PSBs extend rally; Union, Canara, PNB hit 52-week highs; SBI crosses Rs 600

The Nifty PSU Bank index hit a record high of 5,418.70 in intraday trade on Tuesday, surpassing its previous high of 5,396.85 touched on October 3, 2023

Shares of public sector banks (PSBs) were in focus on Tuesday with the Nifty PSU Bank index gaining over 1 per cent in the intraday trade, extending  th winning streak from Monday when it surged nearly 4 per cent on expectation of postive growth ahead.

The Nifty PSU Bank index hit a record high of 5,418.70, up 1.6 per cent on the National Stock Exchange (NSE). The index surpassed its previous high of 5,396.85, touched on October 3, 2023. In the past three trading days, Nifty PSU Bank index has rallied 7.5 per cent.  In comparison, the Nifty 50 was up 0.52 per cent at 20,795 at 09:51 AM. 

Union Bank of India, Indian Overseas Bank, Punjab & Sind Bank, and Bank of Maharashtra gained in the range of 2 per cent to 3 per cent, while Bank of India, State Bank of India (SBI), UCO Bank, Canara Bank, Bank of Baroda, and Punjab National Bank (PNB) advanced between 1 per cent and 1.9 per cent.

Of these, Canara Bank hit a record high, while PNB, and Union Bank of India hit their respective 52-week highs on the NSE. SBI, meanwhile, reclaimed the Rs 600-mark to Rs 606.20 after a gap of two months. The stock of country's largest state-owned bank had hit a record high of Rs 629.55 on December 15, 2022.

SBI has demonstrated its strength in previous quarters both on core operating performance and asset quality. Analysts believe the management's confident on growth (14-15 per cent), steady margins, and return ratios remaining ahead of 1 per cent in FY24-25E warrants a re-rating, which is long due and should see strong positive momentum. Plough-back of profits leading to improving RoE of ~16-17 per cent further adds to valuation, they believe.

 Asset quality remained resilient with GNPA/ NNPA at 2.76 per cent/ 0.71 per cent while restructured book stood at ~70 bps of advances at the end of Q2FY24. Healthy PCR stands at 76.4 per cent for advances and ~30 per cent coverage on restructured book provides comfort on continued benign credit cost expected at ~30-50 bps ahead.

Analysts at ICICI Securities, thus, expect the stock to gradually challenge life highs of Rs 629, and eventually head towards Rs 648 as it 123.6 per cent external retracement of Dec-Mar decline (Rs 629-501) coincided with price parity of Mar-Jul rally Rs 501-622 projected from October low of Rs 543.

Meanwhile, CRISIL Ratings, on November 29, upgraded its ratings on the Tier II Bonds (under Basel III), Lower Tier II Bonds (under Basel II), Upper Tier II Bonds (under Basel II), Perpetual Tier I Bonds (under Basel II) and Infrastructure Bonds of PNB to ‘CRISIL AAA/Stable’ from ‘CRISIL AA+/Positive’ and on Tier I Bonds (under Basel III) to ‘CRISIL AA+/Stable’ from ‘CRISIL AA/Positive’.

CRISIL Ratings believes PNB will maintain its strong market position in the financial services sector in India, and will continue to benefit from strong support from Government of India (GoI).

"The upgrade in the long-term ratings factors in consistent improvement in the bank’s underlying asset quality reflected by limited slippages, higher recoveries and consequently lower gross non-performing assets (GNPA). This was driven by conscious measures undertaken by the bank to refine its underwriting and recovery mechanisms; amidst multiple challenges faced by it in the past including large legacy accounts, branch integration post-merger of other banks into it and thereafter pandemic’s impact on the economy," CRISIL Ratings said in rating rationale.

That apart, reports suggest Bank of India is set to launch capital raising through qualified institutional placement (QIP) route with issue size of Rs 3,500-Rs 4,000 crore in the coming days. Capital adequacy ratio stood at 15.6 per cent as of Sep 2023. Issuance of equity capital will enhance tier I ratio and thereby enable continued pace of business growth ahead.