MUMBAI: Foreign investors turned bullish on public sector banks (PSBs) in the fourth quarter while their interest waned in the private lenders. Foreign portfolio investors (FPIs) have trimmed their stake by up to 6% in nine private banks, but raised their holdings in 10 PSBs by up to 3%.
“PSBs have cleaned their books by reducing non-performing assets and increased the share of retail loans, which brightened their prospects for near and mid term,” Kaitav Shah, lead BFSI analyst, Anand Rathi Institutional Equities, told FE. “Private banks were under pressure due to the contraction of net interest margins and challenges in deposit mobilisation,” he added.
PSBs are also expected to report higher treasury income for the fourth quarter due to decline in bond yields as they hold significant volume of government securities, he added.
Union Bank witnessed the highest quarter-on-quarter increase of 2.79% by FPIs while Punjab National Bank witnessed a 1.72% rise in Q4. Among the private lenders, Dhanlaxmi Bank saw the highest drop of 5.79% followed by HDFC Bank, which saw FPI stake fall of 3.86%. However, domestic institutional investors (DIIs) raised their stake in HDFC Bank by 2.4% to 29% in Q4.
Analysts say that the valuations of PSB stocks still look reasonable in the context of business growth and profitability. “PSBs historically were facing three issues — governance, technology and asset quality. With new leadership and bankruptcy code in place, all three issues are behind,” said Manoj Bahety, founder and fund manager, Carnelian Asset Management & Advisor.
“Besides better earning growth outlook, PSBs offer an improved return on assets (ROA) and return on equity (ROE) trajectory with much lower valuations than private peers, and hence deserve allocation of higher weights,” he added.
Analysts expect PSBs to maintain the trend of improving asset quality in coming quarters.
“We estimate PSBs to report a healthy earnings growth of 12% y-o-y/33% q-o-q amid stable margins, decent growth, controlled opex, moderate treasury gains and benign credit cost,” said Motilal Oswal Financial Services in a report. “ The ongoing improvement in asset quality is expected to continue, with controlled slippages, complemented by robust recoveries, upgrades and sales to the National Asset Reconstruction Company of India, which will enhance asset quality ratios,” it added.
Source: The Financial Express