Why Banking Shares Remain The Best Sectoral Bet?

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If you look at the markets as a whole most of the pockets are become horribly expensive. You need to pay at least 40-60 time price to earning multiples for a decent pharma stock.

 Why Banking Shares Remain The Best Sectoral Bet?
IT Stocks are not cheaper and command a p/e multiple of 20-25 times.

Infrastructure and metal stocks maybe slightly cheaper, but no one is sure of economic growth in the country or around the world, which would drive prices of metals in particular higher.

Banking Shares Still Hold Value

There are greenshots that have begun to appear in the economy. What this means is that there is a potential for banking stocks to rise, if we are able to achieve decent economic growth.

As the economy gathers steam, the first thing that could happen is that non performing of banks could start falling.

When that happens you are unlikely to get banking stocks at the current levels, particularly the PSU Banking stocks. Banking stocks are a great proxy for the economy as a whole.

Most of the PSU banking stocks are quoting at low levels. Some of them are under 0.5 times book value, making them attractive picks.

Banking stocks like Syndicate Bank, if they are able to retain their same level of dividend offer yields of up to 7 per cent on their dividend itself. The larger PSU banking stocks are also likely to rally.

Another factor that could drive banking stocks is the fact that we could expect another rate cut from the Reserve Bank of India going forward.

CPI Inflation data has come in lower than expected for the month of March raising the prospects of another interest rate cut by the RBI.

Retail prices dipped to 5.17 per cent as against 5.37 per cent recorded for the month of Feb. A drop in the repo or interest rate by the RBI tends to definitely benefit banks.

All in all it seems a good time to selectively pick some of the large cap PSU banks like Bank of Baroda or a mid sized one like Syndicate Bank. At least a 50 per cent return in the next two years cannot be ruled out.

GoodReturns.in

Read more about: banking stocks, pnb, syndicate bank
Story first published: Tuesday, April 14, 2015, 8:42 [IST]
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