Bank stocks’ $95 billion rout may deepen on macro risks
Why it matters: A sustained weakness in Indian bank shares could undermine the broader $4.5 trillion stock market, which is already among the region's worst performers.
- Reserve Bank of India's defense of the rupee has tightened financial conditions, impacting banks' liquidity.
- Global investors withdrew a record 327 billion rupees ($3.5 billion) from financial services shares in early March.
- The Nifty Bank Index has lost $95 billion in market value since March, narrowly avoiding a bear market.
- WealthMills Securities' Kranthi Bathini suggests further pressure in the short-to-medium term but notes valuations are becoming attractive.
- Citibank Inc. is prioritizing private-sector banks, believing they are better positioned to absorb macroeconomic stress.
- Jefferies estimates banks could face 50 billion rupees from unwinding currency trades due to central bank directives.
- Fitch Ratings forecasts lenders' net interest margins shrinking 20-30 basis points by March 2027, potentially below its 3.1% forecast.
- Societe Generale SA's Rajat Agarwal expects banks to take a hit on their investment books and questions if recent credit growth will be sustained amid global conflicts.
Indian bank stocks have plunged $95 billion since March, driven by the Reserve Bank of India's liquidity tightening to defend the rupee and fears that a Middle East conflict could derail credit growth. While some see attractive valuations after the correction, others warn of further pressure and shrinking net interest margins for lenders.
