Indian equity benchmark indices roared to record highs on Monday, as stocks reacted to exit poll prediction of a likely landslide victory for the Narendra Modi-led BJP government. Shares of PSU banks rallied up to 8 per cent in Monday’s intraday trade on the BSE.
This wave of positivity propelled PSU banking stocks to touch new record highs. With expectations of Prime Minister Narendra Modi’s third consecutive term, markets experienced a bullish trend, reflecting confidence in the government’s leadership and its impact on the financial landscape.
Shares of Bank of Baroda surged 8 per cent to Rs 286, while Indian Overseas Bank saw a 6 per cent rise in early trade. India’s largest PSU bank, SBI, gained 6.6 per cent. Canara Bank and Indian Bank also jumped over 5 per cent.
Bank of India, Union Bank of India, UCO Bank, Central Bank, Punjab & Sind Bank, PNB, and Bank of Maharashtra also saw gains of up to 4 per cent.
The majority of exit polls indicated that the BJP-led NDA alliance will comfortably secure between 350 and 390 seats of the 543 seats in the Lok Sabha, the lower house of India’s Parliament.
A party or coalition needs 272 seats in parliament to form a government. The BJP-led coalition, the National Democratic Alliance (NDA), will cross this target, according to exit polls, which forecast it being close to taking about two-thirds of the seats.
The expectation that the BJP will come to power in the Lok Sabha elections was strengthened by its victory in three key state elections out of four in December. Analysts have previously indicated that if the BJP is sworn into power, the continuation of economic reforms in India will be a positive factor for the country’s financial markets.
In recent years, the performance of public sector banks (PSBs) has experienced a remarkable transformation. After recording unprecedented losses of Rs. 85,390 crore in FY’18, PSBs have achieved a record profit of Rs. 1.4 lakh crore in FY’24. The net profits of PSBs have more than quadrupled over the last three years.
Key drivers of this turnaround include significant treasury gains, a substantial reduction in non-performing assets (NPAs), and lower provisioning, which have collectively strengthened their balance sheets. Additionally, PSBs have witnessed robust revenue growth, supported by a decade-high credit growth rate of 16.1% in FY’24.
As of 2024, public-sector banks are in their strongest position in decades. They are demonstrating robust performance across all fundamental pillars: business growth, asset quality, profitability, and capital adequacy.
Business growth is reported in double digits, gross NPAs are at a decadal low of below 3 per cent, profitability is at an all-time high, and all banks are well capitalised, exceeding regulatory requirements, according to the analysts.
Meanwhile, during Modi 2.0 (from June 2019 to May 2024), 10 out of 12 PSU bank stocks delivered multibagger returns of up to 473 per cent.
According to data from Ace Equity, Indian Overseas Bank was the top performer among PSU banks, delivering 473 per cent returns during the Modi 2.0 tenure. Bank of Maharashtra and UCO Bank followed, with returns of 325 per cent and 226 per cent, respectively. Additionally, the Central Bank of India, State Bank of India (SBI), Indian Bank, Canara Bank, Punjab & Sind Bank, Union Bank of India, and Bank of Baroda provided returns ranging from 106 per cent to 150 per cent over the last five years.
Last week, CLSA identified SBI, Canara Bank, and Bank of Baroda in its list of 54 Modi stocks.
“Modi stocks” are those of companies or sectors that have benefited directly from government policies and initiatives under Prime Minister Narendra Modi, making them attractive to investors looking to capitalize on government-driven growth.
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