Strong buying interest seen across financial companies, so far, in June. This sector traditionally has a high weight in the Nifty (around 33 percent) and is a high beta sector.
The bulls have taken control of D-Street in June, pushing benchmark indices above crucial resistance levels. The S&P BSE Sensex is back above 34,000 while the Nifty50 has reclaimed 10,000-10,300 levels.
Similar traction has been seen in banking and financial stocks. The NiftyBank has rallied more than 15 percent compared to 9 percent gains seen in the Nifty50, as of closing price recorded on June 23.
One of the biggest contributors to the rally are the financials, which have risen up to 50 percent, as investors lapped up beaten-down stocks. A "relief" from the Supreme Court in the interest moratorium case also helped.
In a hearing on June 17, the court said the government should make the benefit of the moratorium available to all, directing the Center and the RBI to review interest waiver matter. The case will now be heard in the first week of August.
"Indian equity markets ended last week with strong gains, largely led by positive global cues and rally in the banking and financial stocks. The market ignored the potential fallout of geopolitical tensions and the rising number of virus infections," Siddharth Khemka, Head – Retail Research, Motilal Oswal Financial Services Ltd told Moneycontrol.
"On the banking front, the Supreme Court has ruled out the possibility of a complete waiver of interest during the moratorium period and added that the scope of the hearing is limited to the waiver of interest, which is levied on the accrued interest."
It was a sign of relief to the banking system, which otherwise would have faced significant operating losses coupled with triggered capital calls across banks, he said.
Loan waivers in the past have had an impact on credit behaviour and to that extent any decision against it was positive. Within the banking space, they continued to prefer ICICI Bank, HDFC Bank, and SBI, Khemka said.
We have collated views from Hemang Jani, Head Equity Strategist, Broking & Distribution, Motilal Oswal Financial Services Ltd, on the outlook of some of the stocks that have moved in the banking and financial space:
Axis Bank expects the overall proportion of the moratorium book to remain in control despite extension in the moratorium period. Expect loan growth to moderate on account of the weak environment, weighed down by the COVID-19 outbreak.
HDFC Bank's business growth remains robust despite economic activity getting effected by the COVID-19 outbreak.
Corporate loan growth remains strong and is driving overall loan growth while retail loan growth remains soft. HDFC Bank is a strong liability franchise that will support margins while higher liquidity levels will enable the lender to ride the current crisis and gain market share.
HDFC management says a gradual improvement and normalisation in business has been seen after Unlock 1.0. Significantly lower moratorium 2.0 (although early days) has surprised them positively, it says. Capitalisation or asset quality issues with competition in the HFC space will help HDFC on both the assets and liability side.
Indusind Bank expects credit growth to recover gradually from 2HFY21. Currently, negligible disbursements are witnessed in the commercial vehicle (CV) segment while the tractor segment is doing well. Further, there has been an improvement in the disbursement trend in the 2W portfolio.
RBL Bank's asset quality will continue to remain under pressure, with concerns leaning toward retail as the COVID-19 outbreak will impact delinquency trends in the portfolios of credit cards, micro finance institutions and micro, small and medium enterprises (MSMEs).
Around 33 percent of the loan portfolio availed moratorium; thus, credit cost trends are expected to remain elevated at 3.6 percent for FY21E. Higher provisions impacted earnings but slippages moderated on a sequential basis, enabling improvement in the coverage ratio.
Bajaj Finance is witnessing a trend of moratorium customers repaying some of their loans. The outstanding moratorium book has declined from earlier levels of Rs 380 b.
While business volumes are still low, they are expected to normalise toward the end of 3QFY21 or in 4QFY21. The management has said that for the next one year, the focus will be on profitability over growth.
With the gradual opening up of the economy, the management is seeing green shoots of recovery and growth. A pick-up in a tractor and used vehicle segment is encouraging.
According to the management, collection trends showed steady improvement in the first two weeks of June; this is expected to rise by the month-end (large collections due). The management has approved the rights issues of Rs 35b and the company will execute the same post 1QFY21 results.
Demand recovery in FY21 is expected to be divergent, with the tractor and smaller-ticket segments being the first to recover. Month-on-month collection trends are improving at a faster pace with the partial lifting of the lockdown.
The vehicle finance (VF) segment partially resumed operations from mid-April and is seeing significant improvement, especially in the Tier II to IV segments.
Disbursements are seeing a strong pick up as the rural economy is doing well. In the VF segment, near-term growth is likely to be driven by ICV, LCV, 2W, tractors, small cars, and used commercial vehicles among others.Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.