Helping You Build Wealth With Honest Research
Since 1996. Try Now

MEMBER'S LOGIN

MEMBER'S LOGINX

     
Invalid Username / Password
   
     
   
     
 
Invalid Captcha
   
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Of Cheap Valuation of PSU Banks and Key Stocks in Action Today
Mon, 21 May Pre-Open

NSE PSU Bank Index surged 30% on 25th October 2017-the date when bank recapitalization of Rs 2.1 trillion was announced. God bless the investors who bought the public-sector banks on this date. Fast forward to 18th May and investors would have lost massive net worth in these stocks.

Loss in Market Capitalization of PSU Banks from 26th October 2017 to 18th May 2018
BankPrice as on 26th October 2017Price as on 18th May 2018Loss in Market Cap (in %)Current Price/ Book Value (New)10 Yr Average Price/ Book Value
Punjab National Bank21375-65%0.51.1
Union Bank of India18683-55%0.40.7
Allahabad Bank8438-55%0.40.7
Andhra Bank7034-51%0.30.8
Syndicate Bank8243-47%0.40.8
Bank of India19393-52%0.50.9
Bank of Baroda185127-32%0.81.1
SBI Bank321239-25%1.11.3
Source: ACE Equity

The healthy correction has led to these banks trading at attractive valuations. All the banks as mentioned in this table are trading below their ten-year median price/book value.

Now, there is a term in investing called Value Traps. Value traps are stocks that are trading at very cheap valuations. These stocks can trade cheap forever and never really recover in terms of stock price performance. There is a reason for this. And the reason is related to structural problems with the company.

The structural problem with public sector banks is the credit appraisal policy. In the greed of balance sheet growth and pressure from government, these banks have lent to stressed sectors such as power and iron & steel. The result- Gross Non-Performing Assets (GNPA's) of public sector bank have shot up to 11.03% in FY17 as compared to 4.97% in FY15.

Unless such structural problems are resolved it is highly likely that some of these banks act as a value trap and continue to deliver miserable stock returns in the long run.

Top Stocks in Action Today

The stock of Atul Auto, Advances Enzymes, Jaiprakash Associates, Sanghi Industries, Rushi Decor are expected to be in the news today as they declare their results for the quarter ended March 2018.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

View all commentaries | Archives

Read the latest Market Commentary


Equitymaster requests your view! Post a comment on "Of Cheap Valuation of PSU Banks and Key Stocks in Action Today". Click here!

  
ABOUT EQUITYMASTER

Since 1996, Equitymaster has been the source for honest and credible opinions on investing in India. With solid research and in-depth analysis Equitymaster is dedicated towards making its readers- smarter, more confident and richer every day. Here's why hundreds of thousands of readers spread across more than 70 countries Trust Equitymaster.

PREMIUM PRODUCTS
QUICK LINKS
POPULAR TOPICS
TRENDING TOPICS
FREE NEWSLETTERS
EQUITYMASTER SUPPORTS
  • HelpYourNGO
  • You Tube
  • Linkedin
  • Twitter
  • Telegram
  • Google Play

Copyright © Equitymaster Agora Research Private Limited.

Whitelist | Refer | Terms | Privacy | Contact | About | Sitemap

Phone +91-9136015013

Equitymaster Agora Research Private Limited (Research Analyst)
SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Email: info@equitymaster.com. Website: www.equitymaster.com.
CIN:U74999MH2007PTC175407

Name of the Compliance & Grievance Officer: Ms Sonal Ramachandran
Telephone: +91-22-61434003 | Email: compliance@equitymaster.com

LEGAL DISCLAIMER:
Investment in securities market are subject to market risks. Read all the related documents carefully before investing.
Registration granted by SEBI and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors.

All rights reserved. Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

Equitymaster Agora Research Private Limited (Research Analyst) bearing Registration No. INH000000537 (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA, Canada or the European Union countries, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.