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Why PSU banking stocks still offer value at current levels?


Why PSU banking stocks still offer value at current levels?
The last few weeks have seen PSU banking stocks or government owned banks springing back to life. From hitting abysmally low levels in September, these stocks have recovered at least 30 per cent.

Despite their rise in the last few weeks, these stocks may still offer some value at these levels. Take the case of Canara Bank.

The stock has seen its gross and non performing assets fall for the quarter ending Sept 30, 2013. The annualised EPS based on its Q2 results is likely to work out to around Rs 56. Thus, the price to earnings for the stock is just 4.4. The price to book value is also around 0.45 times, making the stock highly attractive at the current levels. The stock at the current market price of Rs 251, is still way below its 52-week high of Rs 550, achieved earlier this year.

Same is the case for stocks like Bank of India and Syndicate Bank, where the NPAs are improving and pretty much under control.

The best time to buy a stock is when things are extremely bad for the sector. This is because you cannot have good news and cheap stock prices simultaneously.

Banking stocks have corrected this week, largely on the back of fears that the RBI may hike repo rates once again. Canara Bank which on Monday had touched levels of Rs 280, is down once again to a level of around Rs 252.

The RBI is meeting on December 18 to decide on interest rate hikes. Should the RBI hike interest rates by another 25 basis points, banking stocks might fall further. This could offer investors an excellent entry point. It's also important to remember that some of these PSU banking stocks offer very good dividend yield making them an attractive proposition. Most of them offer tax free dividend yields of more then 4 per cent.

Story first published: Saturday, December 14, 2013, 11:35 [IST]
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