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Is it time to dump private sector banking shares?

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 Is it time to dump private sector banking shares?
Axis Bank: Quotes, News
BSE 1053.6BSE Quote0 (0.00%)
NSE 1052.85NSE Quote0 (0.00%)
ICICI Bank: Quotes, News
BSE 1084BSE Quote0 (0.00%)
NSE 1083.75NSE Quote0 (0.00%)
Earlier this week, the RBI said that as many as 26 entities from reputed and established business groups had applied for new banking licenses, that would pave the way for news banks to be established across the country. The prominent groups that have applied include the Tata Group, Aditya Birla Group, Anil Dhirubhai Ambani group and the Bajaj Group.

For years now, private sector banks like HDFC Bank, Axis Bank and ICICI Bank have been growing rapidly, as PSU banks could hardly compete in terms of service and these banks cashed in on the boom in urban areas.

 

With fresh banking licences being issued, it's going to get tough for the existing private sector players to grow at such scorching pace, in some cases 25-30 per cent quarter on quarter. Should the RBI approve as many as 8-10 news banking licences, expect tough business going ahead for the existing private sector players.

 

It's therefore the best time to sell private sector banking shares as their valuations are already very high, particularly shares of HDFC Bank, which is accorded a very high price to earnings multiple and price to book value multiples. HDFC Bank has a price to book of over 5 times, while some PSU banks have a price to book of under 0.60 times. In terms of price to book value, HDFC Bank is perhaps the costliest bank in the world.

We are seeing signs that share prices of these banks are dipping. HDFC Bank which had hit a 52-week high of Rs 727 has dipped to Rs 660, while Axis Bank has dipped from levels of Rs 1549 to the current levels of Rs 1330. Government owned banks have fallen to such low valuations that dividend yields have gone up as high as 7 per cent.

A sell on rise strategy for private sector banks would be the right approach

GoodReturns.in

Read more about: icici bank hdfc bank axis bank
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