From neglected to favourites, PSU banks saw massive buying interest on Wednesday which pushed the market cap of banks in the NSE PSU Bank Index by more than Rs 1 lakh crore.
Fortunes changed for other PSU banks too after the Indian government announced an unprecedented recapitalisation plan which was in the offing for some time now to boost private investment, improve capital ratio, and boost economic growth in Asia’s third-largest economy.
The government has announced recapitalisation of Rs 2.11 lakh crore for state-owned banks which comes as a big relief for these banks that are starved of equity capital.
"The “Great Recap”, as it could possibly be remembered surprised the Street positively. The finer details and whether the recaps impact is neutral on the fiscal side are things which need to be evaluated,” Kunj Bansal - Executive Director & CIO – Equity, Centrum Wealth Management told Moneycontrol.
“Having said that, the freeing up of credit in the PSU banking system is positive. PSU banks were sitting on a huge pile of cash which was earlier parked in G-Sec and could now be better utilised towards a bank's actual purpose i.e. borrow from savers and extend credit to industry,” he said.
State Bank of India (SBI) added about Rs 61,000 crore in market capitalisation and surged past ONGC, Maruti Suzuki, HDFC, and Hindustan Unilever to cement its place at the fifth largest company by market capitalisation on the BSE.
Almost 50 percent of the rise in market cap on the BSE on Wednesday came from PSU lenders. The components of Nifty PSU Bank index saw a rise of Rs 1.08 lakh crore in a single day led by SBI, Punjab National Bank, BoB, Canara Bank, and Bank of India, etc. among others.
Punjab National Bank, Bank of Baroda, OBC, Canara Bank etc. were among stocks that saw gains of 20 to 50 percent. It looked like short-covering played a decisive role in supporting the gains.
Punjab National Bank added Rs13,576 crore in market cap, followed by Bank of Baroda which added Rs10,380, and Canara Bank added Rs7209 crore in market capitalisation.
Other banks such as UCO Bank, Indian Bank, Central Bank, Indian Overseas Bank, Corporation Bank, Vijaya Bank, Bank of Maharashtra, J&K Bank, and Dena Bank added a little over Rs10,000 crore in market cap on Wednesday.
PSU banks which were marked underperformers due to rising NPA levels and falling margins have come back to limelight thanks to government’s effort to revive the economy by injecting liquidity into ailing state-owned banks.
Bansal of Centrum Wealth Management Ltd said that from a market participant perspective, this segment has been an underperformer. In fact, the weight of the banking and financial services sector in the Nifty index is around 37 percent, of which the share of the PSU bank segment had fallen to below 5 percent.
Morgan Stanley in a research note said that the India government plan to recapitalise banks or troubled asset relief program (TARP) will break the five-year-plus cycle of NPLs.
The global research firm doubled upgraded SBI, ICICI Bank, and Punjab National Bank to Overweight (OW). It also raised Axis Bank to OW from equal-weight EW, and Bank of Baroda to Equal-Weight (EW) from Under-Weight (UW).
This is the first time since early 2011 that Morgan Stanley had an OW rating on SBI and PNB.
Earnings for these banks will remain under meaningful pressure in FY18 and FY19 as the bank provides for bad loans. But from F2020, ROEs could spike, said the note.
IDFC in a note said that within PSU banks, they like SBI, the most on fundamentals. Given the overall benefit to PSU banks space, it has also added SBI to IDFC top picks.
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