While you were busy debating and analysing whether India’s private sector lender will beat its bigger rival in the years to come, smart investors made money by betting on the other end of the sector – PSU bank stocks.
In the last one year, Nifty Bank index has delivered a better-than-FD return of 8 per cent but the Nifty PSU Bank index has outperformed with a 35 per cent return. On a year-to-date basis, the PSU Bank index has rallied over 8 per cent against a flat Nifty Bank.
While ICICI Bank, which is now turning into a favourite of many investors on the back of improving margins and asset quality, has given a return of 20 per cent in the last one year, PSU banks like State Bank of India (SBI) have rallied 41 per cent, Bank of Baroda 73 per cent,
68 per cent and Indian Bank 44 per cent during the same period.
On the other hand, HDFC Bank has eroded nearly 7 per cent of its value in the last one year. Kotak Mahindra Bank is down 2 per cent. Bandhan Bank too has underperformed with a nominal return of just 1 per cent during the period.
‘Big Bull’ Rakesh Jhunjhunwala, who bought a stake in Canara Bank last year, hiked his shareholding to 1.96 per cent last quarter. Earlier in February, he had said the rerating in PSU stocks had just started and that PSU banks will outperform private sector banks by a wide margin going ahead.
Sandeep Tandon, CIO, Quant Mutual Fund, says PSU banks have the potential to outperform private sector banks. “So we like to keep our portfolio more skewed towards public sector banks as a strategy, rather than keeping skewed towards the private sector,” Tandon said.
Global brokerage CLSA prefers corporate banks, which include large PSU banks as well. “We still see enough opportunity in the large corporate side of banks because a lot of these saw a pretty long de-rating through a large part of the last decade when there was a long balance sheet deleveraging cycle. So it is really a kind of mean reversion. The worst part of that balance sheet worry is behind us and their performance is clearly improving,” CLSA’s Vikash Kumar Jain said.
He said retail banks have become very expensive and are seeing some kind of mean reversion in their valuations.
Anshul Saigal of Kotak Mahindra AMC says that during the 2014-2020 cycle, PSU banks and corporate banks had got de-rated but the cycle has now reversed. Selective PSU bank stocks, as well as large private sector banks, should do well this year, he adds.
Sudip Bandyopadhyay of Inditrade Capital recommends aggressive buyers to look at PNB and Bank of Baroda (BoB). “I will not try to venture into smaller PSU banks. If you are an aggressive investor, PNB and BoB are definitely worth buying because the upside from here at the current level looks pretty realistic in the medium to short term.”