PSU bank stocks rise up to 17.5% in previous five sessions amid strong Q2 performance

In October, stocks of Indian public sector banks experienced a notable rebound, even as the major indices faced their worst monthly performance in over four years. The Nifty PSU Bank index ended the month with a slight decline of less than 0.50%, in contrast to the more than 6% drop in both the Nifty 50 and Sensex.

This marked the third consecutive monthly decline for the Nifty PSU Bank index; however, it concluded the last week of October with a significant gain of nearly 8%, the largest weekly increase in 10 months.

This rally enabled the index to recover 9.6% from its October low, indicating renewed momentum in PSU banking stocks despite the weakness in the broader market.

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The overwhelming results were stronger-than-expected September results from banks like Bank of Baroda, Indian Bank, and Canara Bank, marking exceptional achievements. Additionally, domestic brokerage firms raised target multiples for these stocks, providing momentum for a rally in recent sessions. 

So far, nine out of twelve public sector banks have reported their September quarter results, with each showing a rise in net profit and an improvement in asset quality. Punjab National Bank (PNB) led the gains with a profit surge of over twofold, reaching Rs 4,306 crore, supported by increased interest income and stronger recoveries.

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Asset quality also improved, with PNB’s gross NPAs falling to 4.48% from 6.96% a year ago, while net NPAs dropped to 0.46% from 1.47%. Similarly, the Central Bank of India posted a 51% profit increase to Rs 913 crore, in Q2 with gross and net NPAs decreasing to 4.59% and 0.69%, respectively.

UCO Bank reported a 50% jump in net profit to Rs 603 crore, alongside reductions in gross NPAs to 3.18% and net NPAs to 0.73%. Bank of Baroda recorded a 23% rise in profit to Rs 5,238 crore. Its gross NPAs improved to 2.5% and net NPAs to 0.6%.

Indian Bank also saw a 36% increase in profit, reaching Rs 2,707 crore, while bringing gross NPAs down to 3.48% and net NPAs to 0.27%. While public sector banks reported improvements in asset quality, private sector lenders like HDFC Bank, Kotak Mahindra Bank, IndusInd Bank, RBL Bank, and IDFC First Bank saw gross bad loans as a percentage of total assets increase by 2 to 19 basis points during the quarter.

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