Public sector lenders turn multibaggers, does this rally have more legs?

However, a number of state-run lenders have delivered multibagger returns from their 52-weeks lows in less than six months as majority of these counters tested their lows in June 2022.

Three public sector banks including –

(127% up), (110% up) and (106% up) – have more than doubled investors’ wealth from their respective 52-week lows.

Other lenders including Indian Bank, Bank of India,

and have rallied 75-95% from their recent lows, rewarding the investors handsomely.

Punjab &

, , Central and have gained over 50% up to 70% each. However, () is up only 41% from its 52% low.

In the last three months, state-owned banks have gained 15-90%, with Union Bank of India leading the gainers.

The performance of these banks in six months has been in the range of 29-111%.

Industry experts remain positive on the public sector banks in the near future on the back of rising credit growth, better reach in the public, strong performance in the recent quarter and falling NPAs.

AK Prabhakar, Head of Research,

Capital said credit growth is much higher than deposit growth and PSBs can attract more deposits than private lenders as their numbers of branches and reach is much higher.

“Restructuring of public lenders, improvement in financial performance and falling NPAs put the state-run lenders in a sweet spot,” he added. “The momentum in the public sector is likely to continue for the next one to two years.”

Even the global brokerage firm Bank of America (BofA) Securities believes the current rally in public-sector banks will continue after these lenders. “This turnaround has further legs in both operational and stock performance,” it said.

Weighed down by dodgy assets and growth pangs for the greater part of the past decade, logged their best pace of credit growth in eight years in the second quarter of FY23, said the international broker.

Analysts believe that PSU banks have more tailwinds versus private lenders going into fiscal 2024, leaving the room for further improvement and scope of recoveries.

BofA Securities has a positive outlook on SBI India with a neutral rating and a target price of Rs 680 per share and it expects Bank of Baroda to lead the rest of the PSU bank pack. It has a buy tag on the lender with a target of Rs 190.

Prabhakar from IDBI Capital remains positive on State Bank of India, Bank of Baroda and Canara Bank in the same order.

PSBs reported an improvement in operating performance, led by a robust pickup in loan growth and a recovery in the corporate segment, said

in its Q2 review report.

NII and fee income saw a healthy growth, with margin expanding, while treasury performance was muted, it added. “We remain watchful of the stress emanating from the SME and restructuring book,” said the domestic broker.

(With data inputs from Ritesh Presswala)

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times.)