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PSB Underperformance vis a vis Sensex
Feb 17, 2018

The recent Punjab National Bank (PNB) scam has put the Public sector banks (PSB's) in the limelight for all the wrong reasons. The bank was defrauded to the tune of US $ 1.77 billion. That's the last thing these banks needed after the crisis they've had in the past few years.

This has reflected in their stock performance too. The returns of PSBs over the last five years have underperformed at the Sensex. Barring State Bank of India, the margin of underperformance has been huge. This is despite the recent run in their stock prices post the government's announcement of the recapitalization plan.

These banks have been the perfect example of a value trap. Even though valuations seemed inexpensive five years ago, it has failed to perform.

While their bad loans struggle has been going on since a decade, there are other issues that have recently cropped up adding to their pile of misery. Bureaucracy and a lack of autonomy have ensured the sub-optimal profitability and asset quality of these state-run banks.

That's the reason we've been wary of PSU banks since 2014. This was well before the market had caught a whiff of the NPA problem. We've recommended just two large PSU banks in StockSelect since then...and already successfully closed both of them.

Data Source: BSE, Ace Equity
* Data from 15 Feb 2013 - 15 Feb 2018

This Chart Of The Day was published in The 5 Minute WrapUp - The Foundation for Sensex 100,000 is Laid

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