Why Union Bank and Bank of Baroda Are Top Picks From The Banking Space?

Business

oi-Sunil

By Sunil Fernandes

Updated: Wednesday, May 13, 2015, 9:30 [IST]

Two of the impressive numbers that have come from the banking space this earnings season have been that of Union Bank of India and Bank of Baroda.

Particularly, analysts are recommending Union Bank of India. Even as we write, CPI inflation for April has fallen sharply boosting the chances of an interest rate cut, thus further fuelling the prices of these stocks.

Union Bank of India

Union Bank of India reported a drop in both the gross non performing and net non performing assets. Gross NPA for the quarter ending March 31, 2015 was placed at 4.96 as against 5.08 in the previous quarter ending Dec 2014.

Net NPA dropped from 2.95 to 2.71, during the period again showing a decent fall. Interestingly, the Chairman and Managing Director of Union Bank, Arun Tiwari was quoted as saying that for the third straight quarter the recovery has gone up and the slippages have been contained. He expects profitability to improve going forward.

Also, if you buy the stock now, you would be entitled to a dividend of Rs 6 per share. If you look at the book value of the stock it is close to Rs 300.

What this means is that at the current price of Rs 144, the stock is trading at less than 0.48 times book value.

If economic conditions improve, the asset quality is also expected to improve and you would probably not get the stock at Rs 144, considering that the stock is close to its 52-week low and the 52-week high was Rs 260.

Bank of Baroda

Bank of Baroda was another stock that saw its asset quality improving, which triggered a huge 16 per cent rise in the stock on a single day on Monday.

The profits fell though. The only worry for the Bank of Baroda stock is that the management commentary did not sound too optimistic.

CNBV TV 18 quoted Ranjan Dhawan, the Managing Director and CEO of the bank as saying that: "Not withstanding (the positive surprise on NPA levels) there is considerable pain still left in the economy. Most of our major clients are still not out of the woods. They have serious liquidity issues."

Two things could benefit the Bank of Baroda stock.

One is that interest rates in the economy are expected to fall and second is that there is likely to be an economic recovery at least in the near future. This should augur well for the stock.

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