Dividend hopes boost delivery trades in PSBs

Arbitrage pushes buying, while many other investors are being cautious

Even as analysts continue to be concerned about the financial performance of public sector banks (PSBs), investors have been flocking to these stocks, in anticipation of a hefty dividend payout.

Market participants said instances of delivery-based purchases in PSB stocks had picked up of late. For, the government is expected to prod public sector companies to pay higher dividends to make up for its revenue shortfall.

“Most PSBs have been seeing good delivery volumes, since most of these have declared dividends or are likely to do so soon. After the Coal India dividend announcement, there is perhaps an expectation among participants that the dividend payouts of these banks might be equally good,” said Ashish Chaturmohta, head of technical and derivatives analysis, Fortune Equity Brokers.

In the past month, a slew of PSBs, such as Union Bank of India, Dena Bank, Canara Bank, UCO Bank, Allahabad Bank, IDBI Bank, Bank of India and Oriental Bank of Commerce (OBC), had declared dividend payouts. While the delivery volumes of some of these stocks have moved up, the share prices have declined by as much as 12 per cent since the beginning of the year. According to data from the exchanges, delivery-based trading in the PSB stocks had risen as much as six times since the year’s beginning. OBC’s share fell by the largest amount, about 12 per cent, during the period. Canara Bank and Union Bank declined 6.7 and 5.7 per cent, respectively.

Analysts said the interest in dividend-yield stocks comes mainly from arbitrageurs during this period, trying to take advantage of the payout announcements by buying into the cash segment and shorting in the futures segment. “Market participants are excited about the high yield dividends being declared by PSU companies. But there are some tax implications which limit the short-term gains. Hence, the excitement is limited,” said Sahaj Agrawal, deputy vice-president (derivatives research), Kotak Securities. For investors to get the entire tax benefit of the dividend payout, the stock has to be held for at least three months from the record date.

This is why investors are exercising caution in choosing stocks, analysts said. The current weakness in PSB financials might have dissuaded some from buying into some of these stocks, despite the dividend payouts. UCO Bank, Vijaya Bank, Andhra Bank and Corporation Bank are among those witnessing a decline in delivery-based volumes even after announcing interim dividends.