Rs 13,42,33,00,00000 Wiped Out: PSU Bank Stocks To Buy When They Fall; SBI, PNB, BOB Shares Dipped 13-15%

The steepest decline emerged in top banking stocks as the bears' bandwagon marched on June 4 across the board. After market hours, Bank Nifty dropped by 7.95%, while the Nifty Private Bank index tumbled by 7.04%, but the worst to take the beating was the Nifty PSU Bank index which toppled by a huge 15.14%. The three largest PSU Bank stocks namely SBI, Bank of Baroda and Punjab National Bank ended as top laggards.

SBI shares dropped by 13.37% to end at Rs 784.60 apiece, PNB dipped by 15.15% to close at Rs 116.25 apiece, and another counterpart Bank of Baroda slipped by 15.74% to finish at Rs 250.20 apiece which was the steepest fall among other top Nifty Bank stocks.

During the trading hours, SBI saw the sharpest fall in market value to the tune of Rs 13,42,33,00,00000 or Rs 1,34,233 crore or Rs 1.34 lakh crore in a single day. Overall, in the day, SBI dropped by 19%. This comes after when SBI crossed the Rs 900 mark and Rs 8 lakh crore market cap for the first time on June 3, 2024.

So amidst the sharp fall, which PSU Bank stocks to buy?

State Bank Of India (SBI):

Axis Direct sees SBI shares to cross over the Rs 1,000 mark. In its research report, the brokerage said, "Loan growth and margin sustenance are unlikely to remain a challenge. This coupled with improving fee income profile, reducing operating expenses and declining credit cost, we expect SBI to continue delivering healthy RoA/RoE of 1.2%+/18%+ over the medium term." The brokerage recommends BUY for a target price of Rs 1,010 per share, signalling over 30% potential upside ahead.

The brokerage cited that SBI's management maintains confidence in achieving sustainable growth of 13-15%, aligned with India's expected growth rate of 7-8%. This growth trajectory is supported by stable margins, anticipated to remain at current levels of 3.30%, as the cost of deposits stabilizes and the yield on advances increases by 6bps QoQ. Furthermore, the management emphasized that the majority of deposits have been repriced, which further strengthens their position for sustainable growth.

Punjab National Bank (PNB):

In its latest note, Sharekhan said, "Asset quality trends are quite encouraging and the outlook continues to remain strong. The bank has been guided that the quality of loans sanctioned in post-COVID times is far superior with very low delinquency. Thus, lower slippage trends are likely to sustain and narrow the perceived gap in underwriting concerning peers. Credit cost is expected to fall below 1% in FY25E, which should support RoA closer to 1% in FY25E. Additionally, improvement in operating performance led by fee income and opex is expected to support earnings."

There is a potential of over 21% upside in PNB ahead.

Bank Of Baroda (BoB):

Axis Direct expects the bank credit growth to reach 14-15% for FY25. This loan growth is supported by strong growth in deposits, led by overseas deposits increasing by 27% YoY and term deposits by 9.5% YoY. The bank was able to reduce its Loan Deposit Ratio by 100bps in the current quarter, standing at 80% in Q4FY24. While it expects the lender's credit costs to remain below 1% over FY24-26E. Further, it said that the management believes to be a sustainable target for FY25 as repricing of the MCLR book would help in improving loan yields and reducing dependency on bulk deposits would improve the cost of deposits.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.

On the valuation, the brokerage note said, "BOB has a target of growing loan books at 12-14%. We believe the bank's focus on reducing its corporate mix in its overall loan book would make the bank more resilient during a weaker business cycle. It intends to keep the Loan Deposit Ratio at 80-82% and target NIM of 3.15%. The bank has guided slippages at 1-1.25% and credit costs to remain at 1% level." Hence, it recommended BUY for a target price of Rs 340 per share, which would be nearly 37% upside ahead.