Amid privatisation buzz, Nifty PSU Bank index extends gains to 42% in Feb

Shares of banks in the public sector undertaking (PSU) space have been on a tear since the Union Budget at the start of the month. On Thursday, the Nifty PSU Bank index, a gauge for the performance of state-owned banking stocks, rose 5.6 per cent, extending its month-to-date gain to over 42 per cent. In comparison, the benchmark Nifty is up 11 per cent this month. On February 1, Nirmala Sitharman announced that the government plans to privatise a couple of public sector lenders. Since then, investors have been aggressively buying beaten-down shares of PSU banks. Bank of India, Central Bank of India and Indian Overseas Bank have been the top gainers, each jumping more than 70 per cent this month, after a Reuters report suggested they are the shortlisted candidates.
 

The PSU banking pack had sharply underperformed the market during the sharp rebound from last year’s low. Mounting bad loans and deteriorating financial conditions has made investors averse to investing in this space. However, the budget and State Bank of India’s better-than-expected December quarter results have led to a U-turn in sentiment. However, after the sharp uptick this month analysts said investors should tread this space with caution.