The Nifty Bank index dropped 576 points to 57,945, while the Nifty Midcap index gained 374 points to 62,802. Market breadth favoured advances, with the advance-decline ratio ending at 1:1.
1. Private banks weighed on the benchmarks
Private banking stocks remained under pressure after their first-quarter results. HDFC Bank, Axis Bank and Kotak Mahindra Bank fell 2-5%, dragging the benchmark indices lower. Support from ICICI Bank and Bharti Airtel helped the Nifty recover from its intraday lows.
Gaurang Shah, Senior Vice President, Geojit Financial Services, on Kotak Mahindra Bank, said, “The numbers were a little bit shy of what these street estimates are; we see a correction and then from lower levels, the stock has recovered today. I believe that was a one-off. Hold on to it. We have a fundamental positive coverage on Kotak Mahindra Bank.”
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2. Market recovered from the day’s lows
The benchmarks trimmed losses following a “mediation” comment from Iran, allowing the Nifty to hold above the 24,200 level by the close.
3. Earnings kept key stocks in focus
Reliance Industries ended with minor losses despite a healthy first quarter. UltraTech Cement rose over 1% after meeting Street expectations, while Trent gained 3% on Tata’s commentary regarding Westside expansion.
4. PSU banks and power stocks outperformed
Punjab National Bank’s healthy quarterly results lifted most public sector lenders, with the Nifty PSU Bank index gaining 3%. Buying also emerged in power stocks, with JSW Energy and Torrent Power rising 3-5%. Elevated crude oil prices supported upstream oil companies including Oil India and ONGC.
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5. Select stocks posted strong gains
Oriental Hotels surged 12%, while Jana Small Finance Bank extended its gaining streak and is now up 14% this month. Sansera Engineering and Craftsman Automation gained 3% each following a positive brokerage note.
From the Sensex basket, Trent Ltd, Power Grid Corporation of India Ltd, Bharti Airtel Ltd, Cipla Ltd, NTPC Ltd and State Bank of India were the major gainers. Axis Bank Ltd, HDFC Bank Ltd, Maruti Suzuki India Ltd, Kotak Mahindra Bank Ltd, Jio Financial Services Ltd and Infosys Ltd were the biggest laggards.
Dipan Mehta, Director, Elixir Equities, on the banking sector, said, “I thought the banking results were better than what we expected because we didn’t expect them to be as good as this either. And I have consistently maintained that the entire banking industry is a red ocean, and the NIMs we have in this country are amongst the highest in the world, and are just not sustainable. And the minute the bank tries to improve the net interest margin, the lending quality deteriorates.
So it’s a very fine balance which not all banks are able to traverse. So I would say that, sure, I think the one big trigger for the banks over the next two quarters would be the FCNR deposits. That certainly should improve the NIMs. It should help them grow the balance sheet and sustain lending.
But look, two or three years down the line, I think that is going to be even more competitive, and these NIMs are just not sustainable. At the same time, we cannot expect credit costs to remain so low. I think this is the ultimate blue-sky scenario for NPAs, and that cannot last forever.
So I’m a bit circumspect, medium to long term, about the banking industry. In the short term, I’m not that negative because, as I said, I think a big trigger is this FCNR, which will provide a boost to profitability in the September quarter and the December quarter as well.”
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