Here’s are a few recommendations from experts in case you have an ongoing dilemma regarding this s pace.
PSU banking stocks have had a terrible year so far. The month of March has just begun, but the Nifty PSU bank index has already lost over 2 percent for this month. In fact, in calendar year 2018, the index has lost over 20 percent.
One of the major reasons for this weak show is the major selloff post the Rs 12,000-crore scam involving Punjab National Bank and jewellery firms Nirav Modi and Gitanjali Gems.
The Rs 12,000-crore scam’s investigations reveal that fraudulent transactions likely to have been going on for the last seven years and were unearthed by PNB at one of its Mumbai branches.
Foreign branches of at least two Indian banks, including Axis Bank and Allahabad Bank, are likely to have been caught in the fraud with an alleged credit offering given based on letters of undertaking (LOUs) issued by PNB allegedly towards group companies of Nirav Modi and Gitanjali Gems.
These banks are said to have recalled the loans given based on the LoUs/FLCs (foreign letters of credit) issued on behalf of group companies of Gitanjali Gems — Gitanjali Gems, Gili India, Nakshatra — and to Nirav Modi Group firms, which include Solar Exports, Stellar Diamonds & Diamonds DU.
Credit Suisse has warned that state-run banks, which are typically the largest investors in sovereign securities, could lose more than 200 billion rupees ($3.1 billion) in the January-March quarter, due to a continued spike in bond yields and as they held more bonds than are required by the regulator.
That would be three times more than their losses on bonds in the preceding quarter.
While investors in these stocks may be going through a tough time, there is one side of the argument whether PSU banks have suddenly become attractive at these beaten down valuations. Are they a good bet? Should one look to catch a falling knife or stick to other segments such as private banks or NBFCs?
Here’s are a few recommendations from experts in case you have an ongoing dilemma regarding this s pace.
Stick to private banks
Experts at Yes Securities (I) Ltd believe that investors could choose to stay away from PSU banks. “As attractive as they seem, we would recommend sticking to private banks if one wants to invest in banking space,” Nitasha Shankar, Sr. Vice President and Head of Research at YES Securities (I) Ltd told Moneycontrol.
SBI, Indian Bank could stand out.
While there could be overall pessimism in the PSU banking space, Karvy Stock Broking’s representatives believe that one could avoid fresh entry into this space.
With the Nifty PSU bank down by more than 18% YTD, current pessimism among PSU Banks could continue in the short term in the ones with higher NPAs.
“However, the only PSU BANK which is likely to have a promising future is State Bank of India, Indian Bank. However, from a long-term perspective, Private sector banks with retail focussed are more likely to outperform their corporate lending peers,” JK Jain, Head of Equity Research at Karvy Stock Broking said in an interview to Moneycontrol.
‘Look at it after 12-18 months’
Meanwhile Krishna Kumar Karwa of Emkay Global believes that one could wait and watch the movement on PSU banks and it could probably be an option 12-18 months from now.
“In the overall financial space, one has to be cautious on a sector such as NBFC on the valuation front. In the long term, there may be opportunities in this space,” he told CNBC-TV18 in an interview.
Bond moves
The recent uptick in bond yields is more likely to negatively impact the net interest margins and mostly the mark to market losses of PSU Banks, Jain added.
“However, on a long-term basis, Private lenders who have improved their growth capital by selling stakes in subsidiaries, who have the ability to raise funds through current and savings accounts or raised money through private placements are likely to gain more when compared with their peers in PSU space,” he said.
