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PSU banks jump on rate cut, more gains likely: Experts

Among PSBs, Union Bank of India was the biggest gainer, advancing 6.8%. Canara Bank, State Bank of India, Punjab National Bank and Canara Bank rose 2-4%.

, ET Bureau|
Updated: Oct 05, 2016, 08.45 AM IST
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On Tuesday, Nifty PSU Bank index rose 1.8% and the Bank Nifty gained 0.4%, Nifty gained 0.4%.
On Tuesday, Nifty PSU Bank index rose 1.8% and the Bank Nifty gained 0.4%, Nifty gained 0.4%.
MUMBAI: Shares of public sector banks rose on Tuesday in response to the Reserve Bank of India’s (RBI) move to cut rates by 25 basis points and proposed to ease stressed asset norms. Analysts expect their gains to extend because valuations are cheaper vis-à-vis private lenders and more monetary policy easing would boost their treasury income.

“The rally in PSU banks (PSBs) may continue as valuations are not expensive and the worst appears to be behind us on the credit costs front. PSBs are trading at a significant discount to their book values even after the recent run-up,” said Rajesh Cheruvu, head of equities at Sanctum Wealth Management.

On Tuesday, Nifty PSU Bank index rose 1.8% and the Bank Nifty gained 0.4%, Nifty gained 0.4%.

Among PSBs, Union Bank of India was the biggest gainer, advancing 6.8%. Canara Bank, State Bank of India, Punjab National Bank and Canara Bank rose 2-4%.

Cheruvu said the gains in PSBs had more to do with the RBI’s announcement that it will release guidelines on stressed assets management.

This would ease provisioning requirement for banks.

PSBs have risen 5-126% in the last six months. The Nifty PSU Bank index gained about 31% during the period versus a 13% gain in Nifty. “PSU banks are going to be in better shape than now in six months,” said Mehraboon Irani, principal & head, private client group at Nirmal Bang Securities.

If inflation remains under control then we may see a rate cut before March. It would be prudent to watch what the US Fed does in its December meeting.

Analysts said the September quarter earnings, inflation data and the Fed’s policy meeting in December will be key determinants for PSBs in the near term. However, not all are sanguine.

“In the September quarter, the treasury profits will try to mask problems on the NPA side. We are not seeing any incremental business growth in PSBs. On a sustainable basis, we prefer private banks,” said Harsha Upadhyaya, CIO-equity at Kotak AMC.

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