Why Investors Are Dumping Auto Stocks And Buying Banking Stocks?

The Sensex is just a couple of per centage points away from record highs. The markets this time round have largely been driven by the heavy weightage banking stocks. In fact, investors are moving away from and making a shift from auto and IT to banking stocks.

Why banking stocks?

There finally seems to be light at the end of the tunnel. For years banking stocks have been plagued by worries of non performing assets. Finally, it seems banks have got their act together, especially the PSU banking names.

Banks like PNB are aggressively working on recoveries, while ensuring that stringent norms are adopted while lending. At the same time, some of them are selling assets to ensure that they focus on their core business. It is likely that most government banks would return to profitability in the next few quarters. Also, some of the existing blue chip banking stocks are being constantly bought into by Foreign Portfolio Investors.

Auto stocks hit

On the other hand auto stocks are being constantly hit, as sales continue to slow. Maruti, Hero Motor Corp and Eicher Motors were among the stocks that fell on Tuesday. In fact, some of these stocks are just a few per centage points from their 52-week lows, while the benchmark indices are just a few per centage points away from their 52-week highs.

It is unlikely that we will see auto stocks recovering very quickly. However, some stocks like Hero Motors Corp offer a good dividend yield of close to 3.5 per cent, which is as good as the returns one would get in the savings bank account.

Should you buy banking stocks?

Banking stocks have now run their course. Stocks like ICICI Bank are at new 52-week highs and record highs. HDFC Bank and IndusInd Bank too have moved higher. Even select PSU banking stocks like PNB have run-up too fast.

The one stock that is still languishing is IDBI Bank and that is to do largely with such high level of NPAs. Investors would have to exercise some caution and wait patiently to make returns from stocks like IDBI Bank. It is therefor important to exercise some caution before you buy. It is important to remember that the Bank Nifty is now at a record high, even as weakness persists in the broader market.

Be selective

It would be a good idea to be selective in the financial space. Some stocks like IndiaBulls Housing looks attractive because of their dividend yields. For example, the shares offer you a dividend yield of 6 per cent, which is tax free upto Rs 10 lakhs. The company is looking to grow at 15 to 17 per cent in 2019-20, which is not bad, considering the liquidity issues that NBFCs have been going through.

Some stocks from the metal space like Graphite India also look attractive, with a dividend yield of near 4 per cent. These are stocks that you could buy and hold for the long term. In any case, be patient and do not chase stocks at a high price on fears of being left out.