“Several PSBs have raised capital from the market and have a healthy Tier-1 ratio, which should aid business growth, particularly as the capex cycle revives post general elections,” said Motilal Oswal’s analysts Nitin Aggarwal, Dixit Sankharva and Disha Singha in a note to clients.
The brokerage’s price targets on shares of public sector banks imply upsides of 17-24% in five out of the six lenders it tracks.
It said public sector banks have reported a strong earnings turnaround since FY21, with five of the six PSBs (except PNB) achieving Return on Assets (RoA) of 1%.
“Select PSBs are already guiding to reach 1.2% RoA while our current earnings projections indicate FY25E RoA to remain in the range of 1.0-1.1%, which implies scope of continued earnings upgrades,” said the brokerage’s analysts. “We believe that treasury gains may further support sector earnings as the rate environment moderates and will also help PSBs further strengthen their balance sheet.”