Bluechip banking names like State Bank of India (SBI), and ICICI Bank have plunged to 52-week lows. The drop in levels for these banks, means they are available at close to 20-40 per cent lower from peak levels.
For bluechip banking stocks to fall by such high per cent, can always make them excellent bets.
ICICI Bank and State Bank Have Blue Chip Subsidiaries
Banks like ICICI Bank and State Bank of India (SBI) have tremendous value, simply because of their holdings in subsidiaries. For example, SBI has a solid holding in the country's largest stock exchange, NSE, apart from SBI Life and a host of other subsidiaries.
ICICI Bank on the other hand has stakes in ICICI Prudential, ICICI Direct and other marquee names. In fact, ICICI Bank recently said it was selling a 6 per cent take in ICICI Prudential for Rs 1,950 crores, which values the life insurance business at more than Rs 32,000 crores.
Below par valuations
ICICI Bank is barely trading at 11 times one year forward earnings. For a solid private sector bank with a great franchisee, the stock may deserve better valuations. Yes, there are some concerns on non performing assets, but, they may have peaked for the moment. Price to book value for ICICI Bank is just 1.7 times, while for SBI it is just 1.37 times.
On some of the parameters, these stocks seem attractive.
Economic recovery to gather steam
The pace of economic recovery is likely to gather steam going forward. Already, there are greenshoots that are emerging. Two things are likely to happen after economic recovery. One is that banking non performing assets are likely to fall and second credit is going to improve. This should augur very well for banking stocks in India.
There is a high possibility that banking stocks like ICICI Bank and State Bank of India could give decent appreciation, once that happens.
Significant drop in share price
The mantra to make money is to buy low and sell high. ICICI Bank share price has fallen from Rs 380 to Rs 244. On the other hand State Bank of India has fallen from highs of Rs 366 to the current level of Rs 224. This makes the stocks attractive at the current levels.
If you are a long term investor, these stocks offer a tremendous buying opportunity.