learn more about banking stocks

Learn more about Banking stocks

Introduction:-

Did you know that Warren Buffett, the billionaire investor, considers bank stocks a must-have in your investment portfolio?

Banks are the lifeline of an economy. If they suffer, the economy suffers. The pandemic has induced instability and volatility in the banking sector globally. Banks had huge non-performing assets; their corporate structure had to be aligned, and much more. Thus, Nifty Banks was labelled as an underperformer in 2021.

However, now, the banking sector is slowly making a rebound. With banks improving asset quality and increasing proposals for investment credit, the year can see a better performance of banking stocks. This rebound has even made bank stocks one of the hottest picks for 2022.

Let’s understand these stocks in detail.

What are the pros and cons of investing in banking stocks?

Though the economy is recovering, and the banking sector is showing signs of improvement, you must evaluate if this sector is suitable for you.

Following are the pros and cons of investing in banking stocks:

Advantages of investing in banking stocks

● Heavily regulated by the government

● More transparency

● Lower risks due to strict regulations related to minimum capital, and more

Disadvantages of investing in bank stocks

● Sensitive to recessions

● Increase in non-performing assets with borrowers defaulting

● Dependency of profits on interest rates

How to analyze banking stock?

Now, before investing in any stock, you must perform thorough research. The following are some parameters you should evaluate before investing in a banking stock :

● Interest Income

● Net Interest Margin

● Return on Assets

● Net Profit

● Return on Equity

● Advances

● Deposits

● The ratio of deposits in Current and Savings accounts to Total Deposits

● Non-performing Assets

● Capital Adequacy Ratio

● Provision Coverage Ratio

Top banking stocks in the country

Here is a list of some top-performing bank stocks in the country for you to consider

  1. Axis Bank

Why invest:

● By acquiring the U.S.-based Citi Consumer business, one of the largest deals in financial services, the company will compete with its peers like ICICI in the credit card and retail business.

● Compared to the 2% rise in Nifty Bank Index, shares of Axis banks have outperformed by 10% in 2022 (YTD).

  1. HDFC Bank

Why invest:

● With the huge merger of HDFC Ltd, India’s largest housing finance company, and HDFC Bank, India’s largest private lender, it is one of the top picks among bank stocks.

● The combined market capitalization has gone up to Rs 14.22 lakh crores, and the share prices of both have appreciated.

In a nutshell

Hopefully, after reading the above article, you will have a better knowledge about investing in banking stocks. With attractive evaluation and lower credit costs, the banking stocks are gearing towards reversing their underperformance in 2021. However, investors must still exercise caution and do thorough research. Beginners can also take the help of industry experts like AsthaTrade. They offer easy-to-use investment tools as well as technical research and professional backed guidance on your investment portfolio.

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