psu financial institution shares: FIIs fall in love with engaging PSU financial institution shares, ditch personal sector stars in Q2

Public sector banks, which have been outperforming their personal sector friends by a large margin over the past couple of years, continued to take action within the final quarter as effectively, giving good-looking returns to buyers.

Such was the present that international portfolio buyers (FIIs) raised their stake in 13 out of the 14 listed public sector banks, shareholding knowledge analysed by ETMarkets confirmed.

Within the quarter ended September, the Nifty PSU Financial institution index has given a staggering 28% returns, whereas the Nifty Personal Financial institution index has given a mere 1% return.

If one seems to be at a barely longer time horizon, then the PSU Financial institution index has given an amazing 265% returns over a 3-year interval, whereas the Personal Financial institution index has given 53% returns.

Of the 14 listed public sector banks, 9 of them have given greater than 50% returns to this point in FY24, and one has turned a multibagger. However amongst personal sector banks, solely 4 have given over 50% returns and people are second-rung banks.

Among the many public sector gamers, Canara Financial institution, Punjab Nationwide Financial institution, and Union Financial institution of India noticed the utmost rise in FII holding on a sequential foundation.

In Union Financial institution of India, FII holding elevated by 143 bps sequentially within the September quarter. Actually, the variety of FII/FPIs elevated by 71 to 255 within the state-owned lender, Trendlyne knowledge confirmed. Not solely FIIs, however even mutual funds (MFs) elevated their stake within the financial institution.

The second inventory is Canara Financial institution the place FII elevated their stake by 128 bps sequentially to 10.19% as of September finish. The variety of FIIs within the inventory elevated by 36 to 361. Even mutual funds elevated their stake within the state-owned financial institution, albeit marginally.

The third inventory is Punjab Nationwide Financial institution, the place FIIs elevated their stake for the second consecutive quarter. Their holding elevated by 83 bps to 2.65% as of September finish. Much like the earlier two banks, PNB additionally noticed a rise in holding by mutual funds throughout the quarter.

Traditionally, the shift in bets from personal to public sector banks has been a valuation play. However over the previous few years, public sector banks have seen a structural change of their monetary well being, with a big enchancment within the asset high quality, sturdy credit score development, sturdy stability sheets, and all-time excessive earnings.

The non-performing belongings within the banking system in mixture improved dramatically to three.7% from 11% in FY18, because of the basic adjustments introduced by the Insolvency and Chapter Act.

“This sea change, one of the dramatic reforms achieved by (Narendra) Modi, has led to a re-rating of public sector banks within the inventory market,” mentioned Christopher Wooden of Jefferies.

Public sector banks have outperformed the personal sector banks by 153% since November 2020, with the highest personal sector banks buying and selling sideways regardless of reporting good outcomes.

In the meantime within the personal sector house, tier-I gamers comparable to ICICI Financial institution, IndusInd Financial institution, Kotak Mahindra Financial institution, and Sure Financial institution noticed a discount in publicity by FIIs within the final quarter.

IndusInd Financial institution noticed the very best, as FII holding diminished by 86 bps sequentially to 41.48% as of September finish.

Personal banks, notably the largecap ones have had particular bank-related points, which has resulted of their underperformance.

Moreover, they’re additionally over-owned by establishments when in comparison with public sector ones.

Whereas personal sector banks have taken a backseat, cash managers haven’t moved their eyes off them fully, as India’s credit score development stays wholesome is about to learn all the sector.

For Prabhudas Lilladher, ICICI Financial institution is amongst its high picks within the personal sector house, and it has a worth goal of Rs 1,280, whereas HDFC Financial institution is a high guess for Reliance Securities and its worth goal for the inventory is Rs 1,775.

(Disclaimer: Suggestions, options, views and opinions given by the specialists are their very own. These don’t characterize the views of Financial Occasions)