Is it time to buy PSU Banks?

For a long time now, PSU Banks have been the abadoned child in the markets (giving company to PSU / Reality / Infra among other sectors – all of which (save for PSU’s) incidentally are the one’s which have dragged down the performance of PSU banks in the first place.

We do not have a Private Bank Index with which to compare and hence have compared with Bank Nifty which has both PSU’s and Pvt Banks in its indices. Bank Nifty is currently dominated by Private Sector Banks which constitute nearly 80% of its weight and hence a Index against which to compare.

Appended below is the Relative Comparison chart of Bank Nifty vs PSU Bank Index since PSU Bank Index topped out in November 2010.

The under-performance of PSU Banks cannot be over-stated with the Index delivering a negative return of 47.78% vs a negative return of 4.17% for Bank Nifty.

But with PSU Banks not being allowed to be toast, its a question of when value investors shall start finding value in them. For now, among the few value investors I follow, none are bullish. But the charts seem to indicate a real change in the scenery with PSU Bank Index finally breaking above its first major resistance. Whether its start of a new trend or just a short term bump before the larger trend takes over is a matter of debate.

For those interested, here is a Relative Performance chart of the major PSU Banks.

Best Performer has been Bank of Baroda with worst being IDBI Bank