Finance Knowledge

Is it a good time to invest in bank shares?

It is not an exaggeration to state that Banking Stocks are the Stock Market’s lifeblood. In the NIFTY 50, there are nine banking stocks. These account for 18.56 percent of the NIFTY 50’s weight. Banking stocks receive the most mutual fund investment, followed by auto and information technology. Furthermore, analysts believe that the restoration of the Indian economy will be impossible without the participation of the banking sector. Every stock market analyst these days is bullish on banking equities, particularly private sector banks. The general view is that three banking equities, HDFC Bank share price, Axis Bank, and IndusInd Bank, are doing better than the others. Experts at PSU banks are taking a risky approach.

State Bank of India and Bank of Baroda are the top selections. As an investor, though, I am completely bearish on banking stocks. Banks were listed in my AVOID List in my essay, Avoid Equity Investment in 7 Sectors. Because several of my readers wanted further information, experts feel it is a good time:


One of the major factors putting pressure on the bottom line of banking companies is growing competition among banks. The Reserve Bank of India recently issued two full banking licenses, eleven payment bank licenses, and ten minor banking licenses. All of these new banks will eventually bite into the same pie. The SBI chairman warned about growing rivalry among banks at the recent SBI conference. She implied that it would have an effect on current banks’ performance. The primary motivation for new licenses is financial inclusion.


Another major worry is NPAs. Banks report non-performing assets (NPAs) under multiple headings, resulting in a smaller figure. Only three banks are performing well on the NPA front, according to recent reports from worldwide organisations. Indusind Bank, HDFC Bank, and Axis Bank are the three banking stocks. Despite the fact that NPA disclosure is opaque and can go as high as two digits. The stock of ICICI Bank was recently hammered due to its exposure to the JP Group of firms. Currently, none of the banks are revealing their Amtek Auto exposure. Consider the implications of Amtek Auto’s exposure to banking stocks. After everything is said and done, non-performing assets (NPA) pose a severe danger to the performance of banking equities.

Calculating the Base Rate:

The Reserve Bank of India has released a paper on a formula for calculating the Base Rate. It will have a significant influence on banks’ NIM (Net Interest Margin). Banks with a larger loan book tied to the base rate will be the worst hit. According to estimates, around 65 percent to 75 percent of Yes Bank share price and Axis Bank’s loan books are connected to Base Rate. HDFC Bank would be the least affected because it does not process home loans. HDFC Home Loan is administered by HDFC Ltd. Indusind Bank and Yes Bank would be among the least affected financial equities. The exact impact of the new base rate calculation is impossible to predict, but it will undoubtedly affect banking stock margins.


Despite the fact that the majority of analysts are positive about private sector banks, some experts remain cautious. Banking stocks are often hazardous. Yes Bank, which had been the darling of experts, had a significant correction. Normally, a single bank cannot go against public opinion. Always keep in mind that analyst bullishness cannot change the destiny of banking companies. If this is accurate, Tata Motors would have had the best stock market performance.

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