FPIs, mutual funds hike stake in PSU banks in Q1

FPIs and MFs increased their holdings in SBI, PNB, BoB, Canara Bank and Andhra Bank, data show

Foreign portfolio investors (FPIs) and domestic mutual funds (MFs) have increased their stake in public sector banks (PSBs) in the April - June quarter (Q1FY18), on the expectation that there will be a resolution to the non-performing assets (NPAs) issue.

Data sourced from Capitaline Plus shows that FPIs and MFs have increased their holdings in State Bank of India (SBI), Punjab National Bank (PNB), Bank of Baroda (BoB), Canara Bank and Andhra Bank.

Of the 20 PSU banks that have thus far filed their June quarter shareholding pattern, FIIs have raised their holdings in 15 banks, and trimmed their stake in five - Allahabad Bank, Bank of India (BoI), Dena Bank, IDBI Bank and Oriental Bank of Commerce (OBC) by less than one percentage point. On the other hand, in the 15 banks where MFs held stake, they have hiked stake in 10 and cut stake in five banks.

In State Bank of India (SBI), FPIs and MFs stake increased by two percentage points and one percentage point respectively, after the bank successfully concluded India's largest ever qualified institutional placements (QIP) of Rs 15,000 crore. In Punjab National Bank (PNB) and Bank of Baroda (BoB), FPIs have raised their holdings by less than one percentage point in the June quarter as compared to the March quarter.

"Resolution of stressed assets and the probability of capital infusion by the government in PSU banks has made these stocks find favour with investors. That apart, a lot of these banks have been trading at attractive valuations since long. A pick up in the economic growth cycle also bodes well. If there can be a resolution to the NPA problem, some of these stocks, such as SBI and Bank of Baroda (BoB), are a good bets from a long-term perspective," feels Vinay Khattar, associate director and head of research at Edelweiss.

At the bourses, the Nifty PSU Bank index had underperformed the market by falling 6% in the June quarter as compared to 8% rise in Nifty Bank index and 3.8% gain in the benchmark Nifty 50. However, thus far in July, the PSU Bank index has outperformed with a rise of 8% compared to less than 4% rise in Nifty Bank and Nifty 50 indices.

ASSET QUALITY

Global credit rating agency, Moody's, had recently said that the Reserve Bank of India's (RBI) plans to resolve 12 large stressed accounts, which account for 25% of stressed assets, will be credit positive for the banks as any meaningful resolution will improve their overall asset quality.

Fund managers agree. The steps taken to resolve the high debt issue with corporates will eventually benefit banks over the long run, they feel. However, one needs to be patient and invest selectively after assessing the risk-reward benefits.

"One cannot be bullish on the Indian economy without the NPA issue with banks getting addressed. A lot of PSU banks have also recognised the problem and have already provided for the expected losses. Even if there is a resolution to a few high profile cases, there will be a sentimental boost that the entire pipeline will get unclogged. However, this is a long drawn process. Investors can still make good returns from here on if the problem gets resolved," says Ramnath Venkateswaran, fund manager - equity at LIC Mutual Fund.

Meanwhile, analysts at HDFC Securities expect the performance of PSU banks in Q1FY18 to be marred by subdued loan growth and elevated provisions.

"Corporate-heavy banks are expected to report subdued performance, slower growth and elevated provisions. Asset quality - movement, watch-list and resolutions - remain a key monitorable," says a results preview note from HDFC Securities