How long will the bull run continue for PSU banks?

In the past one year, the S&P BSE Bankex has been up 17.63% and the Nifty Bank 17.04%. But the Nifty PSU Bank Index has risen close to 95%!

These days, every investor is busy dissecting a three-letter word while taking exposure in the Indian stock market PSU. It stands for public sector undertaking. Bank analysts have been looking at the pack of 12 PSU banks in a new light.

The reason is not difficult to find.

Sherlock Holmes would have said, "Elementary, my dear Watson".

Whether or not Holmes ever said this to Watson is debatable. But no one questions Holmes' keen power of observation. He was a master of deductive reasoning. Holmes was someone who could deduce or draw specific conclusions from general principles. The bank analysts are exactly doing that.

In the December quarter, seven of the 12 PSU banks had less than 1 per cent net non-performing assets (NPAs) and the rest below 2 per cent, with the highest being 1.8 per cent. The State Bank of India (SBI), the nation's largest lender, had just 0.64 per cent net NPAS. When did we see such healthy balance sheets of PSU banks? Eight of them have at least 40 per cent and up to 50 per cent low-cost current account savings account (CASA) deposits. Incidentally, they offer far lower interest rates on savings bank deposits than most private banks, barring the very large ones.

How have their stocks performed in the past one year? Till last Friday (February 23), in the past one year, the broader BSE Sensex has risen 22.43 per cent and the 50-stock Nifty of the NSE Ltd 26.54 per cent.

The S&P BSE Bankex, which consists of 10 bank stocks, has been up 17.63 per cent; the Bank Nifty, an index of 12 most traded bank stocks, has risen by almost an identical margin — 17.04 per cent.