Markets reward PSBs, push up their market caps

The current financial year 2022-23 has seen the banking sector produce some unexpected results. The recapitalisation of many PSU banks has seen them returning to profitability and performing exceedingly well. This has led to the markets rewarding their performance and their market capitalisation rising significantly. The PSU or public sector pack has fared significantly better than the private banks.

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

For the period April 1 till November 18, the BSESENSEX gained 5.28 per cent with NIFTY gaining 4.83 per cent. BANK NIFTY gained a staggering 16.67 per cent.

Let us look at some of the leaders and the laggards in the banking pack. The top performer was Karur Vysya Bank which gained 121.27 per cent in the period 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 per cent. The third in the ranking was Indian Bank which gained 78.35 per cent, 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 per cent from its price of Rs 478.50 to close at Rs 510.50. If one were to look at the issue price, shares were issued at Rs 510, which effectively means that the share gained Rs 0.50 since listing which happened on September 15.

This was followed by HDFC Bank gaining 9.80 per cent, RBL 10.76 per cent and Kotak Mahindra Bank 11.62 per cent.

If one were to look at the total performance, one bank gained more than 100 per cent, 2 banks gained between 75-100 per cent, 2 banks gained between 50 and 75 per cent, seven banks gained between 25 and 50 per cent, seven banks gained between 10-25 per cent and 2 banks gained less than 10 per cent.

The top gainer Karur Vysya Bank has increased its profitability significantly and the share trades at a PE of slightly higher than double digit and a P/B of just about 1.08. The second performer Union Bank saw a spurt in profits. The share is trading at a PE which is still in single digits at around 8.51 and the P/B of 0.68 times.

Compare this with a HDFC Bank which has a PE multiple of 22.36 and the P/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 have stolen the show and have done very well. The restructuring and capitalisation by the government has helped in putting these banks back on track. As the country continues to grow with the economy back on track, expect these banks to continue to perform.