Monetary stimulus to benefit PSU banks, shares

MUMBAI: The monetary stimulus programme adopted by the Reserve Bank of India to mitigate GDP growth will benefit domestic banks, equity analysts maintain.

Large PSU banks have reported stable or improving margins during the third quarter. This is directionally consistent with our expectations of easing cyclical margin pressures for larger PSU banks compared to the past few years, on account of decreased competition for deposits and increased pricing power in lending, an Angel Broking report said.

As a result of bearish market sentiment, banking counters were witnessing some real profit booking by investors. HDFC (down 2.5% at Rs 901.10), ICICI (down 3.4% at Rs 402.05), SBI (down 3.1% at Rs 1,116.50), Axis Bank (down 2.7% at Rs 421) and Bank of India (down 1.9% at Rs 244.25) were being sold heavy at 12.45 pm on Monday.

Being a bit lowly valued when compared to peer banking stocks, PNB (up 0.2% at Rs 401.50), Canara Bank (up 2.2% at Rs 184.30) and Federal Bank (up 2% at Rs 142.85) were seeing some buying from the institutional side, dealers said.

"While deterioration in asset quality continues to be the major concern for the sector, our sensitivity analysis shows that an increase in NPAs to up to twice their current level will also not materially impact net worth / book value of banks. Not only do these banks score highly on all competitive parameters such as CASA, fee income and capital adequacy, they also now trade at much lower valuation premium to PSU Banks than in the past," the Angel Broking report said.

The brokerage prefers large-caps stocks like Punjab National Bank and Union Bank of India primarily on account of their strengths in CASA deposits. HDFC Bank and Axis Bank are also good stocks to buy, the report added.