Bank stocks surge on hopes of limited hit from new covid wave
2 min read . Updated: 24 May 2021, 07:30 PM IST
Premium- Shares of CSB Bank advanced 14%; IndusInd Bank climbed 9%; RBL Bank 8.7%; SBI 8% and DCB Bank 7%
Shares of most banks have gained over the past six trading sessions, pushing the BSE Bankex index up more than 8%, as investors are betting on limited impact of the second covid-19 wave.
Shares of CSB Bank advanced 14%; IndusInd Bank climbed 9%; RBL Bank 8.7%; State Bank of India (SBI) 8% and DCB Bank 7%. That apart, City Union Bank, Bandhan Bank, Federal Bank, Bank of India and Indian Overseas Bank gained 4% each; ICICI Bank and Axis Bank rose 3.5% each.
Analysts said that one probable reason behind this could be the optimistic management commentary post financial results of these banks. While managements have indicated probable impact of covid-19 on their books, the severity is expected to be lower than last year. Their optimism is based on the fact that the lockdowns announced to contain the second wave are not as stringent as the nationwide restrictions in 2020.
“The universe of banking stocks as reflected in the Bank Nifty has surged in the last seven trading sessions. We see renewed optimism among investors towards the banking sectors, predominantly driven by the visibility on the steady decline in covid-19 cases reported across the country," said Abhijit Tibrewal, senior research analyst at Reliance Securities.
To be sure, several banks have refrained from quantifying the impact of the pandemic as things remain quite fluid at the moment. Bankers, though, are relying on vaccines to flatten the daily infection curve.
“With the improvement in vaccination coverage, we expect recovery in the activity level in the next two to three months," SBI chairman Dinesh Khara told reporters on 21 May.
SBI reported an 80% year-on-year (y-o-y) jump in net profit amid higher net interest income and lower provisions. Provisions, or the money set aside to cover losses, fell 11% to ₹13,249 crore in the fiscal fourth quarter as asset quality improved. The bank also expects to grow its loan book by 10% in the current fiscal, significantly faster than the 5.67% growth seen in the year ended 31 March.
India’s largest private lender HDFC Bank reported a 18.17% y-o-y rise in net profit for the three months to March owing to a rise in net interest income (NII) and other income. While its quarterly profit fell short of estimates, the bank held up on the asset quality front.
“While the pandemic situation and vaccination drive are expected to be critical factors for economic recovery, our house view is that India will be one of the fastest growing economies in the world in FY22 and reach the pre-pandemic level by end of the current calendar year," Srinivasan Vaidyanathan, HDFC Bank’s chief financial officer told analysts on 17 April.
That said, analysts believe that while banks will see lower disbursements in the June quarter because of the second wave, recovery is not far away. “This could be salvaged to an extent in the month of June where we expect sharp improvement in business volumes. Collections would start improving with a lag of one month, potentially from July onwards," said Tibrewal.
