Top performing smallcap mutual fund doubles holding of this PSU bank stock in a month

Even though PSU banking stocks have run-up sharply this year, some analysts still find them attractive.

VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said the better-than- expected credit growth in the economy, now running at 17.2% as per the latest RBI data, is driving the rally in the Bank Nifty.

“Price action in PSU banking stocks indicate interested buying in this segment whose valuations are, even after the recent run up, attractive,” he added. The Nifty PSU bank index is up nearly 75% this year while PNB is up about 55% year to date.

Rated 5-stars by Value Research, Quant Small Cap Mutual Fund has delivered CAGR return of 56% in 3 years and 24% in 5 years. The primary investment objective of the scheme is to seek to generate capital appreciation and provide long-term growth opportunities by investing in a portfolio of small cap companies. It is benchmarked against Nifty Small Cap 250 Index.

The other top holdings of Quant Small Cap Mutual Fund included ITC Limited, IRB Infrastructure Developers Limited, RBL Bank Limited, HFCL Limited and India Cements. Recently listings like Archean Chemical Industries Limited and Bikaji Foods International Limited are also part of the fund’s top 10 stock holdings.

PNB recently got approval to divest its entire stake in UTI Asset Management Company Limited as part of its non-core asset sale plan to shore up its capital base. The lender also recently issued and allotted Basel Ill Compliant Tier-II Capital Bonds at a coupon of 7.89% p.a. aggregating to Rs.4000 crore on private placement basis.

In a recent note, Motilal Oswal said: “We remain watchful on margin (banking) over FY24, though we expect NIM to improve in the near term, especially for PSU Banks.” 

“Private Banks have traditionally commanded a greater share of higher yielding assets v/s their PSU counterparts due to their dominance in Unsecured loans. The increasing focus of PSU Banks on this segment has reduced the gap in lending yields on fresh loans between the two. Most Banks were sitting on excess liquidity during the COVID-led lockdown period to navigate the unanticipated stress. As fear of the pandemic reduced and credit growth started to pick up, Banks started deploying this excess liquidity. While Banks, in general, are sitting on a comfortable LCR ratio, PSU Banks have a significantly stronger LCR ratio than their private peers,” the brokerage said.

Motilal Oswal has a neutral rating on PNB while SBI is one of its top pick in the PSU lender space.