Nifty PSU Bank index surges 4% amid rebound in Adani group stocks

Nifty PSU Bank index has surged nearly 4 per cent on the National Stock Exchange (NSE) in Friday’s intra-day trade amid a sharp rebound in Adani group stocks.

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. At 10:29 AM; the Nifty PSU Bank index, was the top gainer among sectoral indices, up 3.8 per cent, as compared to 1.2 per cent rise in the Nifty 50.

Shares of Adani group companies rallied up to 11 per cent in intra-day trades on Friday after the promoters sold shares worth Rs 15,446 crore in four of its listed entities to GQG Partners, a US-based global equity-investment boutique firm.

GQG is one of the world’s leading Global and Emerging Markets investors with exceptional long-term track records. GQG Partners manages more than AUD$130 billion (USD $92 billion) in client assets as of January 31, 2023.

Rajiv Jain, Chairman and CIO of GQG Partners, said they believe that the long-term growth prospects for these companies are substantial, and we are pleased to be investing in companies that will help advance India’s economy and energy infrastructure, including their energy transition over the long-run.

The Adani Group has been in deep trouble since the US-based short seller Hindenburg Research released a report pointing out irregularities in the conglomerate’s books and accused it of manipulating accounts on January 24.

Banks have an exposure of Rs 80,000 crore to the conglomerate, with SBI leading the pack with Rs 27,000 crore. It amounts to 0.8 per cent of its overall loan book. Dinesh Khara, chairman of the bank said that there are no challenges concerning the conglomerates’ debt servicing abilities.

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.