SBI grows Rs 61,000 crore bigger in a day

Mumbai: State Bank of India added about Rs 61,000 crore in six hours of frenetic buying on Wednesday , singeing short-sellers of shares in state-run lenders and vaulting past ONGC, Maruti Suzuki, HDFC, and Hindustan Unilever on the newlook leader-board of the country's most valuable businesses.

State-owned peers of the country's biggest bank added a further Rs 47,000 crore a day after New Delhi announced an unprecedented fund-injection plan that stunned many naysayers. Punjab National Bank added Rs 13,576 crore to its market value, and Bank of Baroda Rs 10,380 crore, hurting short-sellers.



“There was consensus building up that the public sector bank recapitalisation programme would never be taken up, and that these lenders would die a slow death,“ said Chirag Shah, senior VP, Phillip Capital. “Many market participants short-sold PSU banks based on those assumptions. They have now suffered huge losses, with the spike in share prices."

At Rs 2.8 lakh crore, SBI now ranks sixth on the list of India's biggest companies by market capitalisation and is behind only HDFC Bank, among lenders, in value. In the cash market, the stock recorded its biggest ever single-day gain, surging 28% to Rs 324.90 on the NSE.

“We believe that the biggest beneficiary of the move, on a sustained basis, will be SBI," said Morgan Stanley in a note. Morgan Stanley raised the stock to overweight from underweight -a two-level upgrade -and set a 47% higher target price at Rs 360. Intraday, the stock hit a 52-week high of Rs 328.05.

“SBI has given a consolidation breakout and the rally can extend to `350-plus levels,“ said Chandan Taparia, derivatives analyst at Motilal Oswal Financial Services.

Punjab National Bank, Bank of Baroda, Oriental Bank of Commerce, and Canara Bank were among stocks that saw gains of 20-50%. Short-covering by traders played a decisive role in supporting the gains. Traders had initiated sales of out of the money (OTM) call options in these counters ahead of the Thursday expiry on expectations that they could pocket the premium paid by the option buyers. But Wednesday's surge in share prices hurt many call sellers.

Most traders were forced to square off their positions as the stocks opened with huge gaps early morning. This fuelled Wednesday's price rally, which was also contributed in part by fresh bullish bets.

Punjab National Bank, which surged 49%, is a case in point. The shares closed at Rs 138.2 Tuesday .Traders anticipating that prices would not rise materially above 142 had sold a huge number of call options at 140 through 160 strikes (each strike is at a 5-point interval).

The gigantic rally stunned these traders. The 140 call expiring October 26 saw its price rise from Rs 2.2 a share to Rs 60, a 2,627% surge, as traders scampered to cover their short positions.