Indian banks, particularly PSU banks, have witnessed a revival of interest on expectations of an uptick in economic growth and strong FII flows. In spite of past scams coming back to haunt now, except for a few midcap banks, most large players sailed through the storm (PSU banks up 46% in six months). Private banks maintained their strong run with 52-week highs being surpassed (private banks up 37% in six months). We had highlighted in our last sector report (June 2015) about banks trading at significant discounts from their peak and scope for the same to narrow.
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We have raised our target multiples for a few banks with the probability of a beta play on a reviving economy narrowing the gap from peak multiple. We remain bullish on a couple of large PSU banks SBI and BoB whereas PNB remains a beta play. Among private banks, we prefer IndusInd Bank, Yes Bank as beneficiaries of declining system rates in the near term. Among large cap private banks, Axis Bank remains a long term consistent return stock (five year average return of 17% per annum).
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