Since the beginning of lockdown in India, analysts and experts have been flagging signs of distress in the macroeconomic scale of the country.
While most sectors have experienced the heat of disruption caused by COVID-19, experts have repeatedly highlighted the acute pain inflicted on the country's financial space.
If we talk about the stock market, most financial stocks are trading with deep cuts in comparison to their respective 52-week highs. However, data from AceEquity shows that the Nifty Bank and Financial indices have not suffered losses in the period of lockdown and in fact, have gained decently.
Since March 24- which was the day when the lockdown was announced - Nifty Bank and Nifty Financial Services have jumped over 9 percent each till May 27. The benchmark Nifty has gained over 19 percent in the same period.
The financial stocks that rose during this period include names such as ICICI Lombard General Insurance Company, Edelweiss Financial Services, Axis Bank and HDFC Bank.
Among the losers, Bajaj Finance stands tall, along with Mahindra & Mahindra Financial Services, State Bank Of India, Cholamandalam Investment & Finance Company and Bajaj Finserv.
The rise in financial stocks during the lockdown period is not convincing the experts and many find it as occasional trading bounces.
"These are trading bounces and Nifty Bank was at lowest a couple of daya ago. Since yesterday, short-covering is spiking up," said Sameer Kalra, Founder, Target Investing.
The road ahead for financial stocks is full of challenges. The extention of the moratorium and prolonged lockdown are not good signs for the health of banks.
Banks are expected to face a tough time given the nationwide lockdown and the extension in the moratorium, Umesh Mehta, Head of Research, Samco Securities, said in an interview with Moneycontrol.
"The extension of the moratorium will bring about a fresh bout of NPA cycle if not from this quarter then sometime down the line. This will affect the banks’ balance sheets and in turn, their profitability. Hence, even though the RBI took a calibrated approach to save the economy, it did not favour the banks which led to the negative impact. The negative growth rate just added to the woes," Mehta said.
The RBI’s decision to extend the moratorium to August 31 could turn out to be a major negative for non-banking financial companies (NBFCs), Emkay Global has said in a note.
“We read this as major negative for all NBFCs (including the ones with strong liability franchises), as this would further delay the overall collection and recovery procedure, and stretch the total liquidity cycle for all. In addition, this would further damage financial discipline, especially for small-ticket borrowers and MFIs,” the note added.
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