Q2FY20: Banks lead the revival, stocks rise as much as 12 per cent since October

The earnings season for Q2FY20 is at its peak and we already noticed some sectors, showing signs of recovery after prolonged sluggish growth numbers. The results of the banking sector for the second quarter, in particular, have given strong pull back signs. For example, ICICI bank reported a decline of 37 per cent provisions and contraction of 217 bps in gross NPAs.

The sector faced serious issues of bad loans and slow credit offtake in recent few financial years. The higher toxic loan book led to huge provisioning, which resulted in net profit erosion in many banks, irrespective of them being in public sector or privately held. However, the recently-concluded second quarter of the current fiscal did demonstrate recovery on many fronts. Private banks showed a mixed trend during the quarter under review. The biggest positive came on the account of the improved asset quality. Banks like ICICI Bank, Dhanalaxmi Bank, Axis Bank, Bandhan Bank, and AU Small Finance Bank, displayed a declining trend in NPAs.

In case of public sector banks, SBI came up with a robust result for the Q2FY20. The improvement in asset quality and strong growth in advances are the biggest takeaways from this quarter, when compared to the same quarter in the last fiscal. Average advances of public sector banks increased around 4.5 per cent during Q2FY20, with Indian Bank clocking the highest growth of 15 per cent in advances.

In CY19, the banking sector was one of the major wealth destroyers. On the whole, this sector gave negative returns of 19 per cent on year-to-date basis. Together with a few PSUs, such as Indian Bank and Corporation Bank, some of the private banking players, such as Yes Bank and Lakshmi Vilas Bank, fell as much as 43 per cent to 83 per cent since January 2019 till date. Though, with signs of recovery after recent results, these stocks have shown a strong revival. Since the start of the result season on October 10, 2019, the set of banking stocks have given 12.5 per cent returns to the investors, beating the Sensex, which grew by 6.25 per cent during the same period.