Modi government supports PSU banks: 10 multibaggers in 5 years for investors

The story of PSU banks is one of incredible growth that has delivered huge profits to investors during Prime Minister Narendra Modi’s second term. In the last five years, ten out of twelve PSU bank stocks have more than doubled investor wealth.

According to Ace Equity data, the leader was Indian Overseas Bank, which delivered an impressive return of 472% during Modi’s second term. They were closely followed by Bank of Maharashtra and UCO Bank with returns of 325% and 226% respectively. Other top performers include Central Bank of India, State Bank of India (SBI), Indian Bank, Canara Bank, Punjab & Sind Bank, Union Bank of India and Bank of Baroda, with returns ranging from 106% to 150%.

However, not all PSU bank stocks performed equally well. Punjab National Bank and Bank of India returned 52% and 44% respectively.

Future perspectives

Despite these impressive gains, Hardick Bora, co-fund manager at Union Mutual Fund, believes that PSU banks can still outperform private banks. He notes that while the return on equity for PSU banks is similar to private banks, their valuations are much lower. To close this valuation gap, PSU banks need to grow at the same pace as private banks while keeping credit costs low.

Interest in ‘Modi Shares’

Of particular interest this election season are ‘Modi stocks’, i.e. shares of companies or sectors that have benefited from government policies under Prime Minister Narendra Modi. Shares of these companies have gained an average of 50% over the past six months and could continue to rise if the ruling party wins big in the upcoming elections.

CLSA analysts have identified SBI, Canara Bank and Bank of Baroda as key ‘Modi stocks’. But they warn that if election results fall short of expectations, these companies’ stocks could suffer the most in the short term.

Analysts at Kotak Equities warn that many stocks, including PSUs, are currently trading at high valuations based on expectations of strong performance by the BJP. If results prove to be insufficient, investors may be faced with reality, which may result in potential profit-taking.