The Nifty Bank index advanced 2.1% on Tuesday, while the benchmark Nifty gained 0.5%. Ten of the 12 stocks on the Nifty Bank index gained at close on Tuesday. Federal Bank was the biggest gainer, soaring 8.5% after its second-quarter results exceeded expectations. SBI was up 5% and ICICI Bank gained 3%.
Analysts said that appetite for large-cap bank stocks, which have the highest weightage on the Nifty and Sensex, despite second-quarter earnings of several smaller lenders disappointing the market is part of an investor strategy to spread risks.
“The banking sector has seen some recovery as investors have shown fresh buying interest to diversify risks after the correction seen across segments,” said Aamar Deo Singh, senior vice president of research at Angel One. “This is a defensive move by smart money which has led to movements in large-cap names like ICICI Bank, SBI and HDFC Bank.”
The Nifty Bank index has declined 2.8% in past month, compared to Nifty’s fall of 6.5%. SBI was up 3.74%, Federal Bank gained 3.61%, ICICI advanced 1.93%, and HDFC Bank remained unchanged in this period. IndusInd Bank fel 29% in this period, while Axis Bank is down 6.78%.
“Bank Nifty has displayed more strength compared to Nifty in the last 15-20 days,” said Apurva Sheth, head of research at Samco Securities. “Quality large-cap banks have also started seeing more traction after investors turned towards them as the broader market stocks have seen declines.”Analysts said banks – especially the smaller ones – may struggle to maintain the up-move with asset quality coming under pressure. “The sector may continue to stay under pressure for a few more months,” said Vishal Narnolia, assistant vice president at ICICI Securities. “A strong balance sheet is expected to enable banks to absorb pain from delinquencies in unsecured retail portfolio, thus resulting in recovery from Q4FY25 onwards.”Top Picks
Narnolia is recommending large caps like HDFC Bank and SBI Bank to investors. Federal Bank is his top pick among mid-cap private lenders.
“For those who want some midcap exposure in their portfolio can also go for PSU bank names like Bank of Baroda and Indian Bank,” he said. “We prefer PSU Banks as they have lesser exposure to microfinance and unsecured retail credit, and also have better Credit-Deposit ratio (at 65-80%) than private banks.”
Sheth’s top pick remains HDFC Bank as the stock is trading below its long-term average price-to-book (PB) ratio
“We see the momentum changing for private banks going ahead, with leaders like HDFC Bank and ICICI Bank near their all time high levels,” said Sheth.