PNB, BoB to SBI: Bank Nifty falls in 7 of last 9 sessions. What’s dragging bank stocks ahead of the US Fed meeting?

The Nifty Bank index has been underperforming the Indian stock market benchmark, the Nifty 50, for the past five sessions. On Tuesday, May 6, the Nifty Bank index fell by 1.18 per cent in intraday trade, while the Nifty 50 declined by 0.33 per cent. Shares of Punjab National Bank (PNB), Bank of Baroda (BoB) and State Bank of India (SBI) declined 2-11 per cent. Last week, the equity benchmark gained 1.28 per cent, whereas the Nifty Bank underperformed with a gain of just 0.83 per cent.

The Bank Nifty has declined in seven of the last nine sessions. After posting strong gains of 7 per cent each in March and April, the index has fallen over 1 per cent so far in May due to profit booking.

Why is Bank Nifty underperforming?

The recent underperformance of the banking stocks could be attributed to the unimpressive earnings of some of the banking majors, such as SBI and Kotak Mahindra Bank.

After better-than-expected earnings from HDFC Bank, ICICI Bank, and Axis Bank, expectations rose for a strong overall performance from the banking sector. However, the Q4 results of other major banks were mixed, triggering profit booking in the sector.

"The primary reason behind Bank Nifty’s recent underperformance is the mixed set of quarterly earnings reported by India’s top banks. While HDFC Bank, ICICI Bank, and Axis Bank posted relatively strong Q4 results, others like SBI and Kotak Mahindra Bank delivered more muted performances. This has led to profit booking in the banking sector," said Prashanth Tapse, senior VP of research at Mehta Equities.

HDFC Bank reported a 6.7 per cent YoY rise in standalone net profit at ₹17,616 crore, compared to ₹16,521.9 crore in the corresponding period last year.

ICICI Bank recorded an 18 per cent rise in net profits to ₹12,629.58 crore in Q4FY25, compared to ₹10,707,53 crore in the same quarter a year ago.

Axis Bank reported a 0.20 per cent YoY decline in its standalone net profit to ₹7,117.50 crore for Q4FY25. In the same quarter last year, the company's profit stood at ₹7,129.67 crore.

State Bank of India (SBI) reported a 10 per cent fall in its standalone net profit to ₹18,642.59 crore, compared to ₹20,698.35 crore in the corresponding period last year.

Kotak Mahindra Bank's net profits fell 14 per cent to ₹3,552 crore due to an increase in the provision for bad loans.

Apart from mixed Q4 earnings, the market's overall cautious sentiment due to the India-Pakistan saga is also weighing on the banking sector.

"Adding to the pressure on the banking sector is a broader sense of caution in the market due to rising geopolitical tensions between India and Pakistan. The Nifty Bank index could retreat to the 53,000 level in the near term. However, if tensions ease significantly, the index may rebound and move towards its recent highs," Tapse said.

On Tuesday, caution ahead of the US Federal Reserve's policy outcome also weighed on banking stocks.

The US Federal Reserve is expected to keep rates on hold. However, if the Fed signals a prolonged period of elevated interest rates, it could influence investors' sentiment towards the banking stocks.  

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