HDFC, RBL, ICICI jump up to 4%: Why are banking stocks rising today?
HDFC Bank led a broad rally in banking stocks after reporting strong provisional June quarter business growth. The move lifted expectations for a solid earnings season even as analysts tracked loan mix, CASA pressure and improving macro signals.
Why are banking stocks rising today? HDFC Bank leads rally after strong Q1 update, analysts see more upside
HDFC Bank and other banking stocks rallied sharply on Monday after the country's largest private lender reported better-than-expected business growth for the June quarter, raising hopes of another strong earnings season for the sector.
The rally also comes at a time when banking stocks are benefiting from improving liquidity, healthy credit growth, easing foreign investor selling and expectations that lower crude oil prices will support India's broader economy.
The Nifty Private Bank index gained around 0.5% in early trade, led by HDFC Bank, Bandhan Bank, IndusInd Bank, RBL Bank and Federal Bank.
On the Sensex, HDFC Bank emerged as the top gainer, climbing over 3.5%. ICICI Bank rose more than 1%, while SBI was also trading in the green. Axis Bank, another major private lender, was among the top gainers earlier in the session after its quarterly update.
WHY ARE BANKING STOCKS RISING?
Investor confidence improved after HDFC Bank reported healthy provisional business numbers for the June quarter over the weekend.
The bank said its gross advances rose 15.4% year-on-year, while period-end deposits increased 14.7%, indicating that loan demand remains strong despite concerns over global economic uncertainty.
Axis Bank also impressed the Street after reporting an 18.8% growth in gross advances during the June quarter.
According to brokerage CLSA, most banks that have announced their provisional June quarter numbers have either met or exceeded expectations.
"Most of the banks which reported June quarter provisional numbers have met or exceeded our estimates, with the exception of Kotak and RBL," said Piran Engineer, Senior Research Analyst at CLSA.
He, however, cautioned that investors should continue monitoring the composition of loan growth and the impact of lower current account and savings account (CASA) deposits on banks' margins.
"While overall growth has been strong, we remain watchful of the granularity within loan book expansion and potential impact of declining CASA ratios on margins," Engineer said.
PRIVATE BANKS LEAD THE RALLY
The strength was visible across the private banking pack.
The Nifty Private Bank index was up nearly 0.5%, with HDFC Bank leading the gains by rising around 3.5%.
Bandhan Bank gained about 3%, IndusInd Bank climbed nearly 3%, RBL Bank advanced over 1.5%, while Federal Bank also traded over 1.5% higher.
On the benchmark indices, ICICI Bank gained more than 1%, while Axis Bank also remained firmly in positive territory after its quarterly business update.
Kotak Mahindra Bank, however, bucked the trend and declined more than 3% after reporting sequential moderation in both loan and deposit growth.
ANALYSTS REMAIN POSITIVE
Analysts believe banking stocks continue to enjoy favourable fundamentals.
Credit growth has remained healthy, while deposit mobilisation has also improved. With the June quarter earnings season set to begin this week, investors are betting that banks could once again outperform several other sectors.
Lower crude oil prices are also improving India's macroeconomic outlook by easing inflationary pressures and supporting economic growth, which could translate into better loan demand going forward.
Apart from bank-specific developments, improving macroeconomic indicators are also supporting the sector.
The benchmark indices have now posted four consecutive weekly gains, their longest winning streak this year, helped by lower crude oil prices, easing concerns over near-term US interest rate hikes and signs of improving foreign institutional investor flows.
Analysts also noted that India's monsoon deficit has narrowed to 24% as of July 5 from around 40% at the end of June, reducing concerns over rural demand and the broader economy.
While investors will closely watch June quarter earnings over the coming weeks, banking stocks are expected to remain in focus as healthy loan growth, improving liquidity and relatively attractive valuations continue to support the sector.
(Disclaimer: The views, opinions, recommendations, and suggestions expressed by experts/brokerages in this article are their own and do not reflect the views of the India Today Group. It is advisable to consult a qualified broker or financial advisor before making any actual investment or trading choices.)