Private sector banks feel the bear market heat

The current bearish undercurrents in the stock market is beginning to take a heavy toll on banking stocks, a sector which has been the fancy of institutional investors for several years in a row. Our analysis of short-term and long-term trend in prices of bank stocks and the value of the bank index reveals that one-year returns of eight bank stocks in the Nifty 50 index, is on an average, a negative 12.3 per cent. This is worse than the average return of -8.6 per cent in rest of the Nifty 50 stocks as of the day’s trading close on December 5. A look at the sectoral indices show that if the past 30 days is any indication, the bank index could well be on a declining mode. The Nifty bank index showed a 30-day drop of 4.1 per cent as of December 5. This fall was higher than five out of seven sectoral indices we analysed among which two sectoral indices even delivered positive returns.

Nifty pharma crashed 12.7 per cent, Nifty IT fell by 6 per cent and Nifty financial services clocked a fall of 5 per cent (see chart). Nifty bank’s 30-day fall was even higher than that of Nifty PSU bank’s 3.5 per cent, indicating that even private sector banks had declined sharply in the last one month. In the longer period of one year, the Nifty bank index’s one-year show is already a negative return of 2.3 per cent, the third most worst performing index among seven sectoral indices (see chart).

Individual bank stocks in major large cap indices also point to the same –gradually building up weak undertones. Of the eight bank stocks in the Nifty 50 index, five have given negative 30-day returns and six have given negative 365-day returns.

ICICI Bank has dropped 6.2 per cent in the last 30 days, while the other major bank, HDFC Bank has fallen by 2.2 per cent. Axis Bank was down 2.7 per cent, Kotak Bank fell 3.2 per cent and Yes Bank’s 30-day fall was the steepest at 5.1 per cent. The decliners, interestingly, were all private sector banks while the three banks which gave positive returns were all PSU banks – State Bank of India, which went up by 2.5 per cent, Punjab National Bank which rose 3.1 per cent and Bank of Baroda which went up by 3.6 per cent.

However, in the longer period of one year, the public sector banks have fallen far more than those in the private sector. As of December 5, SBI’s one-year rate of return was a negative 24 per cent, PNB gave a negative return of 38.7 per cent and Bank of Baroda delivered a negative 23 per cent.

Among the private sector banks, ICICI Bank’s one-year return was a negative 26.9 per cent, Axis Bank showed a negative return of 7.4 per cent. HDFC Bank delivered a positive rate of return of 13.8 per cent. Kotak Bank was also up by 8.4 per cent. A comparison of the one-month returns with the one-year returns, therefore, gives a tentative indication that public sector banks have bottomed out or there is not much negative news remaining to factor in.

The private banks, however, have begun to feel the heat now, to the extent that the market is concerned about the expected growth in their margins and profits. But the trend was different in other bank stocks. This is seen in an analysis of bank stocks in the next lot of 50 large-cap stocks, in the Nifty Next 50 index. Bank of India and Canara Bank were seen clocking negative 30-day returns of 7.2 per cent and 9.7 per cent, respectively, while Federal Bank gave a positive return of 2.8 per cent. These three bank stocks gave huge negative returns in the one-year period – minus 57.6 per cent (Bank of India), minus 39.3 per cent (Canara Bank) and minus 24.3 per cent (Federal Bank). The average of these negative rates of return was a negative 40.4 per cent, which contrasted drastically with the average of the one-year returns of the remaining 47 stocks in the Nifty Next 50 index. Their average was a positive 3 per cent.