Nifty PSU Bank soars over 3%, posts biggest intraday jump in a month; Bank of Baroda top index gainer

Indian markets rebounded sharply during Monday's trading session, primarily driven by a notable rally in the banking and metal sectors. Although Israel conducted targeted strikes against Iran over the weekend, there were no major reported attacks on civilians, nuclear facilities, or oil fields, providing significant relief to financial markets.

Experts believe the chances of retaliation from Iran are minimal, which alleviated fears of further escalation in the region. Consequently, crude oil prices responded negatively to the recent attacks, with both Brent and WTI crude futures declining by 4% during today’s session. This drop in oil prices provided additional support for the rebound in Indian stocks.

Today's bounceback brought an end to six consecutive days of decline in the frontline indices, with PSU banking stocks taking the lead in this recovery. The Nifty PSU bank index zoomed 3.4% to 6,495 in morning trade on Monday, October 28, marking its biggest intraday jump in a month.

Bank of Baroda emerged as the top index performer, with shares climbing 6% to ₹253.60 apiece following its September quarter results, which exceeded analysts' expectations.

The bank reported a year-on-year (YoY) growth of 23.2% in net profit for the September quarter at ₹5,238 crore. Its core net interest income (NII) increased by 7.3% to ₹11,622 crore during this period, driven by an 11.6% rise in global advances and a slight expansion in the net interest margin to 3.1%.

Following the bank's Q2 results, brokerages largely retained their positive outlook on the stock. Nomura maintained its 'buy' rating with a target price of ₹290, highlighting healthy return on assets (ROA) delivery, steady asset quality, and a favourable risk-reward profile. It expects the bank to achieve an ROA of 1.1% and a return on equity (ROE) of 15-16% over FY25-FY27, although it noted softer core fee income as the only blip.

Similarly, Jefferies also kept its 'buy' rating on the stock with a target price of ₹310. The bank's profit of ₹5,238 represented a 23% year-on-year increase and surpassed the brokerage estimates.

While loan growth improved to 12% year-on-year, NII growth lagged at 7.3% due to a decline in net interest margins. The brokerage expressed disappointment over an 18% fall in fee income. Additionally, deposit growth remained slow at 9%, although credit quality has held up well, it added.

Motilal Oswal said, “BOB reported a healthy quarter, characterised by higher other income amid accelerated recoveries from TWO. Provisions were higher than expected as the bank created prudent NPAs and standard assets provisions. BOB guides for a controlled credit cost of 0.75% for FY25, which should support the return ratio of 1%+.”

The brokerage had also retained its buy call on the stock with a target price of ₹290 apiece.

Meanwhile, other stocks, including Canara Bank, Punjab National Bank, Union Bank of India, Bank of India, Central Bank of India, and State Bank of India traded in the positive territory, each showing returns exceeding 2%.

Overall, all 12 constituents of the index are currently in the green.

Despite today’s rally, stocks well below recent highs

Despite the stellar rally observed today, PSU banking stocks are trading significantly lower than their recent peaks, as valuation concerns have led to a sharp decline, pulling these stocks down to multi-month lows.

Eight constituents of the index are currently trading 30% to 40% below their recent 52-week highs. 

The PSU banking sector experienced a remarkable surge between June 2022 and April 2024, with the Nifty PSU Bank index gaining 215%. However, a downward trend has emerged in the following months, resulting in a 20% drop from its recent peak.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.