Should you buy government owned banking shares in India after a 30-40% drop?

Business

oi-Sunil

By Sunil Fernandes

Published: Saturday, August 16, 2014, 9:00 [IST]

Select government banking stocks have fallen sharply in the last few weeks, following arrest of former Chairman of Syndicate Bank. Reports of CBI investigation into loans given by IDBI Bank to Kingfisher and poor results from select banks have compounded problems for these stocks.

IDBI Bank has denied reports of any investigation into loans given by the bank to Kingfisher Airlines and has clarified that all loans were given when the Airline was strong.

In any case PSU banking stocks have fallen. Take a look at select stocks that have fallen sharply.

How prices have fallen?

Shares of IDBI Bank which hit a 52-week high a couple of months ago at Rs 116.40, is currently trading at Rs 78.75. Syndicate Bank which hit a 52-week high of Rs 180 in July is down to Rs 125. Oriental Bank of Commerce has seen a very sharp cut from a 52-week high of Rs 377 to the current market price of Rs 259. Other stocks that have seen erosion in prices are Bank of India, UCO Bank, Dena Bank, Canara Bank and Punjab and Sind Bank.

Should you buy the govt banking shares now?

If you go by the quarterly results of the PSU banks, most of them have not had a particularly good performance for the quarter ending June 30, 2014, except select large banks like State Bank of India, Punjab National Bank and Bank of Baroda. Interestingly, these banks have not fallen sharply as compared to peers. The mid sized and smaller banks may take time to recover probably a couple of more quarters as growth in the Indian economy gathers steam. The government is also looking at capital infusion in these banks to comply with Basel III norms. It's also highly probable that the non performing assets of these banks would recover with the passage of time.

Conclusion

PSU banking stocks are looking more attractive than they were in the last three months. Hopes of a growth in economy, should help reduce non performing assets and capital infusion by the government should benefit these banks. At the current market price they could be a good bet if you are willing to hold onto these stocks for at least a year. Most of the private sector banking stocks are available at almost their 52-week highs and there would be no point chasing them any longer. One needs to only hope and pray that there are no more instances of bribery cases involving PSU banking executives.

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