Stock price of these two PSU banks have zoomed around 150% in last 22 days

Shares of public sector undertaking (PSU) banks were on a roll, with the market price of two lenders UCO Bank and Punjab & Sind Bank zooming over 145 per cent in past one month. In comparison, the Nifty PSU Bank index has gained 23 per cent, while the benchmark Nifty 50 was up less than 1 per cent during the period.

Among individual stocks, UCO Bank rallied 10 per cent to Rs 36.55 on the National Stock Exchange (NSE) in Thursday’s intra-day trade on back of two-fold jump in trading volumes. In past one, the stock has zoomed 151 per cent from level of Rs 14.54. Till 11:09 AM; a combined 227 million shares had changed hands at the counter on the NSE and BSE. Punjab & Sindh Bank was up 4 per cent at Rs 44.75 in intra-day trades. It has rallied 147 per cent in past one month.

Besides these two banks, the stock price of Indian Overseas Bank and Central Bank of India have appreciated by 82 per cent each, while Bank of Maharashtra has rallied 57 per cent, followed by Union Bank of India (49 per cent), Punjab National Bank (41 per cent) and Bank of India (38 per cent).

Most of the credit rating agencies have upgraded the outlook on PSU banks to stable on account of improvement in profitability and asset quality parameters resulting in limited impact of credit costs on the profitability of the banks.

As in majority ownership, demonstrated and expected continued support from Government of India (GoI) being the majority shareholder holding in these banks, improvement in capitalisation post equity infusion, which have helped the PSU banks to maintain its capitalisation ratios, the rating agencies said in their rationale.

GOI has been supporting public sector banks (PSBs) with regular capital infusions and steps to improve capitalisation, operational efficiency and asset quality. Given the majority ownership of GOI, PSBs are expected to receive timely and adequate support in the form of capital as and when required.

PSBs in general, after a long time, have emerged strong in terms of growth/margin delivery, while NPAs are falling at a faster click. In addition to this, most PSBs are still trading at well below the +1 std deviation P/BV and are thus finding favor with investors, analysts at Emkay Global Financial Services said BFSI-Banks sector report.

“The National Asset Reconstruction Company (NARCL) transfer of corporate NPAs is likely to begin soon and could thus lead to further reduction in NPAs for select PSBs. Some corporate NPAs under NCLT are also nearing resolution and should thus further drive-down the corporate NPA book for banks. Thus, we believe that the receding NPA formation and most banks sitting on higher specific PCR should lead to continued lower LLP and support profitability, the brokerage said in a note.

Within PSBs, State Bank of India (SBI) at 1.1x FY24 ABV offers an attractive, structural long-term buy, while we also prefer Bank of Baroda (BOB) and Indian Bank, given their ability to deliver healthy return ratios, capital buffer and sub 1x valuations, the brokerage firm said.