Which are the top banking companies in India right now?
These companies have been ranked as per their market capitalization. The higher the market cap, the higher the total value of the company.
Of course, there are other parameters you should take into account before forming a hard opinion on the stock valuation.
When should you invest in the banking sector?
Banking stocks are very closely linked to economy as both credit growth and margins are dependent on GDP growth and interest rates. Banks tend to have high non-performing assets (NPAs) when interest rates are high, and economy is underperforming and vice versa.
Therefore, the best time to buy banking stocks is when interest rates start falling as the cost of borrowing for banks goes down immediately while the interest they charge on loans stays high and falls with a lag.
Where can I find a list of banking stocks?
The details of listed banking companies can be found on the NSE and BSE website. For a curated list, you can check out our list of banking stocks.
What kind of dividend yields do banking stocks offer?
Since banks have to provision for potential bad loans (NPAs), these provisions generally lower profits for the bank. And as dividends are mostly paid from the remaining share of profits once essential expenses are met, not all banking stocks can steer you to handsome dividends.
In the Indian banking sector, private sector banks tend to have relatively better control on asset quality i.e., NPAs but don't pay high dividends whereas PSU Banks being government owned pay healthy dividends but can be risky in terms of NPAs.
To know which banks pay dividends, check out our list of top banking stocks offering high dividend yields.
How should you value banking companies?
Investing in stocks requires careful analysis of financial data to find out a company's true worth. However, an easier way to find out about a company's performance is to look at its financial ratios.
The most commonly ratios for banks are the Net NPA to Advances ratio and Price to Adjusted Book Value ratio, which is the ratio of Price to Book Value adjusted for NPA per share.
Price to Book Value Ratio (P/BV) - It compares a firm's market capitalization to its book value. A high P/BV indicates markets believe the company's assets to be undervalued and vice versa.
To find stocks with favorable P/BV Ratios, check out our list of banking stocks according to their P/BV Ratios