Nifty PSU Bank index surges 7%; SBI nears record high

Analysts expect most of the PSU banks to return to profitability during the current financial year 2019-20 (FY20), backed by improvement in the balance sheet

Shares of public sector banks were on a roll with Nifty PSU Bank index surging 7 per cent intra-day on the National Stock Exchange (NSE) amid expectations that the ruling National Democratic Alliance (NDA) may retain power at the Centre.

Indian Bank, Bank of Baroda, Bank of India (BOI), Canara Bank, Allahabad Bank and Syndicate Bank were up more than 7 per cent each on the NSE.

The shares of PSU banking giant, State Bank of India (SBI) hit a 52-week high of Rs 343, up 7.5 per cent. The stock was trading close to its record high of Rs 352, touched on October 26, 2017, in intra-day trade.

At 12:27 pm, Nifty PSU Bank index, the largest gainer among sectoral indices, had risen 7.06 per cent, as compared to a 2.9 per cent rise in the benchmark Nifty 50 index. Nifty Bank and Nifty Private Bank indices were up 3 per cent each.

Market analysts expect most of the PSU banks to return to profitability during the current financial year 2019-20 (FY20), backed by improvement in balance sheet.

Analysts at Morgan Stanley have ‘overweight’ rating on the SBI with a target price of Rs 400 after the bank reported a sharp improvement in its asset quality during the March quarter.

“We rate SBI Overweight. We think the bank’s core ROE will reflate from FY20 onward as the company crosses the “hump” on provisions and NPL recognition over FY19. With the large part of credit costs and operating costs behind it in FY19, SBI should start reverting to normalized profitability from FY20 onward, in our view, and the bank should hit the target ROA of 0.9-1 per cent over FY20-21,” analysts at JP Morgan said in a report.

“After reporting continuous loss from last 4 years, BOI is expected to return to profitability in FY20 backed by improvement in balance sheet. Stress assets are likely to continue to decline going ahead led by contraction in slippages and higher recovery & up-gradation,” analysts at Narnolia Financial Advisors said in result update.

Exposure towards fresh stress companies is key risk for the BOI but management believes that expected recovery from NCLT cases will offset the risk if it arises. After cleaning of the balance sheet now management focus on strong loan growth of 15 per cent going ahead, the brokerage firm said with ‘buy’ rating on the stock and target price of Rs 102 per share.