While BoI has fallen 9 times in the last 10 years in September, the country’s largest public lender SBI has fallen 8 times and so has Bank of Maharashtra. The average returns in September for each of these stocks stand at -7.7%, 3.4% and 3.7% respectively. The biggest fall for them was seen in 2020 which was the year of Covid-19 and the stocks fell between 23% and 18%.
Next in line are Canara Bank, Indian Overseas Bank (IOB), Punjab and Sind Bank (PSB) and UCO Bankwhich they have corrected 6 times each. Bank of India and Bank of Baroda (BoB) have fallen 5 and 4 times respectively.
Meanwhile, the average returns of Nifty PSU Bank stand at -3.6%, with the largest drop in September 2020 of 20.25%, followed by 18% in 2018. The index fell in 2014, 2015, 2017, 2018, 2019 and 2022, while it rose in 2016, 2021 and 2023.
To make matters worse, public bank stocks have been on a downward curve for more than a month and experts fear further consolidation in the future. Over the past month, the public bank index has declined by 2.8%.
The Nifty PSU Bank index has been in a historically downward trend in September, said Sonam Srivastava, Founder and Fund Manager, Wright Research, as she sees current valuations as a constant concern for the market and expects corrections to continue with or without the seasonality factor playing a role.
Seasonality in the public sector banking sector could be a result of multiple factors, including events such as profit-taking, regulatory changes, market conditions and global economic trends. Deviations from past trends cannot be ruled out, he added.
The one-year change in the Nifty PSU Bank index is 56%, which is significantly higher than the Bank Nifty’s return of 16% in the same period. Meanwhile, the overall Nifty is up 30%.
The current weakness is due to a temporary and price correction, said Dr Ravi Singh, Senior Vice President, Retail Research, Religare Broking. He advised investors to follow the prevailing trend without taking anything for granted.
Expert Rahul Ghose, CEO of Hedged.in, echoed these sentiments and expects the consolidation in public sector stocks to continue, calling the rally over the past year “slightly overdone”.
“Tailwinds such as favourable net interest margins (NIMS) and low credit cost period are now behind us,” said Kunal Shah, senior research analyst at Carnelian Asset Management & Advisors. He added that improvement in profitability at public sector banks on account of write-off recoveries was also accelerating. NIM pressure in the near term and NPA issues related to the agri portfolio, along with regulatory actions such as provisioning for expected credit losses (ECL), could keep a lid on re-rating, Shah added.
Brokerage JM Financial In its latest note, it said it sees a 60% probability of negative returns from PSU banks this time, in line with past trends.
Read also: Nifty posts negative returns in 6 out of 10 years in September; adverse seasonality for IFIs too
Tricks of the trade
Decoding the technical charts, Religare’s Singh said the index is on the downside and hovering below the 20-day weighted exponential moving average (WEMA) with the immediate support for the index at 6,500 zone.
Hedged.in’s Ghose advised investors not to venture into buying public banks as he did not see much bright movement ahead. He is eyeing only SBI, with a target of Rs 910 and a stop loss of Rs 845. One should initiate long positions only above 850 levels, he suggested.
Singh has a “Hold” strategy for SBI, PSB, Indian Bank, BoB and Canara Bank, while he has an “Avoid” strategy for Bank of India, IOB and Uco Bank. This analyst has an “Exit” strategy for Bank of Maharashtra, Central Bank, PNB and Union Bank.
(Data provided by Ritesh Presswala)
(Disclaimer: The recommendations, suggestions, views and opinions of the experts are their own and do not represent the views of Economic Times)
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