Shares of public sector banks (PSBs) continued to significantly underperform private lenders and the benchmark indices as high valuations and slowing deposit growth propelled investors to book profits in the PSB stocks. The Nifty PSU Bank index is down around 5% in September, on top of a 5.6% decline in August. The sectoral index is down 18% from its 52-week high level, with shares of some of its constituents declining more than 30% from their highest levels in the last one year.
On Monday, the sectoral index closed 0.2% lower at 6,641.95 points, while the Nifty Private Bank index rose over 1%. The benchmark Nifty ended 0.3% higher. Shares of PSU banks witnessed a sharp rally over the past two years as an improvement in their asset quality and historical valuation gap with private sector peers provided investors with an opportunity. Even after the sharp correction seen in the last couple of months, the Nifty PSU Bank index is up 122% from September 2022 levels.
“I think what is happening is investors are unwinding their positions. They had accumulated PSU bank stocks in a big way since October-November 2022. They got good appreciation, and at current levels, they are taking profits and moving to sectors that are showing signs of movement,” said Deepak Jasani, head of retail research at HDFC Securities.
Last week, global brokerage firm Goldman Sachs downgraded shares of State Bank of India to ‘sell’ from ‘neutral’, saying the risk-reward was not favourable for the stock. The brokerage also highlighted the increasing delinquencies in the unsecured loan book, and said, “We note that PSU banks have historically shown higher delinquencies vs private (banks)/NBFCs, which appears to be repeating even in this cycle.”
(Data contribution from Kishor Kadam)