Nifty declines 2.2% dragged by falling banking stocks over fraud label on DHFL

The banking stocks have largely been underperformers in the pull-back rally that equity markets have witnessed after hitting their rock bottom on March 23.

The banking stocks fell sharply during Friday’s trading session, dragging the benchmarks down with them on concerns over the extension of the loan moratorium and the declaration of Dewan Housing Finance (DHFL) as a fraud case by Punjab National Bank.

The benchmark Nifty declined 2.2% during the day’s trading session but rose conversely 2.5% for the week. Friday’s crash has been Nifty Bank’s single-biggest decline since June 25.

On Friday, the banking stocks put up a weak performance after being the best performers for the first four trading sessions of the week. This was mainly due to concerns over the asset quality getting hurt if the government decides to extend the moratorium till December.

DHFL fraud case added to the worries. DHFL has been facing insolvency proceedings for more than a year. Siddhartha Khemka, head (retail research), Motilal Oswal Financial Services, said, “Banking stocks were down also due to the news flow that the government may consider an extension of the moratorium till December and negative sentiments around the PNB announcement of Rs 3,688 crore DHFL exposure as fraud. Additionally, the equity markets are also in a consolidation phase as Nifty has been trading near the 10,800-range for the last few sessions.”

He added that the equity markets were down on Friday due to profit booking, weakness in the global market and rising novel coronavirus cases, which led to the announcement of further lockdowns in different parts of the country.

The biggest losers in Nifty Bank were Punjab National Bank, RBL Bank, IDFC First Bank, Axis Bank and IndusInd Bank. The stock prices of Punjab National Bank tanked 5.26% after the public sector bank classified shadow lender DHFL as a fraud account. The shares of PNB closed at Rs 35.15 apiece.

RBL Bank and IDFC First Bank fell 3.59% and 3.39%, respectively, during Friday’s trading session. This was followed by Axis Bank and IndusInd Bank down by 3.16% and 2.93%, respectively. None of the Nifty Bank constituents gained during Friday’s trading session.

The banking stocks have largely been underperformers in the pull-back rally that equity markets have witnessed after hitting their rock bottom on March 23. The markets, which had crashed in March over concerns of the economic impact of the novel coronavirus pandemic, have been witnessing a strong recovery rally for the last three months. In this period, the Nifty Bank has risen by 32.39% but Nifty has rallied by 41.5%.

The Nifty Bank has been an underperformer and, according to market experts, it will continue to underperform going ahead. “Banks and financials are expected to be one of the worst-affected due to the lockdown across the country. Further extension of moratorium could lead to increasing risk of spike in the non-performing assets (NPAs), which is an added concern in the current market. Every cycle in the market has its own leaders. The underperformance of the banks may continue while others such as Pharma, IT and telecom are likely to take the lead,” said Siddhartha Khemka.

The banks have also been on a fundraising spree in the recent times with Bank of Maharashtra being the latest to join the bandwagon, raising `3000 crore. It joins the league of HDFC Bank, ICICI Bank, Yes Bank, among others, who are planning to tap the capital markets to raise funds.

Rusmik Oza, executive vice-president, head of fundamental research, Kotak Securities, said, “’The fund raising by various banks is being looked at positively by investors as it sends a strong signal that when growth resumes these banks’ capital adequacy ratio is well placed for them to lend. They could be raising money to strengthen their balance sheet to safeguard themselves against any NPAs or adverse impacts of moratoriums.”