Attractive dividend yields
Most of the PSU banks are offering dividend yields in the range of 3% to 7%. Very few companies on the bourses are able to match these kind of dividend yields. Also, dividends are tax free in the hands of investors. Any further drop in the share price of PSU banking stocks would further push up the yields and make them as attractive as some fixed deposits. However, the yield is assuming that the banks maintain the same dividends for next year, which was paid in the current year.
Non performing assets (NPAs) may be bottoming out
NPAs, which have risen in the last few quarters have been bottoming out and at the most there may be another two quarters of concern. Once NPAs start recovering PSU banking stocks have the potential to offer at least 50% returns in the next two years.
All PSU banks are being painted with the same brush
There are PSU banking stocks like Corporation Bank, Allahabad Bank, Oriental Bank of Commerce etc., where the NPAs have been contained at reasonable levels. However, these stocks too are being hammered, despite lower gross and net NPAs.
Stocks quoting much lower than book value
Most of the PSU banking stocks are quoting way below their book value, including the likes of Allahabad Bank, Andhra Bank, Union Bank of India, UCO Bank, Indian Overseas Bank, Dena Bank, Bank of India and Corporation Bank. In fact, Punjab and Sind Bank is quoted at just around 0.4 times its book value, thus offering tremendous scope for appreciation.
Near 52-week lows
Most of the PSU banking stocks are very near to their 52-week lows, thus leaving limited room for downside and offering tremendous potential for appreciation.
Those who wish to take a contrarian call might do well to buy into PSU banking stocks which are available at very good valuations.