PSB Stocks Make Merry af­ter Pro­posal for Lower Govt Stake

Shares surge up to 12%, but it re­mains to be seen whether new govt will ap­prove the pro­pos­als

The Economic Times - - Markets & Finance - BISWA­JIT BARUAH

Shares of state-owned banks ral­lied up to 12% on Wednes­day af­ter a Re­serve Bank of In­dia-ap­pointed panel rec­om­mended that the govern­ment bring down its stake in these banks to be­low 50% to im­prove com­pet­i­tive­ness and gov­er­nance. The panel also pro­posed that govern­ment hold­ing in state-owned banks be trans­ferred to a new bank in­vest­ment com­pany and that RBI should act as the sole reg­u­la­tor for these banks. An­a­lysts said in­vestors may turn over­weight on state-owned banks if these rec­om­men­da­tions are ac­cepted. The pro­pos­als can help pub­lic sec­tor banks tide over cap­i­tal con­straints and turn prof­itable, they said. “If the rec­om­men­da­tions are ac­cepted, then there could be a ma­jor re-rat­ing in PSU banks such as SBI, BoB and PNB,” said Pankaj Agarwal, an­a­lyst at Am­bit Cap­i­tal. “While econ­o­mists in the BJP think-tank ap­pear to be in favour of greater au­ton­omy for PSU banks, it re­mains to be seen whether the new govern­ment will bite this bul­let.” Most exit polls have pre­dicted the BJP-led NDA form­ing the next govern­ment at the Cen­tre. Bankex, the Bom­bay Stock Ex­change’s bank­ing in­dex com­pris­ing mainly pri­vate sec­tor lenders, gained 0.31% to 16,256 points on Wednes­day. But shares of most state-owned banks out­per­formed the Bankex. While In­dian Bank surged 12.49% to .` 140, Ca­nara Bank ral­lied 10.68% to .` 333, Cen­tral Bank of In­dia gained 10.37% to .` 61 and Bank of Bar­oda rose 9.22% to .` 958. Lead­ing pri­vate sec­tor lenders un­der­per­formed the state-owned banks. While HDFC Bank fell 1.52% at .` 775, Axis Bank slipped 0.68% at .` 1,638. With grow­ing ex­pec­ta­tions that the re­cently-con­cluded gen­eral elec­tions will throw up a stable govern­ment at the Cen­tre, pub­lic sec­tor banks pro­vide a com­pelling in­vest­ment op­por­tu­nity. The coun­try’s GDP growth is slated to steadily im­prove over the next cou­ple of years af­ter con­tin­u­ous de­cel­er­a­tion for three years. The re­cent RBI mea­sures have also been ac­com­moda­tive for bank­ing ex­pan­sion. Also, for­eign in­sti­tu­tional in­vestors own­er­ship in select PSU banks con­tin­ues to re­main at his­toric lows, which pro­vide fur­ther up­side for these banks, an­a­lysts said.

“Many PSU banks are trad­ing at an at­trac­tive val­u­a­tion of 0.6-0.7 times to their price-to-book value (P/B), and they can be good bar­gain at these lev­els,” said Kunj Bansal, ED & CIO at Cen­trum Wealth Man­age­ment. “PSU bank stocks have gained at­ten­tion in mar­kets as the un­cer­tainty over quar­terly earn­ings is done for now.”

State-con­trolled lenders, which ac­count for more than 70% of In­dia’s out­stand­ing loans, have his­tor­i­cally been un­der-cap­i­talised rel­a­tive to pri­vately-owned peers and this has hurt their lend­ing ac­tiv­ity, but re­cap­i­tal­i­sa­tion of PSU banks is on the cards, an­a­lysts said.

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