Nifty PSU Bank index up 2%, SBI at new high; here's why PSBs are in demand

Indian Bank, Bank of Maharashtra, Bank of Baroda, Central Bank of India and Canara Bank were up in the range of 2 per cent to 3 per cent in intra-day trade on Tuesday.

Share price of public sector banks (PSBs) today

 

Shares or public sector banks (PSBs) were in focus with the Nifty PSU Bank index surging 2 per cent on the National Stock Exchange (NSE) in Tuesday’s intra-day trade. At 02:16 PM; the Nifty PSU Bank index was up 1.7 per cent, as compared to 0.25 per cent rise in the Nifty 50.

 

Among individual stocks, State Bank of India (SBI) hit a new high at ₹988.95, gaining 2 per cent in intra-day trade. In the past one month, the stock has rallied 9 per cent, as compared to unchanged move on the Nifty 50.

 

Indian Bank, Bank of Maharashtra, Bank of Baroda, Central Bank of India and Canara Bank were among the other gainers from the Nifty PSU Bank index, up in the range of 2 per cent to 3 per cent. 

 

Why are PSBs in demand?

 

The Reserve Bank of India (RBI) Governor Sanjay Malhotra has reaffirmed that there remains room for further policy rate cuts, as signaled during the October Monetary Policy Committee (MPC) meeting. He said the latest macroeconomic indicators, including inflation trends, show no signs of reducing that scope. However, he clarified that the final decision on whether to cut rates in the upcoming December policy review will depend on the MPC’s assessment at that time.

 

While an impending rate cut may exert some pressure on banks’ net interest margins (NIMs) in the near term, the impact is expected to be largely mitigated by the ongoing deposit repricing and the full flow-through of cash reserve ratio (CRR) reduction benefits into system liquidity. With credit momentum improving and funding costs gradually easing, the overall profitability outlook remains stable, ICICI Securities said in a note. 

 

Motilal Oswal Financial Services said PSBs are well positioned to benefit from any capex recovery, though near-term growth will continue to be funded by RAM (Retail, Agri, and MSME) assets. Stronger capital positions, cleaner balance sheets, and prudent provisioning make PSBs more resilient and limit cyclicality in earnings and asset quality relative to past cycles.

 

Meanwhile, InCred Equities continue to see state-owned enterprise (SOE) banks as a hedge against further repo rate cuts. The brokerage firm said they therefore prefer SOE banks with a strong non-core earnings profile (i.e. ability to garner treasury gains and/or recovery from w/offs) and are available at reasonable valuations. 

 

With this backdrop, the brokerage firm prefers Canara Bank and Punjab National Bank, given they remain structurally well placed on a non-core earnings pool while the upside is limited post recent rally. It maintains a HOLD rating on SBI as analysts expect weaker margin progression (vs. consensus) and see risk to sustainability of non-core income.

 

Axis Direct has a ‘BUY’ rating on SBI with a target price of ₹1,135. According to brokerage firm, SBI’s performance has been the best amongst the larger banks and the bank remains well-poised to sustain its performance supported by the management’s focus on deepening liability franchise, allocating capital to higher RoRWA (Return on Risk-Weighted Assets), maintaining a disciplined pricing approach and leveraging tech to drive operating efficiency.  

 

The bank is making concentrated efforts to contain Opex growth by focusing on improving productivity and maintaining C-I Ratio at <50 per cent across cycles. Asset quality does not seem concerning at present and thus credit costs should stay under control. The bank is also actively evaluating the listing of SBI MF and SBI GI, the brokerage firm said.  ===========  Disclaimer: View and outlook shared on the stock belong to the respective brokerages and are not endorsed by Business Standard. Readers discretion is advised.