After a smart rally in the last few weeks, public sector undertaking banks got battered on the bourses following reports that the government may not take back equity at par value from PSU banks. The hammering was so severe that stocks of select PSU banks tumbled as much as 20 per cent on Monday or to the lower-end of the circuit limit.The finance ministry on Friday announced that it has not decided upon an intent or a decision to take back equity at par from PSU banks. The PSU banks which had earlier hinted at returning back some portion of the equity held by the government at par, were hit severely. These include: Punjab National Bank, which dipped 20 per cent, or Rs 35.85, to close at Rs 143.55; Canara Bank, which lost Rs 17.70, or 15.31 per cent, to Rs 97.90; Oriental Bank of Commerce, which plunged 8.78 per cent, or Rs 11.85, to Rs 123.10; State Bank of India, which was down Rs 5.95 at Rs 346.35 and Jammu & Kasmhir Bank, which slipped Rs 8.55 to Rs 203.45. As a result of the fall, investors suffered a wealth erosion of about Rs 4,150 crore on Monday alone.U.R. Bhatt, director, JP Morgan India Pvt Ltd, said: “Minus SBI, JP Morgan is neutral to underweight on the rest of the PSU banking stocks even after Monday’s sharp fall. Banking stocks had a smart run in the last few weeks, but we think the optimism was overdone.”With regard to the rally in banking stocks over the return back of equity by PSU banks and the trimming of equity base, Bhatt said: “It was an event- based risk with a distant possibility. Riding on back of this (returning of capital) was speculative in nature.”Two weeks back, JP Morgan India had put out a report asking investors to book profits in PSU banking stocks, such as PNB, Bank of Baroda, Oriental Bank of Commerce and Canara Bank etc. On Thursday, PNB, Canara Bank and Indian Overseas Bank had touched their all-time highs. On Thursday, five banks had touched their all-time highs while six others had scaled to their 52-week highs.According to a Delhi-based NSE broker: “Banking stocks had been rallying on the back of news of return of equity to the government, which would have boosted the earnings per share for the rest of the investors. The suspense about whether this would come through has led to an expected downward correction.”Dealers said that the banking sector, led by PSU banks, hogged the limelight over the last four to six weeks due to several reasons, like higher margins on the back of aggressive focus on retail business, increased treasury income, trimming of NPAs in coming years etc. An analyst at a domestic brokerage said: “Select banking stocks, which have indicated that they plan to return the equity capital back to the government, might slip further.”“About 20-25 per cent of the gains in these stocks were contributed on news of return of equity capital at par and today’s loss has covered a big portion of that,” he added.“The correction was inevitable. However, the fundamentals have not changed much. We expect banking stocks to perform well in the coming months.” However, in the absence of a trigger, the movement in banking stocks would remain ranged in the coming days, he said.
