RVNL, Ircon, BHEL, SBI, Canara Bank, other PSU stocks tumble up to 12%; what's next?
RVNL, Ircon, BHEL, SBI, Canara Bank, other PSU stocks tumble up to 12%; what’s next?
Shares of PSU stocks, across all the sectors, were under severe selling pressure on Monday. State-run counters such as Power Finance Corporation (PFC), REC Ltd, Bharat Heavy Electrical Ltd (BHEL) Bharat Dynamics Ltd, RVNL, Ircon and Mazagon Dock Shipbuilders were down up to 12 per cent for the day after the RBI’s notice.
Reserve Bank of India (RBI) proposed tighter rules to govern lending to projects under implementation. The RBI, on Friday, proposed to set a floor for banks’ loan exposure for project finance for consortium lending and mandated 5 per cent standard asset in the construction phase.
With these guidelines, the RBI has significantly enhanced the provisioning requirement during the construction phase of a project from the extant 0.4 to 5.0 per cent, for all existing and fresh exposures. No change has been proposed in the provisioning requirement for NPAs, said JM Financial in its note.
“We believe this is a significant increase in provisioning requirement and will result in lower returns for lenders in project finance and reduce incremental appetite for such exposures, if implemented in current form. While this is prudent from a risk management perspective, coming from the regulator’s experience in the last credit cycle, we believe this can be detrimental to growth in the capital-intensive infrastructure sectors in the economy, it added.
PFC crashed more than 12.40 per cent to Rs 420.85 on Monday, while REC cracked more than 10.80 per cent to Rs 497.40 for the day. BHEL tumbled more than 7.88 per cent to Rs 281.05 for the day. Shares of MOIL were down 6.35 per cent to Rs 418 for the day. Mazagon Dock tumbled more than 4 per cent to Rs 2265.
The Nifty PSU Bank index cracked about 5 per cent on a intra-day basis. Among the index constituents, Canara Bank and Punjab National Bank (PNB) cracked more than 6 per cent each, while Union Bank of India and Bank of Baroda dropped 4 per cent each. Shares of State Bank of India (SBI), UCO Bank and Bank of India also tumbled 3 per cent each for the day.
In the railway space, RailTel Corporation of India plunged over 5.1 per cent to Rs 374.30, while Rail Vikas Nigam Ltd (RVNL) declined 4.6 per cent to 270.90. Indian Railway Finance Corporation Ltd (IRFC) and Ircon International shed 3 per cent each to Rs 151.55 and Rs 243, respectively.
Mahesh M Ojha, AVP – Research at Hensex Securities said that PSU stocks have taken a hit by RBI’s notice for provisioning. “Also, the PSU stocks are likely to remain volatile amid the election period. Markets are in the consolidation phase and we expect profit booking in various sectors, including PSU, after the sharp run and the bias remains towards downside during the period,” he said.
Kranthi Bathini, Director of Equity Strategy at WealthMills Securities said that PSU stocks have been flavor of the season lately, delivering healthy returns to the investors, and were bound for profit booking as the market is in the consolidation phase due to election driven uncertainty.
“The PSU universe has grown large as investors have ample options from sectors like banking, capital goods, defence, railways, infrastructure and more. Investors need to have a stock specific approach and pick only quality PSU stocks on corrections, where valuations are reasonable and earnings visibility can be seen,” Bathini said.
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