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.
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).