RBI’s loan curbs begin to hurt bank stocks; may remain under pressure
Mumbai: Banking stocks are likely to face increased pressure in coming sessions, as Monday’s decline, precipitated by direct retail selling, was accompanied by a rise in short positions created by domestic institutions and foreign investors closing out their long positions in index futures like Bank Nifty, NSE data showed.
While the benchmark indices Nifty50 and Sensex corrected the most in more than two weeks, the Bank Nifty spot index fell the most in three-and-a-half months.
The sectoral Bank Nifty index slumped 1.47% to 47450.25, the sharpest fall since 21 September, when it fell by 1.68%. In contrast, the Nifty and Sensex fell by 0.91-0.93% each to 21,513 and 71,355.22, while the broader Nifty Midcap 150 and Nifty Smallcap 250 corrected by 0.85% and 0.59%, respectively, the most since 20 December. The selling was led by direct retail investors, who, unlike MF investors, directly buy shares on NSE and BSE. On BSE, the client category comprising retail and HNI, net sold shares worth ₹453.4 crore. Against this, FIIs and DIIs net purchased shares worth ₹16.03 crore and ₹155.96 crore, respectively.
“There appears to be a lagged effect of RBI’s curtailment of unsecured retail lending by banks and NBFC,” said A. Balasubramanian, MD, Aditya Birla Sun Life AMC. “We have seen banking sector stocks correct more sharply among the heavyweights today (Monday).”
Private and state-owned banks figured among the Nifty 50 losers led by SBI, down 2.33%, Axis Bank (-1.3%), ICICI Bank (-1.18%), Kotak Mahindra Bank (-1.16%) and HDFC Bank (-1.11%). FMCG and IT stocks were among the other losers.
The heavy shorting in the active Bank Nifty futures contract was evident in the rise of open interest (OI), the outstanding trader positions. A rise in OI accompanied by falling price indicates bearish sentiment.
Data shows that FPIs cut their outstanding long positions in Bank Nifty futures contracts by ₹ 879.54 crore and by ₹513.57 crore in Nifty futures contracts. But while active Nifty futures contract OI remained flat at 235,207 contracts, Bank Nifty active futures contract OI jumped by 24.36% to 157,534 contracts. Thus, while FPIs cut outstanding longs on Bank Nifty and Nifty futures contracts by 17,271 contracts overnight, other participants raised short bets on Bank Nifty. This is proven by the rise in cumulative net shorts by clients (retail/HNI) to 37,212 contracts on 8 June from 35,942 contracts on 5 January and by DII to 19,389 contracts (18,374). Brokerage Nuvama estimates softer-than-expected loan growth reported by banks in Q3FY24.
“Deposits have been tight, and the RBI has asked banks to cool their high loan-to-deposit ratio (LDR); NIM decline for private banks shall be slower than Q2FY24,” said the brokerage.
“For state banks, NIM will stay flattish; Opex will be high for private banks due to festive offers and for PSUs banks due to wages; banks could provide for AIF exposure; and most NBFCs shall see strong AUM growth,” it added.
According to the brokerage, ICICI, IndusInd Bank, BoB, Union Bank, Bank of India, Shriram Finance, L&T Finance Holding and Five-Star Business Finance will likely post relatively stronger earnings, while earnings for HDFC Bank, Axis, SBI Cards, and AU Small Finance Bank will likely be mixed. Among emerging banks, RBL posted a healthy business update and has guided for improving NIM and RoA.
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Published: 08 Jan 2024, 10:21 PM IST
