As with the price movement in the case of SBI that merged with its associate banks and BOB that merged with Dena and Vijaya Bank, there will a positive movement at first, which can then be guided by operational performance post merger comes into effect. Nonetheless, there is expected no major outperformance.
It is again to be put forth to tread the path of rationalization and help spur the ailing PSBs, on Friday, Nirmala Sitharaman announced big bang merger in PSBs, wherein after the merger is effected we will have just 12 public sector banks instead of 27 currently.
1. PNB with OBC and United Bank
2. Canara Bank and Syndicate Bank
3. Union Bank of Indian, Andhra Bank and Corporation Bank
4. Allahabad Bank and Indian Bank
All in all what experts see from this merger is rationalization across cost structure, bank branches that is expected to bring in more cost efficiency. Also, the FM stressed that banks will help push Modi 2.0 government achieve its $5 trillion economy.
"With the success of the past mergers with SBI and Bank of Baroda, initial reaction may be positive, but a strong outperformance is not likely," said Deven Choksey, Group Managing Director at KR Choksey Investment Managers.
So, once the mergers become effective, stock movement will be widely guided how the overall success of the newly merged entity pans out in terms of management restructuring, human resource efficacy, NPA resolution, recovery etc.
Given the steps taken, PSBs again have turned attractive as in some 6-8 quarters, PSBs will begin to show improvement and the sharp correctness also makes good sense to consider investment in these stocks.