Nifty PSU Bank index zooms 9%; SBI, Central Bank, BOB rally up to 12%

PSB stocks rally: Shares of public sector banks (PSBs) were on a roll on Monday with the Nifty PSU Bank index zooming 9 per cent, hitting a record high of 8,027.65 in th intraday trade after a strong rally in state-owned banks. The index surpassed its previous high of 7,685.95 touched on April 30, 2024.

State Bank of India (SBI), Central Bank of India, and Bank of Baroda (BOB) rallied between 10 per cent and 12 per cent on the National Stock Exchange (NSE). Canara Bank, Indian Overseas Bank, Punjab and Sind Bank, Bank of India, Uco Bank, Indian Bank, Punjab National Bank, and Union Bank of India are up in the range of 6 per cent to 8 per cent.

At 12:56 pm, Nifty PSU Bank index, the top gainer among sectoral indices, was up 8.5 per cent as compared to 3.04 per cent rise in the Nifty 50. The Nifty Bank, Nifty Financial, and Nifty Private Bank indices were up in the range of 3 per cent to 4 per cent.

Most exit polls, on Saturday, showed that the ruling Bharatiya Janata Party (BJP) will return to power with a thumping majority, winning seats between 316 to 400 seats in the Lok Sabha elections. That apart, the strong rally in equities can also be attributed to better-than-expected gross domestic product (GDP) data, coupled with GST collections for the fourth quarter of FY24.
 

The victory of PM Modi/BJP augurs well for the economy and capital markets as it provides stability and continuity in policymaking with a single-party majority government, which will be expected to continue pushing its economic agenda. With this clear verdict, markets will heave a sigh of relief, and go back to fundamentals/business-as-usual mode, according to Motilal Oswal Financial Services (MOFSL).

Fundamentally, India is witnessing its own mini-Goldilocks moment with excellent macros (GDP growth of 8.2 per cent in FY24 on the back of ~7 per cent growth in FY23, inflation at ~5 per cent, both current account and fiscal deficits well within tolerance band, stable currency, etc.), solid corporate earnings (Nifty ended FY24 with 25 per cent earnings growth and FY25/26 earnings are likely to post 14-15 per cent CAGR), focus on manufacturing, capex and infrastructure creation, and valuations at 20x one-year forward earnings. This verdict and consequent political stability and continuity in policy-making will act like an icing on the cake and keep India as the cynosure of all eyes, MOFSL said.

Meanwhile, India's banking system continues to ride the good economic growth momentum, well supported by recent structural improvements in the system. Indian financial institutions' resilience has, therefore, built up, according to S&P Global Ratings. The global rating agency expects India's banks to maintain their strong financial performance over the next 12-24 months.

S&P Global Ratings, on May 29, revised its rating outlook on six Indian banks including SBI and Indian Bank to positive from stable. This follows a similar action on the sovereign (BBB-/Positive/A-3).

"The ratings on many Indian banks are capped by our sovereign credit ratings on India. This is due to the direct and indirect influence that a sovereign has on banks operating in the country," S&P Global Ratings said.

The positive rating outlook on Indian Bank reflects that on the sovereign, the bank's improving capitalisation, and expectation that the likelihood of government support for the bank will remain very high over the next 24 months.

S&P Global Ratings believe Indian Bank's financial profile will continue to improve owing to better operating conditions. “In our view, the public sector bank will maintain its solid funding and liquidity profile over the next two years,’ the rating agency said. CLICK HERE FOR FULL REPORT