Experts say the fall is due to fears that further depreciation in the rupee will result in the RBI not rolling back its recent tightening measures which it had undertaken to make short term money more expensive.
Financial stocks were once the poster boys of Dalal Street. However, banking on them is no more a great idea with the Bank Nifty down 22 percent this year compared to a 7 percent fall for the Nifty. CNBC-TV18's Ekta Batra finds out why the banking sector has emerged as a rank underperformer in 2013.
Blame it on the rupee! As the INR hovers at record lows, there has been a distinct parallel fall in financials with majority of the decline seen in NBFCs such as M&M Financial , L&T Finance Holding and LIC Housing Finance. However, wholesale funded banks like YES Bank have also been hit hard with the stock down 40% this year.
Nilesh Shah, managing director and chief executive officer, Envision Capital says, "The downside to the banking sector still is very evident given that the asset quality is continuing to deteriorate. Some of the banks which have managed to the asset quality well will have pressure on margins because of the latest developments in the money market."
So why is the rupee spooking the street? Well, experts say, the fall is due to fears that further depreciation in the rupee will result in the RBI not rolling back its recent tightening measures which it had undertaken to make short term money more expensive
Moreover, the street also seems to be bracing for a possible lending rate hike that could further impact growth and asset quality. At their end, some banks say they will have to assess their options if the RBI’s rate tightening measures continue for a few weeks more
SL Bansal, chairman and managing director, OBC, "Increasing base rate will depend on the medium-term. In another 20-25 days, if the situation continues to be like this and ultimately we are forced to raise deposit rates then naturally there will be pressure on increasing the base rate.”
None of this is boding well for banking stocks as brokerages continue to downgrade the big banks. On Wednesday morning, Morgan Stanley cut the weight of HDFC and HDFC Bank to 10% in its Asian model portfolio from 25% and also steeply cut price targets on banks like State Bank of India.
According to Morgan Stanley, the Indian banking system has entered a very weak spot and may face a sharp decline with non-performing loan (NPL) levels almost double that of 2008.