PSU banks surge on likely treasury gains after fall in bond yields
While stocks of Bank of Baroda and Indian Bank rose to their record highs, all index constituents, barring State Bank of India (SBI) hit their respective 52-week highs. To be sure, shares of SBI are trading at about ₹650, against its 52-week high of ₹660.40
Public sector bank stocks soared on Thursday amid expectations that the drop in bond-yields will improve treasury gains for most of them. While stocks of Bank of Baroda and Indian Bank rose to their record highs, all index constituents, barring State Bank of India (SBI) hit their respective 52-week highs. To be sure, shares of SBI are trading at about ₹650, against its 52-week high of ₹660.40.
The yield on benchmark 10-year bond fell as much as nine basis points (bps) to 7.05% on Thursday, after the finance minister announced a lower-than-expected bond sales program for the fiscal FY25. Additionally, prospects of increased foreign inflows due to inclusion in global index also boosted investor sentiment. “Now that the private investments are happening at scale, the lower borrowings by the Central Government will facilitate larger availability of credit for the private sector,” Finance Minister Nirmala Sitharaman said in her budget speech.
While shares of Indian Overseas Bank rallied as much as 6.1%, Punjab & Sind Bank also witnessed a similar gain of 6%. Other PSB like Indian Bank, UCO Bank, Punjab National Bank and Bank of India also gained anywhere between 4% to 5%. The Nifty PSU Bank index added another 2.5% on Thursday, to hit a record high of 6500.10. In fact, the index has been gaining over the last six sessions adding close to 11% during the streak.
| Thursday's gain (%) | |
| Indian Overseas Bank | 6.1 |
| Punjab & Sind Bank | 6.0 |
| Indian Bank | 4.6 |
| Bank of India | 4.1 |
| UCO Bank | 4.1 |
| Canara Bank | 3.9 |
| Punjab National Bank | 3.8 |
| Central Bank of India Ltd | 3.5 |
| Union Bank of India Ltd | 3.3 |
| Bank of Baroda | 3.1 |
| Bank of Maharashtra | 1.9 |
| State Bank of India | 1.1 |
At 7.05%, the yield on benchmark bond is trading at its lowest level since June 2023. Market participants are of the view that prudent fiscal targets will further soften the yields and may also prompt some state-owned banks to pay off high-cost debts by reducing their government bond holdings. The gross and net market borrowings through securities in FY25 is estimated at ₹14.13 lakh crore and ₹11.75 lakh crore respectively. That compares with a market borrowings ₹15.43 lakh crore for the current fiscal year. According to a Bloomberg Survey, the borrowings for FY25 was expected at ₹15.2 lakh crore.
The sharp drop in G-sec yields is likely to improve marked-to-market gains of banks treasury portfolio for the March quarter of FY24. “In the era where the global world is struggling to rein in fiscal deficit and borrowing, India adopting the path of consolidation and reduction in borrowing showcases its macro stability,” said Anitha Rangan, Economist, Equirus.
First Published: Feb 1, 2024 3:23 PM IST
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