Happy days are here again for banking stocks?

Happy days are here again for  banking stocks?

 

 For the last 2 years this sector has been volatile and has not made any profits for the investors. I am not mentioning the lesser known banks. Let’s take the leader in the pack- HDFC bank. It’s the cynosure of all eyes- all channels track it. Every mutual fund has a slice of the stock. Yet it has given a zero return in the last two years. 

 

On 31st December 2020 HDFC bank closed at around ₹1400 today it’s trading at ₹1450. This is not a special case for HDFC bank alone, banks like Kotak bank,CUB  (except Icici and Axis) have underperformed the markets. 

 

Besides, there has been traction in all banking sectors. Double digit loan Growth and Deposit growth, higher PCR allocation (higher PCR ratio reflects that the bank has sufficient capital to withstand asset quality pressures and will not need significant incremental capital in case of extreme stress),  reduction in NPA’s (NPA or Non Performing Asset refers to a classification for loans or advances that are in default or in arrears- lower NPA is a good sign for the bank). 

 

All boxes are ticked for all good banks and the stock prices are beginning to move up- banking sector appears to be  a safe bet in the current scenario as the stock price too has not appreciated in the last 2 years. 

 

Maybe other sectors are also good but the banking sector offers better risk to reward ratio for long term investors. Interestingly that has also won lesser votes than IT, Pharma and consumption stocks- indicating investors are bearish about the sector. 

 

Warren Buffett often quoted “be fearful when others are greedy, and greedy when others are fearful” also points towards the banking sector.  That’s why I have chosen it, but pharma is also good and interesting.