PSU Stocks: PSU bank stocks rally up to 26% in 3 months. Are you too late to join the party?

Top gainers in the pack include

(up 26.5 per cent), (14.8 per cent), (14.2 per cent) and (14.2 per cent).

Even on the 12-month horizon, PSU banks and regional private banks have significantly outperformed Nifty Bank. “Most banks have reported healthy credit growth resulting in the recent broad-based rally, with the mid-tier and non-frontline banks benefitting additionally from steady performance on asset quality,” says a report by Kotak Institutional Equities.

Global brokerage Credit Suisse has outperform ratings on SBI and Bank of Baroda with target prices of Rs 660 and Rs 150, respectively.

“NIM (net interest margin) trends for banks are getting stronger as lending rate increases outpacing deposit rate hikes and favourable loan mix shift towards higher-yield segments are adding to the repricing gains,” the brokerage said, adding that SBI and BoB benefit from the NIM expansion.

Another factor driving interest in the segment is the low valuations. Barring SBI and , other PSU bank stocks are trading at price to book value of less than 1x. On the other hand, the P/BV ratio of and are above 3x and Kotak’s is above 5x.

“The banks have started delivering well on their numbers and if it is sustained, which it should, there is no reason for the valuations to be so cheap. So, you can definitely expect a sustained up move for some of the top PSU banks,” said smallcase manager Abhishek Basumallick who also runs Intelsense Capital.

Last week, the finance ministry reviewed the performance of public sector banks in the backdrop of the first quarter numbers and asked them to step up lending to productive sectors of the economy.

On the technical charts, PSU banks look poised to witness further rally as weekly RSI is far from overbought.

Om Mehra of Choice Broking expects the Nifty PSU Bank index to test 3,500 levels in the coming days. “It has strong support around the 2,780 level as well. The momentum indicators have bounced from the oversold zone and are about to give positive crossover on a daily time frame which suggests strength in the counter,” he said.

Apart from SBI, stocks like Bank of Baroda, Canara Bank and Indian Bank may deliver decent returns in coming days, he said.

Motilal Oswal’s Rahul Shah said PSU stocks, whether defence or financials, are seeing a lot of traction these days. “PSU banks look very attractive. Largecaps like SBI have done well. I think the second-run banks like Bank of Baroda,

and Canara should be in the flavour for the week,” he said.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)