No SVB-like scenario in India; banks are on a strong footing, say analysts

Adani Ports, Hindalco among stocks with 100 per cent 'Buy' rating by analysts.The sell-off in the banking pack, analysts said, was a knee-jerk reaction to the developments with US-based Silicon Valley

Banking stocks came under heavy selling pressure on Friday with the Nifty Bank index, a gauge of performance of the baking stocks on the NSE, slipping nearly 2 per cent in intra-day deals. In contrast, the Nifty50 index lost nearly 2 per cent.

The broad-based sell-off in the banking pack, analysts said, was a knee-jerk reaction to the developments with US-based Silicon Valley Bank (SVB) that announced a share sale to shore up its finances, following a significant loss on its portfolio.

SVB Financial Group – the parent company of SVB – sold $21 billion worth of securities from its portfolio. The move was triggered by high deposit outflows at the bank due to a broader downturn in the startup industry, reports suggest.
 

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According to G Chokkalingam, founder and chief investment officer at Equinomics Research & Advisory, the fall in the Indian banking stocks is a knee-jerk reaction to the development in the US, which he feels can be used to accumulate quality stocks from a long-term perspective.

“The sharp fall in the bank stocks is merely a knee-jerk reaction to the development in the US, which should fizzle out soon. There is nothing fundamentally worrying with the Indian banks. A recent Assocham study also suggests that the gross non-performing assets (NPAs) will be at a decadal low by 2024. That apart, domestic banking credit could grow around 15 per cent, which is a decadal high. While the share of the industry in this credit growth is declining, consumer loans – considered more stable – are picking up pace,” he said.
 

 

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Back home, the Nifty PSU Bank index was among the worst hit and lost 2.5 per cent during trade on Thursday. The Nifty Private Bank index, too, slipped around 2 per cent. Among stocks, Bank of Baroda was the top loser that slipped 3.1 per cent during intra-day deals. Punjab National Bank (PNB), Axis Bank, HDFC Bank, State Bank of India (SBI) and IDFC First bank were the other prominent losers that skidded over 2 per cent each.

Suman Bannerjee, chief investment officer at Hedonova, a US-based hedge fund, too, suggests that the Indian banking system remains on a strong footing. He, however, expects the Nifty Bank index to head lower, which he says will present a good opportunity to buy banking stocks.

 

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“The Indian banking system is much insulated from global headwinds. Indian banks don’t lend to foreign companies outside selected West Asian companies. Net foreign lending is less than 4 per cent of the lending book and the entire book is hedged using currency, swaps and interest-rate swaps. The most important metric to watch out now is the net interest margin. What we are seeing right now in the broader markets is a 'bull trap'. Technically, the Nifty Bank index has a strong support at 39,500 levels, which it is likely to break soon. I would prefer accumulating stocks at around 36,000 on the Nifty Bank index,” Bannerjee said.

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Chokkalingam, too, suggests investors remain selective in the banking space and prefers Bank of Baroda, HDFC Bank and Bank of Maharashtra in this segment.

“Axis Bank is also a good tactical buy. But the bank may need to write-off outstanding dues post the acquisition of Citibank's consumer business. I suggest investor's wait for the March 2023 quarter results before buying this stock,” he said.