PSU Bank stocks in focus: These 3 state-owned banks from mid-cap section gain most in October - analysts cite reasons behind rally?

PSU Bank stocks in focus: The public sector banks have come in to focus on the back of multiple positive triggers, including improving asset quality. In this regard, three out of the top five gainers from the mid-cap category in October were PSU Banks – Indian Bank, Canara Bank, and Union Bank of India.

Shares of these three public sector lenders have reported stellar growth in terms of both month-on-month (MoM) and year-to-date (YTD) in October, according to a report released by domestic brokerage Motilal Oswal earlier last week.

On MoM and YTD basis, shares of Indian Bank have jumped 29 and 82 per cent, Canara Bank grew by 27 and 45 per cent and Union Bank of India surged by 21 and 24 per cent, respectively. These three stocks have reported strong performance in the July-September quarter of the current fiscal year.

Also Read: Why analysts believe state-owned banks likely to continue their outperformance – highlight key triggers; Nifty PSU Bank up 4.5%

The bull rally, which began somewhere in October in these three PSU counters, has continued till today’s closing as all three stocks hit their respective 52-week highs intraday on Wednesday, eventually aiding the Nifty PSU Bank index to gain most by nearly 4 per cent at market close.

Indian Bank closed over 3 per cent higher to Rs 267.9 per share, while Canara Bank shares were up around 1.5 per cent to Rs 313.9 per share and Union Bank of India shares gained over 10 per cent to Rs 64.45 per cent on the BSE at the market close on Wednesday.

TradeSwift Director and market expert Sandeep Jain believes, PSU banks have been underperformer and are extremely cheap at valuations, they are trying to catch up the bull rally. According to him, the bad assets problem, which was mainly with PSU banks has been resolved by with government.

The central government has come up with multiple initiatives to improve the overall banking sector's health. In this regard, the governmet come up with an initiative of NARCL (National Asset Reconstruction Company Limited), which was set up to take over large bad loans of over Rs 500 crore from banks.

Besides, the market expert also noted that PSU banks are not seeing any NPA (non-performing assets) issues, moreover, the provisioning of old NPA has already been done, so the sector is seen all the positivity, which can also be seen in their quarterly performances.

Amon other triggers, the market expert noted that most of the state-owned banks have also come out of the Reserve Bank of India’s PCA (Prompt Corrective Action) norms.

The objective of the PCA Framework is to enable supervisory intervention at an appropriate interval and require the Supervised Entity to initiate and implement remedial measures in a timely manner, to restore its financial health, according to the Reserve Bank of India (RBI).

Similarly, Hemali Dhame, associate vice-president - research, Kotak Securities said that even though the markets have seen a run-up in prices, it is expected that the strong fundamentals will improve the probability of further rerating albeit gradually from here on.