Shares of the State Bank of India (SBI), the nation’s largest public sector bank, surged 9.8% to an all-time high of ₹911.30 apiece in today’s intraday trading.
This leap pushed the bank’s market capitalisation beyond ₹8 lakh crore for the first time, marking it as the first public sector unit (PSU) to reach this milestone.
SBI has now joined the ₹8 lakh crore market cap club, becoming the fourth listed company to achieve this landmark. Over the past six months, SBI shares have soared from ₹564 apiece to the current ₹911.30, reflecting a substantial 61% gain.
Investor sentiment towards PSU banks turned optimistic following the release of exit polls after the final phase of elections on Saturday.
The exit polls projected a resounding victory for the ruling National Democratic Alliance (NDA), fuelling expectations of Prime Minister Narendra Modi's third consecutive term. This has bolstered confidence in the government's leadership and its potential positive impact on the financial landscape.
"The victory of PM Modi and the BJP bodes well. Fundamentally, for the economy and capital markets, India is witnessing its own mini-Goldilocks moment. Our model portfolio remains aligned with key domestic cyclical themes. We remain overweight on financials, consumption, industrials, real estate, and PSU banks," stated domestic brokerage firm Motilal Oswal.
The brokerage reaffirmed its 'buy' recommendation on SBI’s stock following the bank’s Q4 results, setting a target price of ₹925 apiece. SBI has shown a remarkable earnings turnaround, moving from a loss of ₹65 billion in FY18 to a profit of ₹611 billion in FY24.
The brokerage also noted that the bank's cumulative profit over the past three years (FY22-24) matches its earnings from the previous 20 years combined. The sharp decline in Indian bond yields has further propelled the rally in PSU banks.
Meanwhile, Indian government bond yields dropped marginally in today’s session. The benchmark 10-year yield fell to 6.9541%, down from its previous close of 6.9809%, hitting its lowest level since April 8, 2022.
This decline in yields is favourable for PSU banks, which hold a larger proportion of government bonds compared to private sector banks, resulting in significant treasury gains.
Government data released on Friday showed that India’s economy grew by 8.2% in the fiscal year ending in March, reinforcing its status as the fastest-growing major economy in the world.
Additionally, the central government's fiscal deficit for 2023-24 was recorded at 5.6% of GDP, better than the earlier estimate of 5.8%, further contributing to the rally in bond prices.
The sharp decline in 10-year bond yields followed the Reserve Bank of India’s (RBI) announcement of a record dividend of ₹2.11 lakh crore to the central government for the financial year 2023-24, more than double the budgeted amount.
This development, combined with the government’s prudent budget management, boosted its cash balance and reduced borrowing expectations, leading to a limited bond supply and rising bond prices.
As a result, PSU banks stand to benefit significantly from the drop in bond yields due to their substantial holdings of government bonds.
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