Adrain Mowat, a specialist in EM, cautions that the Bank Nifty index seems poor from a technical and fundamental standpoint

 Adrain Mowat, a specialist in EM, cautions that the Bank Nifty index seems poor from a technical and fundamental standpoint

November 1 saw a 0.5 percent decline in the Bank Nifty index, with Axis Bank, HDFC Bank, and Kotak Mahindra Bank stocks leading the way. The index closed the day at 42,604 levels.

Adrain Mowat, an emerging markets analyst, gave a dire assessment of the Indian equities markets, citing a decline in investors' risk appetite during the previous three months due to hardening bond rates. Mowat placed special emphasis on Indian banking equities, stating that they seem "weak" given the bad results of the businesses' second quarter performance.

"The Bank Nifty index seems poor from a technical and fundamental standpoint, which makes me a little anxious. Mowat said, "I am apprehensive about the banking sector generally since Indian financial institutions have been steering towards poor profit performance on a fundamental basis.

The EM specialist was cautious about general markets as well, citing increasing bond rates as the next area of concern. Given that bond rates remain below the 5 percent level, my first course of action would be to monitor the US bond market and see if we could get any reassurance over the next month. Investors would then begin adding riskier assets, such as Indian shares, once this occurs, he added.

On November 1, the stocks of HDFC Bank, Kotak Mahindra Bank, and Axis Bank led the Bank Nifty index down 0.5 percent to the day's low of 42,604 levels. Nonetheless, efforts were made to reduce losses by State Bank of India (SBI), Punjab National Bank (PNB), and Bank of Baroda.

In the last three months, the Bank Nifty index has dropped by 6% while the benchmark Nifty50 index has down by 3%. During the same time period, related Bank Nifty companies such as HDFC Bank, ICICI Bank, Kotak Mahindra Bank, IDFC First Bank, Bank of Baroda, and State Bank of India had declines of up to 11%.

Margin: the devil in the details

Due to the delayed effects of the deposit book repricing, the majority of banks and financial institutions reported margin erosion in the quarter that ended in September.

For example, net interest margins (NIMs) at ICICI Bank decreased sequentially by 25 basis points (bps) in the quarter that ended in September (Q2FY24). However, in Q2FY24, the margins of HDFC Bank, the bellwether stock in the banking industry, contracted by 70 basis points on a quarterly (QoQ) basis.

On this front, however, Axis Bank and Federal Bank stood out as they reported a little improvement in margins due to increased interest-earning asset yields, which helped offset margin pressure.

Although the majority of banks anticipate that margins will eventually normalize, market players caution that margins may rise over the next two quarters due to increased funding costs.