NIFTY Bank surges nearly 500 points, hits record high; here is what JPMorgan says on banking sector

The measure of 12 banking stocks on the National Stock Exchange (NSE), NIFTY Bank index, rose as much as 479 points or 0.81% to hit a record high of 58,996 on Monday, November 17, data from the NSE showed.

All the 12 banking stocks in the NIFTY Bank index were trading higher paced by AU Small Finance Bank's 2.5% gain. Canara Bank, Punjab National Bank, Kotak Mahindra Bank, IndusInd Bank, Axis Bank, IDFC First Bank, Federal Bank and Bank of Baroda also rose between 0.74-2.39%.

Banking stocks have been witnessing buying interest after they reported stable set of earnings in the second quarter of current financial year.

Private banks like HDFC Bank, ICICI Bank and Kotak Mahindra Bank posted 4%-7% growth in net interest income. Meanwhile, Axis Bank posted a modest net interest income growth of 2%. On the other hand, the public sector banks, like State Bank of India, Canara Bank and Bank of Baroda, posted 2-4% YoY growth in net interest income. However, on the bottom-line front, lower provisioning led to superior profitability growth for public sector banks at 8.5% versus -0.2% YoY growth for private sector banks.

HDFC Bank and ICICI Bank posted 10.5% and 5.2% YoY net profit growth, respectively, while Axis Bank posted a 26% YoY decline in the same period. At the same time, SBI and Canara Bank reported 8-10% net profit growth. All the major public sector banks like SBI, Canara Bank, Bank of Baroda posted greater than 10% credit growth during the quarter, while ICICI Bank, HDFC Bank, Axis Bank posted credit growth in the range of 9-12%.

JPMorgan view on banks

Global investment bank JPMorgan in a note said that it believes banks stand at a positive inflection point, with sector return on assets (RoAs) set to expand and earnings growth to accelerate over the next three years.

JPMorgan said that the second quarter earnings mark a turning point in the RoA trajectory, with net interest margins (NIMs) bottoming out and expect an 8 bps RoA expansion for the four large private banks in the second half (vs 2QFY26) and 24 bps over the next two years (2QFY26-28). We expect cumulative net profit growth to accelerate to a 17% CAGR over FY26-28, up from 8% in the prior two years, driven by NIM expansion and operating leverage, while asset quality trends remain benign.

It expects banking sector re-rating driven by RoA inflection on stabilizing and expanding NIMs and accelerating loan growth as credit demand recovers.

As of 1:26 pm, NIFTY Bank index traded 0.74% or 428 points higher at 58,945, outperforming the NIFTY50 index which was up 0.3%.