Despite the unpredictable and volatile nature of the stock markets, it is expected that shares of public sector banks will still be in demand among investors, as per market experts.
In the coming year, the stock market is anticipated to see an influx of public sector bank stocks, as the government, which is the majority stakeholder in these banks, plans to either sell shares through offers for sale or the banks themselves will raise capital through qualified institutional placements.
The Central government currently holds a stake of 79 to over 90 percent in banks such as Bank of India, UCO Bank, Bank of Maharashtra, Indian Overseas Bank, and Punjab & Sind Bank. They have until August 2026 to reduce their stake to 75 percent to comply with minimum public shareholding requirements.
Recently, the Department of Investment and Public Asset Management (DIPAM) called for applications from potential investment bankers to assist in selling stakes in banks and financial institutions.
According to Raghvendra Nath, MD of Ladderup Wealth Management, besides offers for sale, the government has other options to decrease its stake in public sector banks, such as through QIPs, which involve raising funds from institutional investors like mutual funds, insurance companies, and pension funds.
While the Nifty PSU Bank Index has significantly dropped over the past year to 5800 levels from 7000 levels in February last year, experts believe that now is a good time for an offer for sale or issuing new shares.
It is emphasized that the size of the divestment should be substantial to attract positive reception from investors. Small ticket sizes may not be effective, and a larger offering would be more appealing.
Given the current market situation, public sector banks are in need of growth capital, as deposit growth has not kept up with credit growth. These banks are facing competition from other investment avenues like equities and mutual funds, where customers are seeking better returns on their investments.
