Three years of underperformance when topped by a decline of more than 10 percent decline in stock price which erodes 1 lakh crore in market capitalization is surely going to create sentiment that all is bad with a bank and given it has been the biggest of wealth creators is bound to have rub off on other players in the sectors which may not be bank but because they are part of the financial service sector they tend to get clubbed together. But the fact is that just because one bank is facing headwinds does not mean the whole financial sector is facing the same. So be selective as analysts are bullish on many companies in the financial services space.
After a long phase of three years of consolidation and relative underperformance, there were some initial signs of the private sector banks making a comeback attempt. There have been reasons for their underperformance, right from mega merger which created a technical issue of overhang in shareholding, to changes in the top management. Also the fact that these stocks came in the over owned category of foreign institutional investors, who have been sellers time and again.
After a long phase of three years of consolidation and relative underperformance, there were some initial signs of the private sector banks making a comeback attempt. However the RBI decision to curb unsecured lending, made the sentiment turn against them. But only sentiment, in reality will it make a difference for their long term perspective is a matter of debate with answer titling in favour of NO. After today’s monetary policy one more risk is off the table
It has been more than three years that some of the biggest wealth creators in the private sector banking space have not been able to deliver much to their shareholders. Each one of them had its own set of issues to deal with. One where a big merger was getting planned and executed, others have seen a change at the helm and had to go through a process of shareholding adjustment to meet the regulatory requirements. Is this phase of going through adjustments over and will they get their mojo back.
Financial services sector stocks tend to stay in news for many reasons. Right from regulatory changes which have once again brought limelight on them to global developments impacting the cost of capital, the financial service sector tends to deal with multiple headwinds at the same time. However, given the fact that in a capital starved country like India, some segments of financial services are likely to grow despite all the challenges. So for long term investors, it is more of a matter of patience than anything else.