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The recent fall in key stock indices left a mark on public sector banks (PSBs). These entities were battered to such an extent that it brought to mind the free fall in these seen in July 2013, when most saw 52-week lows.
Heavyweight stocks such as State Bank of India (SBI), which had crossed Rs 1,800-levels on the bourses a few months ago, tumbled to Rs 1,475 recently, before bouncing back a tad. In the case of others, including Punjab National Bank (PNB), Bank of Baroda (BoB), Bank of India (BoI) and Union Bank, the pattern was more or less similar.
So, are PSBs a good bet?
“If one believes the economy will grow after the elections and growth has bottomed out, it makes sense to buy some of the state-owned banks at current levels,” says Vaibhav Agrawal, vice-president, research (banking), Angel Broking. He added counters such as SBI, PNB and BoB looked good at this juncture.
Non-performing assets (NPAs) and higher provisioning continue to hit the sentiment on PSB stocks. This is evident from the fact that the day on which PNB announced a huge decline in net profit for the December quarter, the stock gained about five per cent, as the lender managed to beat the Street’s estimates on NPA.
Ambareesh Baliga, managing partner (global wealth management), Edelweiss Financial Services, said, “It is possible PSBs may have hit a bottom. There is no harm in buying these at current levels. But one should expect higher provisioning in the March quarter, which could hit banks.” He added the stocks could see corrections from higher levels to those prevailing now.
Currently, most PSB stocks are trading at a discount of 40-60 per cent to their 52-week highs.
The chief investment officer (CIO) of a large fund house says, “In the sector, who doesn’t have PSU bank shares? All have sizeable chunks and such deep corrections are used to pick more. Worries are there; there n doubt about that. But these banks are the reflection of the economy, which won’t be in the doldrums forever.”
S Naren, CIO at ICICI Prudential MF, said, “If one is hopeful of growth after the elections, I would suggest buying these counters; else, no.”
Investors with a medium- to long-term view may also benefit from dividends in the next few months. If bought at current levels, these counters could fetch better dividend yields. However, analysts question whether these banks will continue to pay high dividends. Given the recent interim dividends by many PSBs, hopes of dividend gains cannot be ruled out.
