Year-ender 2023: Nifty PSU Bank index jumps 28% in 2023. Can PSBs sustain the rally in 2024?

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Nifty 50 gained about 17 per cent in the same period. Stocks such as Punjab National Bank and Indian Bank surged over 50 per cent each this year while shares of Central Bank of India, Bank of Maharashtra and Union Bank of India jumped over 40 per cent each. Healthy growth in advances, net interest income (NII), reduction in gross NPAs and strong growth in profitability are some of the factors that boosted PSU bank stocks.

Moreover, investors eagerly bought these stocks due to their attractively low valuations. "Stock prices of public sector banks (PSBs) were driven by healthy growth in advances, strong growth in net interest income (NII), reduction in gross non-performing assets (GNPA), improvement in the restructured portfolio and robust growth in profitability," Vijay Gour, Analyst - BFSI at Choice Broking pointed out. Abhishek Jain, Head of Research at Arihant Capital pointed out that the the rally in PSBs can be attributed to several factors, including low valuations and improving asset quality.

"These banks were trading at attractive valuations, making them appealing investment options. Moreover, the consistent performance of companies like Bharti fueled optimism, with expectations of stake sales post-elections, starting with IDBI Bank," said Jain. "Another crucial factor contributing to their success has been the improving asset quality.

The market's growing belief that the worst phase of asset quality issues is over has played a significant role. This positive sentiment is expected to continue, with the asset quality cycle likely to remain favourable in the coming quarters," Jain said. Shreyansh Shah, a research analyst at StoxBox underscored that the main reasons for PSU banks witnessing momentum throughout 2023