Banking Stocks Hammered, Crash To 52-Week Lows; Should You Buy?

Investors have been selling heavily into banking stocks over the last few days, and several of the bluechip banking stocks, crashed to 52-week lows.

ICICI Bank fell to a new 52-week low of Rs 353.10, from levels of Rs 552, hit in the month of December. Bandhan Bank was the worst hit and fell to a new 52-week low of Rs 211, it dropped 17 per cent in trade. Other stocks that got belted were The Federal Bank, which also fell sharply by 7 per cent to a new 52 week low of Rs 54.

Most of the housing finance companies and NBFCs also dropped sharply, including the likes of L&T Finance Holdings. IndusInd Bank is now trading at Rs 556, as against its 52-week high price of Rs 1800. Just imagine the colossal damage in some of these stocks.

Should we buy into banking stocks?

Let's begin to tell you what the worry in banking stocks is all about. If there is a serious economic slowdown, there is likelihood of serious problems of non performing assets. In all these years, banks that engaged in retail lending, that is home loans, car loans, gold loans did exceedingly well, and one of them being HDFC Bank.

Now, with coronavirus chaos, it is highly possible that there could be joblessness and retail loans could see big defaults. Shares of even HDFC Bank have been hammered down in the last few days on fears of worries on repayment of retail loans.

So, honestly speaking banking stocks are not the safest bets currently. Remember, the economy was already slowing down and is likely to slow down even further. In fact, it may take at least a couple of years before there is any meaningful recovery. In the meantime, the Yes Bank episode has left a sour taste and investors are not sure any longer. Some investors are now seeking refuge in very safe stocks like those from the mining space.

For example, some businesses would continue to have business prospects, like Coal India or Indian Oil. You are unlikely to see coal demand fall through the roof, neither are you likely to see any significant slowdown in fuel consumption, which could hit a company like Indian Oil. The dividend yield on these stocks is close to 7 to 8 per cent, which makes them very safe.

At the moment it looks certain that banking stocks have more downside risks. So, it's best to look at businesses that are unlikely to be rocked by the coronavirus. One may want to stay away from banking, aviation and hospitality for sure.