is an excellent long-term buy for investors,” he said.
Vijayakumar said credit growth in the economy continues to be healthy, and the monetary policy committee is unlikely to raise interest rates soon “since inflation arising from supply shocks cannot be addressed through rate hikes.”
Jefferies upgraded its overweight rating on banks by adding 3% points to current holdings in SBI, HDFC Bank, and Axis Bank. “COVID-level low valuations for banks, likely limited downside to EPS, and prospects of govt support should help the bank stocks outperform from here,” the brokerage said.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)