The banking sector has faced notable volatility in 2024. While the Nifty Bank is down 0.23 percent year-to-date, it has seen a 1.2 percent rebound in the past month.
Certainty around the election outcome and renewed foreign investor inflows into Indian equities have propelled benchmark indices to new highs for two consecutive sessions. However, the banking index has not followed this upward trend.
Does the election influence the banking sector? If so, would a potential third term for Modi benefit private banks or public sector banks more?
Market Movements: Public Sector Bank Stocks Surge While Private Banks Consolidate
Nifty Private Bank Index Struggles While PSU Banks Shine in 2024
In the Nifty Private Bank index, except for three stocks—ICICI Bank (up 13.5%), Axis Bank (up 6.6%), and Federal Bank (up 4.5%)—all other constituents have posted negative returns in 2024 YTD. Bandhan Bank experienced the steepest decline, down over 22%, followed by IDFC First Bank (down over 12%), HDFC Bank (down 11%), and Kotak Bank (down 10.8%). IndusInd Bank, RBL Bank, and City Union Bank also saw losses ranging from 2.9 to 10%.
In contrast, all constituents of the Nifty PSU Bank index have delivered positive returns this year. Indian Overseas Bank led the gains, up 55.5%, followed by Bank of Maharashtra, up 51%. The remaining PSU banks in the index have advanced between 14 and 43% each.
Expert Opinions
As anticipation builds around the potential outcomes of Modi’s likely win, financial experts offer contrasting perspectives on which sector—private or public banks—is poised for greater gains.
Chris Wood Advocates for PSU Banks
Chris Wood from Jefferies predicts that public sector banks (PSU) will emerge as the winners. He attributes the recent consolidation in private banks to regulatory pressures from the Reserve Bank of India (RBI) aimed at moderating loan growth, particularly in the retail segment. Wood notes that structural reforms initiated by Narendra Modi, such as the Insolvency and Bankruptcy Act of 2016, have bolstered the competitiveness of PSU banks.
Dnyanada Vaidya Favors PSU Banks for Strong Performance
Dnyanada Vaidya, a Research Analyst at Axis Securities, sees PSU banks gaining traction. Vaidya highlights the positive performance of banks in Q4, citing healthy credit growth, improved deposit mobilization, and strong asset quality metrics. Post-election, Vaidya expects increased buying interest in PSU banks if the incumbent government continues.
Vinnaayak Mehta: Positive Outlook on PSU Banks with Caution
Vinnaayak Mehta, a Financial & Stock advisor, aligns with the optimistic view on PSU banks. He emphasizes the government’s focus on addressing non-performing assets (NPAs) and strengthening PSU banks through mergers, which he believes will attract more investor attention to this sector. However, he advises cautious optimism and thorough research for navigating post-election market volatility.
Jignesh Shial: Bullish on Private Banks for Higher Return Ratios
Jignesh Shial, Director of Research at InCred Capital, maintains a bullish stance on private banks, citing their higher return ratios. Despite short-term volatility, Shial expects private bank stocks to stabilize in the medium to long term.
Disclaimer: The views expressed by individual analysts or broking companies are their own and not endorsed by BizIconic. Investors are advised to consult certified experts before making investment decisions.
