Markets reward PSBs, push up their market caps

The current financial year 2022-23 has seen the banking sector produce some unexpected results. The recapitalization of many PSU banks saw them return to profitability and perform very well. This led to the markets rewarding their performance and their market capitalization increased significantly. The PSU or public sector package fared significantly better than private banks.

Looking at the table in the article one can see that the benchmark indices saw a slight decline in the first quarter of 22-23 with the BSESENSEX losing 9.48 percent and NIFTY down 9.65 percent against BANK NIFTY lose less by 8.11 percent. In the second quarter of 22-23, BANK NIFTY gained 15.58 percent against BSESENSEX gained 8.31 percent and NIFTY gained 8.33 percent. Since October 1 in the 45-day period, the BSESENSEX has gained 7.38 percent while NIFTY has gained 7.10 percent. Against this, Bank NIFTY got 9.85 percent. It is clear that the BANK NIFTY outperformed the benchmark indices in each of the three periods.

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For the period from April 1 to November 18, the BSESENSEX gained 5.28 percent with NIFTY gaining 4.83 percent. BANK NIFTY gained 16.67 percent.

Let’s look at some of the leaders and laggards in the banking pack. The top performer was Karur Vysya Bank which gained 121.27 percent in the period from April to November with the share price moving from Rs 46.30 to Rs 102.45. This was followed by Union Bank of India which rose from Rs 38.75 to Rs 73.85, a gain of 90.58 percent. Third in the ranking was Indian Bank which gained 78.35 percent, rising from Rs 153.80 to Rs 274.30.

The laggards were led by newly listed bank Tamilnad Mercantile Bank Limited which gained 6.72 percent from its price of Rs 478.50 to close at Rs 510.50. If one looks at the issue price, the shares were issued at Rs 510, which effectively means that the share gained Rs 0.50 from the listing which took place on 15 September.

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This was followed by HDFC Bank which got 9.80 percent, RBL 10.76 percent and Kotak Mahindra Bank 11.62 percent.

If one looks at the total performance, one bank obtained more than 100 percent, 2 banks obtained between 75-100 percent, 2 banks obtained between 50 and 75 percent, seven banks obtained between 25 and 50 in -percent, seven banks obtained between 10-25 percent and 2 banks obtained less than 10 percent.

Top earner Karur Vysya Bank has increased its profitability significantly and the share trades at a PE of just above double digits and a P/B of just around 1.08. Second performer Union Bank saw a boost in profits. The share is trading at a PE that is still in single digits at around 8.51 and lP/B of 0.68 times.

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Compare this to HDFC Bank which has a PE multiple of 22.36 and lP/B of 3.54. Similarly, Kotak Bank trades at a PE multiple of 40 times and a P/B of 5.05 times.

Looking at the data from the table it is very clear that the PSU banks stole the show and did very well. Restructuring and capitalization by the government helped to put these banks back on track. As the country continues to grow with the economy back on track, expect these banks to continue to perform.

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