India’s Banking Sector steps into dancing shoes amid COVID-19

The enticing elements of Banking Stocks that reap short-term returns.

The Banking Stocks in India stepped into their dancing shoes as India entered the fears of Coronavirus followed by the lockdown imposed in March 2020. These stocks have remained highly volatile amidst the uncertainty that floated in the market for investors. This made these stocks ideal for retail investors to pursue short-term investments and intra-day trades.

Nifty Bank Index along with Banking stocks remained thoroughly volatile during March and April. The Bollinger Bands as charted on the Nifty Bank graph showed a whopping range of ~ +/- Rs. 8000 which is far higher (more than double) from the ranges from January until March.

Although, the recent Parabolic SAR indicates bearish trends in these equities due to the rapid increase in the COVID-19 cases in India intertwined by the lowest business sentiment in 3 years.

Nifty Bank (July 16, 2020)
HDFC Bank (July 16, 2020)- Beta: 1.0839
Kotak Mahindra Bank (July 16, 2020) – Beta: 0.9337
ICICI Bank (July 16, 2020) – Beta: 1.4652

While a lot of veteran investors and institutions longed in banking stocks during mid-April and late-April when these stocks hit their lows, some Institutional Banks identified an ideal opportunity to reconsider their portfolios. Jefferies replaced HDFC Bank with Kotak Mahindra Bank given the vision of promoters about recapitalisation plans. Moreover, with Kotak Mahindra Bank’s Beta of less than 1, the stock volatility is relatively low, thus ideal for a long-term safe investment.

On the other hand, the retail investors have essentially taken advantage of high volatility simply by playing on the intra-day trades. Intra-day trading is an ideal choice given the volatility that these stocks bring in the market. This allows for the room to gain hefty one-day profits if traded in adequate amount. Therefore, retail investors do not have to necessarily rely on parking their limited capital in long-term investment to reap high profits. The popularity of these stocks is evident by their sudden rise in the traded quantity.

The traded quantity of HDFC bank’s shares in the market, for instance, has significantly increased post-COVID-19. The traded quantity saw a consistent increase post-March 2020 as compared to the 2019 figures in the graph. The 30-day average of HDFC Bank’s traded quantity nears 18 million.

The rise in intra-day trades is evident by the significant drop in the deliverables % during Coronavirus.

Source: Money Control

Therefore, the short-term retail investors’ momentum is inclined towards investing in the Banking Sector, especially in intra-day trades. Although, given the current concerns caused by Coronavirus, banks are safeguarding themselves.

Banks in India are gearing up for COVID-19’s consequences to unfold in the due time. These banks are raising additional capital during the Pandemic through share & bond issues. This is in response to the repercussions of COVID-19 and its potential consequences to the business world.

Thus, the recapitalisation move by Banks, enforced by India’s Central Bank, is also lauded by the investors, at least for the short-term. Only time will tell how much Coronavirus damages the Banking Industry. Though, from the current economic projections, it is unlikely for banks to regain Pre-COVID levels within a year — however, the optimism around vaccine development brims a ray of hope.

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