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Of Cheap Valuation of PSU Banks and Key Stocks in Action Today
Mon, 21 May Pre-Open | Parth Parekh, TM Team

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.

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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!

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Stock Market Updates

LA OPALA RG plunges by 5%; BSE 500 Index Down 0.9% (Today's Market)

Jun 19, 2018 03:24 PM

LA OPALA RG share price has plunged by 5% and its Current Market Price is Rs 257. The BSE 500 is down by 0.88%. The top gainers in the BSE 500 Index are MAHINDRA LIFESPACE (up 11.47%) and JAIPRAKASH ASSO. (up 9.74%). The top losers are LA OPALA RG (down 5.02%) and AVANTI FEEDS (down 6.09%).

UCO BANK surges by 6%; BSE BANKEX Index Down 0.7% (Today's Market)

Jun 19, 2018 03:22 PM

UCO BANK share price has surged by 6% and its Current Market Price is Rs 20. The BSE BANKEX is down by 0.66%. The top gainers in the BSE BANKEX Index is UCO BANK (up 5.77%). The top losers are ICICI BANK (down 0.10%) and YES BANK (down 0.18%).

The BSE METAL Index Down 2% ; JSW STEEL Among Top Losers (Today's Market)

Jun 19, 2018 02:34 PM

The BSE METAL Index Down at 13,209 (down 2.0%). Among the top losers in the BSE METAL Index today are JSW STEEL, COAL INDIA and HINDUSTAN ZINC. Meanwhile, the BSE Sensex has plunged 0.72% to 35,552.

Sensex Drops 230 Points as Trade War Fears Resurface (Today's Market)

Jun 19, 2018 12:30 pm

The BSE Sensex is trading down by 227 points, while the NSE Nifty is trading down by 77 points.

SHREE RENUKA SUGARS plunges by 6%; BSE 500 Index Down 0.7% (Today's Market)

Jun 19, 2018 11:29 AM

SHREE RENUKA SUGARS share price has plunged by 6% and its Current Market Price is Rs 15. The BSE 500 is down by 0.67%. The top gainers in the BSE 500 Index are GATEWAY DISTRIPARKS (up 6.30%) and MARKSANS PHARMA. (up 4.45%). The top losers are SHREE RENUKA SUGARS (down 5.83%) and CG POWER & INDUSTRIAL SOLUTIONS LTD (down 7.10%).

JAIPRAKASH ASSO. plunges by 5%; BSE REALTY Index Down 1.1% (Today's Market)

Jun 19, 2018 11:17 AM

JAIPRAKASH ASSO. share price has plunged by 5% and its Current Market Price is Rs 15. The BSE REALTY is down by 1.10%. The top gainers in the BSE REALTY Index is SOBHA LIMITED (up 1.24%). The top losers is JAIPRAKASH ASSO. (down 5.19%).

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