At a time when benchmark performance was subdued, state-owned lenders became the bright spot in the markets. The Nifty PSU Bank index jumped 3.4% on Monday, following reports suggesting that Indian government bonds are likely to be included in global bond indices.
The benchmark Nifty50 index also closed the session in the red, down 59.05 points or 0.29% from Friday’s close. This ended the benchmark index’s 11-day streak of gains.
According to Bloomberg, the strong performance of PSU lenders was driven by reports suggesting the potential inclusion of Indian government bonds in global bond indices, which could generate gains and trigger a rerating.
Indian Overseas Bank
“PSU banks are doing well due to better profit visibility. Additionally, as the government increasingly focuses on state-owned enterprises, the market expects certain measures or announcements regarding public sector names. This trend is here to stay and the momentum of PSU banks will continue for the time being; they are likely to continue to outperform,” said Chandan Taparia, head (technical research and derivatives), Motilal Oswal Financial Services.
This was in contrast to the Nifty Private Bank
Taparia added that private banks and Bank Nifty
While the Bank Nifty has gained 7% year-to-date (YTD), the PSU Bank Index has surged 21% and the Private Banks Index 8.5%.
Since the March low, the PSU banking index has climbed 46.3%. In comparison, the private banks index gained just under 20% and the Bank Nifty almost 18%.
A senior fund manager, who wished to remain anonymous, said the gains were mainly driven by smaller state-run lenders, which had long been losing market share.
“In the short term, they are a good investment, but are not considered long-term investments. Small and mid-cap funds cannot buy too many SBI bonds, so interest is more in smaller names. As a result, they recovered,” the fund manager said.
On Monday, 11 of the 12 constituents of the PSU Bank Index touched their 52-week highs, except the SBI.
The fund manager said liquidity among PSU lenders is quite high and deposit growth has not accelerated like that of credit.