Bullish Stocks: Union Bank, PNB Hit New 52-Week High, Nifty PSU Bank Jumps 2%; Key Things To Know

The broader markets were in red on Tuesday, but bulls were riding high when it comes to state-owned banking stocks. Nifty PSU Bank touched a new 52-week high of 5,396.85, while Union Bank of India and Punjab National Bank had also registered fresh 1-year highs. Other stocks like Indian Bank, Indian Overseas Bank, Bank of Maharashtra, Bank of Baroda, and PSB among others flirted near their 1-year levels. The robust upside in PSU bank stocks comes ahead of RBI policy and Q2 earnings season.

On Tuesday, the Nifty PSU Bank index ended at 5,383.25, up by 124.95 points or 2.38% after hitting a new 52-week high of 5,396.85 during the trading hours. Union Bank and PNB touched a new 5-week high of 112.65 apiece and Rs 83.50 apiece as well on the day.

All PSU bank stocks were on a bullish note. The majority of these stocks were near their 52-week highs.

Union Bank was the top gainer with shares rising by 5.3% to end at Rs 111.90, followed by Indian Bank and Bank of Maharashtra which gained by 4.12% and 3.67% respectively. PNB shares zoomed by 3.49% to end at Rs 83.

Further, stocks like Punjab & Sind Bank, Indian Overseas Bank, Bank of India, UCO Bank, Canara Bank, Central Bank of India and Bank of Baroda advanced by 2% to a little over 3%. The largest PSU lender State Bank of India (SBI) also gained by 1%.

The banking sector will keenly watch on October 6th any development related to additional CRR requirements of 10% which were imposed by RBI on scheduled commercial banks (SCBs) in the August 2023 policy. CRR of 10% was announced as a temporary move for managing the liquidity overhang in the system due to Rs 2000 banknotes withdrawal from circulation. RBI had already said it would review CRR and liquidity positions in early September to return the impounded funds to the banking system ahead of the festival season.

RBI monetary policy meeting will be between October 4th to 6th, with the outcomes to be announced on Friday.

Apart from this, investors are more optimistic in PSU bank shares than compared to private banks ahead of Q2 earnings. Continued improvement in asset quality, outperformance in terms of profitability from its peers, and lower provisions are some of the key factors expected in the September quarterly results of FY24.

Last week, in its research note dated September 28, Care Ratings said, "SCBs net profit witnessed a robust growth of 68.9% y-o-y for Q1FY24 mainly driven by PPOP growth and lower provisions. PSBs outperformed PVB in the quarter, reporting net profit growth of 124.9% y-o-y y, which is the third time in a row. RoA of SCBs witnessed a healthy improvement on a yearly basis."

For Q2FY24, CARE expects SCBs to face some pressure on a sequential basis in Q2FY24 as CareEdge anticipates a marginal drop in PPOP margins due to the rising cost of deposits and a reduction in low-cost CASA deposits.

Overall, the rating agency said, "Banks are in a better position in the current situation as they have been witnessing robust credit growth over the last one-two year, continuous improvement in the asset quality (NNPA ratio at all-time low levels), lower requirement of the provisions due to buffer available for provisioning, lower incremental slippages, and reduction in restructured assets."

In another note dated September 29, CARE highlighted that the SCBs GNPA ratio has reached pre-AQR levels in Q1FY24 and is expected to continue in FY24 due to healthy growth in advances driven by an uptick in economic activities, lower incremental slippages, and a reduction in restructured portfolios. Hence, the SCB GNPA ratio could improve to 2.90%-3.05% by the end. SCB NNPA ratio is at an all-time low of 0.9% as of June 30, 2023, and is likely to trend even lower in the next few quarters as PSBs continue to report improved asset quality figures.

Further, it said, SCBs also maintain a substantial buffer for provisions, which also creates a somewhat benign credit cost environment.

However, CARE also pointed out that the performance of unsecured loans along with the MSME segment remains a key monitorable. Meanwhile, downside risks include an increase in crude oil prices, global economic slowdown, continued global monetary and liquidity tightening, and elevated interest rates.