Why it Could Be The Right Time to Buy Stocks of PSU Banks

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It might seem like the last place you will put your money in right now would be in shares of state-owned banks, yet, you have to consider the seasonality factor.

Nifty's PSU (Public Sector Units) Bank Index was dragged down as much as 22% compared to only a 3% decline in Nifty 50 Index. Now, Nifty 50 is trading at 3.5 times the bank index, which is caused the price ratio to reach its highest level since 2016. It is also above the five-year average.

Why it Could Be The Right Time to Buy Stocks of PSU Banks

In 2016, when the ratio had fallen below average after reaching current levels, Nifty gained 16% while Nifty PSU Bank Index had surged 60%.

Similarly, when priced ratio rose 2.9 times in 2014 and then declined to 1.85, Nifty surged by 19%, whereas PSU Bank Index doubled. Numbers suggest that in 9 out of 14 years, PSU Banks ended in April with gains.

So far, IDBI Bank Ltd has been the best performer this year among the state-owned banks with a more than 20% gain and the only Nifty PSU Index member to return gains. On the other hand, Punjab National Bank, hit by fraud has been the biggest loser.

(Inputs from Bloomberg)

Read more about: psu bank, nifty psu bank, nifty 50
Story first published: Wednesday, April 4, 2018, 7:12 [IST]
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