Nifty PSU Bank Index Rises 4% Today as Adani Sells Stake in Group Companies; Details

The Nifty PSU Bank index jumped 3.56 per cent to Rs 3,900.70 on Friday morning amid a sharp rebound in Adani group stocks. PSU banks like State Bank of India (SBI), Bank of Baroda, Punjab & Sind Bank, Union Bank of India, UCO Bank, Bank of India, Bank of Maharashtra and Indian Overseas Bank were up in the range of 4 per cent to 7 per cent.

On March 2, the promoters of the Adani group sold shares worth Rs 15,446 crore in four of its listed entities to GQG Partners, a US-based global equity-investment boutique firm.

Adani Enterprises sold shares worth Rs 5,460 crore, Adani Ports & SEZ Rs 5,282 crore, Adani Green Energy Rs 2,806 crore and electricity distributor Adani Transmission sold shares worth Rs 1,898 crore.

The proceeds will be used to retire debt and for other purposes. The high debt level is a key concern for traders and investors and was also flagged by American short-seller Hindenburg Research, which in a report accused the group of share manipulation and other wrongdoings, triggering a rout in the shares of the group companies.

Shares of banks suffered on concerns over exposure to the Adani Group. Some banks even had to call for additional pledging as the stock value plunged.

Parth Nyati, Founder at Tradingo, said: “After a protracted period of downturn, the market is currently experiencing a significant rebound led by BankNifty. The market’s mood has altered as a result of the global market’s recovery and relief over the Adani case, which is fueling a significant short-covering move. The India VIX was close to a multi-month low, therefore, despite the market’s extremely oversold condition, there was no panic. There are indications that the market has established a base and is prepared to rise, but US bond yield signals will be crucial.”

What should investors do?

Nyati said: “Technically, a 20-DMA of 17700 will be a key hurdle for the Nifty; above this, we can expect any meaningful strength in the market.”

“Both the PSU banking sector and all PSU stocks are something we consider to be strong. PSU banks will continue to do well since they are fundamentally in a much healthier stage and the prognosis is still positive. In terms of the Nifty PSE index, it is poised for a multiyear breakout, and if it occurs, we can anticipate a significant outperformance in the PSU sector over the course of the next few months,” he added.

Most banks (specifically PSBs) have seen a decent correction as a result of the exposure-concerns around the Adani Group; analysts at Emkay Global Financial Services expect the probability of default to remain considerably low, for now.

Add to that banks are witnessing strong earnings momentum on the back of better growth/ margins and receding loan loss provision (LLP) which, coupled with the strong provisions/ capital buffer, provide additional comfort. Thus, we believe that the recent correction in some fundamentally-strong bank stocks provides a good re-entry point. Within PSBs, we prefer BOB, SBI, and Indian Bank, given their ability to deliver healthy return ratios, capital buffer and reasonable valuations, the brokerage firm said in its February report.