Why Are PSU Bank Stocks Falling Today? State Bank of India, PNB, Union Bank, etc Down 4% | Outlook Explained

Why Are PSU Bank Stocks Falling Today: State Bank of India, Punjab National Bank, Union Bank of India, Canara Bank and other PSU bank stocks saw a sharp decline during Thursday's intraday trading session. The sell-off comes amid rising global uncertainty triggered by escalating US-Iran war, which has dampened investor sentiment and sparked a risk-off mood across equities.

Nifty PSU Bank was down 3.5% at 11:30 am on Thursday, April 2. Maharashtra Bank, Bank of India, Indian Bank, State Bank of India, Bank of Baroda, Union Bank, etc were among the top sectoral losers as they were down close to 4.4%, 4.3%,3.9%, 3.76% respectively. Punjab National Bank's stock was down close to 2.79% during Thursday's intraday trading session.

Why Are PSU Bank Stocks Falling Today?

PSU bank stocks, along with private sector bank stocks like HDFC, Axis Bank, ICICI Bank, etc remained under pressure on Thursday's trading session. The weakness in bank stocks was led by a host of factors including the Reserve Bank of India's forex cap announcement, weaker stock market sentiment, etc.

For PSU bank stocks, Thursday's decline could be a part of a cooling-off session after delivering strong returns in last twelve to eighteen months. The decline in Thursday's trading session was a mix of factors like rising global pressure, FII sell-off, rising bond yields, etc.

"First, many PSU bank stocks have already given 40%-80% returns in the last 12-18 months. For example, stocks like State Bank of India and Bank of Baroda have seen strong rallies. So even a 3%-6% fall in one day is normal profit booking. Second, global pressure is rising. Crude oil is moving up toward $85-$90 per barrel, which is not good for India. When oil rises, inflation can go up by 0.5%-1%, and that creates pressure on banks," explained Darshan Rathod, COO, Multyfi.

FII sell-off which continued for more than a month and rising bond yields have also emerged as a concern for bank industry.

"FIIs are pulling money. In the last few sessions, we have seen outflows of around ₹5,000-₹10,000 crore, and banking stocks are the first to get hit. Bond yields are rising again near 7.2%-7.4%, which affects bank treasury income and valuations," added Rathod.

PSU Bank Sector Outlook: Should Investors Worry?

While Nifty PSU has declined more than 18% in one year, Rathod believes that PSU banks are in a strong position to grow given their improved NPAs and strong credit growth.

"PSU banks are much stronger than before. NPAs have come down from 10%+ to around 3%-4%, and credit growth is still healthy at 12%-14%. So short term, yes market can stay weak, and stocks can correct more. But long term, the story is not broken. Simple words this is not fear, this is just cooling off after a strong rally. Smart investors will not panic, they will watch carefully," stated Rathod.

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