The banking sector stocks seem to be little overvalued as the pressure of increasing bad loans piles on their underlying fundamentals. But the very recent mega plan of Rs 2.11 lakh crore by Narendra Modi government to recapitalise the NPA-laden PSU (public sector undertaking) have brought back the sentiments. As we look on to the stocks of banking entities, private banks appear to be more promising in terms of returns. The banking industry heavyweight stock HDFC Bank has returned about 50% since the beginning of this year while India’s largest lender State Bank of India was up only 26% (approx) so far in 2017.
In terms of stock returns, there are more shares which have vastly outperformed the key equity indices, for example, Federal Bank, IndusInd Bank, Yes Bank, Kotak Mahindra Bank, RBL Bank, South Indian Bank, gaining up to 81%. The benchmark indices Sensex and Nifty had returned about 24-26% in the present calendar year so far. But after the mega plan of Rs 2.11 lakh crore was announced the rally in PSU bank stocks has led the shares of Punjab National Bank as the top gainer in 2017. On the day after the recapitalisation plan was announced the stock of Punjab National Bank zoomed as much as 46% to Rs 202.05 on NSE.
Shares of Punjab National Bank hit the 52-week high of Rs 231.45 on 26 October 2017 and made a 52-week low of Rs 112 on 29 December 2016. The stock of PNB advanced 8.3% to Rs 213 on Monday which led it to the top performer of 2017 with a year to date return of 84%. More than 4 crore shares have exchanged hands as at 1:30 pm today. Following the day after the PSU bank recapitalisation news broke, more than 32 crore shares of PNB were traded in just two days (25-26 October 2017) out of about 71.5 crore shares available to trade.
Earlier last week in a major announcement, Finance Minister Arun Jaitley said that the cabinet has approved Rs 1.35 lakh crore for India’s ailing public banking system from recapitalisation bonds, of the total approved 2.11 lakh crore. Recap Bonds are used as payment for the shares bought by the government to ailing banks in a bid to raise their capitals. Earlier in the 90s, the then government had issued recap bonds to borrow from the banks without allowing fiscal deficit to expand.