Karnataka Bank was the top gainer among the financial pack, with a rise of over 153%, followed by Ujjivan Financial Services, whose shares have risen 145%. Meanwhile, South Indian Bank and UCO Bank have rallied 136% and 112% respectively.
During the same period, both Sensex and Nifty gave muted returns to investors, rising 3.36% and 1.7% respectively.
At least five small cap banks have delivered returns between 50-100%. Shares of Indian Bank have gained about 86.49% in the reporting period, while Punjab & Sind Bank rose 74.74%. Ujjivan Small Finance Bank, DCB Bank and Bank of Maharashtra are three other banks, which have given returns in the range of 50-100%.
Overall, at least 32 smallcap stocks have doubled investors’ wealth with Apar Industries being the top gainer with 247% rise, followed by BLS International Services.
What should investors do?Banks have reported stellar earnings growth in the third quarter with improving margins, strong loan growth and benign credit costs.
Nuvama Institutional Equities said that this may not sustain as liabilities are now getting repriced higher – quicker than loans – and demand concerns have only broadened from exports to now consumption.
Bernstein said that the operating environment for Indian banks remains the best in a decade, maintaining its bullish view on the sector. The brokerage sees HDFC Bank, Axis Bank and SBI to outperform, while it expects Kotak Mahindra Bank and ICICI Bank to perform in line with the market.
“The quarterly results of banks were stellar on nearly all fronts — a healthy increase in margins, healthy loan growth and continued benign asset quality trends,” it said in a report.
Emkay Global said that even though the profitability of default remains considerably low, the recent correction in some fundamentally strong bank stocks provides a good entry point.
“We expect the probability of default to remain considerably low, for now. Add to that banks are witnessing strong earnings momentum on the back of better
growth/margins and receding LLP which, coupled with the strong provisions/capital buffer, provide additional comfort. Thus, we believe that the recent correction in some fundamentally-strong bank-stocks provides a good re-entry point,” the brokerage said.
“Banks with a higher CASA mix and floating loans are well positioned to navigate the rising rate environment, even as the funding cost is likely to increase. The asset quality outlook remained encouraging, with a moderation in slippages, healthy PCR, and contingent buffers driving benign trends in core credit costs. We marginally raise our FY23-25 earnings estimates for the sector by 2-3%,” Motilal Oswal said.
(With data inputs from Ritesh Presswala)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)