PSBs rally on privatisation hopes, experts see higher gains going forward

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Public Sector Banks (PSBs) have been rallying despite the volatile and range-bound trade in overall markets for the last one month. Nifty PSU Bank index closed 3% higher on May 14 and the index has climbed up about 13% over last one month.

Over a longer term horizon, the Nifty PSU Bank index has soared 92% over last one year.

So, what is behind the sharp surge of PSU banks?

Apart from the overall market recovery, a major reason behind the rally in public sector banks has been the Budget announcements on privatisation of two PSBs.

However, due to the impact of the second wave of Covid-19, the index has seen a dip in momentum and was down about 20% from highs.

Now in the month of May so far, we have seen a rise in PSU bank stocks yet again.

Measures

Firstly, the Reserve Bank of India (RBI) Governor Shaktikanta Das on May 5 announced several liquidity measures which enthused the markets.

As per the recent domestic institutional investors (DIIs) data, Motilal Oswal Financial Services reported that DIIs have become significantly overweight on PSBs as they have increased stake in Q4.

Privatisation

The latest push for PSBs has been indications by the government on privatisation happening soon.

The recent Cabinet Committee on Economic Affairs (CCEA) meet in the first week of May gave its in-principle approval for strategic disinvestment, along with transfer of management control in IDBI Bank.

Stocks like SBI, Bank of Baroda, Canara Bank and PNB have been vying for market attention lately. They have also largely outperformed their private sector peers over the fortnight through May 14 on hopes of divestment.

The National Asset Reconstruction Company Ltd (NARCL), currently being put together by banks and other lenders, may structurally alter the balance-sheets of banks in such a way that it will further the government’s agenda of divesting its stake in IDBI Bank and privatising two public sector banks (PSBs).Government think-tank NITI Aayog, in consultation with the Finance Ministry, has started deliberations to finalise the names of two public sector banks that will be privatised in the current fiscal as part of the disinvestment process.

Expert views

Dipan Mehta, founder and Director, Elixir Equities, is bullish about the space.

“For the next few quarters, PSU banks look very good and investors should consider investing a certain portion of their portfolio in PSU banks,” he was quoted in the media.

Rahul Sharma of Equity99 also spoke to Money9 and shared his views on PSBs

“The disinvestment buzz is keeping PSB stocks buoyant. I am betting on Canara Bank for good upside in the medium term,” he said.