The year 2014 has been stupendous for stocks with several stocks giving very high returns. It's now becoming increasingly difficult to find pockets that are cheap. Among the few pockets where you still find some value is the PSU Banking space.
Now apart from the valuation which we will discuss later here are a few reasons to buy PSU banking stocks.
The Prime Minister will be meeting with PSU Banking Chiefs in a two-day retreat called Gyan Sangam in Pune beginning January 2. The strategy is aimed at a revival of PSU Banks which are now saddled with bad debts. Should there be a concrete action plan, expect PSU banking stocks to rally in the next few months.
The government is serious on ensuring that non performing assets in the PSU banks are under control and there is a sharp revival in credit demand.
Cut in Interest Rates Likely
There is likely to be a cut in Interest rates in the first quarter of next year. This is likely to see a fresh impetus in PSU Banking stocks which could rally, if there is a cut in interest rates. This is likely to improve the financial performance of PSU Banks and hence stocks from the sector.
Valuations are very cheap
In terms of valuations are belief is that these stocks are the most under owned at the moment. Take the case of a bank like Syndicate Bank. The book value is a huge 188 and the stock is traded at just Rs 128.45. Even if you buy the stock now the dividend yields itself works out close to 5 per cent.
There are several PSU Banking stocks like Syndicate Bank, including the likes of Bank of India and IDBI Bank which are undervalued at the moment. In fact, stocks like IDBI Bank are trading at just 0.50 times book value and from a 2-3 year perspective they could be excellent buys.