Bank of Baroda, PNB, SBI, Canara Bank: 4 PSU bank shares hit 52-week high today. What's next for PSBs?

Bank of Baroda (BOB), Punjab National Bank (PNB), State Bank of India and Canara Bank were four PSU bank stocks that hit their fresh 52-week highs today. A sharp earnings turnaround on asset quality improvements and attractive valuations contributed to strong PSB show, said analysts.

Considering PSBs with surplus SLR and higher LCR, we opine PSBs would be key participants in the variable repo rate (VRR) volumes (Rs 9 lakh crore ) with cut-off rates at 6.7 per cent (for 14 days and 4 days, said B&K Securities.

"The usage of borrowed funds with rollovers would aid the margin. This phenomenon could play out during 4QFY24. From 1QFY25 onwards, with a likely reduction in market yields, the banks with higher share of fixed-rate loans and repo-linked loans would be better off. Among the PSBs, SBI would be a preferred pick," B&K Securities.

Also, B&K Securities said MPC’s decision on withdrawal of accommodation to contain inflation within its target would be unfavourable for private banks considering their liquidity condition. "In the near-term (during 4QFY24), PSBs would be more comfortable placed considering their liquidity position. PSBs would have sourced fundings through the borrowings; PSBs still have surplus liquidity with LCR at 125-140 per cent, on average," it said.

Jefferies noted that PSU Bank index is up 78 per cent YoY and has outperformed the private banks by 70 percentage points, noting PSU banks typically enjoyed lower loan-deposit ratios, allowing them to push loan growth. PSU bank credit growth in FY24 is within 2-3 percentage gap with private banks against the 8-10 percentage gap in growth seen pre-Covid.

"A comparison of PSU Bank valuations versus the 2006-12 period (similarly strong fundamentals and rising capex cycle) suggests a rerating potential of 25-30 per cent on PE/PB valuations. Normal RoE compounding based returns of 15 per cent-plus would be over and above," it noted.

On Thursday, BOB shares hit a 52-week high of Rs 277. They were later trading at Rs 273.35 level, still up 1.88 per cent. The scrip hit a high of Rs 271.35 on February 14.

In the case of Canara Bank, the banking stock was up 3.56 per cent at Rs 586.25.This stock hit a 52-week high of Rs 657. The PSU bank stock had touched a high of Rs 635 on February 8.

PNB bettered February 2 stock price and hit a fresh 52-week high of Rs 657. SBI made a high of Rs 761.35. PNB shares were up 3.98 per cent at Rs 127.90 while SBI shares also added 2.02 per cent to Rs 758.35.

"Improving asset quality and the government's continued focus on fiscal prudence attracted PSU banks, yet concerns lingered regarding their elevated valuations," said from Vinod Nair, Head of Research, Geojit Financial Services.

Motilal Oswal has PSU banks among its preferred sectors. It likes SBI.

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