Bucking the trend in the broader market, Nifty Bank rose 0.23 per cent today as analysts remain bullish on bank stocks.
Among Nifty Bank constituents, Punjab National Bank, Bank of Baroda, AU Bank, and Bandhan Bank rose in the range of 1-7 per cent. State Bank of India was up 0.07 per cent.
Market observers said investor sentiment on bank stocks has got a boost as lenders have put up an impressive show in earning numbers in the July-September period of this financial year.
"We remain positive on banking stocks fundamentally. In the medium term, operating metrics are likely to be strong," said Hemali Dhame, associate vice president and head of research at Kotak Securities.
He was, however, quick to caution that some of the positives, such as healthy loan growth and better asset quality, have been factored in from an immediate near-term perspective, and therefore any surprises would weigh on prices.
"Most banks in the management calls are guiding for high loan growth, driven primarily by retail and SME segments. The corporate segment has also shown early signs of loan growth," said Sharad Chandra Shukla, director, Mehta Equities.
Rahul Sharma, head of research at Equity 99, also sounded positive about bank stocks. "Nifty Bank looks well positioned for more upside and will also witness higher levels in the coming time. Buying thrust in banking stocks endures with quality July-September earnings. Bad loans are stablising which will lead to improving operating margins."
SBI has delivered a good performance on the ground compared with its peers in terms of easing concerns about bad loans, he added.
Banks had strong loan growth in the July-September period and showed an improvement in net interest margins-- - the difference between interest earned loans extended and interest paid to depositors.
"Asset quality has improved, and credit cost is low. Capital expenditure is showing signs of improvement," said Sharad Chandra Shukla.
The loan growth shows a much faster pace than the deposit growth and therefore the big challenge for banks is growing deposits without impacting net interest margin.
For state-owned banks, which in the past bore the brunt of bad loans, the capital ratios are not a matter of concern anymore, said Sharad Chandra Shukla. Capital adequacy ratios are measures that help ensure depositors' money is safe.
"The overall operating metrics such as asset quality, growth and net interest margin are favorable, at least for the near term," said Hemali Dhame.