The story of PSU banks has been one of incredible growth, giving investors huge returns during Prime Minister Narendra Modi’s second term. Ten out of twelve PSU bank stocks have more than doubled investor wealth over the past five years.
According to data from Ace Equity, Indian Overseas Bank led the way, delivering an impressive 472% return during Modi’s second term. Bank of Maharashtra and UCO Bank followed closely with returns of 325% and 226%, respectively. Other top performers included Central Bank of India, State Bank of India (SBI), Indian Bank, Canara Bank, Punjab & Sind Bank, Union Bank of India, and Bank of Baroda, with returns ranging from 106% to 150%.
However, not all PSU bank stocks performed equally well. Punjab National Bank and Bank of India returned 52% and 44%, respectively.
Future Prospects
Despite these impressive gains, Hardick Bora, Co-Fund Manager at Union Mutual Fund, believes PSU banks can still outperform private banks. He notes that while the return on equity for PSU banks is similar to that of private banks, their valuations are significantly lower. To close this valuation gap, PSU banks need to grow at the same rate as private banks while keeping credit costs low.
Interest in “Modi Stocks”
This election season, there’s a special interest in “Modi stocks,” which are stocks of companies or sectors that have benefited from government policies under Prime Minister Narendra Modi. These stocks have gained an average of 50% in the last six months and may continue to rise if the ruling party wins big in the upcoming election.
Analysts at CLSA have identified SBI, Canara Bank, and Bank of Baroda as key “Modi stocks.” However, they caution that if the election results don’t meet expectations, these stocks could be among the hardest hit in the short term.
Kotak Equities analysts warn that many stocks, including PSUs, are currently trading at high valuations based on the expectation of a strong BJP performance. If the results fall short, investors might face a reality check, leading to potential profit-taking.
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