Frenzy-like moves in small banks may cool off, HDFC Bank, Kotak Bank to catch up

Small banks have in particular seen a strong rally in recent months. But some analysts expect the momentum in stocks of small banks to cool off in coming days and largecaps like Kotak Bank and HDFC to catch up.

“The leader of the current bull market is Bank Nifty, and it is continuing its leadership aggressively. The fundamentals are also supporting the move in the banking index, and the outperformance is likely to continue for the next few quarters. However, frenzy-like moves in small banks may cool off, but the overall outlook for the banking industry remains positive. SBI and ICICI Bank may continue to provide support, whereas HDFC Bank and Kotak Bank may also catch up momentum,” said Santosh Meena, Head of Research, Swastika Investmart Ltd.

Kotak Bank and HDFC Bank, which have underperformed the Bank Nifty index on year-to-date basis, by rising 4% and 12% so far this year.

“In India, the bank index, and within the bank index the PSU bank segment, is the strongest segment and this can continue to remain resilient. HDFC twins exhibit strength. The recovery in the IT segment has some more steam to go. The resumption of FII buying is another positive. However, Nifty is unlikely to break out of the 18,400-18,800 range and sustain at higher levels. High valuations are likely to cap the rally,” said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

ICICI Bank, Axis Bank, Federal Bank and SBI are among the top banking picks of Motilal Oswal.

“The lending rates for Banks have been constantly increasing over the past few months, in tandem with the rise in the repo rate. However, the increase in deposit rates has been at a slower pace. As the competitive intensity to garner deposits has started to intensify, we expect deposit rates to increase, thus driving an increase in funding costs. A higher LCR (liquidity coverage ratio) and a healthy CASA mix can lead to a calibrated increase in deposit rates, given the ample liquidity. Banks, with a higher mix of floating-rate book, stand to benefit from the continued monetary tightening as RBI further increased the repo rate by 35bp on 7th Dec’22 and maintained withdrawal of its accommodative stance to keep inflation under check (unchanged),” the brokerage said. 

Bank Nifty Key Levels

“Technically, 44200 is an immediate hurdle, and 44700/45000 are the next resistance levels. On the downside, 43500 is an immediate and strong support at any profit booking, and 42000 will act as a base at any correction,” said Santosh Meena, Head of Research, Swastika Investmart Ltd.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.