The Nifty Bank index has considerably underperformed the Nifty50 index over the past one month. The benchmark Nifty Bank index lost 4.20 percent of its value – 1,929.80 points – over the past 30 days and currently trades at 43,993.24 points in comparison of the Nifty50 index which has remained flat over the same duration.

The Bank Nifty’s top five stocks as on August 22 are HDFC Bank (28.42 percent weightage), ICICI Bank (24.04 percent), Kotak Bank (9.40 percent), Axis Bank (9.35 percent) and State Bank of India (9.89 percent).

A look at the returns of these stocks shows that the primary reason for the underperformance of the Nifty Bank index is the significant fall in HDFC Bank and Kotak Bank – the worst performers over the past month.

The two banks have a combined weightage of 37.82 percent in the index. HDFC Bank lost 5.78 percent over one month and Kotak Bank lost 7.24 percent over the same duration. State Bank of India, ICICI Bank and Axis Bank also contributed by losing 8.01 percent, 4.23 percent and 1.39 percent, respectively.

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The Nifty Bank index’s underperformance was led by State Bank of India, Kotak Bank and HDFC Bank, which have a combined weightage of 47.71 percent.

Brokerage views

Although the index has underperformed, brokerages have maintained their positive-to-bullish stance on the Indian banking sector.

Motilal Oswal is extremely bullish on HDFC Bank. The brokerage house, in a report dated July 27, gave a ‘buy’ rating to the stock with a target price of Rs 2,070. The firm said it sees “sustainable growth ahead, with the Return on Equity (RoE) to revert to pre-merger levels by FY26E.”

Sharekhan maintained its bullish views on ICICI Bank, giving it a target price of Rs 1,200 in a report dated July 24. The brokerage said that the bank came out with “another strong quarter where deposit growth was seen shining.”

KRChoksey set a ‘buy’ rating on Kotak Bank and a target price of Rs 2,330 in a report dated July 29. It reiterated its bullish stance on the stock owing to “robust deposit growth led by improved traction for the newly launched product.” The report added that “credit growth has remained healthy across all segments.”

Nomura has a ‘buy’ rating on State Bank of India, with a target price of Rs 655. It said in a recent research report that the bank “delivered soft top-line performance, with return on asset (RoA) maintained at 1.2 percent.”

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Morgan Stanley has given an ‘equal weight’ to the stock. The firm reduced its target price from Rs 715 to Rs 670. The brokerage said “asset quality and cap ratios did well, core Pre-Provision Operation Profit (PPoP) was below estimates due to lower net interest margins (NIMs) and higher opex. Funding costs still to catch, we see negative surprise risk to wage hike assumption. RoAs need to moderate from current 1.2 percent levels.”

JPMorgan has an ‘overweight’ call with a target price of Rs 720. The brokerage firm said “profit after tax (PAT) was 12 percent ahead of estimates driven by lower credit costs. Overall operating profit was in-line with expectations.”

Cumulative outlook

Prominent brokerage firms have shown faith in the Indian banking story by raising target prices and giving positive ‘buy’ ratings to most stocks in the Nifty Bank index, that too when the cost of borrowing is near two-decade highs in the global markets. A few more interest rate hikes are likely on the cards, according to US Federal Reserve chair Jerome Powell’s most recent press statements.

It is yet to be seen how resilient the Nifty Bank index will be amid positive anticipation from the brokerages, with inflation still sustaining at higher levels globally and more interest rate hikes expected by the Federal Reserve and the European Central Bank.

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