PSU Bank bulls: SBI, PNB, IOB among six stocks to hit new 52-week high. What to expect ahead?

At around 1.28 pm, Nifty PSU Bank traded at 4,512.60 lower by nearly a percent. However, in the early deals, the benchmark touched a new 52-week high of 4,617.40.

Indian Overseas Bank was the top gainer rising by more than 9% currently to trade at ₹35.40 apiece. However, IOB has also touched a fresh 1-year high of ₹36.45 apiece today. Next would be UCO Bank trading at ₹35.90 apiece up by 7.97% after touching a fresh 1-year high of ₹36.55 apiece. Bank of Maharashtra as well clocked a new 52-week high of ₹36.25 apiece before trading at ₹35.10 apiece up by 2.93%.

These three stocks are the top bulls currently under Nifty PSU Banks.

Furthermore, PNB stock traded at ₹60.35 apiece up by 1.86% after touching a new 52-week high of ₹60 apiece. Leading public sector lender SBI hit a new 52-week high of ₹629.55 apiece before trading on a flat note.

The other stock that touched a new 52-week high would be Bank of India at ₹103.50 apiece. However, the stock witnessed a selloff in the second half and is currently trading at ₹95.20 apiece down by 4.4%.

In a research note dated December 14, Dalal & Broacha analyst Anusha Raheja said, the banking sector is in one of the best phases currently which is likely to continue over the next 3-4 years’ time given strong credit cycle, high-interest rate environment boosting margins, lowest NPLs currently.

Further, the brokerage’s note added that, unlike general perception, over the last 2-3 years, PSU Banks’ market share in systemic business has not only arrested but rather improved marginally. Incremental NPL formation has reduced considerably and provisions on past NPLs increased to 70-80% levels.

Going forward, the note added, PSU Banks which have a considerable pan-India presence with strong liability franchises will be able to participate in the current above-average credit cycle equally. Also, valuations aren’t at peak levels signaling further room for improvement from the current levels.

On valuations, Dalal & Broacha’s analyst expect strong profitability to continue going forward as well as driving their return ratios, and hence, valuation re-rating is likely to continue going forward as well. Large banks viz. SBI (1.2x FY24e ABV standalone), BOB (1x FY24e ABV), and Canara Bank (0.8x FY24e ABV) are best positioned to capture higher credit demand and their deposit growth is also equally strong and valuations reflect more upside from current levels. While in small & mid-cap banks valuations are running ahead of return ratios; reflecting positives are largely captured and hence, price performance from hereon will be subdued.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.