Nifty PSU Bank index extends gains; shares of Bank of Baroda, SBI, PNB jump

Beaten-down banking stocks have staged a huge rebound over the past two weeks amid positive earnings surprises and hopes of reversal in the bad-loan cycle.


On Monday, the Nifty PSU Bank index, a gauge for the performance of state-owned bank shares, jumped 4.3 per cent, extending its two-week gain to 20 per cent.


Most public sector bank shares rallied, buoyed by a sharp jump in Bank of Baroda’s June-quarter profits. Shares of Bank of Baroda (BoB) gained 10.4 per cent, followed by State Bank of India (up 3.4 per cent) and Punjab National Bank (up 4.4 per cent).


“BoB posted an impressive first quarter with improvement in asset quality and stable core…We expect ‘growth with quality’ momentum to gain traction. Moreover, with up-fronting of stress recognition, we believe the bank’s earnings will gain momentum. We expect the stock to re-rate as visibility on earnings delivery improves,” a note by Edelweiss said.


The Bank Nifty gained 0.75 per cent, with shares of ICICI Bank rising 4.9 per cent and Axis Bank adding 2.85 per cent. HDFC Bank and Kotak Mahindra Bank declined 1.7 per cent and 0.5 per cent, respectively. Shares of ICICI Bank rallied after analysts revised its price target upwards on hopes of sharp improvement in return on equity.


Market players said investors could look at taking profits in recent winners such as HDFC Bank and Kotak Mahindra Bank, and deploy them towards PSU and corporate-facing private banks, whose stocks have corrected sharply.


The trend is clearly visible in the price movement. Since July 16, Bank of Baroda, Bank of India and Canara Bank rallied more than 30 per cent, while ICICI Bank and Axis Bank gained 14 per cent and 9 per cent, respectively. Shares of Kotak Mahindra Bank fell 7 per cent, and HDFC Bank shares traded flat during the same period.


“The PSU banking pack and corporate-centric private banks appear to be a tactical call from a portfolio perspective. The stress in the system has more or less peaked out. Slippages trend is likely to normalise over the next few quarters and cyclical recovery could allow banks having asset quality issues in corporate book to outperform over the next few year,” according to Bajrang Bafna and Rati J Pandit, analysts at Sunidhi Institutional Research.

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.

We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel