PSU Banks: A Top Performer Again This Year!

[vc_row type=”in_container” full_screen_row_position=”middle” column_margin=”default” column_direction=”default” column_direction_tablet=”default” column_direction_phone=”default” scene_position=”center” text_color=”dark” text_align=”left” row_border_radius=”none” row_border_radius_applies=”bg” overflow=”visible” overlay_strength=”0.3″ gradient_direction=”left_to_right” shape_divider_position=”bottom” bg_image_animation=”none”][vc_column column_padding=”no-extra-padding” column_padding_tablet=”inherit” column_padding_phone=”inherit” column_padding_position=”all” column_element_spacing=”default” background_color_opacity=”1″ background_hover_color_opacity=”1″ column_shadow=”none” column_border_radius=”none” column_link_target=”_self” column_position=”default” gradient_direction=”left_to_right” overlay_strength=”0.3″ width=”1/1″ tablet_width_inherit=”default” tablet_text_alignment=”default” phone_text_alignment=”default” animation_type=”default” bg_image_animation=”none” border_type=”simple” column_border_width=”none” column_border_style=”solid”][vc_column_text css=”.vc_custom_1695733795253{margin-right: 16px !important;margin-left: 16px !important;border-right-width: 10px !important;border-left-width: 10px !important;}”]Last week, the Nifty lost 2.57%, and many small-cap and mid-cap stocks also experienced declines, ending below their recent highs. In stark contrast, the PSU bank index rose by 3.35% during the week. What makes this even more remarkable is that, in the same week, the Bank Nifty lost 3.5%. It is clear that these PSU banks are outperforming their private sector counterparts.

As Q2 FY24 draws to a close, the PSU bank index has once again delivered a stupendous performance with a 31% return in this quarter.

One year chart of the PSU Bank Index

The chart above illustrates the movement of the PSU Bank index over the past year. It experienced a sharp rise from October 22 to early January 2023, followed by a corrective phase until April 23. Afterward, it resumed its upward trajectory, which became even more pronounced in the last two months. The recent surge can be attributed to JPMorgan Chase & Co.’s decision to include Indian government bonds in its benchmark emerging-market index, a highly anticipated event expected to attract billions in foreign inflows to the nation’s debt market.

In the post-COVID scenario, PSU banks have managed to improve their net interest income due to the high-interest regime. However, after the peak of the high-interest regime, only banks with a better CASA (Current Account Savings Account) are expected to report strong financials. Therefore, state-owned large-cap banking stocks are comparatively better positioned than their peers.

Over the past year, shares of PSU banks such as UCO Bank and Punjab & Sind Bank have delivered remarkable returns, surpassing 187% and 148%, respectively. Bank of Maharashtra and Central Bank of India have also seen substantial gains, rising by 126.1% and 92.7%, respectively.

This rebound in PSU bank stocks sharply contrasts with the mixed performance of private sector banks. While HDFC Bank posted a respectable 9.28% return over the past year, it still falls short of its PSU bank counterparts. Kotak Mahindra Bank faced challenges, registering a return of -5.93%. However, ICICI Bank maintained stability with a return of 7.15%. Axis Bank and IndusInd Bank displayed more robust performances, with returns of 23.58% and 27.28%, respectively.

Three year chart of the PSU Bank Index

In the post-COVID scenario, PSU banks have managed to improve their net interest income due to the high-interest regime. However, after the high-interest regime peaked, only those banks expected to report strong financials are the ones with a better CASA. Consequently, state-owned large-cap banking stocks are comparatively better placed than their peers.

The story of the revival in PSU bank stocks began in 2020, as these banks lent prudently during the pandemic. The effects of this prudent lending played out over the next two years, propelling the PSU bank index 4X from September 20 to September 23.

The best part is that while many PSU banks have recently reached their 52-week highs in the last few weeks, they are still far from their lifetime highs, which were achieved at a time when these banks were less efficient. This leaves ample room for further rally, and in all probability, the PSU bank index may end up as the top-performing index by the end of the year.

 

 

ABOUT THE AUTHOR

Ketan Sonalkar (SEBI Rgn No INA000011255 )

Ketan Sonalkar is a certified SEBI registered investment advisor and head of research at Univest. He is one of the finest financial trainers, with a track record of having trained more than 2000 people in offline and online models. He serves as a consultant advisor to leading fintech and financial data firms. He has over 15 years of working experience in the finance field. He runs Advisory Services for Direct Equities and Personal Finance Transformation.

Note – This channel is for educational and training purpose only & any stock mentioned here should not be taken as a tip/recommendation/advice

You may also like: Weekly update

[/vc_column_text][/vc_column][/vc_row]