Such was the show that foreign portfolio investors (FIIs) raised their stake in 13 out of the 14 listed public sector banks, shareholding data analysed by ETMarkets showed.
In the quarter ended September, the Nifty PSU Bank index has given a staggering 28% returns, whereas the Nifty Private Bank index has given a mere 1% return.
If one looks at a slightly longer time horizon, then the PSU Bank index has given an overwhelming 265% returns over a 3-year period, whereas the Private Bank index has given 53% returns.
Of the 14 listed public sector banks, nine of them have given more than 50% returns so far in FY24, and one has turned a multibagger. But among private sector banks, only four have given over 50% returns and those are second-rung banks.
Among the public sector players, Canara Bank, Punjab National Bank, and Union Bank of India saw the maximum rise in FII holding on a sequential basis.
In Union Bank of India, FII holding increased by 143 bps sequentially in the September quarter. In fact, the number of FII/FPIs increased by 71 to 255 in the state-owned lender, Trendlyne data showed. Not only FIIs, but even mutual funds (MFs) increased their stake in the bank.
The second stock is Canara Bank where FII increased their stake by 128 bps sequentially to 10.19% as of September end. The number of FIIs in the stock increased by 36 to 361. Even mutual funds increased their stake in the state-owned bank, albeit marginally.
The third stock is Punjab National Bank, where FIIs increased their stake for the second consecutive quarter. Their holding increased by 83 bps to 2.65% as of September end. Similar to the previous two banks, PNB also saw an increase in holding by mutual funds during the quarter.
Historically, the shift in bets from private to public sector banks has been a valuation play. But over the last few years, public sector banks have seen a structural change in their financial health, with a significant improvement in the asset quality, strong credit growth, robust balance sheets, and all-time high profits.
The non-performing assets in the banking system in aggregate improved dramatically to 3.7% from 11% in FY18, as a result of the fundamental changes brought by the Insolvency and Bankruptcy Act.
“This sea change, one of the most dramatic reforms achieved by (Narendra) Modi, has led to a re-rating of public sector banks in the stock market,” said Christopher Wood of Jefferies.
Public sector banks have outperformed the private sector banks by 153% since November 2020, with the top private sector banks trading sideways despite reporting good results.
Meanwhile in the private sector space, tier-I players such as ICICI Bank, IndusInd Bank, Kotak Mahindra Bank, and Yes Bank saw a reduction in exposure by FIIs in the last quarter.
IndusInd Bank saw the highest, as FII holding reduced by 86 bps sequentially to 41.48% as of September end.
Private banks, particularly the largecap ones have had specific bank-related issues, which has resulted in their underperformance.
Besides, they are also over-owned by institutions when compared to public sector ones.
While private sector banks have taken a backseat, money managers have not moved their eyes off them completely, as India’s credit growth remains healthy is set to benefit the entire sector.
For Prabhudas Lilladher, ICICI Bank is among its top picks in the private sector space, and it has a price target of Rs 1,280, while HDFC Bank is a top bet for Reliance Securities and its price target for the stock is Rs 1,775.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)