PSU banks rally on fiscal prudence in budget
2 min read • Updated: February 2, 2024, 4:49 PM
The news was welcomed positively on the street as PSU banks are major holders of sovereign bonds, resulting in treasury gains for the banks.
Nifty PSU Bank index was up 2.2% for the day as banks cheered the government's decision to be fiscally prudent in FY25 and FY26.
The fiscal deficit for FY25 is projected at 5.1% which is substantially lower than 5.8% in the current fiscal. Lower spending results in lower borrowing of the Government, thus supporting the bond prices.
The decision led to a fall in bond yields to nearly 7% and a rise in prices of government securities. The news was welcomed on the street as PSU banks are major holders of sovereign bonds, resulting in treasury gains for the banks.
It is also seen as a positive development by India Inc. as government bonds are highly correlated to the cost of capital for corporate India. Lower cost of capital may lead to high demand for loans from India Inc.
Among the PSU bank space, banks with smaller market capitalisation are on firing mode. Punjab & Sind Bank led the pack with 20% gains for the day. It was followed by Indian Overseas Bank, Punjab National Bank, and Bank of India, which rose in the range of 3.8% to 7.8%. Meanwhile, shares of State Bank of India were up marginally by 0.3%.