Nifty PSU Bank index up 47% in Feb on improved earnings, privatisation buzz

Shares of public sector undertaking (PSU) banks continued their upward movement with the Nifty PSU Bank index hitting a fresh 52-week high of 2,661 on the National Stock Exchange (NSE) in Friday's intra-day deals on amid improved earnings and privatisation hope.

Thus far in the month of February, the Nifty PSU Bank index has zoomed 47 per cent, as compared to 10.4 per cent rise in the Nifty50 index. During the current week, the PSU Bank index has surged 20 per cent, against 0.7 per cent decline in the benchmark index.

Indian Overseas Bank, Central Bank of India, Bank of Maharashtra, Bank of India and Punjab & Sind Bank have seen their share price zooming between 53 per cent and 80 per cent during the week.

According to a report by news agency Reuters, the government has shortlisted Bank of Maharashtra, Bank of India, Indian Overseas Bank, and the Central Bank of India for privatisation in fiscal year 2021-22.

On February 1, Union Finance Minister Nirmala Sitharaman had announced big-ticket privatisation agenda of the government in the Budget 2021-22 which included selling two state-run banks, one general insurance company, seven major ports and the mega Life Insurance Corporation of India (LIC) public issue.

Meanwhile, most large Private Banks (PVBs) and Public Sector Banks (PSBs) reported better-than-expected asset-quality performance with contained non-performing assets (NPA) formation on pro forma basis in October-December quarter (Q3), while the restructuring pool (including the residual pipeline for Q4) too was lower vs. guidance, reducing the tail-end risk, analysts at Emkay Global Financial Services said in a report.

Most banks had largely done the heavy-lifting on provisioning well-= before Q3, and thus overall provisioning cost was moderate, leading to a healthy earnings beat. Factoring in better growth outlook on re-accelerating retail growth and asset quality with the big scare largely behind, the brokerage firm said it upgraded (Pre-result) FY22-23 earnings estimates for large PVBs by 6-30 per cent and PSBs by 14-60 per cent.

Analysts attribute the sharp rally in financial stocks, including the typically laggard PSBs, to improving economic/sectoral outlook on retail growth/asset quality and favorable budget proposals (kick-starting investment cycle, stress ARC for PSBs and privatisation of some PSBs), coupled with positive sector rotation/flows. The potential revival of capex/infra cycle could provide further legs to the growth story for banks, while NPA-light and reasonably capitalized residual PSBs emerging from the merger pain could partake in this growth, they say.

I O B 19.9 11.1 78.8
Central Bank 24.9 14.1 77.2
Bank Of India 94.7 58.9 60.8
Bank Of Maha 25.4 15.8 60.8
Pun. & Sind Bank 22.3 14.5 54.0
Union Bank (I) 42.7 33.2 28.6
UCO Bank 15.7 12.9 21.7
Bank Of Baroda 94.1 78.4 20.1
Indian Bank 147.8 123.3 19.9
Punjab Natl.Bank 44.9 38.8 15.7
Canara Bank 164.5 157.1 4.7
St Bk Of India 408.9 393.2 4.0

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