Bank stocks surge on cleaner books and loan pick-up, can rise further

Mumbai: Bank stocks may still have some more steam left after the recent run-up, said analysts. The Bank Nifty index, comprising shares of lenders, surpassed the crucial hurdle of 40,000 last week, opening up the possibility of the benchmark rising another 3-5% in the short-term. The index closed at 40,415.70 on Friday

"The Bank Nifty index surpassed the crucial hurdle of 40,000 on a closing basis which clears the room for further upside on the index," said Kunal Shah, senior technical analyst, LKP Securities. "The index momentum oscillators are in strong buy zone, confirming internal strength. The index will likely test the level of 41,000-41,500 on the upside, and at the lower-end support remains at the 39,000 level."

Analysts said the bullish momentum means the Bank Nifty index could outperform Nifty in the near-term. The Nifty Bank index has rallied 5.7% and 15.19% in the last one month and three months, respectively. The Nifty 50 index has gained 1.76% and 8.22% during this period.

Santosh Meena, head of research, Swastika Investmart, said it will be crucial for the Bank Nifty to cross the immediate hurdle zone of 40,800-41,000 to extend upside. "Above this level, we can expect a rally towards the 41,800-42,000 zone. On the downside, 40,000-39,500 will act as a strong demand zone," he said.

In the past month, investors and traders have been buying shares of public sector and smaller private lenders. Banks such as RBL, DCB, Karur Vysya Bank, Suryoday Small Finance, Ujjivan, Indian Banks, Punjab National Bank, and Bank of Baroda have surged between 15% and 30% in the last one month. Among the larger banks, barring Kotak, all others have gained between 5% and 10% in one month.

With banks cleaning up their balance sheets, analysts believe there is scope for loan growth acceleration.

"The demand for loans from retail and small and medium-sized enterprises has resumed, and capacity utilisation has improved, leading to normalisation of loan growth for Indian banks," said Ashish Chaturmohta, head of research, JM Financial Services.