SBI, PNB, other PSU Bank stocks gain in dull market after Budget announcement. Here’s why

Public sector banks saw an upward trajectory in trading subsequent to the budget’s disclosure of a borrowing programme that was lower than initially projected, coupled with a concurrent decrease in bond yields.

The Nifty PSU Bank index surged by more than 3 percent, reflecting a positive trend in the PSU segment. Notable gains were observed among PSU stocks, with Indian Overseas Bank (IOB) registering a significant increase of 5 percent. UCO Bank saw a rise of 4.3 percent, Union Bank of India advanced by 4.2 percent, Canara Bank experienced a 4 percent uptick, Bank of Baroda recorded a 3.7 percent increase,  Punjab National Bank gained 3 percent and State Bank of India (SBI) saw a rise of 1.4 percent.

According to analysts PSU banks hold a greater proportion of government bonds compared to private sector banks, leading to increased Mark-to-Market (MTM) gains as yields decline and bond prices rise.

The 10 year bond yield fell 7 basis points to 7.07 percent from its previous day close of 7.14 percent. Bond yield and prices moves in opposite directions.

The government announced Rs 14.13 lakh crore in the fiscal year starting April 1.  Moneycontrol poll estimated around Rs 15-16 lakh crore for the fiscal year 2024-25, with net borrowing estimated between Rs 11.50-11.75 lakh crore. The net borrowings, adjusted for maturities, are planned at Rs 11.75 trillion for the next fiscal year, according to FM.

Analysts further said India’s potential inclusion in a global bond index, expecting foreign inflows that could lead to a fall in bond yields next year further and subsequently enhance the treasury books of banks.

The government also reduced fiscal deficit target at 5.1 percent of GDP for FY25. It revised down fiscal deficit target for FY24 to 5.8 percent from 5.9 percent of GDP.

Analysts highlight a major positive of lowering fiscal deficit. This has the potential for lower interest rates due to a larger-than-anticipated decrease in fiscal deficit, enhancing the overall macroeconomic stability, they added.

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