The one sector that has given the worst returns for investors in the last one year is the government owned banks or the PSU banks. However, we give you 6 reasons to buy these stocks now.
NPAs may have peaked
At some stage you are going to see a recovery in the non performing assets of banks. In fact, the NPAs of PSU banking stocks may have already peaked in the last quarter. Even if there is a slight improvement in asset quality in the next quarter, the share prices are going to flare-up.
We believe that there is likely to be a robust economic recovery in the next few quarters. This may lead to a drop in NPAs and improvement in asset quality.
6 Reasons To Buy PSU Banking Shares
Look at a stock like Oriental Bank of Commerce. The shares are trading at a price to book value of just 0.24 times. Yes, there could be some erosion in book value, but, even than it is at distressed valuations.
Government capital infusion
The government would have little choice but to infuse fresh capital into the government owned banks. This will lead to better business prospects and hence valuations.
The Reserve Bank of India is likely to ease some provisions. On Monday it allowed banks to convert debt to equity over a certain amount. There are some measures that may be further liberalized and eased, which could be good be news for banks.
It's likely that the Reserve Bank of India would cut interest rates even further. When that happens, expect a further improvement in profitability for PSU banks and hence their share prices.
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