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3 Cheap Private Sector Banking Stocks To Buy In Terms Of 10-Year P/E Averages

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A good criteria to see when buying a stock, is whether it is more expensive when compared to its long-term p/e averages. Let's give an example. Let's say Bank A has a p/e now of 15 times and the 10-year p/e average was 20, then it is available at a discount to the long term averages. However, discount to long term p/e averages could be deceptive if there are possibility of shocks and low growth rates going ahead.

 

Here are 3 cheap private sector bank stocks that are at a discount

Here are 3 cheap private sector bank stocks that are at a discount

Current price to earnings10-year average p/eDiscount
Axis Bank 14.1 37.5 -62
Bandhan Bank 13.7 24.9 -45.00%
RBL Bank 10.4 30 -65.00%

(Courtesy: Bulls & Bears India Valuation Handbook, Motilal Oswal Financial Services )

The table above shows that the stock of RBL Bank is available at a huge discount compared to long-term averages. However, that does not make the stock a buy, given that there are issues relating to NPAs and provisions. Therefore, just because the stock is available at a discount it does not automatically qualify to be picked for investment.

"Large Private Banks are carrying an additional COVID-19 provisions buffer, which should limit the impact on credit cost. We continue to prefer ICICI Bank, Axis Bank and HDFC Bank," Bulls & Bears India Valuation Handbook, Motilal Oswal Financial Services says.

Axis Bank could be a great stock to buy?
 

Axis Bank could be a great stock to buy?

Axis Bank is among the top picks of brokerage firms. In fact, there are no reasons why it should trade so low and at such a discount. In fact, the price to book value for the stock is also just 1.7 times.

"Most Private Banks reported higher slippages, primarily led by the Retail and MSME segment. Gross Non Performing ratio across private banks has increased. The recovery momentum is healthy, with collection efficiencies showing a strong improvement over Jun-Jul'21. This should lead to a moderation in the slippage run-rate, mainly from 2HFY22. However, provision coverage remains healthy," Bulls & Bears India Valuation Handbook, Motilal Oswal Financial Services says.

According to the handbook, disbursements fell sequentially across most Retail segments, while a few Banks reported a recovery in Corporate loan growth. "Large Private Banks are well-placed to accelerate market share gains, given their strong capital positions, robust balance sheets, and higher provisioning coverage on stressed assets," Bulls & Bears India Valuation Handbook, Motilal Oswal Financial Services says.

Some PSU bank stocks are going cheap

Some PSU bank stocks are going cheap

Some government owned banks are also available at a discount to long-term averages. Several brokerages like the stock of Indian Bank, which is available at a very low p/e multiple and also at a discount.

Current price to earnings10-year average p/eDiscount
Indian Bank 14.1 37.5 -62

(Courtesy: Bulls & Bears India Valuation Handbook, Motilal Oswal Financial Services )

"PSU Banks are trading at a P/B of 1.1 times, near their historical average of 1 times. Overall, most public sector banks are trading at reasonable valuations, with an improving earnings outlook," Bulls & Bears India Valuation Handbook, Motilal Oswal Financial Services says.

Disclaimer

Disclaimer

Investing in stocks poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article. Investors should take precaution because the markets are near record highs.

Story first published: Thursday, August 5, 2021, 17:46 [IST]
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