Why IOB Share Price is Rising

Indian stock markets are witnessing a curious trend: public-sector banks (PSUs) are surging while private banks are taking a hit.

The Nifty PSU Bank index has skyrocketed over 82% in the past year and continues to climb. So far in 2024, the Nifty PSU Bank index has jumped 17%, in contrast, the Nifty Private Bank index has dipped nearly 7% year-to-date.

This upside-down performance extends to the benchmark Nifty Bank index, which is dragged down by the weakness in private lenders.

Once again asserting their dominance, on the first day of the fiscal year 2025, PSU Bank stocks surged by over 1%. Notably, among these, Indian Overseas Bank saw a significant jump of 8%.

Here's why.

#1 Optimistic Outlook

The current favourable credit environment has significantly improved the asset quality of PSU banks, thereby boosting investor confidence and driving up their stock prices.

The recent surge in these stocks is largely fuelled by optimism surrounding smaller PSU banks, which are perceived to offer an attractive risk-reward profile due to their potential for higher earnings growth and valuation upside.

This optimistic outlook is supported by growing confidence in the reliability of earnings per share and the ability to deliver Return on Assets (ROA), as well as an increase in foreign ownership.

Moreover, compared to other state-run lenders, these smaller PSU banks are believed to be ahead by one to two years in their earnings recovery cycle, indicating the possibility of positive surprises in the financial years 2025 and 2026.

The rise in the share price of Indian Overseas Bank (IOB) is a reflection of these positive market sentiments.

#2 Government Stake Reduction

Five public sector lenders, including IOB, are planning to cut government stake to less than 75% to comply with Sebi's minimum public shareholding (MPS) norms.

According to the guidelines, all listed companies are required to maintain a minimum public shareholding (MPS) of 25%. While state-owned banks were granted an extension, they must meet this MPS requirement by August 2024.

The stake sale can be conducted through the offer-for-sale route for lenders that are not inclined toward a rights issue.

Presently, the government maintains a majority stake of 96.4% in IOB. In line with the market regulator regulations requiring the bank to limit government ownership to below 75%, the institution has to reduce the government's stake by around 21.4%.

By increasing the proportion of shares held by the public, IOB can enhance liquidity in its stock, potentially attracting more investors and improving trading activity.

Further, with a larger proportion of shares held by the public it will be easier to raise capital in the future through equity issuances, providing the bank with additional funds for growth and expansion initiatives.

This has further led to a positive momentum, driving the shares higher.

#3 Expansion Plan

IOB has drawn up an expansion plan to open 88 new branches during the year commemorating the 88th Foundation Day celebrations.

This bold initiative underscores the bank's steadfast commitment to providing comprehensive financial services, thus fostering economic vitality and inclusiveness across various communities nationwide.

Moreover, the bank has announced an upward adjustment in interest rates on Rupees Retail Term Deposits for the 444 Days bucket, increasing it by 0.2%. Consequently, retail term depositors can now avail themselves of an interest rate of 7.3%, while senior citizens and super senior citizens are offered rates of 7.8% and 8.1%, respectively, for fresh term deposits opened within the 444 Days category.

IOB stands out for offering one of the most competitive interest rates on Rupee Retail Term Deposits for the 444 Days bucket.

This robust expansion strategy has further fuelled a rally in IOB's shares, driving them up by an impressive 47% thus far in 2024.

What Next?

Looking into the future, Indian Overseas Bank (IOB) envisions a continual reduction in net Non-Performing Assets (NPA), demonstrating a firm commitment to managing slippages and upholding stringent control over asset quality. The bank is optimistic about the forthcoming financial year, projecting a credit growth of 13-14%.

Additionally, after a break of about eight years, the Indian Overseas Bank (IOB) is working to scale up its footprint by adding about 40-50 branches.

Prospects in the retail sector are promising, with a strategic focus on housing and jewel loan segments. IOB anticipates significant growth in its jewel loan portfolio, which currently stands at Rs 390 bn, having expanded 3.5 times over the past four years.

How Shares of IOB have Performed Recently

The IOB stock rose around 178% in the past one year. Over a month, the share price has gained by 2%.

IOB share price touched its 52-week high price of Rs 83.8 on 8 February 2024. Its 52-week low was Rs 20.9 touched on 28 March 2023.

The company is currently trading at a PB (price to book value) multiple of 5.1 times.

About IOB

Indian Overseas Bank (IOB) is one of oldest and major Public Sector banks in India.

It is an Indian public sector bank. It has about 3,220 domestic branches, 2 DBUs (Digital Banking Unit) about 4 foreign branches and representative office.

Founded in February 1937 by M. Ct. M. Chidambaram Chettyar with twin objectives of specialising in foreign exchange business and overseas banking, it has created various milestones in Indian Banking Sector.

During the nationalisation, IOB was one of the 14 major banks taken over by the government of India.

For more details, see the Indian Overseas Bank company fact sheet and quarterly results.

You can also compare IOB with its peers:

IOB vs UCO Bank

IOB vs ICICI Bank

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