Union Bank, Bank of India, PNB, UCO Bank, IOB shares rally up to 6%, lead BSE PSU index gainers

PSU bank shares such as Union Bank of India, Bank of India, Punjab National Bank (PNB), UCO Bank and Indian Overseas Bank climbed up to 6 per cent in Friday's trade and were leading the BSE PSU index gainers. The rally in PSU banking stocks was seen on a day the broader market saw three stocks rising for every two that declined.

At 11.15 pm, shares of Union Bank were trading 6.12 per cent higher at Rs 130.90, leading the BSE PSU index that was up 0.9 per cent for the day. The Nifty PSU Bank index was up 2.86 per cent against a 0.17 per cent rise in the S&P BSE Private Banks index.

Bank of India shares were up 5.20 per cent Rs 127.40. Punjab & Sindh Bank advanced 4.17 per cent Rs 44.67. UCO Bank gained 3.74 per cent while Bank of Maharashtra added 3.48 per cent. IOB, Bank of Baroda (BOB), Canara Bank and State Bank of India also gained up to 3 per cent.   

In a note, Nuvama said PSU banks are now more exposed to the retail- agri-MSME (RAM) segments. The corporate cycle has forced PSU banks to pivot to a more granular portfolio and they are now more exposed to these segments compared to private banks, it said. If growth in these segments slows down then PSU banks could potentially be more exposed than private banks, it said while suggesting an underweight on the pack.

"Regarding valuations – we think private banks are perhaps the best placed. On an absolute basis, while PSU banks are still cheaper, they are more leveraged to the business cycle while valuations have also normalised. Moreover, private banks, after outperforming for much of 2010s, have underperformed significantly, post Covid – perhaps they are due for a revival," Nuvama said.

Motilal Oswal Securities had last month anticipated re-rating on PSU banks. Several PSU lenders raised capital from the market, following which they have shored up their capitalisation levels. This would enable healthy balance sheet growth, particularly as the capex cycle recovers after the general elections, the domestic brokerage said last month while suggesting SBI, Bank of Baroda and Canara Bank are its top picks from the public sector banks (PSBs).

Also read: Stock recommendations by analyst for January 12, 2024: RVNL, Exide Industries and LT Foods

Also read: TCS, Infosys add Rs 1 lakh crore in investors' pocket after Q3 earnings