NEW DELHI: After a long depression, the Modi government has given investors of PSU bank stocks a day in the sun.

A Rs 2.11 lakh crore bank recapitalisation scheme that the Union Cabinet cleared on Tuesday sent the PSU bank stocks soaring on Wednesday morning.

Within minutes, India’s largest lender SBI and four other top PSU lenders in terms of market capitalisation added nearly Rs 70,000 crore to stock investors’ wealth.

Shares of PNB jumped the most at 40 per cent, SBI, Bank of Baroda and Bank of India nearly 25 per cent and Union Bank and Canara Bank in excess of 20 per cent. Others, too, followed suit.

Banking counters were seeing plenty of shorts creations over the past few weeks, and the government bonanza kicked off a rush to cover these positions, which led to the big jump.



“We are not seeing material net buying per se. We could see portfolio repositioning away from private banks and NBFCs towards state-owned banks a bit, because SOE banks are under-owned in general. Having said that, what we are seeing today is also possibly the technical part. A lot of investors were looking at hedging their long exposures on the private banks through shorts on SOE banks,” said Gautam Chhaochharia, Head of India Research of UBS.

With a 25 per cent jump, SBI alone added Rs 43,160 crore to its market capitalisation by 10 a.m. at Rs 2.62 lakh crore. The stock was trading 19 per cent higher at Rs 304 at 10.30 am.

Among other big PSU players, Bank of Baroda added Rs 8,041 crore to the investor kitty. The stock rallied 24.35 per cent to Rs 478. PNB with a 40 per cent jump was the biggest gainer in the league. At 10 am, it was trading 33 per cent higher, commanding an m-cap of Rs 39,239 crore, up Rs 9,852 crore from Tuesday’s close Canara Bank and Bank of India added Rs 3,870 crore and Rs 3,826 crore, respectively, to their m-cap.

“We are positively surprised by the quantum of bank recapitalisation and it matches our estimates of capital requirements for PSU banks for both non-performing asset (NPA) provisioning and some growth. Assuming that the entire infusion is equity in nature, there would be significant dilution for minority investors. But as current prices are higher than FY17 adjusted book values for most PSU banks, this recap packages should drive a re-rating in PSU banks,” Nomura India said in a note.

Overall, these five PSBs added Rs 68750 crore to investor wealth, as their combined market-cap rose to Rs 3.86 lakh crore from Rs 3,17,640 lakh crore.

Nomura sees PNB to be the biggest beneficiary of the announcement as its adjusted book multiples on FY17 basis were higher than that of BOI or Union Bank. Besides, PNB is more sensitive to capital availability than SBI or BOB.

Brokerage Motilal Oswal Securities believes of the total allocation of Rs 2.1 lakh crore, Rs 75,000-80,000 crore will be utilised to meet Basel III capital requirements and support business growth. It expects the rest Rs 1.3 lakh crore to be used for higher provisions.

“Banks which are short on capital and have higher quantum of bad loans will stand to benefit more. We reiterate our buy ratings on PNB, SBI and BoB,” the brokerage said.