BackSBI, PNB, BoB to Canara Bank: Why experts are bullish on PSU bank shares — explained
Stocks to buy today: Experts have recommend adding shares of Canara Bank, Bank of Baroda, PNB and SBI to one's portfolio
PremiumStocks to buy today: In post-Covid rebound, state-owned banks have given whopping return to its positional investors in last one year. PSU bank major Bank of Baroda (BoB) shares have almost doubled shareholders' money by logging around 95 per cent return in last one year. Shares of Punjab National Bank of PNB also matched with BoB shares as the PNB share price ascended near 90 per cent in last one year. Bank of Maharashtra share price went up around 97 per cent in last one year. Canara Bank share price surged more than 55 per cent in last one year whereas SBI added over 20 per cent in this time.
According to stock market experts, after the central government's 'bad loan initiative', most of the PSU banks are sitting on a huge cash reserve and hence they are ready to provide credit line at a reasonable interest rate. This has attracted small and medium sized companies in post-Covid theme. This helped these PSU banks to create a new credit history in corporate world. They went on to add that due to fast approaching Lok Sabha elections 2024, central government is expected to push its infrastructure, road, railways and other projects. This would also help PSU banks to improve their CASA. Now, PSU banks are well capitalised banks in India with government-backing. So, rally in PSU bank shares may continue for short to medium term. However, they maintained that only those PSU bank shares would perform who have the ability to match with ICICI Bank and HDFC Bank (after merger). They predicted that Canara Bank, Bank of Baroda and SBI would be able meet this parameter and hence one should try adding these shares in one's stock portfolio.
Game changer for PSU stocks
On why PSU bank stocks are rising, Sandeep Pandey, Former Deputy Vice President at HDFC Bank said, "Due to the bad loan initiative taken by the central government, PSU banks are sitting on a big cash reserve and hence their lending ability is quite high. In post-Covid scenario, these PSU banks have created a new credit history in Indian corporate world by providing credit line to emerging small and mid-sized companies."
Former HDFC Bank official went on to add that India is on cusp of emerging as a manufacturing hub as China has become a black box for investors after the Covid-19 outbreak. So, investors are looking at India as destination as it has a huge market to match their business volume, which they were getting from China. This is also going to benefit banking segment, especially leading PSU banks as they have better CASA and LAM in comparison to leading private banks.
Expecting the uptrend in PSU bank shares to continue further, Sugandha Sachdeva, Executive Director & Chief Strategist at Acme Investment Advisors said, "Overall, the outlook for the Nifty PSU Bank index is positive. The index is likely to continue its uptrend after a brief correction, where it has strong support at the 4100 mark. The focus will now be on the quarterly results, which will determine the stock-specific move in the space. Our preferred picks are PNB, UCO Bank, and Canara Bank, which look to outperform in the near to medium term."
Sugandha went on to add that Nifty PSU Bank index has been on a tear, gaining 7.43 per cent in the last five consecutive sessions. The index has outperformed both the benchmarks, the Nifty and the Bank Nifty, in this period. In the current financial year, the PSU banking index has gained 17.58 per cent, while the Bank Nifty has gained 11 per cent. In fact, all the 12 constituents of the index have gained significantly since the beginning of the last financial year, with UCO Bank being an outlier, clocking gains of 137 per cent in the same period. The rally in these public sector banks has been largely driven by the adoption of new-age digital technologies, strong macros of the domestic economy, improving asset quality and credit growth, rising net interest margins (NIMs), and the government’s efforts toward reforms in the sector.
Stocks to buy today
Asked about the banking shares that one can buy today for medium to long term, Sandeep Pandey, who is currently director at Basav Capital said, "One can look at those PSU bank shares, which has the ability to match with HDFC Bank and ICICI Bank. On this parameter, I see Canara Bank, Bank of Baroda and SBI stocks that one can add in one's portfolio."
"Though there could be some dips in the stock, we foresee PNB share price surging toward levels of around ₹70 in the near term. Canara Bank share has formed a near-term base at the ₹290 mark and looks to deliver returns of around 20 per cent even from the current levels as it looks poised to test ₹390 levels. Union Bank has strong support around ₹60 levels and seems to inch higher towards ₹95 odd levels," Sugandha Sachdeva of Acme Investment Advisors said.
Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.
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