Faster rate cut hopes boost PSU bank stocks

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MUMBAI: Traders mounted bullish positions in state-run banks on Monday as Reserve Bank of India Governor Raghuram Rajan‘s exit has sparked hopes of faster interest rate cuts and easier provisioning norms for nonperforming loans. Outstanding positions in futures contracts of various public sector banks have risen to a six-month high with stocks rallying as much as 45 per cent from their 52-week lows in February.

Analysts attribute the recent rally in these stocks after a prolonged period of pessimism to cheap valuations. Till then, these stocks have been dragged down by issues such as weak capital base and non-performing loans.

“This may or may not happen, but there is a perception that rate cuts would now happen at a faster pace and PSU banks gained the most because their stocks were beaten down”, said Mehraboon Irani, head- private client group at Nirmal Bang Securities.

Open interest in stock futures of State Bank of India, Punjab National Bank, Union Bank among others have surged up to 118 per cent in the past three-months.

“People are building hopes that the new RBI governor may relax norms for non-performing asset (NPA) provisioning, while considering easier monetary policy,” said Sudip Bandyopadhyay, chairman, Inditrade Capital.

“The recent rally in PSU banks can be also be attributed to the fact that investors are hoping for recovery in bad loans with improvement in the economy, there are talks about recapitalisation of banks. The valuations are also attractive with the price-to-book of many PSU banks at less than one.”

Open interest in Union Bank of India’s stock futures has surged 111 per cent since the start of the April series, State Bank of India has seen jump of 50 per cent in futures positions.