PSU Bank hovers Aimlessly Post Demonetization

After all the measures implemented by the Government like capital infusion, demonetization, change in management, Nifty PSU Bank index is not being able to perform well and on 20th Dec, it broke its 5 week low of Rs. 3066 and closed at Rs. 3055.

This sector has been struggling even after so many measures taken by the Government. Most of the PSU banks are trading at a low P multiple of 6. The investors may think there is scope for PSU, but the price movement doesn’t suggest that. The stocks like Vijaya Bank, Punjab Sind Bank and Indian Bank can be a short term bet if Nifty PSU Bank index moves up.

As on 21st Dec, Vijaya Bank share price and Punjab Sind Bank settled on a positive note whereas Indian Bank dipped 3.80 per cent.

Deriving Capital Support from the Government

On account of demonetization, state-owned banks have sought higher capital support from the government. In a pre-budget meeting of heads of banks and financial institutions with finance minister Arun Jaitley, the issue of higher capital infusion popped up for discussion.

Under the Indradhanush roadmap announced last year, the government has taken the decision to infuse Rs. 25,000 crore in public sector undertaking (PSU) banks during the ongoing financial year. The government in July had announced the first round of capital infusion of Rs. 22,915 crore for 13 PSU banks. Out of this, 75 per cent has already been released to these banks.

Apart from that, certain banks also sought removal of service tax for digital transactions in order to make it more attractive and doing away with service tax on deposit guarantee.

Banks have not been able to carry lending activity since 8 November as their prime focus has been on exchanging notes and accepting old currency.

PSU Banks VS Private Peers Post Demonetization

There is a twist in the tale, the shares of most state-owned banks have rallied since demonetization on account of swelling deposits and falling treasury yields, and are surprisingly turning out to be better performers than their private-sector counterparts, even though the problem of bad loans continues to weigh.

In a surprise drive to cure the country out of black money, terrorism finance and fake notes, the government on 8 November banned Rs 500 and Rs 1,000 currency notes.

The BSE’s benchmark 30-share Sensex has lost nearly 4 per cent since the start of demonetization, while the Bankex has lost 6 per cent. 15 of the state run bank gained during the period, while nine declined. On the other hand, all 16 private banks have traded lower since then.

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