The shares of banks and non-banking financial institutions saw strong rise in the morning trading hours of August 18. The sharp rise in the share prices pushed the Nifty Bank and Nifty Financial Services indices higher in the deep green.
The Nifty Bank index was up more than 1.3 percent to hover around 56,035, while the Nifty Financial Services index rose nearly 2 percent to stand at 26,810, as seen at 10.10 am. Here are some of the key reasons leading to the uptrend in the financial pocket of the stock market:
S&P upgrade: International credit ratings agency S&P Global on August 15 upgraded ratings of top 10 financial institutions, saying that India's financial institutions will continue to ride the country's good economic growth momentum. S&P has raised long-term issuer credit ratings on seven Indian banks - State Bank of India (SBI), ICICI Bank, HDFC Bank, Axis Bank, Kotak Mahindra Bank, Union Bank of India, and Indian Bank, and three finance companies - Bajaj Finance, Tata Capital, and L&T Finance. "We expect India's banks to maintain adequate asset quality, good profitability, and enhanced capitalization over the next 12-24 months. This is despite some pockets of stress," S&P said, adding, credit risk in the system has reduced. This boosted investor sentiment for the stocks, as well as the broader sector, a day after US-based agency raised India's sovereign credit rating.
"S&P upgrade...is a significant macro and structural positive for the overall Indian market, likely supporting incremental valuation expansion driven by lower bond yields and decreased risk perception. Moreover, a higher sovereign rating will drive better FPI debt flows and lead to better USDINR and GOI bond yields. Foreign currency-heavy borrowers can benefit from lower interest costs. Indian financial companies, such as Bajaj Finance, accessing the ECB market could see a 15-20bp reduction on their coupon payments," said Motilal Oswal Financial Services.
GST reforms: While delivering his Independence Day speech, Prime Minister Narendra Modi hinted at the next generation of Goods and Services Tax (GST) reforms to be announced as a Diwali gift for consumers. The Centre has proposed to move towards "simple tax" with 2 slabs—"standard and merit", with special rates applicable for only for select few items. According to reports, this will significantly reduce tax burden on consumers aiming to buy several items, like electronics and other consumer durables. More demand for consumer durables may in turn boost stocks like Bajaj Finance who offer affordable EMIs to consumers to purchase several goods.
Broader market uptrend: The sharp rise in the share prices also comes amid broader optimism in the stock market today. Sensex jumped over 1,000 points to hover around 81,629, while Nifty crossed the key 25,000-mark level. HDFC AMC and several other stocks will likely be strongly benefitted from the optimism in the stock markets.
Bajaj Finance shares jumped more than 6 percent, while Chola Finance, ICICI Prudential Life Insurance Company, Bajaj Finsev and SBI Life shares were up more than 4 percent, leading the strong gains on the Nifty Financial Services index.
IndusInd Bank shares rose nearly 3 percent, while AU Small Finance Bank, IDFC First Bank and Kotak Mahindra Bank shares were up nearly 2 percent each. Heavyweights ICICI Bank, HDFC Bank and Axis Bank shares were up more than 1 percent each, while SBI and PNB shares were hovering in the green with marginal gains.
Also read: Our LIVE blog on stock market updates
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