This week a host of banking stocks plunged to new 52-week lows. Among these were some marquee names like ICICI Bank, State Bank of India, Punjab National Bank and Bank of Baroda.
The damage in these stocks were so severe, their piece destruction reminded us of the 2008 global financial crisis.
1. Economic recovery
It is just a matter of time, before there is some economic recovery that happens. This could lead to a re-rating of the beaten down banking names. Most of the bluechip banking names like ICICI Bank, Axis Bank and State Bank could see sharp recovery, if there is an economic rebound. In fact, we may see the credit growth, which could lead to expansion in net interest incomes.
2. Fresh capital infusion
The government has time and again made it clear that they would fund banks where there is a need for capitalization. In fact, the govt has agreed to capitalize Rs 70,000 crores into banks in the coming 4 years. This would ensure that they are adequately funded. Of course, this would be a great boon for some of the PSU banking stocks.
3. Cheap valuations
Select banking stocks like ICICI Bank and State Bank look extremely cheap on the valuations front. Both these stocks are trading at p/e multiples of just 10. The price to book value for ICICI Bank is now under 2 and that for SBI under one. This makes these stocks attractive from a long term perspective.