Should You Be Taking A Dig Or Avoid PSU Banking Stocks For Now?

By Roshni Agarwal
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    In intra-day trade on Wednesday, Nifty PSU Bank shed some 0.5% on the surfacing of new NPA rules for the banking sector and the trend continues with a similar drop today. Though analystS had been seeing them as structurally positive for the sector in the long run the same did not augure well for SOME them on the bourses.

    And here are discussed few reasons as to why investors should shy away from these stocks as of now:

    Sectorally worst laggards:

    Sectorally worst laggards:

    The PSU banking stocks have been the worst hit since the beginning of the year as the capital infusion plan by the govt was not on the expected lines. The bank stocks have been hit by as much as 6-12% from a year to date perspective.

    Bond yields which are on the higher side have also added to the trouble:

    Bond yields which are on the higher side have also added to the trouble:

     
    Since the later half of 2017, bond yields are rising and as banks are major investors in them, their mark-to-market losses have been triggered to a high. And, this could erode the profitability of the bank by as much as Rs 30,500 crore in financial year 2018.

    Most banking stocks near 52-week lows

    Most banking stocks near 52-week lows

     

    Several PSU banking stocks are trading near their 52-week lows. These include names like Union Bank of India, United Bank of India, Corporation Bank, Dena Bank etc. If market sentiments take a turn for the worse, we might see these stocks fall even more. Buying selectively too makes very little sense at the moment

     

    Increasing credit cost due to NPA woes:

    Increasing credit cost due to NPA woes:

     The outlook maintained by most agencies on PSU Banks is negative as the sentiment is that the performance of these institutions is unlikely to take off in the near term.

    Now the NPA resolution rules by the RBI add to the already battered industry:

    Now the NPA resolution rules by the RBI add to the already battered industry:

    The faster assessment of default accounts will make the banks to account for higher provisioning charges which are most likely to affect their profitability by a huge quantum. Another blow which cannot be ruled out.

    So, it is at best to avoid these stocks and let the whole PSU banking industry take in all the banking reforms at first.

     

    Story first published: Thursday, February 15, 2018, 10:54 [IST]
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