Why Canara Bank Share Price is Falling

Earlier this year, the US banking crisis rattled investors across the globe, following the second and third largest bank failures in US history. But this was a couple of months ago.

As things stand now, one more bank has joined the ranks. Experts are calling this the second largest failure.

First Republic Bank was seized by regulators last week and many of its assets were sold to JP Morgan.

As some other major banks faced similar difficulties globally, there is apprehension that the contagion would spiral out of hand.

What about India? Well, Indian banks have displayed resilient performance in their latest quarterly report cards.

Private lenders took the charge as HDFC Bank, Kotak Bank, and IndusInd Bank posted healthy loan growth.

Even PSU banks like Central Bank and IDBI Bank which were plagued with mounting NPAs and losses reported ground breaking numbers.

You would have seen headlines like these making the news -

Amid all this, Canara Bank is caught in a broad-based selloff, despite posting good numbers.

Yesterday, Canara Bank share price fell around 5%, and continued the downtrend today by falling 4% on an intraday basis.

Let's find out why Canara Bank shares are falling.

Profit booking

Yesterday, Canara Bank reported its March quarter earnings where net profit came in at Rs 31.8 billion (bn), up 90% year-on-year (YoY).

Net interest income (NII) rose by 23% on a YoY basis on the back of robust loan growth. The bank's retail lending portfolio saw a growth of 11% while housing loans jumped 14%.

Gold loan portfolio grew 34% while credit to retail agriculture and MSMEs rose by 13% and constituted 55% of total advances.

Total advances grew 16% led by a 21% growth in corporate advances, which was aided by demand for working capital loans from oil companies, according to the company's CEO.

In the quarter under review, Canara Bank improved its asset quality as gross non-performing assets (GNPA) ratio reduced to 5.35% in the March quarter, down from 5.89% at the end of March 2022.

Canara Bank has also recommended a dividend of Rs 12 per equity share for FY23.

Note that in the past two years, the lender has seen a sharp improvement in asset quality with NPAs falling from a whopping 7.5% in the financial year 2018 to 2.7% in 2022.

No wonder the PSU bank has rewarded its shareholders well. The stock price has more than doubled in value since January 2021.

These factors have led to a higher valuation than normal of the stock. Investors must have opted for a sell-on-rise strategy.

Therefore, the recent correction could be due to profit booking in the stock.

Strong outlook

Canara Bank is among the top 5 PSU banks in India by growth.

Post earnings declaration, the bank's CEO K Satyanarayana Raju said Canara Bank expects double-digit growth in advances in the current fiscal year as demand for loans is likely to remain strong from both retail as well as corporate sectors.

• We are seeing demand from sectors like cement, steel, construction, data centres and chemicals. Even the housing demand continues to be strong, which is likely to continue this fiscal.

These upticks are expected to be sustainable for a couple of more quarters.

Last year, Canara Bank had raised capital in the form of equity aggregating to Rs 25 bn through a QIP.

This announcement was made after the lip-smacking performance during the year. Going forward, it will help the bank capture all benefits from the country's increased credit demand.

Canara Bank continues to get funding and support from the government as the centre has a majority stake in the bank.

How shares of Canara Bank have performed

Over the past three days, Canara Bank shares have fallen by 8%.

So far, in 2023, the stock is trading lower by 10%. Over the last year, shares of Canara Bank have soared by 50%.

The company touched its 52-week high of Rs 342 on 3 January 2023 and its 52-week low of Rs 172 on 20 June 2022.

Have a look at the table below to compare Canara Bank with its peers.

Comparative Analysis

Company	Canara Bank	Bank of Baroda	PNB	SBI	Union Bank
ROE (%)	15.3	1.0	4.2	13.6	10.7
ROCE (%)	95.5	8.1	5.3	8.8	76.4
Latest EPS (Rs)	62.1	22.6	1.7	52.8	12.5
TTM PE (x)	5.1	8.1	31.5	11.1	5.9
TTM Price to book (x)	0.8	0.9	0.6	1.6	0.7
Dividend yield (%)	3.8	1.6	1.2	1.2	4.1
Industry PE	10.1
Industry PB	1.2

Data Source: Ace Equity, Equitymaster

About Canara Bank

Canara Bank is one of the largest Indian government owned banks. It's under the ownership of Ministry of Finance, Government of India.

The bank operates in four segments namely treasury operations retail banking operations wholesale banking operations and other banking operations. It provides a range of products and services to the customers.

Canara Bank has a strong pan India presence. Across the borders the bank has 8 branches one each at London, Leicester, Hong Kong, Shanghai, Manama, Johannesburg, New York, and DIFC (Dubai), and a representative office at Sharjah UAE.

For more details about the company, you can have a look at Canara Bank factsheet and quarterly results on our website.

You can also compare Canara Bank with its peers.

Canara Bank vs Punjab National Bank

Canara Bank vs State Bank of India

Canara Bank vs Bank of India

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...