PSU sees strong buying amidst correction

Shares of PSU banks have recovered by up to 24 per cent from their intra-day’s low on the bourses after the trade at this eventful day came to an end and have witnessed strong buying among the correction.

State Bank of India’s (SBI) two associate banks of State Bank of Travancore and State Bank of Mysore share price have recovered more than 27 per cent each from their respective early morning lows. Indian Overseas Bank, RBL Bank and Bank of Maharashtra share price have bounced back between more than 10 per cent from their intra-day lows.

PSU Stocks	% recovered from low
		State Bank of Travancore	27%
State Bank of Mysore	27%
IOB	10%
RBL Bank	15%
Bank of Maharashtra	21%

At 02:15 pm, Nifty PSU Bank was up by 2.37 per cent against 1.2 percent decline in the Nifty50 index. PSU Bank Nifty recovered approximately 23 per cent from its intraday low today.

 

Public Sector Banks have taken the news of Demonetization is a positive light. Last night, Prime Minister Narendra Modi made an announcement about withdrawing the currency notes of Rs. 500 and Rs. 1000 from the market as they no longer will remain Legal tender. However, from 11^th November 2016, new currency notes of Rs. 500 and Rs. 2000 will be floated in the market. Public Sector Banks will be playing a key role in the entire process.

Nifty PSU Bank had slipped 7 per cent, as compared 6 per cent decline in Nifty50 index in intra-day trade on NSE after the Union government’s surprise move to withdraw currency notes, effective from Tuesday, 8 November 2016, midnight, in an attempt to crack down on black money.

Meanwhile, global financial markets sold off as the results of the US election were being called, with Asian stocks and US futures plummeting after Donald Trump was elected as the US President.

According to analysts, current account saving account (CASA) accretion will shoot up in banks, especially public sector undertaking (PSU) banks. This is owing to the scuttle to deposit cash in the banned denominations (500/1,000 Rupees).

However, this can be short lived because a large part is likely to be utilized by depositors to pay for business/personal requirements. Hence, a relatively smaller part may be parked into higher yielding deposits while some may be simply withdrawn in the form of cash.

Interest rates will continue their slow toll downwards as money supply in the formal economy increases. This will continue to assist wholesale borrowers like non-banking financial companies (NBFCs) and housing finance companies (HFCs).