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Foreign Funds Spark Rally in Smaller Banks
28 Nov
Summary
- Foreign investors are significantly boosting stakes in mid and small-sized banks.
- Blackstone and Warburg Pincus made substantial investments in Federal and IDFC First Bank.
- Smaller South Indian banks trade at lower valuations despite near 52-week highs.
Investor attention on Dalal Street is increasingly focusing on mid and small-sized banks, spurred by significant foreign investments. Global giants like Blackstone have invested nearly ₹6,197 crore in Federal Bank, while Warburg Pincus injected approximately ₹4,876 crore into IDFC First Bank, as part of a larger capital infusion. This surge in interest is further amplified by recent GST cuts and RBI initiatives aimed at boosting lending.
Several South Indian banks, including The Karnataka Bank, City Union Bank, and The Karur Vysya Bank, are trading close to their 52-week highs. However, their valuations remain considerably lower than leading private banks like Kotak Mahindra Bank. This discrepancy presents an attractive opportunity for investors seeking growth at a more accessible price point. The banks are also benefiting from measures designed to stimulate lending across the financial system.
While some banks face temporary pressure on Net Interest Margins (NIMs) due to falling interest rates and a higher tax burden, others like City Union Bank and The Karur Vysya Bank demonstrate robust loan growth, particularly in gold loans. Their net profits have seen year-on-year increases, showcasing resilience and effective capital utilization, with promising returns on assets.
