PSU banks big drags; temporary pullback, say experts

The sole gainer on the Nifty PSU Bank index was Bank of India.

PSU Bank stocks bled red on September 21, taking the benchmark indices down with them for a third straight day amid unfavourable cues.

The Nifty PSU Bank sank 2.3 percent, as the Central Bank of India, UCO Bank and Punjab & Sind Bank weighed heavy. The sole index gainer was Bank of India. Biggies like SBI, Canara Bank and Bank of Baroda plunged 2.12 percent, 1.83 percent and 3.02 percent, respectively.

Experts said the “value trade” in PSU banks is now over after the surge in prices pulled stocks out of the abysmally low valuations of the past two years. The future will depend on how these banks chart their growth path.

“The big value trade-in PSU banks is over,” declared Rohit Srivastava, founder Indiacharts. In the short term, stocks could be headed for a steep correction following the sharp surge in the past few sessions, he said.

“Extreme buying in PSU Banks may lead to a correction. Investors should be watchful,” Srivastava said. This could be a short-term sector-specific trend but will not change the mid-term investment thesis for the broader markets or the banks themselves, he added.

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“We have seen extreme buying in certain sectors like PSU banks or PSUs leading to a buying climax because volumes have spiked in the last couple of weeks to extreme levels and that kind of daily volume is often a signal that it's time for a pause,” he said.

The pause can also mean a correction which can be a little larger than in the recent past. “So this could be at a sector-specific level and in the short-term,” Srivastava said.

Among major banking indices, the Nifty PSU Bank gained the most, jumping 19 percent year-to-date. The Nifty Bank gained 5.6 percent, the Nifty Financial Services 5.9 percent and the 50-share Nifty 9.9 percent during the same period.

In the past one year, the PSU bank index soared over 60 percent compared to 12 percent and 10 percent gains in the Nifty 50 and the Nifty Bank.

The PSU Bank index was under pressure during the day, with investors resorting to profit booking following a sharp run-up in their prices this month, said Shreyansh Shah, Research Analyst, StoxBox.

Some PSU banking names have run a little ahead of their fair valuation. A rub-off effect from the sharp sell-off in HDFC Bank is also visible in the overall banking sector space, he said.

Investors “are wary about the upcoming second-quarter performance of the banking space, especially considering the fact that most of the names had a higher other income boosting their profitability in the first quarter, he added.

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