Banking stocks showstopper in otherwise volatile market; BoB, PNB gain most - check valuations

Bank Stocks: A day after the Reserve Bank of India’s (RBI) monetary policy committee announced a rate hike, the banking stocks have jumped almost 1 per cent on the NSE during Thursday’s trading session.

Generally, when the repo rates increases, bank’s net interest income increases while its Net Interest Margins (NIM) widen. This is a big plus for banks and hence aid the stock price movement. 

Nifty Bank its its intraday high of 43,142.25, before closing at 43,596.85, up over 498.15 points or 1.16 per cent. 

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In the 12-stock index, 11 ended positive with Kotak Mahindra Bank as a lone loser. Among top gainers on Nifty Bank, Bank of Baroda surged most by nearly 5 per cent, followed by PNB up over 2.5 per cent.

Among heavyweights, Axis Bank surged almost 3 per cent, while ICICI bank, SBI, IndusInd Bank and HDFC Bank gained between 0.3 to 0.8 per cent. 

Motilal Oswal on Private Bank Valuations:

1.Private Banks are trading at a Price to book (P/B) ratio of 2.7x, marginally above its historical average of 2.5x.

2. The momentum could sustain and further monetary tightening and rising inflation can dent demand and delay the recovery in the capex cycle. 

3. Margin has increased over 2QFY23 levels and is likely to witness a positive bias in the near term and thus, garnering deposits will be important, given the tightening liquidity.

Motilal Oswal on PSU Bank Valuations:

Brokerage firm believes that the trends will remain healthy going forward as the pipeline remains strong across most Banks and a revival in growth as PSU Banks reported strong sequential growth, particularly in the Corporate segment. 

PSU Banks are trading at a P/B ratio of 1.1x, at a 33 per cent premium to its historical average of 0.8x.

The earnings outlook for PSU Banks remains encouraging, led by an improvement across all major parameters: margin, operating profitability, and credit cost. 

The margin outlook remains positive as the bulk of the MCLR book is yet to be repriced, while management remains watchful of their treasury performance.

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