Nifty Bank index up over 11% so far this year, BoB outperforms index
According to the data compiled by
"The banking sector has demonstrated strong resilience so far this year, supported by multiple factors. 1. Strong quarterly earnings driven by robust credit growth, margin expansion, improved asset quality and lower provisioning; 2. FIIs return to buying mode due to favourable economic factors; 3. Attractive valuation. We believe that the rally is still in its early stages and that valuations have room to rise further, given improved fundamentals," said Vinod Nair, Head of Research at Geojit Financial Services.
According to the ICICI Securities report, banks under their coverage in Q1 FY23 reported 16 per cent on-year and 2 per cent on-quarter growth in net interest income. Core operating profit grew 17 per cent on-year, while
However, earnings of State Bank of India, HDFC Bank and Kotak Mahindra Bank lagged I-Sec expectations due to higher than anticipated treasury loss and elevated opex.
G-sec yields surged 65 basis points since March to 7.5 per cent till June and corporate bond yields by 70 basis points. This created pressure on treasury profits for banks that dragged overall earnings growth.
Having 25-60 per cent of investment portfolio in AFS/HTM with 1-2 years of modified duration led to a treasury knock. Banks with relatively higher investment in corporate bonds (credit substitute) witnessed above-expected hit. On an average, banks registered treasury loss equivalent to high single digit of revenues and 15 per cent of core operating profit.
Banks' upbeat stance on growth was reflected in advance growth of 2-4 per cent on-quarter in Q1 FY23, otherwise a seasonally slow quarter. Growth was primarily led by retail and proportion of unsecured retail advances inched up. Sequential loan growth momentum was dragged by 2-wheeler segment and agri (in few banks).
AdvertisementWhile, inflows of foreign investors in the Indian equities was Rs 21,252.60 so far from July 28. Foreign investors turned buyers since late July after remaining sellers in the equities for almost 9 months.
Experts believe that foreign investors have returned to Indian market because India is preferred destination as country has best growth prospects among large economies of the world. FPIs have turned net buyers in autos, capital goods, FMCG, and Telecom.
Due to this, the Sensex is now trading above 60,000 mark and Nifty over 17,900.
Going forward, profitability of banks is expected to improve with a robust credit growth outlook and improving asset quality. Additionally, in the rising interest rate scenario, banks with a higher proportion of flexible loans will showcase margin expansion.
"We expect that the mark-to-market impact of rising bond yields on treasury income will hurt banks, particularly PSUs in the short term, who have higher investments in bonds. We continue to recommend top private sector banks that are better poised to reap the benefits of economic recovery with stronger balance sheets and neat loan books. The sector is currently trading at its 5-year averages, which indicates significant room for expansion. However, the near-term trend will be dictated by the movements in FII activities," Nair added.
SEE ALSO :
Zomato’s quick commerce app Blinkit to deliver printouts at your doorsteps in 11 Minutes
Rupee expected to trade at around 79/$ on FII inflows, easing crude prices: BoB
Popular on BI
- This could be the best time to buy Galaxy Z Fold3 5G in India at ₹1,09,999
- Retail jobs have been slowing down due to WFH and online sales: report
- 85% Indian schools don't have vocational courses as part of their curriculum: WEF
- Govt invites bids for IDBI Bank privatisation; Govt, LIC to sell 60.72%
- Tracxn Technologies IPO: Analyst cautious due to losses and investor exits