PSU bank index corrects 15% from highs; check latest view & target prices
Even after the recent correction, the index has surged about 21 per cent in the last six months, 42 per cent in the one year, 67 per cent in two years and 280 per cent in the last three years.
- Oct 27, 2023,
- Updated Oct 27, 2023 2:21 PM IST
PSU bank shares have seen sharp corrections in the last few sessions. The index of state-run lenders, which has delivered stellar performance in the longer run, came under pressure as markets faced the wrath of bears amid the rising bond yields and geopolitical concerns. Nifty PSU Bank has corrected about 15 per cent from its 52-week high. Even after this correction, the index has surged about 21 per cent in the last six months, 42 per cent in the one year, 67 per cent in two years and 280 per cent in the last three years. Barring only the State Bank of India (SBI), remaining 11 out of 12 constituents of the Nifty PSU bank have delivered positive returns in the year 2023, rising up 40 per cent. Shares of SBI have dropped about 9 per cent in the year 2023 so far, while the BSE Sensex is up 4 per cent on a year-to-date (YTD) basis. PSU Banks have been on a roll on the back of infra push, where they have the biggest exposure, but some analysts see that margins for the state-run lenders have peaked out and investors shall see stock specific trajectory to make a call, rather than going for the entire basket.
Public sector banks enjoyed a robust performance over the preceding half-year, owing to a favorable business climate in the power and infrastructure sectors, where these banks have a significant exposure, said Trivesh D, COO at Tradejini. Looking ahead, banks have likely reached the peak of their net interest margin, and credit costs have likely hit their bottom, he said.
"The key drivers for stock prices moving forward will be a steady expansion in credit portfolios and the management of Gross NPAs, financial performance of these banks and their ability to effectively control NPAs will play a pivotal role in shaping the positive trajectory of public sector bank stocks in the forthcoming quarters," he added.
It’s important to remember that geopolitical events have rarely caused a global recession or left a lasting mark on markets. Therefore, the best course of action is almost always to stay diversified and stay invested. Each event needs to be assessed alongside the fundamental backdrop, said UBS in its recent note. Canara Bank reported a 43 per cent rise in its net profit at Rs 3,606 crore for the second quarter of the financial year 2023-24, compared to Rs 2,525.5 crore in the same period the previous year. The net interest income (NII) jumped by 20 per cent to Rs 8,903 crore. Asset quality improvement continued, as NPL ratios declined and slippages were at a modest level. Loan growth was healthy, whereas NIM was lower by 5 bps QoQ, said Kotak Institutional Equities with a buy and pegging fair value at Rs 425 apiece. However, global brokerage firm Morgan Stanley is 'underweight' on Canara Bank and has a target price at Rs 315. Indian Bank clocked a 61 per cent rise in net profit during the second quarter of the financial year FY24 to Rs 2,068.49 crore, compared to Rs 1,287.39 crore during the same period last financial year. The improved net profit is mainly due to a 23 per cent increase in net interest income for the quarter. Domestic brokerage firm YES Securities has a buy rating on the Indian Bank, with a target price of Rs 540. "Management continues to make material standard asset provisions in what seems like groundwork for the ECL regime, a large MCLR book will be a key factor protecting margin, and approval to raise capital may support the lender," it said. Kotak Institutional Equities has a 'buy' rating on PNB with a fair value of Rs 82, while CLSA has maintained its 'outperform' rating on it with a target price of Rs 80 per share. On the other hand, Morgan Stanley also remains Underweight on PNB with a target price at Rs 55 per cent and Nuvama Institutional Equities has a 'reduce' call on the stock with a target price of Rs 50. JP Morgan recently upgraded India equities to 'overweight' from 'Neutral' and suggested investors to use any near-term correction as an opportunity to add. It has added three shares, including Bank of Baroda, in its EM model portfolio, with a target price of Rs 230.
Disclaimer: Business Today provides stock market news for informational purposes only and should not be construed as investment advice. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.
Also read: Hot stocks on October 27, 2023: Vedanta, Adani Power, Vodafone Idea, RVNL, Swan Energy and more
PSU bank shares have seen sharp corrections in the last few sessions. The index of state-run lenders, which has delivered stellar performance in the longer run, came under pressure as markets faced the wrath of bears amid the rising bond yields and geopolitical concerns. Nifty PSU Bank has corrected about 15 per cent from its 52-week high. Even after this correction, the index has surged about 21 per cent in the last six months, 42 per cent in the one year, 67 per cent in two years and 280 per cent in the last three years. Barring only the State Bank of India (SBI), remaining 11 out of 12 constituents of the Nifty PSU bank have delivered positive returns in the year 2023, rising up 40 per cent. Shares of SBI have dropped about 9 per cent in the year 2023 so far, while the BSE Sensex is up 4 per cent on a year-to-date (YTD) basis. PSU Banks have been on a roll on the back of infra push, where they have the biggest exposure, but some analysts see that margins for the state-run lenders have peaked out and investors shall see stock specific trajectory to make a call, rather than going for the entire basket.
Public sector banks enjoyed a robust performance over the preceding half-year, owing to a favorable business climate in the power and infrastructure sectors, where these banks have a significant exposure, said Trivesh D, COO at Tradejini. Looking ahead, banks have likely reached the peak of their net interest margin, and credit costs have likely hit their bottom, he said.
"The key drivers for stock prices moving forward will be a steady expansion in credit portfolios and the management of Gross NPAs, financial performance of these banks and their ability to effectively control NPAs will play a pivotal role in shaping the positive trajectory of public sector bank stocks in the forthcoming quarters," he added.
It’s important to remember that geopolitical events have rarely caused a global recession or left a lasting mark on markets. Therefore, the best course of action is almost always to stay diversified and stay invested. Each event needs to be assessed alongside the fundamental backdrop, said UBS in its recent note. Canara Bank reported a 43 per cent rise in its net profit at Rs 3,606 crore for the second quarter of the financial year 2023-24, compared to Rs 2,525.5 crore in the same period the previous year. The net interest income (NII) jumped by 20 per cent to Rs 8,903 crore. Asset quality improvement continued, as NPL ratios declined and slippages were at a modest level. Loan growth was healthy, whereas NIM was lower by 5 bps QoQ, said Kotak Institutional Equities with a buy and pegging fair value at Rs 425 apiece. However, global brokerage firm Morgan Stanley is 'underweight' on Canara Bank and has a target price at Rs 315. Indian Bank clocked a 61 per cent rise in net profit during the second quarter of the financial year FY24 to Rs 2,068.49 crore, compared to Rs 1,287.39 crore during the same period last financial year. The improved net profit is mainly due to a 23 per cent increase in net interest income for the quarter. Domestic brokerage firm YES Securities has a buy rating on the Indian Bank, with a target price of Rs 540. "Management continues to make material standard asset provisions in what seems like groundwork for the ECL regime, a large MCLR book will be a key factor protecting margin, and approval to raise capital may support the lender," it said. Kotak Institutional Equities has a 'buy' rating on PNB with a fair value of Rs 82, while CLSA has maintained its 'outperform' rating on it with a target price of Rs 80 per share. On the other hand, Morgan Stanley also remains Underweight on PNB with a target price at Rs 55 per cent and Nuvama Institutional Equities has a 'reduce' call on the stock with a target price of Rs 50. JP Morgan recently upgraded India equities to 'overweight' from 'Neutral' and suggested investors to use any near-term correction as an opportunity to add. It has added three shares, including Bank of Baroda, in its EM model portfolio, with a target price of Rs 230.
Disclaimer: Business Today provides stock market news for informational purposes only and should not be construed as investment advice. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.
Also read: Hot stocks on October 27, 2023: Vedanta, Adani Power, Vodafone Idea, RVNL, Swan Energy and more