Bank Stocks

Is it a good time to buy Bank stocks?

In comparison to the benchmark index, the banking and finance sector has recently started performing well However, some industry experts feel that the financial and banking sector presently presents investors with a favorable investment opportunity due to the sluggish recovery in loan growth and improving asset quality.

The massive deleveraging of India Inc., according to experts, has caused the poor asset cycle for banks to be clearly in reverse during the last 5 years. Banks are now adequately capitalized, and the prognosis for asset quality is positive.

Loan growth is probably going to gain steam as the private CAPEX cycle is anticipated to start up toward the conclusion of this fiscal. In comparison to their historical average, the market values of the businesses in this industry also appear to be favorable.

Investing in sectoral funds for the financial and banking services industry is one approach to gaining exposure to the market.

Bank Stocks

Why are Bank Shares Growing Fast?

The banking system in India has seen significant upheaval during the last four years.

  • An economic rebound has been sparked by the post-Covid phase, first. Due to this, both individual and business borrowers are now more in need of loans.
  • Second, because businesses have opted to maintain their current level of austerity over the previous few years, corporate debt levels overall have fallen dramatically.
  • Third, the firming of interest rates has begun. As a result, increased Treasury income is anticipated.
  • The fourth point is that gross non-performing assets (NPAs) have reached five-year lows. Therefore, the NPA provisions on the books of financial institutions will be smaller.
  • Fifth, the banking industry has been greatly disrupted by the positive effects of digitalization and financial inclusion, particularly in terms of payments and loans.

There are rarely so many good things happening at once in any one industry.

Sectoral Funds Investment

A minimum of 80% of the sectoral funds’ investments are made in businesses within that sector. Before you choose to place a wager on the finance and banking industry and invest in a fund in this sector, the overlap between your investment and the remainder of the portfolio should be taken into account. Stock mutual funds usually allocate a sizeable portion of their portfolios to the BFSI sector because it makes up the largest portion of the benchmark equity indices.

A strategic allocation to the sector is required because the majority of funds have a very significant weighting towards equities in the banking and financial services industry.

Plan Carefully

Investors attempting to invest in sectoral funds must nevertheless carefully plan their entry and exit points to prevent any hiccups. If the entrance and exit are not carefully thought out, one might have to absorb losses and wait a very long time for a rebound before making the best returns. Stay away from sectoral funds if you believe you cannot time the departure of the investments well and cannot handle the instability that comes with them. Even in that case, spreading out purchases of these funds will be preferable to make a single large commitment.

How to Choose which Bank Shares to Buy Now?

It is more difficult to do than it is to say which stocks to buy in the banking or financial sectors. But by doing some research you will be able to choose the right one.

  • It is simple to see the benefits of cyclical industries like banking. But the dangers are typically disregarded.
  • In the years following Covid, banks restructured loans totalling billions of rupees. It only takes a short while until new slippages start to show up, even though the books may appear to be reasonably clean right now.
  • When interest rates are lowering, loan renewals are frequently done. The genuine quality of loan books will be put to the test whenever interest rates increase.
  • Despite being at 5-year lows, the NPA levels are still a significant 6 percent of the total loan book, which is important to note.
  • For the time being, increased lending rates have given banks a larger profit margin. Deposit rates have not yet caught up to rising lending rates. Therefore, for a few quarters, banks will appear robust due to increased net interest margins.
  • But keep in mind that they must maintain their capital adequacy ratios (CAR). As a result, banks will also need to raise capital to cover increased loan demand. As a result, rising deposit rates will eventually cause those added margins to disappear.

Best Banking Shares to buy in 2022?

Here are some banking shares I think is worth buying now:

  1. SBI
  2. AXIS
  3. HDFC
  4. ICICI

More details in my next post.

Leave a Reply

Your email address will not be published. Required fields are marked *