On a day when the performance of benchmark indices was subdued, state-owned lenders became the bright spot for markets. The Nifty PSU Bank index jumped 3.4% on Monday, on the back of reports suggesting that the Indian government bonds are likely to be included in global bond indices.
The benchmark Nifty50 also closed the session in the red, down 59.05 points or 0.29% from Friday’s close. This brought a halt to the 11-day gaining streak by the benchmark.
Indian Overseas Bank, UCO Bank, and Punjab & Sind Bank zoomed over 10% each, with IOB gaining 14%. All PSU banks ended in the green. State-owned lenders added Rs 40,977 crore in market capitalization on Monday.
“PSU banks have been doing well thanks to better earnings visibility. Further, with the government increasing focus on state-owned companies, the market is expecting some measures or announcements with respect to public sector names. This trend is here to stay and the momentum in PSU banks will sustain for the time being; they are likely to continue outperforming,” said Chandan Taparia, head (Technical & Derivatives Research), Motilal Oswal Financial Services.
This was in contrast to the Nifty Private Bank index, which ended marginally down 0.83%. All components except IndusInd and City Union Bank closed in the red.
Taparia added that the private banks and Bank Nifty were dragged by the fall in HDFC Bank.
While the Bank Nifty has gained 7% year-to-date (YTD), the PSU Bank index has surged 21% and the private bank index by 8.5%.
Since the March low, the PSU bank index has zoomed 46.3%. In comparison, the private bank index has gained just short of 20% and the Bank Nifty close to 18%.
A senior fund manager who did not wish to be named, said the gains have been mostly in smaller state-owned lenders, who had been losing market share for long.
“On a short-term basis, they make for a good investment, but do not qualify as long-term investments. Small- and mid-cap funds cannot buy too much of an SBI, so the interest is more in the smaller names. As a result, they have rallied,” said the fund manager.
On Monday, 11 of the 12 components of the PSU Bank index hit their 52-week highs, with the exception of SBI.
The fund manager said that liquidity among PSU lenders is quite high, and deposit growth hasn’t picked up pace the way credit growth has.