Why Are PSU Bank Stocks Falling? Is Adani the Reason?

Shares of public sector banks (PSBs) are under significant pressure, with the Nifty PSU Bank index slipping about 4% in Thursday’s intra-day trade. This marks the sharpest fall in over three months for the index. But what triggered this sharp decline? The recent allegations against the Adani Group founder Gautam Adani and other executives for allegedly bribing Indian officials appear to be at the center of this turmoil.

Adani Bribery Charges: A Catalyst for the Market Reaction

US prosecutors have charged Gautam Adani, the founder and Chairman of the Adani Group, and other board members for allegedly offering bribes amounting to $250 million to secure renewable energy supply contracts in India. This has sent shockwaves across the Indian financial markets, impacting not only Adani Group stocks but also PSU banks.

On Thursday, Adani Green Energy scrapped its $600 million bond issuance, adding to the tension. The company disclosed in an exchange filing that the United States Department of Justice and the Securities and Exchange Commission (SEC) have brought a criminal indictment and a civil complaint against Adani executives, including Gautam Adani and Sagar Adani. Vneet Jaain, another board member, has also been named in the indictment.

Impact on PSU Bank Stocks

All stocks within the Nifty PSU Bank index traded in the red on November 21, 2024. Here’s how some of the major players performed:

• Punjab National Bank (PNB): Down by approximately 4%.
• Bank of Baroda: Declined by 3.80%.
• Canara Bank and State Bank of India (SBI): Also reported notable losses.

This sharp decline has left the Nifty PSU Bank index trading below all its key moving averages. Despite being up 10.2% year-to-date (YTD), the index has fallen 6.4% in November alone, reflecting market concerns.

What’s the Connection Between PSU Banks and Adani?

The Adani Group’s financial dealings have long been intertwined with Indian PSU banks. PSU banks are among the largest lenders to Adani companies, funding various infrastructure and renewable energy projects. With allegations of bribery and corruption surfacing, concerns over the credit risk exposure of PSU banks to the Adani Group have increased. This uncertainty has led to widespread selling pressure on PSU bank stocks.

Technical Indicators Paint a Grim Picture

The Nifty PSU Bank index trading below all its key moving averages signals bearish sentiment among investors. The sharp fall also indicates that investors are wary of any further adverse developments that might emerge from the Adani controversy.

Looking Ahead: Is This a Temporary Blip or a Prolonged Risk?

While PSU bank stocks remain under pressure in the short term, their performance in the medium to long term will depend on:

1. The resolution of the Adani bribery allegations.
2. The financial health of PSU banks and their exposure to Adani Group companies.
3. Broader market conditions and regulatory actions in India.

Investors will also closely monitor the performance of the PSU banking sector in the coming months to assess whether this fall is a temporary reaction or indicative of deeper issues.

Conclusion

The sharp decline in PSU bank stocks is a reminder of how interconnected financial institutions and large corporates are. As the Adani Group faces scrutiny, the ripple effects on PSU banks have highlighted the need for vigilance in corporate lending practices. Whether this is a short-term reaction or a precursor to more significant challenges will depend on how the allegations and their financial implications unfold.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.