While BoI has fallen 9 times in the last 10 years in September, the country’s largest public lender, SBI, has fallen 8 times and so has Bank of Maharashtra. The average returns in September for each of these stocks stand at negative 7.7%, 3.4% and 3.7%, respectively. The biggest fall for them was seen in 2020, which was the Covid-19 year and stocks fell between 23% and 18%.
The next in line are Canara Bank, Indian Overseas Bank (IOB), Punjab & Sind Bank (PSB) and UCO Bank, which have corrected 6 times each. Indian Bank and Bank of Baroda (BoB) have fallen 5 times and 4 times, respectively.
Meanwhile, average returns by Nifty PSU Bank are at negative 3.6% with the biggest September fall of 20.25% in 2020 followed by 18% in 2018. The index fell in 2014, 2015, 2017, 2018, 2019 and 2022 while rising in 2016, 2021 and 2023.
To make matters worse, stocks of public lenders have been on a falling curve for over a month now and experts fear more consolidation going ahead. In the last one month, the PSU Bank index has declined by 2.8%.
The Nifty PSU Bank Index has exhibited a historical tendency to decline in September, Sonam Srivastava, Founder and Fund Manager at Wright Research, said as she sees current valuations as a running concern of the market, expecting corrections to continue with or without seasonality factor playing a role.
Seasonality in the PSU banking sector could be the result of multiple factors at play, including events such as profit-taking, regulatory changes, market conditions and global economic trends. Deviations from the past trends cannot be ruled out, she added.
One-year change in the Nifty PSU Bank index is to the tune of 56%, which is a significant outperformance over Bank Nifty in the same period with 16% returns. The broader Nifty has rallied 30% in the meantime.
The ongoing weakness is on the back of time-wise and price-wise correction, said Dr Ravi Singh, Senior Vice President – Retail Research at Religare Broking. He advised investors to follow the prevailing trend without presuming anything.
The sentiments were echoed by expert Rahul Ghose, CEO of Hedged.in. He expects PSU stocks’ consolidation to continue, calling the past one-year rally “slightly over-done”.
Tailwinds like supportive NIMS (net interest margins) and period of low credit cost is behind, said Kunal Shah, Senior Research Analyst at Carnelian Asset Management & Advisors. He added that profitability improvement in PSU banks on account of recoveries from write-offs was also pacing off. NIM pressure in the short term and NPA issues revolving around agriculture book along with regulatory actions like ECL (expected credit loss) provisioning, could keep the re-rating in check, Shah added.
Brokerage JM Financial in its latest note said it sees a 60% probability of negative returns by PSU banks this time around, in line with the previous trends.
Also Read: Nifty posts negative returns in 6 out of 10 years in Sept; adverse seasonality for FIIs too
Tricks of trade
Decoding the technical charts, Singh of Religare said that the index is on the negative side and is hovering below the 20-day Weighted Exponential Moving Average (WEMA) with the immediate support for the index lying at 6,500 zone.
Ghose of Hedged.in recommended investors not to venture out for public banks as he saw lacklustre movement going ahead. He has only SBI under his radar for a target of Rs 910 and a stop loss of Rs 845. One must initiate the long only above the 850 levels, he suggested.
Singh has a ‘Hold’ on SBI, PSB, Indian Bank, BoB and Canara Bank while an ‘avoid’ on Bank of India, IOB, Uco Bank. This analyst has an ‘Exit’ strategy on Bank of Maharashtra, Central Bank, PNB and Union Bank.
(Data inputs from Ritesh Presswala)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)