Banking and NBFCs are in focus today. Most of the shares are up nearly 2% each and the Nifty Bank Index is inching closer to 48, 600 levels. This is particularly interesting as the Nifty is down nearly 5% in the past 5 trading sessions. The question then is what changed overnight? Well, its the liquidity largesse from the Reserve Bank of India late last evening.
RBI announced measures to easy system liquidity for the banking sector and infused Rs 1.5 trillion of liquidity into the banking system. These include
- OMO purchase auctions of Govt bonds for Rs 600 billion in three tranches of Rs 200 billion each between now and mid-February
- Rs 500 billion long-dated 56-day Variable Rate Repo (VRR) auction on February 7
- Dollar-rupee Buy/Sell Swap auctions worth $5 billion for a tenor of six months to be held on January 31
Also ReadRBI fires salvo at liquidity deficit Nomura on RBI’s liquidity boost
Responding to this liquidity injection from RBI, international brokerage house Nomura sees it as a positive move for both loan growth and NIMs (<5bp) of India banks and NBFCs “as long as there is continued follow-through here (which we believe is likely). However, in our view, system liquidity needs to move sustainably to neutral (from the current deficit) for systemic loan and deposit growth to reaccelerate, which these measures do not alleviate entirely.”
Also ReadShriram Finance’s PAT jumps 96% on one-time gain Nomura top picks: Axis Bank, HDFC Bank, Shriram Housing
According to Nomura continued easing of systemic liquidity is especially positive for share price of liquidity constrained banks- Axis Bank and HDFC Bank. Nomura has a Buy on both these bank stocks. They also anticipate large NBFCs to gain from potential easing. Shriram Housing Finance is their top pick among NBFCs. They also have a Buy rating on SBI Cards. According to Nomura, counters like AU Bank and Bandhan Bank may “also see some relief on growth and NIMs, however asset quality pressures remain the dominant theme for these stocks.”
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