PSU bank stocks gain on divestment hopes

The state-owned bank stocks were back in the limelight on the bourses on the hope that the government might cut its stake in the banks in near future.

The market outlook for banking stocks had been clouded for quite a some time on the expectations that the Reserve Bank of India (RBI) would soon hike the interest rates to get a grip over inflation.

But market sources said that the repeated statements of the RBI and the finance ministry, that the average inflation for the current fiscal year will be contained within five per cent, means no hike in interest rates in near future.

This has made the markets once again focus their attention on the potential unlocking of value if the government decides to divest its stake in the state-run banks, either at one go or piece meal.

Mahesh Peswani, a dealer with Fortune Finance said, "Investors are picking state-run banking stocks on hopes of consolidation in the sector, soon after the Lok Sabha elections". "Eventually, the government's holding in some of these banks will be reduced," he added.

In five trading sessions, Bankex, the BSE index of bank stocks, has risen close to ten per cent from 2,662.84 on March 23 to 2,984.36 today.

According to market buzz, domestic fund houses and foreign fund houses have been accumulating banking stocks in the last few trading sessions.

An analyst with a leading brokerage house said, "Banking stocks are being pursued for their attractive valuations."

Abhishek Agarwal, an analyst with Quantum Stocks added, "Most of the state-run banking stocks are undervalued and the difference (in relative valuations compared to private sector bank stocks) is now getting corrected. Investors are also picking banking stocks in anticipation of reforms being pushed in the sector, after the elections."

The scrip of State Bank of India, the largest state-run commercial bank, has risen 10.33 per cent in the last five trading sessions. The stock has jumped from Rs 551.30 on March 22 to close at Rs 608 today.

Second-line banking stocks too have witnessed significant buying interest. The Punjab National Bank scrip has risen 18.30 per cent in the last five trading sessions. The stock has rallied from Rs 280.10 on March 22 to Rs 331.35 on Monday.

The Allahabad Bank stock has vaulted 15.55 per cent during this period, from Rs 26.05 on March 22 to Rs 30.10 today. The Andhra Bank stock has gained 13.83 per cent from Rs 41.20 on March 22 to close at 46.90 on Monday.

Select private sector banks too witnessed buying interest. This was attributed to the impressive earning potentials on hopes that the net interest margins will rise.

On an annualised basis, analysts expect the domestic banking sector to grow 20-25 per cent in terms of profitability, and 11-14 per cent in terms of credit.

Meanwhile, for the quarter ended December 31, 2003, the state-run banking sector, comprising 17 banks, reported a 20.5 per cent rise in net profit to Rs 3,295 crore (Rs 2,735 crore), on a 2.1 per cent jump in income at Rs 26,162 crore (Rs 25,631 crore).