Public Sector Banks Show Promise in Q4
Public sector banks (PSBs) are expected to deliver a strong performance in the fourth quarter of FY24 (Q4FY24), leading to a positive outlook for the near to medium term. This optimism is driven by several factors, including stable asset quality, lower credit costs, and a resilient economy.
Analysts predict that PSBs will report better earnings growth than private banks in Q4FY24. This is primarily due to lower credit costs, which are expected to decline further in the coming quarters. Additionally, the stable asset quality outlook provides further support for this positive outlook.
Market Performance
The positive sentiment surrounding PSBs is reflected in their stock performance. Shares of SBI, Canara Bank, Indian Overseas Bank, Bank of India, Uco Bank, Bank of Baroda, Central Bank of India, and Punjab National Bank all witnessed gains of 2-3% in intra-day trade on Thursday.
The Nifty PSU Bank index, which tracks the performance of PSBs, also outperformed the broader market. It rose by 2.2% at 12:49 pm, compared to a 0.06% decline in the Nifty 50 index.
SBI and Canara Bank Lead the Way
SBI, the country's largest public sector lender, hit a new high of Rs 794 in intra-day trade. Canara Bank also rallied by 3% to Rs 614.95. Both banks have received positive ratings affirmations from Fitch Ratings, further boosting investor confidence.
Outlook for the Future
Fitch Ratings expects the Indian economy to grow by 7% in 2024 and 6.5% in 2025. This growth, coupled with healthy business sentiment and buoyant financial markets, is expected to create a favorable environment for banks to sustain profitable business.
Analysts at Elara Capital believe that the valuation gap between mid-tier and frontline PSBs has narrowed. This suggests that frontline PSBs, such as SBI, may offer better risk-reward opportunities for investors.
Overall, the outlook for PSBs in the near to medium term is positive. Stable asset quality, lower credit costs, and a resilient economy are expected to drive strong earnings growth and support stock performance.