CATALYSTS FOR IMPROVEMENT
Beyond Market|December 2022
Better quality of assets, lower operating costs, higher margins and sustained higher growth in income (led by credit growth) should help banks get re-rated further
CATALYSTS FOR IMPROVEMENT

The banking and financial services sector has gone through tough times over the last two years. Starting with the IL&FS credit crisis and the covid-19-led stress, the banking and financial sector stocks were hammered badly.

S&P BSE BANKEX had crashed from 36,961 in January ’20 to a low of 19,900 by May ’20. Moreover, market capitalization erosion for listed banks in the January to March period of 2020 was a staggering ₹9 trillion with the four biggest players - ICICI Bank, HDFC Bank, SBI and Kotak Mahindra Bank. All these banks saw ₹1 trillion each of their market cap being wiped out.

Banking stocks have made a swift recovery. But even after two-and-a-half years, BSE Bankex at 48,915 is offering good value considering that the sector and many stocks within the sector continue to trade at historic lows.

WHAT CAUSED SENTIMENTS AND VALUATIONS TO ERODE

Due to covid-19 there was an increase in the erosion of asset quality in the Indian banking space. In fact, large borrower accounts (with an exposure of ₹5 crore and above) constituted 79.8% of the NPAs and 53.7% of the total loans at the end of September ’20.

According to a market report, the impact of covid-19 has resulted in an additional debt of ₹1,67,000 crore due to the top 500 debt-heavy private sector borrowers turning delinquent between CY20 and CY22. This is over and above the ₹2,54,000 crore anticipated prior to the onset of the pandemic.

On top of this credit growth plunged to a multi-year low owing to the slump in the industry and the economy, thus hammering the prospects of the Indian banking system and its valuations.

This story is from the December 2022 edition of Beyond Market.

Start your 7-day Magzter GOLD free trial to access thousands of curated premium stories, and 8,500+ magazines and newspapers.

This story is from the December 2022 edition of Beyond Market.

Start your 7-day Magzter GOLD free trial to access thousands of curated premium stories, and 8,500+ magazines and newspapers.

MORE STORIES FROM BEYOND MARKETView All
CHARLIE MUNGER BEYOND THE MONEY, A LEGACY OF WISDOM
Beyond Market

CHARLIE MUNGER BEYOND THE MONEY, A LEGACY OF WISDOM

Charlie Munger's principles - overcoming adversity, patience, and lifelong learning - are success cornerstones for investors and followers

time-read
6 mins  |
March, 2024
SUNSHINE AFTER THE STORM?
Beyond Market

SUNSHINE AFTER THE STORM?

Favourable policies, strong crop yields, and prospects of improved rains could help navigate the challenges in rural FMCG demand

time-read
5 mins  |
March, 2024
FROM PAUSE TO PLAY
Beyond Market

FROM PAUSE TO PLAY

India's media and entertainment industry stages a comeback after the pandemic, propelled by a digital boom

time-read
6 mins  |
March, 2024
GREEN MAKES A CLEAN SWEEP
Beyond Market

GREEN MAKES A CLEAN SWEEP

India's cleantech sector soars on strong government backing, plunging renewable energy costs, and surging investor interest

time-read
5 mins  |
March, 2024
SEEKING SWEETER RELIEF
Beyond Market

SEEKING SWEETER RELIEF

Higher production eases sugar worries, but industry eyes relaxed ethanol curbs to fuel future growth

time-read
5 mins  |
March, 2024
RISKS BENEATH THE SURGE
Beyond Market

RISKS BENEATH THE SURGE

The surge surge in PSU stocks may hide potential valuation concerns. Investors need to be selective and focus on PSUs with strong earnings

time-read
4 mins  |
March, 2024
REGULATOR'S IRE
Beyond Market

REGULATOR'S IRE

The RBI's action on Paytm Bank underscores the need for fintechs and other regulated entities to not lose sight of compliance while pursuing innovation and growth

time-read
6 mins  |
March, 2024
GREEN SHOOTS FOR GLOBAL GROWTH
Beyond Market

GREEN SHOOTS FOR GLOBAL GROWTH

Global growth surges on US strength, upgrades, and India's rise, but China's shadow looms

time-read
5 mins  |
March, 2024
AIMING HIGH
Beyond Market

AIMING HIGH

India's economy expects strong GDP growth, backed by optimistic forecasts

time-read
6 mins  |
March, 2024
IMPORTANT JARGON
Beyond Market

IMPORTANT JARGON

MONETARY POLICY COMMITTEE (MPC) MAINTAINS STATUS QUO ON INTEREST RATES; HOWEVER, STAYS VIGILANT ON INFLATION

time-read
4 mins  |
February, 2024