PSU banks hit fresh 52-week low; analysts remain cautious

Bank of India, Allahabad Bank, Canara Bank, Dena Bank, Oriental Bank, Syndicate Bank, Uco Bank and Vijaya Bank have touched their respective 52-week lows on the NSE.

Shares of public sector (PSU) banks continued to reel under pressure on Wednesday, trading at their fresh 52-week lows on the bourses after reporting a weak set of numbers for April-June (Q1FY16) quarter.

Bank of India, Allahabad Bank, Canara Bank, Dena Bank, Oriental Bank of Commerce, Syndicate Bank, UCO Bank and Vijaya Bank have touched their respective 52-week lows on the National Stock Exchange (NSE) today.

At 11:10 AM, CNX PSU Bank index, the largest loser among sectoral indices was down 1.6% at 3,159 points as compared to 0.19% rise in the CNX Nifty.  Thus far in 2015, the PSU bank index plunged 26% against 1% rise in the benchmark index.

Meanwhile, 10 PSU banks so far announced their Q1FY16 results and have reported an average 40% year-on-year (y-o-y) decline in aggregate net profit at Rs 2,596 crore, on account of higher provisioning for bad loans. These banks had a combined net profit of Rs 4,346 crore in the year ago quarter.

Explains Kunj Bansal, ED and CIO, Centrum Wealth Management: “The NPAs have been on rise for PSU banks since the past few quarters. It is neither stabilising nor coming down. To that extent, this development has been a surprise. Markets were expecting that the NPAs will stabilise and/or reduce, which hasn’t happened. As of now, it appears that these NPAs are not near stabilising. If we look around, NPAs from infrastructure, power and steel / commodity sector whose prices continue to go down even now as well are a sore point for these banks. On the other hand, textile and chemical sectors have started doing well, but they accounted for a much lower portion of the overall loan book of the banks.”



Among individual stocks, Bank of India has dipped 4% at Rs 148, extending its previous day’s 6% fall, after the bank reported 84% YoY decline in net profit at Rs 130 crore in the April-June quarter of the current fiscal. The bank had a net profit of Rs 806 crore in the first quarter of 2014-15 fiscal.



Punjab National Bank (PNB), Syndicate Bank, Union Bank of India (UBI), Andhra Bank, Oriental Bank of Commerce and Allahabad Bank were down 2%-4%, while IDBI Bank, Bank of Baroda, Indian Overseas Bank, Canara Bank and State Bank of India down 1% each on the NSE.

Outlook

Given the high level of NPAs, experts advise caution while investing in the banking sector, especially the PSU banks. Bansal, for instance, advises that unless one is willing to take a big contrarian call from a medium-term perspective, investors should wait for a couple of more quarters before buying these stocks.



“We see little scope for significant valuation upsides in banking stocks. Slower-than-past business growth, limited scope for margin expansion and the likelihood of restructured loans defaulting could keep valuations modest. Additionally, the slowdown in the rural segment could lead to rising defaults/ loan waiver demand in agricultural loans, to which PSU banks remain vulnerable. We remain cautious on all public sector banks,” adds Dhananjay Sinha, Head of Research, Economist & Strategist, Emkay Global Financial Services in a recent report.