The outlook for the banking and energy sectors is optimistic in the context of economic growth prospects

The positive outlook for the energy and banking sectors, which led to the recent rally in benchmark indices, is expected to continue on the back of significant stimulus provided in the budget aimed at boosting manufacturing activity in the country.

BSE Bankex rose 8 per cent to 60,444 on Thursday as against 55,998 in April. Similarly, BSE Energy index rose 5 per cent to 12,957 on Thursday as against 12,384 in April.

The demand for electricity has increased significantly due to the use of cooling equipment and air conditioners in extreme heat conditions.

Increase in energy consumption

Power consumption in June rose 9 percent to 152.4 billion units (BU) compared to 140.27 BU recorded during the same period last year. Peak demand reached 250 GW in May, exceeding last year’s peak of 243 GW recorded in September 2023.

Peak energy consumption is expected to reach an unprecedented 260 gigawatts by October this year. Given the rampant economic activity, the government predicts the country’s peak energy demand will reach 400 GW by 2031-32, surpassing the earlier forecast of 384 GW.

The banking sector is also well-positioned to benefit from the coming private capex cycle, with the gross non-performing assets ratio at 2.8%, the lowest in many years, and the net non-performing assets ratio at 0.6%.

Nuvama expects credit growth in the banking sector to continue, with most lenders reporting quarter-on-quarter growth, leading to an increase in the loan-to-deposit ratio in the banking sector.

Credit growth

Even on a seasonally adjusted basis, private sector credit growth has increased by 2-5 per cent QoQ and for PSU banks by 1-3 per cent. PNB is forecasting credit growth of over 3 per cent QoQ. HDFC Bank, IDFC First and Bandhan Bank may not see an increase in LDRs due to their already high base.

Arvinder Singh Nanda, senior vice president at Master Capital Services, said the country’s energy consumption grew by 6.5 per cent last year, mainly due to rising energy demand amid economic growth. The trend underscores the opportunities in the energy sector, tempered by market dynamics and policy changes.

Effective management of non-performing assets in the banking sector and ensuring sustainable credit growth are key determinants of the stability and resilience of the banking industry, he added.

He added that a balanced strategy that combines rigorous risk management and continuous market assessment is key for stakeholders navigating a complex and changing market landscape.