Amid the ongoing rout in the PSU Bank shares, mainly on account of sell-off witnessed in Punjab National Bank, SBI, Allahabad Bank, top brokerages say that the NPLs are on the rise in the space, and investors must be selective in their approach.
Amid the ongoing rout in the PSU Bank shares, and even as the PSU bank index has lost more than 15% in the last one month alone, mainly on account of sell-off witnessed in Punjab National Bank, SBI, IOB and Allahabad Bank, top brokerages advice investors to invest selectively. Neelkanth Mishra of Credit Suisse says that investors should wait for the dust to settle in PSU banks.
Most notably, shares of Punjab National Bank extended losses on Monday trading in deep red for the fourth straight session dropping nearly 6% to hit a new 52-week low, as the second largest lender is currently embroiled in a major Rs 11,400 crore scam. Apart from PNB, shares of SBI plunged by more than 4%m while the shares of Allahabad Bank were trading lower by more than 5% on Monday morning at Rs 52.36.
Top brokerages point out that the PSU banks are still not out of the woods in regard to the burgeoning NPAs. Last week, the SBI Group had reported a staggering Rs 1,886.57 crore net loss for the December quarter of the current fiscal as its bad loans and provisions spiked.
Interestingly, despite the massive PSU bank reform which involves capital infusion of Rs 881 billion, analysts say that investors should be selective in buying stocks from the sector. Interestingly, as of January-17, 21 public sector banks account for more than 65% of banking assets. These banks also account for a massive Rs 9.5 lakh crore of bad loans or non-performing assets. The Finance Ministry had tightened the noose on public sector banks (PSBs) in January, prior to Budget-2018, saying that the massive Rs 2.11 lakh crore bank recapitalisation announced by the government is to ensure that the banking crisis does not get repeated.
Research house Macquarie said that these are just baby steps to tackle the issue of NPAs. So if not the public sector banks, can the investors look at private sector lenders? Taking stock of the results reported by Indian banks in Q3, Credit Suisse says that while the non-performing loans have been on the rise, the profitability too has shown improvement. The slippages have spiked on account of known stress. The house says that it prefers shares of HDFC Bank and ICICI Bank. Neelkanth Mishra pointed out that investors must look to invest in sectors with better EPS trends. Credit Suisse is betting on industrials, metals and the IT sector.