It is perhaps not the best time to recommend Public Sector Banks as good picks. But, if you have to make money, you have to buy beaten down stocks at decent prices. You can't keep chasing high priced stocks because the returns are likely to be limited. You have to be a contrarian, which is likely to hold you in good stead in the days to come.
1) Private sector banking CEO to head Canara Bank
In a dramatic change seen in appointments the government has appointed a private sector professional as the head of Canara Bank.
The Managing Director and Chief Executive Officer of private sector lender Laxmi Vilas Bank's Rakesh Sharma will head Canara Bank.
While this may not give instant results there could be significant changes in the medium term of control over non performing assets. The CEO may also be given freedom to take complete charge of the bank, which may bring better accountability.
2) Non performing assets much better than peers
Canara Bank is among the few public sector banks that has much better control over non performing assets. The net non performing assets of the bank came in much better than most other public sector banks at 2.74 per cent for the quarter ending June 30, 2015. Going forward it looks like the asset quality worries may have peaked.
Economic revival is likely to boost credit demand and control non performing assets. While the next couple of quarters is likely to be bad, the next one year may see better revival of credit demand and hence improvement in asset quality.
The valuations for the bank at the current levels is very much attractive. For the quarter ending June 30, 2015 the bank reported a EPS of Rs 9.63. If you annualise the same, the EPS for the full year could be around Rs 39. At the current market price of Rs 285, it translates into a price to earnings multiple of around 7 times. This is relatively cheap and does not look too expensive considering that things should not get any worse.
5) interest rate cut likely
It is almost certain that the Reserve Bank of India will cut interest rates going forward. This is likely to augur well for banking stocks as well as their performance. The RBI next meets later this month to decide on interest rates.
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The author and his family does not hold any shares as recommended in this article.