Bullish on the Banking & Finance sector stocks

what are the positive effects of RBI repo rate cut on the overall financial sector ? & why I am bullish on banking & finance sector stocks

Let me show you how, In nifty 50 index, there are total 14 various sectors but out of these 14 sectors, Top 5 sectors which includes Financial services ,IT, Oil & gas, FMCG, Automobile contribute to 80% of the index weight-age. Banking & Financial sector is having highest weight-age of 37.40%

We will be discussing about the  Finance sector which have the potential to 2x your returns within 1 year as the Bank Nifty is trading at a valuation of 15 PE which is the lowest ever valuation in last 5 years. If we talk about the median PE which stood at 23 level.

Bank Nifty-PE Ratio

2x Returns in 1 year

Bank Nifty has not achieved it Pre-COVID level of 70 PE even after all the banks are sitting at highest ever revenues, highest ever net profit. So what’s wrong in the Bank Nifty ?

Why many banking stocks are trading at a lower valuation ?

In order to answer this question we have to look into the RBI Repo rate & US FED rate as both are interconnected.

United States FED Funds Interest Rate

If we look at the United State Fed Funds Interest rate it is currently at level of 5.5. when we look at the past two years data, the Federal Reserve has raised its benchmark rate 11 times in an effort to cool inflation.

RBI Repo Rate Cut 2024

When we look at the RBI Repo rate it is currently at a level of 6.5. The term Repo Rate is the interest rate at which the central bank of a country lends money to commercial banks.

US FED & RBI repo rate cut news

In USA, As the dow Jones closes at record high after FED signals that it will cut interest rate three times in a year as the inflation continues to fade. Currently interest rate stands at 5.5% & the Fed will lower the interest rates under 3% as per the UBS chief economist

If Fed cuts the interest rate in 2024 so the RBI is likely to cut the REPO rate. Currently Repo rate stands at 6.5% & As per the Deutsche Bank report RBI is likely to cut down the repo rate by 100 bps which means by 1% in 2024, so that the effective new Repo rates will stand at 5.5%

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Effect of REPO rate cut in Banking & Financial Sector ?

• Banks will afford more borrowings
• Taking a loan will become cheaper
• Purchasing Power will increase
• Increase in the Home Loan & Personal Loan
• Profit increase in Banking & Finance Sector

Since COVID 2020 Indian Government has been reducing the interest rate in first 1 year till 2021, But later on as the inflation goes on higher end in order to curd the inflation RBI starts increasing the REPO rate as it follows the US FED rate.

As soon as the US FED will starts cutting down the rate it is high possibility that RBI will also reduce the interest rate & based on that factor I have mentioned the every possible scenario that can happen

What  should investors do ?

I think investors should not wait when the RBI will announce & then later on they will start investing in the Banking, Finance & IT sector stocks because till then market could give good run up in these sectors

If you the patience & confidence in the Indian Banking system you can go & invest in the Blue Chips Banking sectors stocks as most of them are trading at their lowest ever valuation though these banks have double their revenues & net profit in the span of 4-5 years & still stocks are trading 3 years old price level.

Banking & Finance sector stocks will definitely give break out in coming months & so that a wise investor can have good stocks in the portfolio.

Check Out- Aavas Financiers Hit 52 week low

Disclaimer

This article is a complete guide about Banking & Financial Sector .
These information and forecasts are based on our analysis, research, company fundamentals and history, experiences, and various technical analyses.
Also, We have talked in detail about the share’s future prospects and growth potential.
Hopefully, this information will help you in your further investment.
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