Why UCO Bank Share Price is Falling

After reporting the highest-ever quarterly profit of Rs 6.5 billion (bn) in its rich history of 80 years, UCO Bank share price has hit a roadblock.

Over the last five days, share price of UCO Bank has declined by 10%. While in the last one month, UCO Bank shares have fallen by more than 19%.

Investors were taken aback by this sudden decline, as UCO Bank shares delivered multibagger returns of more than 130% in 2022.

On the back of robust loan growth and deposit growth, the bank outperformed the market in the second half of 2022.

As shares of the public sector bank have hit a roadblock, let's find out why this has happened and what lies ahead...

#1 Adani contagion fear hits PSU banks

PSU bank stocks have been underperforming ever since the Adani-Hindenburg story started.

The Adani-Hindenburg saga sparked worries that PSU banks considerable exposure to the Adani Group may become a concern for banks in the future, prompting fears of default risks from the Adani Group.

This fear is due to claims made by Hindenburg Research that many of the group's firms are not generating free cash flows for the repayment of loans.

The pressure on PSU banks was intensified by Credit Suisse's decision to not accept bonds issued by Adani Group entities as collateral for margin loans.

This action, together with the Hindenburg research report, forced FPIs to sell equities in a panic, and public sector banks (PSBs) took the sharpest knock.

Overall, FPIs have sold Rs 67 bn worth of shares in the first half of January 2023 and shares worth Rs 85 bn in the second half, both being the largest sectoral outflows during these periods.

#2 Profit booking

Shares of UCO Bank rose 135% in 2022, touching their 52-week high in December 2022.

The rally was on the back of strong earnings momentum, a steady decline in non-performing assets (NPAs), and double-digit loan growth.

This rally was further supported by the rising interest rate scenario over the past eight months.

On the back of this ongoing rally, UCO Bank was trading at a higher valuation compared to its long term average.

A price to earnings (PE) multiple of 18x is higher than the industry average PE of 8.7x, making it overvalued on the PE front.

Therefore, the recent correction could also be attributed to profit booking as the market sentiment remains weak due to uncertainty.

#3 Other reasons for the fall

Apart from this, on 17 February 2023, two fraudsters duped UCO Bank of Rs 20 million (m) by obtaining three home loans through forged documents.

This has raised questions over banks' way of sanctioning loans, creating a negative sentiment among investors.

However, the bank has approached the crime investigation department sleuths alleging the fraudsters.

How UCO Bank shares have performed recently

UCO Bank has declined over 10% in the last five days and more than 19% in the month gone by.

So far in 2023, the share so the company have tanked by 21.9%.

The company touched its 52-week high of Rs 38.15 on 16 December 2022 and its 52-week low of Rs 10.6 on 20 June 2022.

The bank's promoter holding stands strong at 95.4% at the end of December 2022 quarter.

About UCO Bank

UCO Bank is a commercial bank and a Government of India Undertaking.

It offers a host of value-added banking solutions to its customers including international banking services, services for NRIs loan schemes, deposit schemes, and value-added e-banking solutions. They also possess a host of branches authorised for direct tax collection in India.

The bank has 34 regional offices and 230 branches in India.

The bank has an international presence with four overseas branches in two important financial centers in Singapore and Hong Kong and representative offices in Kuala Lumpur, Malaysia, and Guangzhou in China.

For more details about the company, check out the UCO Bank fact sheet and quarterly results.

You can also compare UCO Bank with its peers:

UCO Bank vs Bank of Maharashtra

UCO Bank vs SBI

UCO Bank vs Au Small Finance Bank

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