Banking shares may offer good value

Updated: Thursday, October 17, 2013, 13:51 [IST]

It's sometimes a good idea to take a contrarian call. Exactly six months ago, if you had to take a contrarian bet on IT stocks, you would have got stupendous returns, in most cases about 50 per cent.

Take the case of some private sector banks that have reported good Q2 numbers. IndusInd Bank and HDFC Bank reported decent results in line with estimates. For private sector banks to continue to grow at 25-30 per cent is indeed good.

The worry for some banks, particularly the PSU banks is non performing assets (NPAs). However, it's possible that NPAs may have peaked from here on and one might see gradual declines in the next few quarters.

Some of the PSU banks look attractive merely because they may offer you dividend yields of 5-9 per cent. Also, some of these bank shares are quoting below 0.5 times book value, making these shares rather attractive.

On the other hand a private sector bank like Yes Bank is quoting at a price to earning ratio of just 8 times forward earnings, making it a good buy.

On Friday, banking stocks again saw selling pressure with the Bankex falling again. At the moment there are sectors like IT, Pharma and FMCG that are quoting at extremely high price to earnings multiples, making them unreasonably valued at the current levels.

Thus, buying into banking shares at the current levels is always an attractive proposition.

GoodReturns.in