Banking and NBFC stocks were in the spotlight on Tuesday, January 28, with shares surging by up to 3.3%; Key points for investors
Bank Stocks Surge Today: Banking and NBFC stocks were in the spotlight on Tuesday, January 28, with shares surging by up to 3.3% following the Reserve Bank of India’s (RBI) announcement of measures to inject liquidity into the banking system, in response to a review of current liquidity and financial conditions.
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Canara Bank saw its shares jump by 3.3%, while AU Small Finance Bank’s shares rose 3% to Rs 580.85 on the BSE. PNB shares also surged by 3% in early trade.
IDFC First Bank saw a rise of 2.85%, reaching its day’s high of Rs 58.38, while Bank of Baroda’s shares gained 2.5%. Axis Bank shares increased by 2%, and ICICI Bank’s shares were up by 1.77%. HDFC Bank saw a 1.72% rise, while IndusInd Bank gained 1.6%. The State Bank of India’s stock recorded a slight 1% increase.
In contrast, Kotak Mahindra Bank’s shares dipped by 0.5%, and Federal Bank experienced a notable drop of 6.2%, following disappointing Q3 results.
The Nifty Bank index rose by 1.2% in intraday trading.
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The RBI’s measures to ease liquidity in the banking sector include infusing Rs 1.5 trillion into the system, with the following actions:
- OMO purchase auctions of government bonds totaling Rs 600 billion, in three tranches of Rs 200 billion each, scheduled between now and mid-February
- A Rs 500 billion long-dated 56-day Variable Rate Repo (VRR) auction on February 7
- Dollar-rupee Buy/Sell Swap auctions worth $5 billion for a six-month tenor, to be held on January 31
International brokerage Nomura viewed the RBI’s liquidity infusion as a positive move for both loan growth and net interest margins (NIMs) of Indian banks and NBFCs. However, Nomura emphasized that for systemic loan and deposit growth to accelerate, system liquidity needs to return to neutral from the current deficit, a situation that the RBI’s measures do not entirely address.
Nomura’s top picks include Axis Bank, HDFC Bank, and Shriram Housing Finance, with the brokerage maintaining a Buy rating on both Axis and HDFC Bank. They believe continued easing of systemic liquidity will benefit liquidity-constrained banks, and expect large NBFCs to also benefit from the measures. Shriram Housing Finance is their top pick among NBFCs, and they also have a Buy rating on SBI Cards. While AU Bank and Bandhan Bank may see some relief in growth and NIMs, Nomura noted that asset quality pressures remain a significant concern for these stocks.
