The PSU Bank basket stole the markets’ thunder on Monday as the sector dazzled amid meagre gains elsewhere.
The Nifty PSU Bank index surged over 5% intra-day, even as the benchmark Sensex and Nifty50 indices gyrated between gains and losses.
The gains were propelled by Bank of Baroda, Canara Bank and State Bank of India, whose recent Q2 performance has pleasantly surprised many.
Consider this: Bank of Baroda’s net profit of 3,313 crore rupees beat consensus by 28 per cent. It reported net interest margin expansion of 31bp quarter-on-quarter, better-than-expectations.
Loans grew 21 per cent year-on-year, as against expectation of below 20 per cent growth.
Similarly, SBI’s Q2FY23 profit of 13,265 crore rupees, up 74% YoY, was ahead of estimates.
The outperformance was driven by core earnings led by better-than-expected net interest margin, loan growth and low credit cost.
NIM expansion of 30bp QoQ – after two disappointing quarters – was among the highest in the sector. RoA topped 1%, the highest in about a decade.
All of this underscores the ongoing bullish story in the banking space, analysts said.
VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services says, PSU banks posted better-than-expected profits in Q2. Loan demand, better asset quality, rising margins drove earnings. Credit growth remains broad-based. Growth trends to continue in quarters ahead. SBI, BoB Q2 results were impressive.
Analysts believe Indian PSBs are now better placed with asset quality gradually healing and relatively better balance sheets.
According to Motilal Oswal Financial Services, “The earnings outlook for PSBs continues to look good, led by an improvement across margins, operating profitability, and credit costs. The SMA pool remains benign, which coupled with limited slippages, would aid in sustained/continuous reduction in credit costs.”
On the bourses, the Nifty PSU Bank index has outshone the benchmark Nifty50 index so far this year. The gauge for the state-owned banks has surged nearly 40% so far in 2022, as against 4.4% rise in the Nifty50 index.
The Nifty Private Bank index, meanwhile, has rallied 17% during the period.
Among individual stocks Indian Bank, Canara Bank, Bank of Baroda, Bank of India, and SBI have leaped in the range of 29-76%.
So, is it time to ride the turning tide for PSBs, or have investors missed the bus?
VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services says, PSBs are underowned. More steam left in the stocks despite recent rally. Valuation gap between private banks and PSB stocks will narrow
Domestic markets will remain closed today on account of Gurunanak Jayanti holiday. Globally, investors will eye outcome of the US mid-term poll.
 "Is the tide turning for PSU banks?")
