‘Banking, NBFC stocks to continue rally in 2021,’ says Yes securities. Top picks


2020 has been an eventful year for the stock markets. The Nifty witnessed a V-shaped recovery post a 40% correction, on the back of a host of positive news flow. From the lows of 7,610 level hit in March this yer due to nation-wide lockdown, the index is up 78%. Financial stocks reflected similar trend. The year started off with investors’ optimism on growth and asset quality, these expectations got punctured by Covid which induced unprecedented fear and panic, and towards the end saw such concerns dissipating. Nifty Bank index fell 48% in Jan-March period due to covid led lockdowns. Since then, the index has recovered 80%.

The stocks behaved in a similar fashion, but interestingly some large private banks and NBFCs/HFCs with resilient business models (robust customer segment, underwriting, collections and distribution) have either surpassed or are trading near their pre-Covid price levels.

“The likes of HDFC Bank, Kotak Mahindra Bank, ICICI Bank, HDFC, Bajaj twins and Cholamandalam Finance have led the recovery in financial sector stocks. The second rung banks and NBFCs/HFCs are still trading significantly below their pre-Covid prices with lingering uncertainty on asset quality outcomes Sustained economic recovery, improving income scenario for salaried and business class, instrumental liquidity interventions by RBI and Government, and a low interest rate represents a conducive business backdrop for lenders,” says Rajiv Mehta, Lead Analyst – Institutional Equities, Yes Securities.

Mehta believes the rally and recovery in stock prices should continue in 2021. However, in the first half of the year it may remain dominated by the above-mentioned strong lenders and then followed by a steep catch-up of mid and small sized financial companies who can demonstrate asset quality resilience to Covid.

“In our coverage, we believe HDFC Bank, ICICI Bank, RBL Bank, Mahindra Finance, Repco Home and Spandana could be strong performers of 2021,” says Mehta.

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