Recently, Public Sector Undertakings (PSUs) have been providing significant returns to investors and are frequently in the spotlight. At present, two public sector banks are attracting considerable interest. Following reports that the Modi administration is planning to merge Union Bank of India (UBI) and Bank of India (BOI), the stocks of both banks have been experiencing a notable rise. Should this merger occur, it would create the second-largest PSU bank in the country, following SBI.
Is the Second Round About to Start?
Reports indicate that the central government is gearing up to launch Merger-2. In the initial phase, several banks were consolidated, including the merger of Andhra Bank and Corporation Bank into Union Bank of India. If Bank of India is also integrated into Union Bank, it will significantly strengthen the bank's position. Consequently, the shares of both banks are rising swiftly. Over the past five trading sessions, Union Bank of India's shares have increased by more than three and a half percent, while Bank of India has experienced a rise of over 1 percent.
What Has Been the Return So Far?
Union Bank of India's stock has delivered an impressive year-to-date (YTD) return of 23.68% to its investors. Over the past month, this return has been 10.09%. Likewise, Bank of India's stock has surged 38.65% YTD, offering investors a 13.37% return in the last month. As of the current writing, Union Bank's stock was priced at ₹151.27, while Bank of India's was at ₹142.31.
Is There More Room for Growth?
There has been no official announcement about the merger of the two banks yet. Their stock prices might increase following a government announcement. Regarding financial performance, Union Bank of India's second-quarter results were mixed. In the September quarter, the bank's profit fell by 10%, and its Net Interest Income (NII) decreased by 2.6% compared to the previous year. Conversely, Bank of India reported an 8% increase in net profit year-on-year, despite a slight drop in its NII.
What Are the Experts' Opinions?
Stock market specialist Abhishek Shukla mentions that usually, after such surges, some corrections occur. Nonetheless, both banks are fundamentally robust, and there is no immediate concern of a significant drop. Thus, they are suitable for long-term investment. He suggests that if you are investing in these stocks for wealth accumulation, the focus should be on the long term. Additionally, if you already own shares in these banks, you can maintain your holdings.
What Approach Should Be Taken?
Abhishek Shukla suggests that when news like this surfaces, retail investors often rush to invest due to Fear Of Missing Out (FOMO), which is not recommended. Investments should be made carefully and with guidance from a financial advisor. Stocks typically rise quickly after good news and then adjust, making it the ideal time to invest. Thus, it's important to steer clear of impulsive investment choices.
(Disclaimer: This article is for informational purposes only. It is not investment advice. Investing in the stock market is subject to risks. Consult your investment advisor before investing anywhere.)