PSU Bank stocks jump; BoFA bullish on Canara Bank, Union Bank and BoI

BoFA Securities prefers smaller lenders like Union Bank, Canara Bank and Bank of India over SBI and Bank of Baroda on better risk-reward on higher earnings growth and valuation upside.

PSU Bank stocks rallied on April 1, pushing the Nifty PSU index up by over a percent. The current benign credit environment has supported asset quality of these banks, helping the stocks to rise, analysts said.

Bank of America (BoFA) Securities is bullish on smaller PSU banks, citing better risk-reward on higher earnings growth and valuation upside.

According to BofA Securities, consensus estimates for FY25 remain conservative for PSU banks, suggesting potential for EPS upgrades ranging from 10 to 20 percent, driven by increased confidence in the consistency of earnings per share and Return on Assets (RoA) delivery, coupled with a rise in foreign ownership.

Other state-run lenders are still one to two years behind in their earnings recovery cycle, positioning them to drive positive surprises in financial year 2025 and 2026, it said.

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Foreign ownership in other state-run lenders is still half of State Bank of India (SBI) and Bank of Baroda (BoB) and the brokerage expects the gap to narrow.

The PSU Bank index has risen 96 percent in the past year and stocks such as Canara Bank and Union Bank of India soared over 100 percent during the period. Bank of India shares have risen 80 percent.

The international brokerage has a “buy” call on smaller PSUs such as Union Bank, Canara Bank and Bank of India, with a target price of Rs 180, Rs 600 and Rs 170, respectively.

For SBI and BoB, however, the brokerage has a “neutral” rating as earnings expectations for both lenders are already quite optimistic, which doesn’t leave much lower room for positive surprises, the brokerage said.

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BoFA Securities is bearish on Punjab National Bank (PNB) and has an “underperform” rating with a target price of Rs 90.

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