Nightmare on Dalal St: Banks, PSUs worst hit

Government and bank stocks bore the brunt of Tuesday’s market meltdown. The results of the second exit polls which predicted a severe s...

Government and bank stocks bore the brunt of Tuesday’s market meltdown. The results of the second exit polls which predicted a severe setback for the BJP-led National Democratic Alliance (NDA) weighed heavily on the stock prices of public sector undertakings (PSUs). Banking sector stocks contributed significantly to the bloodbath after the RBI tightened the norms for banks’ dividends restricting such payout ratio to 33.3 pc. As a result, the BSE PSU Index was the worst hit with a loss of 215.51 points in a single trading session to close the day at 4,115.73, a fall of 4.98 pc.

Said the CIO of a mutual fund: “The key from here on is to see how the foreign funds react to the outcome of these exit polls. If they react negatively, then we may expect a further fall in the coming days.”

The fall in the BSE PSU Index was mainly due to the selling in the PSU disinvestment candidates such as Madras Fertilisers, BPCL, Balmer Lawrie Investments, ITI, RCF, Shipping Corporation, HPCL, Hindustan Copper, MTNL, HMT, Nalco, HOCL, Engineers India and FACT.

Story continues below this ad

Apart from the disinvestment candidates, the other PSU stocks mainly from the oil sector such as Indian Oil, Bongaigaon Refineries, Kochi Refineries, Gail, Indraprastha Gas, ONGC, Dredging Corporation, SAIL, Bharat Earth Movers, IBP and Neyveli Lignite also lost the ground.

Dealers said the fall in PSU divestment candidates were on the concerns that the privatisation process will hit a roadblock, if the current government does not return to power. The market had been betting that NDA would win the elections and that the new government would step up economic reforms. Following such hopes, 57 PSUs gained by 16.5 pc in market capitalisation to Rs 3,72,000.17 crore from Rs 3,19,441.07 crore in last one month ended 23 April.

On the other hand, bank stocks fell for different reasons. Dealers said low-priced bank stocks, which were yielding good dividend, suffered the most. Gagan Banga, national sales-head, Indiabulls said, “Though the recent RBI norms have been an immediate cause of decline for the banking sector stocks, the correction was expected as the sector looked overheated for some time.”

Stocks that took a major beating were Dena Bank, UCO Bank, United Western Bank, UBI, Bank of Maharashtra and IDBI Bank. Among prominent public sector banks, the major losers were Canara Bank, PNB, Corporation Bank, Bank of Baroda and SBI. “Though smaller banks can be good dividend yield shares, stock prices of most banks such as SBI, ICICI Bank, BoB, OBC, Canara Bank, PNB have surged in the last one and half years and these banks are no longer seen as dividend yield stories,” a banking analyst with a domestic brokerage firm said.