In Nifty’s jolly ride on Dalal Street, why did bulls shy away from their favourite joint?
Nifty 50 failed to hold on to its pace and gave up in August, and one sector that pulled back the benchmark was banks.
Since March, while the Nifty 50 has gained about 13%, its shadow Nifty Bank index has risen about 10%.
But a deeper look into the performance of the Nifty Bank constituents shows that the big boys have lagged behind in the marathon.
Most frontline private bank stocks have given negative to single-digit returns so far in the current financial year.
“They (banks) were over owned and there are so many more sectors which are delivering more than 15% growth, so some excitement is shifting to those pockets.
People are just tired of banks,” says Digant Haria, co-founder, GreenEdge Wealth.
Between private and public sector banks, the latter has registered higher gains than the former, but most are in the midcap and smallcap space.
Infact, the financial services sector as a whole saw the maximum selling by FIIs in the first half of August after witnessing buying for four straight months.
FIIs sold shares worth Rs 2,821 crore in the first half of August, according to data released by NSDL.
Shreyansh Shah of Stoxbox pointed out a few factors triggering the underperformance of private banks, and one of them was the intense competition amongst peers to acquire new deposits.
«While growing their loan portfolio, banks need to reduce their lending rates to attract borrowers, and this will lead to a slower growth in their income in the coming quarters,» Shah said.
Further, most of the banks have expansion plans which will result in higher operating expenses and, thus, growth in profitability will be constrained.
In the June quarter, while the banking sector as a whole, reported strong loan growth and stable margins, the
