The Brutal Hammering In Banking Stocks! What’s Wrong?

As we write, the stock of IndusInd Bank is down 33 per cent, Bandhan Bank is down 22 per cent, and a bluechip like HDFC Bank, which would seldom fall is down 7 per cent.

The Federal Bank, which was often being recommended by brokers is down 11 per cent, and ICICI Bank has plunged to a new 52-week low. The list of banking stocks collapsing is endless.

Why the brutal hammering?

Financials are getting hammered like never before and perhaps rightly so. A stock like IndusInd Bank, has dropped from 52-week high levels of Rs 1,600 to almost Rs 400.

It's not difficult to fathom the reasons for the fall. The economy was slowing down and now is likely to get even worse, thanks to the outbreak of the corona virus. There are worries that an economic slowdown would result in higher non performing assets, which in the end could have a significant impact on the banking sector.

It's likely that for the next few quarters, there would be significant impact on the banking sector. Economic slowdown could well result in rising non performing assets. For the better managed banks too there could be some impact. HDFC Bank, could also be impacted by the economic slowdown, as it could result in joblessness and rising non performing assets from the retail side. Over the last many years, HDFC Bank has grown its retail book significantly and there could be some stress building-up here, if joblessness happens.

Sentiments have also been impacted by the Yes Bank developments, which too has aided large scale selling of banking stocks.

The markets too seem to be falling endlessly and there is seriously no place to hide. A large part of the index constitutes financials like banks and NBFCs and here is where the most damage seems to be happening. This has resulted in the index falling almost 30 per cent from peak levels.

It would not be advisable to buy even the banking stocks now, as there could be further downside risks. At best one can accumulate stocks in a more staggered manner.

Those who have the patience to hold stocks for the long-term may end-up making superlative returns. However, one must also be prepared for further downside risks. The problem right now, is nobody knows how long the coronavirus infections would play along. However, should the infections start abating, the markets could see a swift rally and with high quality banking stocks.