Search
Public Sector Banks Surpassing Private Peers, Investors Reconsidering Choices
February 12, 2024
Investors who had previously favored private sector banks over their public counterparts are now reevaluating their investment decisions. Public sector banks (PSBs) are experiencing a resurgence in investor confidence due to improved asset quality and profitability, causing their shares to outperform those of private banks.
In the past month alone, several state-owned lenders have witnessed significant gains. State Bank of India surged by almost 15%, Punjab National Bank jumped by 26.82%, and Canara Bank saw an increase of 23.5%. Union Bank and Bank of Baroda also recorded gains of over 13% and 15%, respectively.
On the other hand, private banks such as HDFC Bank, Kotak Mahindra, Axis Bank, and ICICI Bank experienced declines or marginal increases in their share prices during the same period.
According to Niket Shah, a fund manager at Motilal Oswal AMC, the improved profitability of PSBs, attributed to low credit costs and enhanced asset quality, has led to a re-rating by investors. This shift in perception is a departure from the skepticism that prevailed just a few months ago.
The superior earnings reported by PSBs in the recent December quarter, in contrast to disappointing results from private banks, have further solidified expectations for the future performance of PSB shares.
The narrowing gap in share valuations between PSBs and private banks indicates a changing trend in investor preferences within the banking sector. While PSB valuations still trail those of private banks, analysts anticipate this gap to continue closing, suggesting potential outperformance by PSB shares in the future.
This renewed investor interest underscores the evolving landscape of the banking sector, with PSBs emerging as viable investment options for those reassessing their portfolios.
