Banking shares zoom up to 7%: What's driving gains in the sector?
A Variable Rate Repo (VRR) auction is a tool used by the Reserve Bank of India (RBI) to inject liquidity into the banking system.
Banking stocks are on a run in Thursday's session (January 16), with the Nifty PSU Bank index up as much as 2.8 per cent at the last count. Likwise, the private banking counterpart also showed resilience and was up over 1 per cent.
From the Nifty PSU Bank, Punjab and Sind Bank was the top performer with nearly 7 per cent gains, followed by Indian Bank and Bank of India. Pertinently all of the 12 constituents traded in the green with minimum gains of as much as 2 per cent.
In similar fashion, private banking stocks also were up between 0.16-2.16 per cent.
The gains in the banking pack are largely spurred after the RBI is set to conduct daily variable rate repo (VRR) auctions from today. Today, the VRR auction worth Rs 50,000 crore was to be kick-started. Zee Business Managing Editor said that RBI's decision will be positive for the banking sector as a whole. Further, it will also boost the prospects of auto and real estate stocks.
Devarsh Vakil, Head of Prime Research, HDFC Securities on the remarkable gains in the banking pack said, "Expectations that the upcoming Union Budget would hike capital expenditure allocation is likely to drive improved credit growth for banking stocks in the coming quarters."
Fears of higher NPAs due to delinquencies in unsecured loans have also subsided. Banks have also taken corrective measures and slowed down unsecured loan growth, added Vakil.
Atul Parakh, CEO of Bigul, however, noted that the recent gains in the banking sector stem from interconnected factors, including economic recovery, rising interest rates, and technological advancements. These elements enhance profitability and efficiency while regulatory changes create a supportive environment for growth.
Vakil, meanwhile, added that he believes large banks are poised to navigate the current cycle effectively and are available at very attractive valuations. Moreover he is of the view that recoveries from stressed assets is likely to aid PAT growth for some PSU banks. The analyst estimates low single-digit profit growth for large private sector banks and around 25 per cent profit growth for prominent PSU banks.
Credit growth is expected to be around 12 per cent amid a slowdown in unsecured retail demand, while the banking sector earnings would clock a low double digit CAGR over FY25-27E. Analyst ftom the largecap bank likes State Bank of Inda, while from the midcap basket he likes Federal Bank.
Bigul noted that strategic mergers further consolidate resources and expand market reach, enabling institutions to explore global opportunities. As these dynamics evolve, they will significantly influence the banking industry's future, presenting both challenges and opportunities for financial institutions worldwide.
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03:43 PM IST