Shares in state-run banks including top lender State Bank of India (SBI) and Bank of Baroda (BOB) closed higher after Goldman Sachs upgraded the stocks. Goldman upgraded SBI and BOB to "buy" from "neutral", and Punjab National Bank to "neutral" from "sell", saying neglected PSUs are poised for a rally on emerging macroeconomic and political clarity.
"We believe Indian banks, especially high-beta PSU banks, could be at the cusp of re-rating given improving macro and likely political clarity post the upcoming elections," the Wall Street bank said in a note to the clients on Thursday.
Macro recovery and potential for post-election reforms could lead to a gradual reduction in stressed loans, it said.
Significant reforms under a stable government could lead to valuation re-rating in particular for PSU banks, that could provide a 66 percent average upside in our view as stressed loans could fall sharply to 4.7 percent from 10.5 percent by FY18, Goldman says.
Return on assets could move up to 1.0 percent by FY18 from 0.5-0.6 percent now, it said.
Shares in SBI closed 3.9 percent higher, Bank of Baroda was up 2.4 percent and Punjab National Bank rose 3.8 percent.