The outlook has deteriorated rapidly for India’s $433 billion banking industry after a rare sell-off at HDFC Bank Ltd., the country’s largest private sector lender.
An index of the nation’s 12 largest banks is expected to have its worst week since September, wiping nearly $21 billion in market value as of Thursday’s close. Two-thirds of this massive loss was attributed to HDFC Bank, whose quarterly figures showed falling net interest margins and weaker deposit growth.
Indian lenders enter 2024 with their best annual US dollar gain in four years. The sector was considered a popular pick, along with technology stocks, in an informal survey of market participants conducted by Bloomberg last month. HDFC Bank’s earnings are now raising concerns over reports from peers ICICI Bank Ltd., Kotak Mahindra Bank Ltd. and Axis Bank Ltd.
“The days of banks trading at more than three times their book value are over,” said Seshadri Sen, strategist at Emkay Global Financial Services Ltd. “Most large-cap banks are expected to have slower earnings growth in FY25 compared to previous years, which will pressure stocks.”
Goldman Sachs Group Inc analyst Rahul Jain wrote on Thursday that private-sector banks and non-bank lenders “could also struggle” if they seek market share of lending at a lower cost. interest charges because liquidity is still limited. ICICI Bank and Kotak Mahindra will announce their quarterly results on January 20 and Axis Bank is expected to announce them on January 23.
The industry’s declining outlook is bad news for the entire market. The country’s top five private lenders account for more than a quarter of India’s key NSE Nifty 50 index, and banks accounted for 15% of the index’s gain over the year, according to data compiled by Bloomberg.
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