What's spooking bank stocks? HDFC Bank, RBL, IndusInd shares down up to 15% since Jan 16

The December quarter results of a handful of banks led by private lender HDFC Bank Ltd triggered concerns over rising cost of funding and struggles for banks to balance credit growth versus margins. The rising US bond yields and recent foreign outflows, which stood at Rs 16,000 crore for January so far, also weighed on the investor sentiment.

Data showed a set of 15 stocks from Nifty Bank and BSE Private Banks index have lost a combined Rs 2,67 lakh crore in market value since HDFC Bank's quarterly results on January 16. HDFC Bank alone accounted for some Rs 1.90 lakh crore in this m-cap erosion. "While the banking sector stocks have seen a significant decline in the last few days, the rapidity of the decline has taken everyone by surprise," said Share.Market Research.

In the case of HDFC Bank, numbers were hit and analysts suggested a tight liquidity condition was creating challenge for the bank to mobilise deposits.

Kranthi Bathini, Director of Equity Strategy at WealthMills Securities said that since the weightage of HDFC Bank in key indices is high, it is creating pressure on both futures and options market as well as cash market.

"Given HDFC Bank's high weightage in indices, it is creating extra pressure on other banking stocks. All eyes are on rate cuts in the US and Europe. We believe US treasury yields need to come down. As long as rate cuts are not there, bank shares may stay under pressure," Bathini said.

The US 10-year bond yield last stood at 4.16 per cent level against 3.86 per cent level at the end of December. The rise in bond yields recently triggered capital outflows from emerging markets.

"Since the valuations in India are high, FPIs used the excuse of less-than-expected results from HDFC Bank to press massive sales. FPIs increased their short positions, too," said V K Vijayakumar of Geojit Financial Services, said on January 20.

Data showed FPIs bought financial stocks worth Rs 1,248 crore in the first half of January, before HDFC Bank results, against Rs 6,277 purchases they made in the second fortnight of December. FPIs were net buyers of equities to the tune of Rs 3,433 crore in the first fortnight of January but turned massive sellers thereafter. At last count, they were net sellers of Rs 16,601 crore worth stocks in January so far.

HDFC Bank, Nomura India noted, required deposit growth to outpace loan growth significantly in order to reduce wholesale borrowings in funding mix. "This is not the current trend and will stay a challenge, as system liquidity remains tight and deposit mobilisation stays tough," it said.

HDFC Bank shares have fallen 15 per cent since January 16. RBL Bank and IndusInd Bank have slumped 14 per cent since then. In the case of RBL Bank, YES Securities said elevated slippage ratio in relatively benign cycle is symptomatic of inherent cyclicality. It said a material rise in slippages from an already elevated level necessitate caution. For IndusInd Bank, analysts said there was an uptick in both retail and corporate slippages and also a draw down from buffer provisions against the earlier guidance of a build-up.

Shares of AU Small Finance Bank Ltd, IDFC First Bank Ltd, City Union Bank Ltd, The Federal Bank Ltd and YES Bank also saw their shares falling 6-7 per cent. Shares of State Bank Of India, Bank Of Baroda, Kotak Mahindra Bank Ltd, Axis Bank and Bandhan Bank Ltd have also fallen since January 16.

In the case of Axis Bank, Given higher share of bulk and deposit challenge, Nuvama Institutional Equities "finds Axis Bank to be more vulnerable on loan growth and NIM compared to ICICI Bank and Kotak Mahindra Bank."

Also read: Pidilite Industries shares rise 5% post Q3 earnings; check details