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'Invest in bank stocks for long-term gains'
With the Reserve Bank of India (RBI) all set to provide new licences and a host of private companies eyeing the banking space, bank stocks have been in focus for some time. And experts say they could be on the cusp of a bounceback that long-term investors may gain from. Manik Kumar Malakar reports.
With the Reserve Bank of India (RBI) all set to provide new licences and a host of private companies eyeing the banking space, bank stocks have been in focus for some time. And experts say they could be on the cusp of a bounceback that long-term investors may gain from.
"The (expected) cut in repo (the rate at which the RBI lends to banks) has not happened. If the repo cut had happened this would have been a major positive for banks," said Alex Mathews, research head, Geojit BNP Paribas Financial Services.
The RBI's new policy to boost licences and its latest decision not to cut interest rates have made the Bombay Stock Exchange's banking index — Bankex — witness intense activity, but the sectoral index has been lagging the overall benchmark Sensex, tracking the sentiment of underpeformance.
"The major reason for this is that the state-run banks in particular have not performed well, though private banks have put in a good performance," said Yogesh Nagaonkar, head, institutional broking, Bonanza Portfolio Ltd.
"The core performance of public sector banks has been weak due to pressure on net interest margins (the difference between interest earned and interest paid) and moderate loan growth," said Bhavesh Kanani, analyst, banking & financial services, Centrum Broking Ltd.
The RBI, too, contributed to the pressure on banks.
However, the analysts see an undercurrent of optimism for banks.
With inflation based on wholesale prices hitting a three-year low 0f 4.7% in May and the economy showing signs of rebound, the scenario is poised to improve, feel experts.
"If we see a further rate cut then we can see a significant upside in banking stocks," Nagaonkar said.
"The Indian economy is seeing green shoots after years, this will be positive for the banking sector," added Mathews. "I am positive on India's equity markets.
"There is a limited downside from current levels," says Mathews.
Nagaonkar is recommending a "buy" on stocks of private banks like Axis Bank, Yes Bank and DCB Bank and public sector stocks like SBI and Bank of Baroda. He sees a 15% upside in the next six months.
"For public sector banks I would look at a basket investment approach," says Vaibhav Agrawal, vice-president, research, at Angel Broking, recommending the stocks of a handful of public sector banks. "PNB, BOB and SBI should have around 25% upside from current levels."
The analysts caution that banks are still on a tough wicket, but need to be considered by investors as involving reasonable risk.
