BANK STOCKS FACE BRUNT OF PNB FRAUD
Investors continue to dump state-owned banks; fraud weighs on overall markets as the Nifty erases all 2018 gains
State-owned bank son Monday continued to reel from the alleged multi-billion fraud at Punjab National Bank( P NB) with the Nifty PS U Bank index dropping 2.5 percent to a four month low. The gauge for the performance of PS B sh as dropped 10 percent since last Monday when the ~114- billion fraud at the country’ s second-largest PS B was detected.
PAVAN BURUGULA writes
State-owned banks on Monday continued to reel from the multi-billion fraud at Punjab National Bank (PNB) with the Nifty PSU Bank index dropping 2.5 per cent to a four-month low.
The gauge for the performance of public sector banks (PSBs) has dropped 10 per cent since last Monday when the ~114-billion fraud at the country’s second-largest PSB was detected.
Shares of at least a dozen PSBs have declined 10 per cent or more in the last week, with PNB bearing the maximum brunt. Its shares fell another 7.3 per cent on Monday, extending the one-week fall to 28 per cent.
The fraud has had a ripple effect on other PSBs, with Bank of Baroda’s shares declining 14.6 per cent since February 12. State Bank of India (SBI), the country’s largest public sector lender, lost 7.2 per cent during the period. In the last week, market value of the PSB pack has dropped ~489 billion.
Shares of UCO Bank, too, came under selling pressure on Monday, as the lender in a stock exchange disclosure on Saturday said its Hong Kong branch granted loans against letters of credit issued by PNB. The scrip lost as much as 9 per cent during the session. It, however, recovered some ground in the final trading hours to close 4.5 per cent lower.
Weakness in banking stocks affected the overall market as the benchmark indices lost 0.7 per cent each on Monday despite mixed global cues. The Sensex closed at 33,774, down 236 points, or 0.7 per cent, while the Nifty ended 74 points, or 0.7 per cent, lower at 10,378.
Foreign portfolio investors (FPIs) sold net equities worth ~9 billion, while their domestic counterparts purchased shares worth ~5.8 billion.
Market participants say the PSB stocks will continue to remain under pressure in the near- to medium-term on account of low investor appetite and heightened the risk factor in these stocks. Any further fallout or adverse developments in the case could intensify the selling pressure, analysts said.
“The risk appetite of investors has been low as the aftershocks of the banking fraud continue to send ripples across stocks. The PSBs are likely to remain under pressure due to the current irregularities as investors are taking a wait-andwatch approach until the storm settles. Market volatility may also increase ahead of the derivatives expiry this week,” said Vinod Nair, head of research, Geojit Financial Services.
The weakness seems to be a largely domestic phenomenon as global markets have started recovering from the fall in early February. In the last week, the developed markets have rebounded by more than 5 per cent. Most Asian bourses, too, have performed better than India.
Market participants said Indian equities were witnessing multiple headwinds on account of recent developments such as the fraud at PNB and the reintroduction of the long-term capital gains tax.
“There has been a sharp recovery in global markets, but India has seen huge selling pressure on every rally due to the recent turn of events. The much-awaited revival in earnings growth also seems unclear,” said Devang Mehta, head of equity advisory, Centrum Wealth Management.
Other index losers on Monday included Tata Steel, whose shares fell 5.8 per cent, followed by Dr Reddy’s Laboratories and Adani Ports, which lost 2.7 per cent each. The broader market breadth remained negative with three declines for every advance.