The Nifty banking index has risen considerably in the last one year because of several factors even though the general financial health of several banks remain patchy, analysts said.
The National Stock ExchangeÂ’s Nifty banking index, a barometer of banking company stocks, has risen 50 percent in the past one year, belying general economic performance and expectations from the banking business. It may be noted that bad assets among public sector banks are rising and return on assets (RoAs) has been falling.
Despite this, the Nifty banking index rose at twice the speed of the diversified Nifty, an indicator of the broader economy, and has been the fastest growing sector index throughout the year.
Analysts feel that the rise in the banking index is due to a lot of overseas cash that flowed into India, especially after the government renewed a commitment to push much delayed reforms in September.
Portfolio investors brought in around $25 billion in 2012 and $8 billion in the first two months of 2013, fuelling stock prices, especially those of banking shares.
Expectation of monetary policy easing by the Reserve Bank of India (RBI) over the next year as inflation softens is also supporting banking stocks, analysts said.
This will help boost banksÂ’ investment portfolio of securities, mostly government debt, that carry high interest rates.
But analysts caution that even though banking stocks have risen, the sector index trades at a price-to-book value lower than the NiftyÂ’s. Bank shares are compared at the book value levels because of their investments that get directly reflected in the balance sheets. Many investors feel that the valuations are still in their favour.
Leave a Reply
You must be logged in to post a comment.