The index of state-run lenders on the National Stock Exchange outperformed the broader markets on Thursday. The CNX PSU Bank Index on the NSE traded 1.5 per cent higher as of 10.10 a.m. as compared to a 0.5 per cent gain in the broader Nifty.
State Bank of India (SBI), was among the top gainers on the 50-share Nifty benchmark in early trade, rising over 2 per cent. PSU lenders are on track for a sixth straight day of gains.
Today's gains have come on the back of a Goldman Sachs report that says macroeconomic recovery in India will help reduce stressed loans of state-run banks. PSU banks are expected to outperform in this bull run. CLSA says better economic growth can drive recovery of bad loans. Expect 20 per cent upside to adjust net worth of PSU banks for FY 2016, it added
Investors have been accumulating PSU banks amid a strong rally in Indian markets. The BSE Sensex and the Nifty are trading at record highs. Cyclicals have been the biggest gainers in the current rally. While private banks have already run up sharply, PSU lenders have also seen buying interest over the last month.
The PSU banks index is up 6.41 per cent in last one week and 20.32 per cent in last one month against Nifty's one week gain of 2 per cent and one month gain of 6.68 per cent.
Bank of Baroda (BoB) shares are up 28 per cent over the last one month. Punjab National Bank shares are up 27 per cent, Bank of India has gained 24 per cent and SBI has risen 19 per cent in the last one month. Smaller PSU lenders such as Union Bank and Canara Bank have also outperformed the broader markets with gains of 18 per cent and 15 per cent over the last month respectively.
Strong buying interest in PSU banks is surprising considering these stocks have been out of favour over the last one year. Continuous selloff in these stocks has meant that their valuations had come down sharply too. A sharp deterioration in asset quality amid the economic slowdown has badly hit balance sheets of state-run banks.
Goldman on Thursday upgraded SBI (target Rs. 2060) and Bank of Baroda (target Rs. 840) to buy. CLSA says Union Bank of India, SBI and BoB may see higher upsides to net worth on better recoveries. "PNB, Canara Bank & SBI have superior track record of recoveries," the brokerage added.