Merger of these Two public sector banks likely soon, what’s the opportunity for stock market investors? Experts explain

Union Bank of India's shares have given its investors a good return of 23.68 percent so far this year. The share closed at Rs150.90 on the BSE today.

Public Sector Undertakings (PSUs) have been delivering substantial returns to their investors recently and are consistently in the news. Currently, two public sector banks are garnering significant attention. Since the news broke that the Modi government is preparing to merge Union Bank of India (UBI) and Bank of India (BOI), the shares of both banks have been showing strong upward momentum. If these banks merge, it will become the country's second-largest PSU bank after SBI.

Will Round 2 Begin Soon?

According to reports, the central government is preparing to initiate Merger-2. The first round saw the merger of several banks, during which Andhra Bank and Corporation Bank were merged into Union Bank of India. Now, if Bank of India also becomes part of Union Bank, the bank will be in a very strong position. This is why the shares of both banks are advancing rapidly. In the last 5 trading sessions, the share of Union Bank of India has gained over three and a half percent, while Bank of India has seen a rise of over 1 percent.

How Much Return So Far?

The share of Union Bank of India has given its investors a spectacular return of 23.68% year-to-date (YTD). In the last 1 month, this figure has been 10.09%. Similarly, the share of Bank of India has climbed 38.65% year-to-date and has provided investors with a return of 13.37% in the last 1 month. At the time of writing, the share of Union Bank was trading at ₹151.27 and Bank of India at ₹142.31.

More Upside Potential?

No official statement has been released regarding the merger of these two banks so far. Their shares may see further acceleration after an announcement from the government. In terms of financial health, Union Bank of India's second-quarter (Q2) results were mixed. In the September quarter, the bank's profit declined by 10% and Net Interest Income (NII) by 2.6% on a year-on-year basis. On the other hand, Bank of India saw an 8% jump in net profit year-on-year, although its NII also experienced a marginal decline.

What Do Experts Say?

Share market expert Abhishek Shukla states that typically, after such rallies, some correction is observed. However, both these banks are fundamentally sound, and there is no immediate fear of a sharp decline. Therefore, they can be considered for long-term investment. He advises that if you are investing in these stocks for wealth creation, the target should be long-term. Furthermore, if you already hold shares of these banks, you can continue to hold them.

What Should Be the Strategy?

According to Abhishek Shukla, generally, when such news emerges, retail investors tend to invest money in the market due to a Fear Of Missing Out (FOMO), which is not advisable. Investments should always be made thoughtfully and based on the advice of a financial advisor. Shares often surge immediately after positive news and then correct, and that is the right time to invest. Therefore, avoid hasty investment decisions.

(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.)