PSU banks near all time high as analysts expect a rerun of 2004-05 corporate capex cycle

• While Nifty 50 has gained over 9% in the last 30 days, Nifty PSU Bank has surged twice as much — over 17% during the period showing strong investor interest into the sector.
• Not only investors, analysts are also bullish on the sector that is quickly recovering from its bad non-performing asset (NPA) phase.
• Bank of Baroda, Canara Bank and Indian Bank are the top gainers in the public sector banking space in the last one month.

Public sector banks are among the top performers on the stock exchanges with valuations reaching all time high as asset quality improves and credit offtake of corporates is also improving.

While Nifty50 has gained over 9% in the last 30 days, Nifty PSU Bank has surged twice as much — over 17% during the period, showing strong investor interest into the sector.

Analysts too are also bullish on the sector that is quickly recovering from the bad non-performing asset (NPA) phase.


“We are right now bullish on the overall sector because most of these companies are still trading at decent valuations. And now the corporates are either expanding or investing in capex, all these funds that they are going to borrow will be from PSU banks. All the credit offtake thing is going to improve. Also, recovery is better than expected as NPAs are coming down with provisions also decreasing,” Shrikant Chouhan, head of equity research (retail) at Kotak Securities told Business Insider India.

He highlighted the fact that a similar capex cycle happened during 2004-05, which led to banking valuations going up sharply ending up giving multi year returns.

Bank of Baroda, Canara Bank and Indian Bank are the top gainers in the public sector banking space in the last one month.
(Data source: NSE)

“There are multiple reasons for the rally in PSU banks stocks -- the government's increased focus on privatization, cheaper valuations and ratings, positive quarterly results,” Manoj Dalmia, founder and director at Proficient Equities.

Some of the public sector banks that have already released their earnings – which reflect the healthy growth momentum in the industry. Last week, Bank of Baroda reported a 79% jump in net profit on the back of strong loan growth, fall in provisions and improvement in asset quality.

Analysts say that PSU banks are all outperformers and all their earnings have beaten estimates. As the economy opens, PSUs will enjoy a monopoly on the advantages that come with a growing economy, according to Sanjiv Bhasin, director at IIFL Securities.

“The list of PSU companies doing well is endless -- Bank of Baroda, Canara Bank and so on. Valuations of public sector companies have always been cheap but it’s just the realization that they can make money and they have transformed themselves,” Bhasin told Business Insider India.

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