PSU banks rally as bond yields fall sharply

MUMBAI: Shares of PSU banks have been in action for the second straight session on expectations of mark to market gains following a sharp fall in bond yields since yesterday.

On December 31, 2012, the Reserve Bank of India announced that the auction of dated securities for Rs 12,000 crore scheduled in the week ending January 4, 2013 has been now shifted to the week ending February 22, 2013.

“This resulted in a sharp fall in 10-year bond yields yesterday before closing at 7.99 per cent, its lowest levels since March 2011. The RBI’s open market operations have also helped to keep the bond yields in check,” said Poonam Saney, Research Analyst, ET Now.

There is a high possibility that the RBI may cut the repo rate at its January monetary policy meet. Most bankers believe that the bond yields could be headed lower to 7.75 per cent during the Jan-March quarter of 2013.

“Analysts say that most of the large PSU banks have a higher proportion of AFS portfolio and as a result of fall in bond yields these banks are likely to benefit from MTM gains,” Saney added.

According to Vaibhav Agrawal, VP Banking, Angel Broking, PSU banks are likely to gain due to fall in bond yields.

“One interesting thing that we did notice was that it is the larger PSU banks which would stand to gain the most with this decline in bond yields, whereas in most of the smaller PSU banks what we find is that probably as an exercise of de-risking, they have reduced the duration of their trading bond books,” he said in an interview with ET Now.

“It is the larger PSU banks like Bank of India, Bank of Baroda, Punjab National Bank and Canara Bank where we see the maximum sort of positioning to benefit from a decline in bond yields,” he added.

At 02:00 pm, the Nifty was at 5,993.20, up 42.35 points or 0.71 per cent and the BankNifty was at 12,784.10, up 129.95 points or 1.03 per cent.

IndusInd Bank was up 2.74 per cent, Yes Bank gained 2.06 per cent, PNB was 1.80 per cent higher, Canara Bank gained 1.49 per cent and Bank of Baroda moved 1.02 per cent higher.