Public sector bank shares are short-sellers’ delight in the stock market today. With the deepening rot at PNB and most retail and high net-worth traders holding on to their long positions in PSU banking shares, the Nifty PSU Bank index has become vulnerable to the point that it could re-test its 2016 lows in the coming weeks, experts said.

Tuesday saw the Nifty PSU Bank index fall 4 per cent on the back of news that the quantum of fraud at PNB could be₹1,300 crore more than the initially stated ₹11,400 crore. PNB’s share price crashed 14 per cent during intra-day trade to below ₹100 for the first time in two years. It closed at ₹97 on Tuesday.

“Any rise in PSU bank shares is a shorting opportunity as they are headed to re-test their lows of 2016 and 2013,” said Rohit Srivastava, fund manager, Shareklhan-BNP Paribas. “The business model of PSU banks is facing a major disruption. Nobody has any idea how to value them, with multiple scams and no growth seen for years.”

The Nifty PSU Bank index, which has 11 of the largest PSU banks as its constituents, closed at 3,057 on Tuesday. It had hit a low of 1,938 in February 2016 and traded at the same levels in 2013; but it bounced back from there to touch a high of 4,000 in 2017.

The index is still 1,000 points away from its multi-year lows, giving traders an opportunity to short the index constituents.

“Further heavy selling is expected in PSU banks in the coming weeks as data show that the long positions in these counters are yet to come down significantly,” said Rishi Kohli, CEO, ProAlpha Capital, a quant fund.

“The futures rates of most PSU bank stocks are still trading at a premium to the spot market despite a sharp fall. It shows that long positions are yet to unwind and there could be a capitulation.”

The Nifty PSU Bank index is down 28 per cent from its all-time high of 4,068 in November 2017 after the announcement of a ₹2-lakh crore bailout package for PSU banks.

At every level during the fall, retail investors bought into PSU bank shares, thinking the worst was over for the sector.

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