However, the Nifty Bank index managed to end the week in the green, driven by a rebound in heavyweights.
Heavyweights including HDFC Bank, ICICI Bank, Axis Bank, Kotak Mahindra Bank, and IndusInd Bank all concluded the week with gains ranging between 1.50% and 4.8%.
According to CLSA, PSU banks have experienced significant re-rating from a low base, whereas private sector banks have lagged behind.
Similarly, domestic brokerage firm Systematix Institutional Equities also prefers private sector banks over public sector banks, believing that private lenders offer superior valuation comfort compared to PSUs.
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The Indian market ended the shortened trading week with significant fluctuations as profit booking by investors caused major indices to close in negative territory. However, the Nifty Bank index managed to end the week in the green, driven by a rebound in heavyweights.
The index posted a weekly gain of 3.32%, marking its best weekly performance in CY24 so far. The index's previous best weekly performance was recorded in December, with a gain of 5.46%. Among the top gainers in the index during this week was Bandhan Bank, which finished with a gain of 7.6%, while IDFC Bank also ended the week with a 7.10% gain.
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Heavyweights including HDFC Bank, ICICI Bank, Axis Bank, Kotak Mahindra Bank, and IndusInd Bank all concluded the week with gains ranging between 1.50% and 4.8%. Additionally, Federal Bank ended the week with a gain of 2.5%.
Analysts attributed the strong rebound in shares of private banks to robust foreign portfolio investor (FPI) inflows during the week, coupled with profit booking in sectors like auto and FMCG, which had experienced substantial gains in recent weeks.
"The domestic market witnessed minor profit booking amid concerns over the slow progress of the monsoon, resulting in underperformance in the FMCG sector. The heatwave in Northern India is driving consumer durables stocks up," said Vinod Nair, Head of Research at Geojit Financial Services.
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"The global markets were subdued as weak guidance from Accenture led to profit booking in US tech stocks. Conversely, domestic IT stocks saw buying interest as market participants appeared to have factored in weaker earnings. Attention is now focused on the upcoming GST meeting, where the potential rationalization of GST rates in certain sectors is under discussion," he further added.
Valuation comfort
Additionally, analysts favored private-sector banks over their public-sector peers, citing reasonable valuations.
Global brokerage firm CLSA has shown a preference for private sector banks over their public sector counterparts, noting their currently reasonable valuations.
According to CLSA, PSU banks have experienced significant re-rating from a low base, whereas private sector banks have lagged behind. CLSA anticipates that this underperformance of private sector banks will reverse.
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Another global brokerage house, Macquarie, also advised investors to favor private sector banks while steering clear of PSUs, NBFCs, insurance, and fintech companies in the Indian financial space.
It has upgraded two stocks within the banking sector, Kotak Mahindra Bank and City Union Bank, from 'Neutral' to 'Outperform'. This decision by the brokerage was driven by their recent underperformance over the past 12–24 months, leading to attractive valuations and favorable risk-reward profiles.
Similarly, domestic brokerage firm Systematix Institutional Equities also prefers private sector banks over public sector banks, believing that private lenders offer superior valuation comfort compared to PSUs.
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According to Systematix, large-cap private banks like Kotak Mahindra Bank and HDFC Bank, as well as mid-cap banks like IndusInd Bank, are currently trading at valuation discounts to historical trends due to near-term idiosyncratic concerns.
The brokerage believes that as these banks address their current challenges, their valuation multiples are likely to improve, potentially boosting their share returns alongside their projected 14% CAGR in adjusted book value per share over FY24–26E.
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Key levels to watch
Kunal Shah, Senior Technical & Derivative Analyst at LKP Securities, said, "The Bank Nifty index witnessed a volatile trading session but ended on a flat note, highlighting the evident tussle between buyers and sellers. The immediate resistance is placed at 52,000, where the highest open interest is built up on the call side. The index needs to surpass this mark to continue its upward movement."
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"On the downside, the lower-end support is placed at 51,000, where the highest open interest is built up on the put side. Dips towards this support level should be viewed as an ideal buying opportunity," Shah added.
Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.
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