PSU bank stocks jump up to 4% — SBI, Indian Bank, Canara Bank shares at 52-week high: What’s behind the rally?

The public sector bank stocks defied the sombre market mood and rallied in trade on Wednesday, September 24, after media reports suggested that the government is considering a proposal to increase foreign investment limits in government-owned banks.

According to a report in The Economic Times, the government, as part of its next policy reform, is planning to increase the foreign investment limit in PSU Bank stocks from the current 20% to as high as 49%, with the government retaining a majority stake of over 51%.

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This move is expected to bring significant capital into the banking sector, thus driving an upmove in several PSU banking counters.

PSU bank stocks rally — Canara Bank, India Bank lead

The Nifty PSU Bank jumped over 1.5% in trade to its one-year high, and was the only sectoral index in the green in the late morning trade. It hit the day’s high of 7,567.50, surpassing the last 52-week high level of 7,473.00.

Several constituents of the PSU Bank index also scaled their 52-week high levels, including India’s largest lender, State Bank of India (SBI) and Canara Bank.

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SBI share price rose 1.13% to hit a 52-week high of ₹880.50 on the NSE. Meanwhile, Canara Bank share price jumped over 2% to a fresh one-year peak of ₹124.55. And Indian Bank share price rallied 3.8% to a high of ₹722 on the NSE.

Other PSU stocks like Bank of Baroda, Indian Overseas Bank, Bank of India and Punjab & Sind Bank were other gainers in the PSU Bank index. However, Maharashtra Bank, Union Bank of India and Punjab National Bank came off highs and were the only constituents in the red.

PSU banks provide positive guidance

Moreover, PSU banks are guiding for healthy loan growth and a moderate decline in NIM. Asset quality is likely to remain healthy.

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Ahead of the Q2 earnings season, BoB has guided for a strong QoQ loan growth of ~4% or more, while PNB, Canara and Indian Bank are all guiding for ~2.5% QoQ growth. Union Bank will likely grow more slowly than the sector.

As for margins, Nuvama Institutional Equities reported that PNB expects flat NIM QoQ. BoB, too, expects flat reported NIM and a fall of 7bp in core NIM. Indian Bank will likely post under 10bp decline, while Union Bank will report a fall of 6bps.

Canara will likely report higher-than-sector pressure on NIM due to its lower CASA, the brokerage noted, adding that SBI will post ~3% QoQ loan growth and ~5bp NIM decline.

BoB, SBI and PNB shall report relatively strong return on assets (RoA), as per the brokerage and thus remain its preferred picks in the sector.

Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.

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