Benchmark indices fell almost 3 per cent this week, as selling continued. However, we saw select government shares seeing some traction. There is a little more optimism than before, based on the fact that the worst may now be behind.
What exactly is cooking up in government banks?
Increasingly, we are likely to see bad loans being recovered by banks and this is leading to fresh optimism. PNB would be one of the big beneficiaries.
Take the case of Essar Steel. ArcellorMittal has agreed to pay Rs 50,000 crores and secured lenders would get Rs 42,000 crore on total debt of Rs 49,000. That is a superb recovery, in which banks like SBI, PNB and Canara Bank stand to gain tremendously.
Bhushan Power and Steel Ltd is another case where there is likely to be a quick resolution, as reports suggest so. As per reports a bulk of the committee of creditors have voted in favour of the bid from JSW Steel.
Here again, there would be good recoveries by bankers. In yet another case, there are reports that Tata Sponge Iron will acquire the steel business of Usha Martin. As resolution on these cases through NCLT commence, recoveries should gather steam.
Reasons to be optimistic on government owned stocks
Apart from the debt resolution of some large accounts, there are other reasons to be optimistic. Results in the next few quarters from government owned banks may surprise analysts positively. Take the case of Oriental Bank of Commerce, which recently reported numbers for the quarter ending Sep 30, 2018.
The bank reported a net profit at Rs 101.7 crore for the quarter against loss of Rs 1,750 crore a year-ago and loss of Rs 393.21 crore in June.
Punjab National Bank (PNB) is expected to turn profitable this fiscal and is poised for growth, its Managing Director Sunil Mehta said recently asserting that the Rs 14,000 crore Nirav Modi scam is a bygone.
We like PNB for a number of other reasons. The bank can look at selling its stake in its housing finance subsidiary, which should fetch decent valuations in the coming quarters. It remains the second large government owned bank, in terms of branches, business and assets.
You either get good news or good prices
They say, that you get either good news or good prices - you cannot get both. The news for government owned banks has been bad. This is the reason, you are getting PNB at Rs 66 and not Rs 240 (52-week high). At some stage there is likely to be a bounce in the prices of government owned bank.
It makes sense to buy into the larger players like PNB and Bank of Baroda.
PNB has embarked on a serious transformational exercise for Business Excellence to enhance efficiency, productivity and profitability for long term sustenance and giving the Bank an edge over its competitors.
An independent "THINK TANK" named ‘Mission Parivartan Division' has been formed to initiate, implement and drive change through improvement in People, Products and Processes.
We believe that this will bear fruit in the coming years. Banks would have also learnt from past mistakes and there is unlikely to be reckless lending like before.
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