Bank stocks take a hit as analysts predict margin pressure in Q2

Stocks of banks and financial service companies came under heavy selling pressure on October 18 as contracting margins of lenders spooked investors, and the Nifty Bank and Nifty Financial Services indices became the biggest losers of the day.

As of 2pm, the Nifty Bank index was down 1.06 percent and the Nifty Financial Services 1.11 percent. The Nifty PSU Bank index shed 1.31 percent.

HDFC Bank, which is usually a bellwether stock for the banking sector, in its earnings report said its margins fell. Analysts also expressed their disappointment on its earnings numbers.

“HDFC Bank disappoints on net interest income (NII) as well as operating profit growth, which are much lower than expectations,” said Sandip Sabharwal, an independent market expert. “Profits were boosted by lower provisions (which is good) and lower tax rate (one time), otherwise the EPS would have been flat to down over the same quarter last year.”

He said the overall numbers were average, except for the overall advances growth, which remained strong and asset quality held up.

Analysts and investors now believe that a similar performance would be put up by other banks as well.

Punjab National Bank, HDFC Bank and Bank of Baroda, which is battling a spate of bad news, were the biggest losers. Among financials, ICICI Prudential Life Insurance, Bajaj Finance and Chola Finance were top losers.

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