Nifty financial service stocks including banks: Challenges have been a part of growth trajectory, 6 stocks

There have not been many instances where one would have seen PSU banks strongly out performing the private banks. But we have seen a divergence in recent times. This probably is a reflection that finally the street has realized that it is wrong to paint all the companies in the banking sector with the same brush. It is even more true for the other parts of the financial service sector with the same brush. While they come under the umbrella of the BFSI, the operating matrix of each segment of financial service is very different and hence it is extremely important to have a look at segments with different lenses. The only common thing which binds the financial service sector is the GDP growth rate as the growth in all segments have a certain well defined relationship with growth in GDP.

On days when global markets are under pressure, nifty is showing signs of out performance. After opening lower, it is able to inch upward and market breadth also improves gradually. A number of times this up move is led by financial service and bank stocks which are announcing their Q4 result. We take a look at what analysts are saying for select financial service stocks.

Sustained sectoral growth, accounting for around 60% of overall output, indicates India's economy will continue to outpace many of its major peers over the coming quarters.

As a sector, metal is one of the most challenging ones, not only for investors but even for the promoters running it. Right from the demand matrix of the actual product, another big part of the equation is currency. Right from how the US dollar will pans out to how other cross currencies equations impact the bottomline. Last but not least, metal stocks have a strange relationship with financial ratios, when they appear cheap based on some ratios they are actually expensive and vice-versa. At this point of time, if one looks at the news flow, it is largely negative for the sector. Probably a time for contrarian bet with a hedge.

One change for making higher provision for unsecured loans and we see all the NBFC stocks tumbling. The short term reaction of the street is a mix of two things. First the technical position in the markets, whether the stock or sector has seen a recent runup or not and secondly emotional one without understanding the working of a sector or a company. Sometimes these short term reactions are opportunities as the macro picture of the sector is far better and stronger as compared to what is being perceived in the short term due to one action or the newsflow.

Besides the hit which nifty and sensex have taken, what is more important is that there are more declines than advances and that is largely due to market breadth in the mid-cap segment. This is indicative of continued profit booking happening at the broader market level. At this point of time, one cannot rule out more profit booking which can bring more damage to stock prices in the mid-cap segment. In such times, if one is taking fresh exposure to equity, ensure that there is some level of quality as far as the business and fundamentals are concerned. These selected stocks depict a strong upward trajectory in their overall average score which is based on five key pillars i.e. earnings, fundamentals, relative valuation, risk and price momentum. This implies that there has been a significant improvement in their market outlook in the given time frame.

Financial sector stocks are the preferred pick of institutional investors. The reason, some of them can also act as a proxy for GDP growth. After a gap of two months, September and October, FPI have been net buyers in the month of November and till date in December. After a phase of under performance, there are first signs of some of them making a comeback attempt. We take a look at stocks from this sector where one valuation matrix meets the criteria for investing for the long term.

In the last many months when IT stocks came under pressure it was financial service stocks including banks which have been able to help the nifty recover. On days when global markets are under pressure and the nifty is showing signs of out performance. A number of times this up move is led by financial service and bank stocks. We take a look at what analysts are saying for select financial service stocks.

In the last one week, not even one sector has been spared by bears, they were seen across the street. It is time like this that one needs to look at the relative performance and before taking any buy or sell decision one simple question should be asked. The question is that a sector which was doing well when the news about higher GDP growth and other macro numbers were coming, has suddenly corrected, is there something changed for the sector or not. Because if some negative development has taken place in the operating matrix of the sector then it is time to sell, but if nothing wrong has happened to factors which determine the bottomline then why panic and sell. What impacts the operating matrix of the banking sector ? It is the overall economic growth. Banks provide the lifeline of capital to all the sectors which form part of any economy, whether it is retail loans or corporate loans. So when these sectors do well, banks have a higher credit growth. Is there any indication that economic growth is going to come down, not at all. So, let the trader react, not the investor.

In the last four years of bull run, among the PSU space, defence was the first sector to see a re-rating, infact it was the sector which led back the resurgence of the PSU space which was then followed by railways and then NBFCs which are lending to particular sectors. Now the fact that the defence stocks have run up sharply and sitting with gains, questions are bound to come on whether they have priced all the positives or not. A part of the answers lies in looking at how the stock behaved in recent times and whether the macro operating picture of the sector has changed or not. On the price front, in the corrective move of March, after initial correction due to profit booking, some of the defence stocks have once again moved upward and are quoting close to all time high, indicating demand for the paper from this sector. On the fundamental front, the operating matrix is better and probably it is one of the sectors where the continuation in policy making will have the biggest positive impact.