PSB stocks continue to reel after PNB fraud case; drop as much as 10%

Investors continue to dump state-owned banks; Fraud weighs on overall markets as Nifty erases all 2018 gains

State-owned banks continued to reel under the multi-billion fraud at Punjab National Bank (PNB) with 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 Monday when the Rs 114-billion fraud at the country's second-largest PSB came to light. Shares of at least a dozen PSBs have declined 10 per cent or more in the past one week, with PNB bearing the maximum brunt.

Its shares fell another 7.3 per cent on Monday, extending one-week fall to 28 per cent. The fraud has had a ripple effect on other PSBs with Bank of Baroda shares falling 14.6 per cent since February 12. State Bank of India (SBI), India's largest public sector lender, lost 7.2 per cent during the period. In the past one week, the market value of the PSB pack has dropped by Rs 489 billion.

 

Shares of UCO Bank too came under the 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 nine per cent during the session, however recovered some lost ground in the final trading hours to close 4.5 per cent lower.

Weakness in the banking stocks also impacted the overall markets 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 Nifty ended 74 points or 0.7 per cent lower at 10,378. Foreign portfolio investors (FPIs) net sold equities worth Rs 9 billion, while the domestic institutions purchased shares worth Rs 5.8 billion.

Market participants say the PSB stocks will continue to remain under pressure in near to medium term on account of low investor appetite and heightened risk factor in these stocks. Any further fallout or adverse developments in the case could intensify the selling pressure further, analysts say.

"Risk appetite of investors has been low as the aftershock of banking fraud continues to send ripples across stocks. PSBs are likely to remain under pressure due to the current irregularities as investors are taking a wait and watch approach until the storm settles. Further, market Volatility may also increase ahead of 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 early February fall. In the past one week, the developed markets have rebounded by more than five per cent. Most Asian peers too have performed better than India.

Market participants say Indian equities are witnessing multiple headwinds currently on account of recent developments such as PNB episode and reintroduction of long-term capital gains tax.

 

'There has been a sharp recovery in the global markets, but India has seen huge selling pressure on every rally due to the recent turn of events domestically, one after another. The much-awaited revival in earnings growth also looks unclear currently," said Devang Mehta, head of equity advisory, Centrum Wealth Management.

 

Other index losers on Monday, included Tata Steel, who shares fell 5.8 per cent followed by Dr Reddy's Laboratories and Adani Ports, which lost 2.7 per cent each. Even the broader market breadth remained negative with three declines for every advance.