Mumbai– Banking and financial sector stocks will be in focus throughout rest of the trade week as the Reserve Bank commenced its Monetary Policy Committee meet on Wednesday.

According to analysts, these sectors have performed well, of late, and investors are hopeful of a further upside in their stocks.

However, high valuations along with volatility-induced selling pressure might cap their gains.

“All the banking and NBFC stocks have performed pretty well over the last 2 months and ‘Bank Nifty’ has appreciated by almost 40 per cent,” said Guarav Garg, Head of Research, CapitalVia Global Research.

“However, the sector is still looking strong and any dip should be considered a buying opportunity. Lower interest rates along with demand amy help in improving the books. But commentary from RBI Governor Shaktikanta Das is what retail investor should look for.”

According to Vinod Nair, Head of Research at Geojit Financial Services: “Banks had rallied well in the recent period due to cheap valuation. It also triggered concerns like weakening asset quality, moratorium problem and low credit growth as economy opened.”

“Finance sector reported better operational performance in Q2FY21, and better credit growth is expected in 2021. The biggest challenge was bad loans, for which the outlook is getting better with regulatory support from the RBI and the government.”

Still, he pointed out that NPA level is expected to be high for the next 1-2 years.

“Due to standstill benefits from the RBI, banks didn’t recognise further slippages in Q2FY21, but in the next 2-3 quarters the NPAs can rise. After the recent rally, banks are not as cheap; still on a medium to long-term basis it is a good buy though consolidation can happen in the short-term,” Nair said.

“Banks have significantly strengthened their capital during the last few months which is expected to aid further growth in the business.”

The RBI’s MPC will release its final resolution on the monetary policy for the calendar year 2020 on December 4.

Besides, investors expect the Reserve Bank’s MPC to hold rates in veiw of elevated inflation levels and economic activity. (IANS)