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Why Public Sector Bank Shares Remain The Best bet After Quarterly Numbers?


The traditional bell weather stocks like those from the IT, Pharma and FMCG space have not had the best quarterly numbers. Investors were making a habit to hide behind these companies to weather any storm.


But, ITC, HUL, HCL Tech, TCS and Lupin have all disappointed with their numbers. Dr Reddy's from the pharma space did well, but, the company received a warning letter from the US FDA for three of its plants in the South and the stock came crashing down by 15 per cent on Friday.

Why Public Sector Bank Shares Remain The Best bet After Quarterly Numbers?
Companies like L&T have crashed following its results, leaving the markets with very limited places to hide. The one sector that has done well is the public sector banking space.

State Bank of India reported numbers that cheered the street. Asset quality at the bank was stable. Punjab National Bank another big government lender also showed non performing assets stabilize. Syndicate Bank and Canara Bank also did not see large scale asset deterioration. Except Bank of Baroda and Union Bank, most of the government owned banks did fine.

The way things are moving, public sector banking shares could do well. For one, their dividend yields are pretty decent. Syndicate Bank can give you a dividend yield of close to 5 per cent, while Canara Bank can yield as much as 4 per cent.


The second good thing is the reforms in the Discoms, initiated by the government. What this means is that many public sector banks which have exposure to Discoms have reason to cheer. Canara Bank, CEO and Managing director told CNBC TV 18 that the total exposure of the banks is Rs 23,000 crore to the Discoms, Out of this Rs 12,000 crore are under the fair and remunerative price (FRP) scheme. This means that he expects the loans of Rs 12,000 crores to be taken over by the state governments.

One of the other reasons to be buying PSU banks is the fact that economic growth should gather steam in the coming months. This would see a gradual improvement in the non performing assets. Some of these banks now have CEOs from the private sector at the helm, adding to professionalism.

All this makes a case for buying public sector banks at the current prices, given the deep value that these shares have.

Story first published: Saturday, November 7, 2015, 9:28 [IST]
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