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Last Updated : Apr 02, 2013 01:12 PM IST | Source: Moneycontrol.com

Prefer SBI, PNB, Union Bank among PSU Banks: Dolat Cap

Dolat Capital has come out with its report on banking sector. The PSBs can be the significant beneficiaries of improvement in the economic growth, as the asset quality deterioration slows down, and recoveries start rising. Among PSB's one can prefer SBI, PNB and Union Bank, says the research firm.

 
 
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Dolat Capital has come out with its report on banking sector. The PSBs can be the significant beneficiaries of improvement in the economic growth, as the asset quality deterioration slows down, and recoveries start rising. Among PSB's one can prefer SBI, PNB and Union Bank, says the research firm.


"With the Budget 2013 and RBI Policy out of the way, and focus shifting back to macro data (inflation, growth, CAD), we expect the financials to showcase better trajectory on key variables viz., asset quality, margin stability and treasury book gains over the next one year. The consensus GDP growth estimates suggest a recovery from the sub 5 percent growth in Q3FY13 to over 6 percent for FY14. We are in sync with this consensus and believe that the reversal in GDP growth trend should lead to an overall improvement in the balance sheet growth for private banks and in the asset quality for public sector banks (PSBs).


Bank stocks over the past 3 months have corrected by 15 percent with PSBs having corrected by around 20 percent due to concerns on asset quality. Private sector banks though have seen price correction of around 10 percent, have maintained their valuation premiums due to their stable growth and asset quality. We believe that private banks will be able to maintain their valuation premiums for the near term as well.


Asset quality related concerns have weighed down on the PSBs, however, the valuations for some of them are now turning attractive and looks to have discounted most of the negatives. We are positive on select PSBs where valuations are near bottom range of longterm average and there are moderate signs of stability in asset quality.


We believe that unless the structural issues on infrastructure related sectors (read roads, power, and mining) are resolved, they would continue to be a drag on the overall economy, and on the financials. The government move on these issues over the next few months, shall be critical to sustain valuations for the sector before the re-rating and earnings upgrade come into play.


Most of the banks have been indicating that the condition of the textile sector is now better than in the past. During our recent visit to the south to meet with the managements of Karur Vysya Bank, City Union Bank and Lakshmi Vilas Bank, we also visited the textile hub of Tirupur. Our interactions with the players there suggest that they are in better situation now than they were 6-12 months back and the overall scenario for them is seeing a moderate improvement.


What we prefer


We have positive stance on the sector with overweight on Private Banks, and selectively positive on PSBs.


We believe that as the economic growth starts to improve, and interest rates soften, the asset quality fears for banks should reduce. Private banks which have outperformed the PSBs are expected to retain their outperformance in the medium term in our view. Given their stable growth, asset quality and margins; valuations for some private banks do not look too demanding. We prefer ICICI Bank, Yes Bank, KVB among the private banks.


The PSU bank valuations at 0.72x (1 year forward PBR, source: Dolat, Bloomberg) are now close to the lows and could see an uptick as the rate cuts by the RBI come into play next couple of quarters. Further, the PSBs can be the significant beneficiaries of improvement in the economic growth, as the asset quality deterioration slows down, and recoveries start rising. Among PSB's we prefer SBI, PNB and Union Bank," says Dolat Capital research report.


Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.



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First Published on Apr 2, 2013 01:12 pm
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