Shares of public sectors banks rallied on Thursday as investors found value in beaten-down stocks and brokerages upgraded a few of them as valuations turned attractive after the recent correction amid NPA concerns. The Nifty PSU bank index bounced back from its recent fall and gained as much as 2.4% to close the session at 3,391.35 – its biggest single-day gain since May 25. The index had corrected 15% in the last six weeks and had declined 4% and 6% respectively in May and June. The fall in index in the previous two months was largely driven due to growing concerns over provisioning levels at a time when the sector was starting bankruptcy proceedings against 12 of the country’s largest loan defaulters.
Shares of Punjab National Bank rallied the most and gained 4.9% —its biggest single-day percentage gain in last five months —after Nomura upgraded the stock to ‘buy’ from ‘neutral’. “After the 24% correction in the past two months, we believe incremental risk-reward is turning favourable again for PNB,” said the foreign brokerage which foresees a 32% upside in the stock.
Near-term provisioning will remain elevated given the lower coverage of 41%, but large stock of prudentially written-off NPAs provides comfort on upgrades, Nomura added. Another public sector lender — Bank of Baroda — gained over 3% during the day trade on NSE. The stock had lost nearly 21% of its value in the last two months.
Domestic brokerage Edelweiss which retain its ‘buy’ rating on its attractive valuation observed, “After trailing industry average growth for past many quarters being in consolidation phase, now with internal restructuring and focus it should get back to industry average credit growth. This further supported by improved NIMs will support revenue growth traction.”
While the shares of State Bank of India gained 2.2% to close the session at `281, other public sector banks such as Allahabad Bank, IDBI Bank and Canara Bank added over 3% each.
The rally in banking stocks also helped the benchmark Sensex to hit a record high of 31,369.34, up 123.78 points.