Banking In Bear grip Behind Nifty Performance in the Last Month

In the past month, the Nifty Bank index has notably lagged behind the Nifty50 index in performance. The benchmark Nifty Bank index experienced a 4.20 percent decrease, equal to a loss of 1,929.80 points, within the last 30 days. Presently trading at 43,993.24 points, this contrasts with the stable performance of the Nifty50 index during the same timeframe. Among the Bank Nifty’s top five stocks as of August 22, HDFC Bank (28.42 percent weightage), ICICI Bank (24.04 percent), Kotak Bank (9.40 percent), Axis Bank (9.35 percent), and State Bank of India (9.89 percent) stood out.

An examination of the returns from these stocks demonstrates that the primary driver of the Nifty Bank index’s underperformance is the significant drop in HDFC Bank and Kotak Bank, which were the weakest performers over the last month. Together, these two banks collectively account for 37.82 percent of the index’s weightage. Over the previous month, HDFC Bank incurred a 5.78 percent loss, while Kotak Bank saw a decline of 7.24 percent. State Bank of India, ICICI Bank, and Axis Bank also contributed to the underperformance with losses of 8.01 percent, 4.23 percent, and 1.39 percent, respectively. This underperformance of the Nifty Bank index was primarily attributed to State Bank of India, Kotak Bank, and HDFC Bank, which hold a combined weightage of 47.71 percent.

Despite the underperformance, brokerage firms have maintained their positive-to-bullish stance on the Indian banking sector. Motilal Oswal expressed strong bullish sentiment towards HDFC Bank, assigning a ‘buy’ rating with a target price of Rs 2,070 in a report dated July 27. Sharekhan retained its optimistic view on ICICI Bank, setting a target price of Rs 1,200 in a report dated July 24. KRChoksey also upheld a ‘buy’ rating on Kotak Bank with a target price of Rs 2,330, emphasizing robust deposit growth and healthy credit expansion. Nomura maintained a ‘buy’ rating on State Bank of India with a target price of Rs 655, while Morgan Stanley, although assigning an ‘equal weight’ to the stock, revised its target price. JPMorgan reaffirmed an ‘overweight’ recommendation with a target price of Rs 720, highlighting robust profit figures and reductions in credit costs.

Prominent brokerage firms have shown their confidence in the Indian banking narrative by increasing target prices and issuing positive ‘buy’ ratings, even in the face of challenges posed by heightened borrowing costs in the global markets. However, uncertainties surrounding the Nifty Bank index’s resilience persist, given ongoing inflation and the potential for additional interest rate hikes by the Federal Reserve and the European Central Bank, as indicated in their recent statements.