The month of October witnessed a significant market sell-off, with foreign institutional investors (FIIs) selling over Rs 1 lakh crore, marking one of the worst months recently. This correction has affected the stock market, with many sectors declining between 10% and 15%. It’s interesting to see how valuations stand across different sectors.
As the Q2FY25 earnings season continues, the financial services sector remains one of the most anticipated. Let’s examine how banks have performed this quarter, focusing on the Nifty Bank constituents (12 stocks). As the State Bank of India (SBI) has not yet reported results, our analysis excludes it.
Over the past year, the Nifty Bank index has returned around 20%, with a YTD gain of 8.57%, reflecting stronger performance earlier in 2023. The one-month return stands at 1.54%. The Nifty Bank index has surged past all its key moving averages.
Excluding SBI, here’s an overview of the top banks based on market-cap performance in Q2:
Recent quarters have seen credit growth outpacing deposit growth, raising liquidity concerns highlighted by the RBI. However, this time, most top banks reported stronger deposit growth than credit growth. Consequently, with higher interest rates, banks may need to offer higher rates to attract deposits, increasing the cost of funds, as reflected in the results.
Valuations remain below long-term averages. The Nifty Bank’s 5-year average P/E is approximately 21.39, while the current P/E stands at 14.33, near multi-year lows. Similarly, the 5-year average P/B is 2.67, with the current P/B at 2.34, also near its lows over the past few years.
Softer NIMs are expected for a few more quarters but should stabilize. Investors should monitor non-performing ratios, as credit quality is crucial. Rising GNPA ratios, especially in unsecured lending, should be a warning sign to exercise caution.
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.
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