 "FIIs cut stake in PSU banks in September quarter")
Foreign institutional investors (FIIs) have cut their stakes in frontline public sector banks (PSBs) such as State Bank of India (SBI), Bank of Baroda (BoB), Punjab National Bank and Bank of India for the quarter ended September 2015, the shareholding pattern data shows.
This is the third straight quarter when the overseas investors have reduced their exposures in PSBs. A total of 12 public sector banks that have thus far disclosed their September quarter shareholding pattern data, which reveals that FIIs stake in nine banks declined by up to two percentage points, while in Central Bank of India, their holding remains unchanged.
In Dena Bank and IDBI Bank, FIIs have increased their stake during the recently concluded quarter, data show. Their holding in SBI, however, declined by 1.17 percentage points to 10.37 per cent in the September quarter from 11.54 per cent in the June quarter. They held 11.72 per cent and 11.95 per cent stake in SBI at the end of March 2015 and December 2014 quarter, respectively.
On the other hand, their stake in BoB has reduced 1.5 percentage points to 12.04 per cent in September quarter. They held 17.96 per cent stake in the bank at the end of December 2014 quarter.
Explains Mayuresh Joshi, Fund Manager (PMS), Angel Broking: “What has happened in the September quarter has a lot to do with the earnings visibility of a lot of these banks. If we compare the PSBs with the private sector banks, the investment argument is still favouring the private sector banks in terms of earnings visibility, asset quality and capital adequacy. While the asset quality may remain stable for banks, their exposure to steel, infrastructure, metals, gems & jewellery and real estate sectors is a concern, as these sectors still need to come out of their structural downturn.”
“Given this, the earnings may not improve drastically. Private banks offer some comfort on these three parameters of earnings visibility, asset quality and capital adequacy. We cannot generalise whether the FIIs will pare stake in the banking sector as a whole, but it is a stock / company specific thing in my view. If the PSBs are able to report stable numbers for the next few quarters, one can expect a rerating in these counters,” he adds.
A sharp sell-off by FIIs in PSBs saw the CNX PSU Bank index, a gauge of PSB banks, had declined by 25 per cent compared to 1 per cent fall in the CNX Nifty thus far in 2015.
Asutosh Kumar Mishra of Reliance Securities expects PSU Bank stocks to consolidate in the near-term and prefers SBI, Canara Bank and Indian Bank as they are better placed to take advantage of the current scenario.
"Valuation multiples of PSBs are still far below their historical average. This is primarily due to the higher degree of uncertainty on their asset quality and operating performance, which will continue to linger despite implementation of project “Indradhanush”. Latest reform measures undertaken are aimed to address the key structural problems faced by the PSBs but the effects of the same will not be felt soon and may show positive signs over the next two years only. Meanwhile, return ratios and asset quality of PSBs will remain under stress for the next few quarters,"he says.
Aalok Shah, an analyst tracking the sector with Centrum Broking, too, prefers well-capitalised and/or operationally improving banks like Axis Bank, ICICI Bank and SBI.
"In the mid-cap space, we remain positive on J&K Bank. In the context of stable earnings, we believe valuations for City Union Bank and DCB Bank appear stretched; thus, we retain a hold rating on these stocks," he says.
This is the third straight quarter when the overseas investors have reduced their exposures in PSBs. A total of 12 public sector banks that have thus far disclosed their September quarter shareholding pattern data, which reveals that FIIs stake in nine banks declined by up to two percentage points, while in Central Bank of India, their holding remains unchanged.
In Dena Bank and IDBI Bank, FIIs have increased their stake during the recently concluded quarter, data show. Their holding in SBI, however, declined by 1.17 percentage points to 10.37 per cent in the September quarter from 11.54 per cent in the June quarter. They held 11.72 per cent and 11.95 per cent stake in SBI at the end of March 2015 and December 2014 quarter, respectively.
On the other hand, their stake in BoB has reduced 1.5 percentage points to 12.04 per cent in September quarter. They held 17.96 per cent stake in the bank at the end of December 2014 quarter.
Explains Mayuresh Joshi, Fund Manager (PMS), Angel Broking: “What has happened in the September quarter has a lot to do with the earnings visibility of a lot of these banks. If we compare the PSBs with the private sector banks, the investment argument is still favouring the private sector banks in terms of earnings visibility, asset quality and capital adequacy. While the asset quality may remain stable for banks, their exposure to steel, infrastructure, metals, gems & jewellery and real estate sectors is a concern, as these sectors still need to come out of their structural downturn.”
“Given this, the earnings may not improve drastically. Private banks offer some comfort on these three parameters of earnings visibility, asset quality and capital adequacy. We cannot generalise whether the FIIs will pare stake in the banking sector as a whole, but it is a stock / company specific thing in my view. If the PSBs are able to report stable numbers for the next few quarters, one can expect a rerating in these counters,” he adds.
A sharp sell-off by FIIs in PSBs saw the CNX PSU Bank index, a gauge of PSB banks, had declined by 25 per cent compared to 1 per cent fall in the CNX Nifty thus far in 2015.
Asutosh Kumar Mishra of Reliance Securities expects PSU Bank stocks to consolidate in the near-term and prefers SBI, Canara Bank and Indian Bank as they are better placed to take advantage of the current scenario.
"Valuation multiples of PSBs are still far below their historical average. This is primarily due to the higher degree of uncertainty on their asset quality and operating performance, which will continue to linger despite implementation of project “Indradhanush”. Latest reform measures undertaken are aimed to address the key structural problems faced by the PSBs but the effects of the same will not be felt soon and may show positive signs over the next two years only. Meanwhile, return ratios and asset quality of PSBs will remain under stress for the next few quarters,"he says.
Aalok Shah, an analyst tracking the sector with Centrum Broking, too, prefers well-capitalised and/or operationally improving banks like Axis Bank, ICICI Bank and SBI.
"In the mid-cap space, we remain positive on J&K Bank. In the context of stable earnings, we believe valuations for City Union Bank and DCB Bank appear stretched; thus, we retain a hold rating on these stocks," he says.
| FIIs stake in % | Price (Rs) | % | ||||
| Name | Dec'14 | Mar'15 | Jun'15 | Sep'15 | 09 Oct,2015 | Chg * |
| Punjab National Bank | 17.34 | 16.23 | 14.98 | 12.97 | 138.10 | -37.0 |
| Bank of Baroda | 17.96 | 16.53 | 13.55 | 12.04 | 182.30 | -16.0 |
| SBI | 11.95 | 11.72 | 11.54 | 10.37 | 243.20 | -22.0 |
| Canara Bank | 11.21 | 10.58 | 8.17 | 7.51 | 298.10 | -33.6 |
| Andhra Bank | 7.59 | 7.82 | 7.04 | 5.90 | 69.10 | -27.0 |
| Syndicate Bank | 8.91 | 8.52 | 7.64 | 5.81 | 90.05 | -31.6 |
| Dena Bank | 3.73 | 3.43 | 3.32 | 5.61 | 41.80 | -32.2 |
| Bank of India | 8.88 | 8.32 | 6.70 | 4.58 | 144.65 | -52.0 |
| IDBI Bank | 2.90 | 3.34 | 2.91 | 2.98 | 78.95 | 7.9 |
| UCO Bank | 4.02 | 3.77 | 3.10 | 2.73 | 48.15 | -43.0 |
| IOB | 2.33 | 1.50 | 1.38 | 1.14 | 37.35 | -40.0 |
| Central Bank | 0.68 | 0.33 | 0.33 | 0.33 | 87.20 | -5.0 |
| Source : Shareholding pattern | ||||||
| *Change over December 31, 2014 | ||||||