By The first quarter of the financial year 2024-25 has proven to be a testing time for Indian banks, especially the central PSU banks, as they released their Q1 results against the backdrop of a volatile global market. State Bank of India (SBI), Punjab National Bank (PNB), and Bank of Baroda (BoB) have all reported their earnings, and the numbers tell a compelling story for investors navigating the current economic landscape.
SBI, India’s largest lender, reported a marginal rise in net profit for Q1 2024, a result that came as no surprise given the higher provisioning the bank had to account for. Despite this, SBI remains in a strong position compared to its peers, driven by its impressive RoE of 17.3%, the highest it has achieved since FY 2005.
The bank’s loan portfolio grew by 15% year-on-year, while slippages were controlled at a modest 70 basis points, signaling robust asset quality and a favorable valuation outlook.
Tapan Doshi, a SEBI-registered analyst and founder of Thoughtful Investors Hub, highlighted SBI’s solid footing compared to PNB and BoB. He pointed out that SBI’s low credit costs over the last two decades and its significant RoE make it the leader among the three PSU banks. However, the market’s reaction to SBI’s results has been tempered by broader economic concerns, including fears of a US recession and geopolitical tensions in the Middle East, which have weighed on investor sentiment.
Punjab National Bank posted an impressive 160% year-on-year increase in earnings, driven primarily by lower provisions. Despite this substantial growth, PNB’s RoA remains at 0.8%, and its RoE at 12%—figures that are less impressive when compared to SBI and even BoB.
The bank’s stock has seen a significant run-up, doubling in price over the last year, which has led to concerns about its current valuation. Investors may find PNB’s stock expensive given its recent performance and the broader market conditions.
Bank of Baroda also reported a modest increase in earnings, with a 10% year-on-year growth. The bank managed to keep its slippages low at 1%, and its RoE of 15% and RoA of 1.1% are respectable, though still trailing behind SBI. BoB’s stable asset quality and moderate growth indicate a balanced approach, but it lacks the standout metrics that could position it ahead of SBI.
Given the mixed results from these three major PSU banks, the outlook for their stocks is nuanced. Sumeet Bagadia, offered his perspective on the investment potential of these banks. For SBI, he suggested buying the stock around ₹790 to ₹800 per share, with a short-term target of ₹860 to ₹900. However, he emphasized the importance of maintaining a strict stop loss at ₹760 to manage risk in the current market environment.
For Bank of Baroda, Bagadia recommended a buy or accumulate strategy in the ₹230 to ₹220 range, with a stop loss at ₹210. He indicated that a trend reversal could push the stock to a target of ₹270 to ₹280 in the short term. PNB, despite its strong earnings growth, is seen as a riskier bet due to its high valuation and relatively lower financial metrics compared to SBI and BoB.
The broader market sentiment also plays a crucial role in the outlook for these stocks. The Nifty PSU Bank Index has been under pressure, with strong support at the 6,400 to 6,500 range and resistance at 7,100.
Global factors, such as the fear of a US recession and the escalating geopolitical tensions, have created a cautious environment for investors. Bagadia suggested a buy-on-dips strategy for the Nifty PSU Bank Index, advising investors to remain vigilant and responsive to market movements.
Bank of Baroda presents a more balanced, though less dynamic, investment option, while PNB’s impressive earnings growth is offset by concerns over its valuation. As always, investors are advised to carefully consider their risk tolerance and investment goals in light of the broader economic landscape.
