Should you be going for HDFC Bank or SBI? Here's what top brokerages say

A sharp earnings turnaround on asset quality improvements and attractive valuations have contributed to a strong PSB show. Bank of Baroda (BOB), Punjab National Bank (PNB), State Bank of India and Canara Bank were among the PSU bank stocks seeing fresh 52-week highs.

But will it change soon?

Despite margin, deposit growth challenges and increasing vigil by the RBI, Andrew Holland, CEO, Avendus Capital, told ET Now, he is staying put. 

Holland does not see a change very soon, adding that "all the fun and action is in the PSU banks".

Considering PSBs with surplus SLR and higher LCR, B&K Securities opines PSBs would be key participants in the variable repo rate (VRR) volumes (Rs 9 lakh crore ) with cut-off rates at 6.7 per cent (for 14 days and 4 days).

"The usage of borrowed funds with rollovers would aid the margin. This phenomenon could play out during 4QFY24. From 1QFY25 onwards, with a likely reduction in market yields, the banks with higher share of fixed-rate loans and repo-linked loans would be better off. Among the PSBs, SBI would be a preferred pick," the brokerage added. 

Jefferies notes the PSU Bank index is up 78 per cent YoY and has outperformed the private banks by 70 percentage points, noting PSU banks typically enjoyed lower loan-deposit ratios, allowing them to push loan growth. PSU bank credit growth in FY24 is within 2-3 percentage gap with private banks against the 8-10 percentage gap in growth seen pre-Covid.

"A comparison of PSU Bank valuations versus the 2006-12 period (similarly strong fundamentals and rising capex cycle) suggests a rerating potential of 25-30 per cent on PE/PB valuations. Normal RoE compounding based returns of 15 per cent-plus would be over and above," it noted.

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