PSU banks extend rally, SBI nears record high; Nifty PSU Bank index up 3%

Since November 15, Nifty PSU Bank index has surged 14 per cent on hopes that the Supreme Court ruling in Essar Steel case should pave the way for a lumpy recovery for banks in Q3.

Shares of public sector banks (PSBs) continued their northward movement with the Nifty PSU Bank index surging over 3 per cent on  Thursday, on expectation of improvement in operational performance with receding fears of non-performing loans (NPL).

Oriental Bank of Commerce, Union Bank of India, Jammu & Kashmir Bank, Syndicate Bank, Indian Bank and Punjab National Bank (PNB) from the Nifty PSU Bank index rallied over 5 per cent today. State Bank of India (SBI), Bank of Baroda, Canara Bank, Bank of India and Allahabad Bank were up in the range of 2-3 per cent on the NSE.

At 12:37 pm, Nifty PSU Bank index, the top gainer among sectoral indices, was up 3.3 per cent, as compared to a 0.30 per cent rise in the Nifty 50 index. The Nifty Bank and Nifty Private Bank index were up 1 per cent each.

Since November 15 (in the past two weeks), Nifty PSU Bank index has surged 14 per cent on hopes that the Supreme Court ruling in Essar Steel case should pave the way for a lumpy recovery for banks in Q3, apart from some non- National Company Law Tribunal (NCLT) resolutions in the power sector. In comparison, the benchmark index was up 2.2 per cent during the same period.

Among the individual stocks, SBI was up 2 per cent at Rs 350, rallying 14 per cent in the past two weeks. The stock of the country’s largest state-owned bank was trading close to its all-time high of Rs 374 touched on July 18, 2019.

SBI reported stellar Q2 with profit after tax (PAT) beat at Rs 3,000 crore due to high margins/one-off gains from SBI Life, sequential reduction in GNPA due to lower slippages and further prudent provisioning toward DHFL (20 per cent PCR). 

“Q3 could be an eventful quarter with lumpy NPA recognitions (incl. DHFL) if not resolved, and also resolutions within NCLT (incl. long-hoped Essar Steel) and some power stress outside the NCLT,” analysts at Emkay Global Financial Services said in BFSI sector update.

“SBI management continues to be confident that balance sheet has been improving and has guided for a strong recovery ahead with RoA target of 0.5 per cent in FY20E. A gradual pick-up in credit offtake coupled with healthy operational matrix augurs well for future earnings. A recovery from large NCLT account and stake sale in subsidiaries is expected to unlock valuation,” analysts at ICICI Securities said in a note. The brokerage firm maintains ‘buy’ rating on the stock with the target price at Rs 400 per share.