Is It The Right Time To Buy PSU Banks

PSU Banks Near Bottom, Time Right for Buying

Investors have turned wary of PSU bank stocks amid dismal December quarter results

and the unfolding crisis in United Bank of India (UBI). But while rising NPAs are forcing many brokerages to recommend shares of private sector banks, there are buying opportunities in PSU bank counters for investors willing to take that extra risk.
All PSU bank stocks have corrected in anticipation of poor numbers — an event that has played out, making valuation of these shares reasonable. For instance, Allahabad
Bank is quoting at a price-to-book value of just 0.32 times, with a dividend yield of more than 8%. Similarly, Central Bank, Union Bank, Corporation Bank and Canara Bank are trading at a price-to-book value between 0.3 and 0.4 times while their yield is between 5% and 9%. Some analysts believe the worst is almost over, even though the recovery could take some time, thanks to a low pick-up in loan growth and a slow investment cycle. “I recommend buying PSU banks at current levels for a trading bet with upside to the tune of 10-15% in near term. My top pick is PNB, followed by BoI, Syndicate Bank, Union Bank and Canara Bank,” “Looking at the valuation of PSU banks, they seem to have priced in all the negatives, though a fundamental change will take time,” one can say. High-street lenders like Union Bank of India, Canara Bank, Bank of India and Allahabad Bank have declined more than 50% from their 52-week highs. All other stocks have declined between 25% and 50% from their yearly highs. “With a higher risk profile, some of the PSU banks like SBI, BoB and PNB, with relatively higher capital adequacy and well-diversified asset books, can be considered from a cyclical revival point of view,” When the UBI scrip touched a new low, HNIs bought the stock in anticipation that the bank, with nearly 90% government holding, would bounce back once government infuses capital. However, their bets may backfire if it is merged with another bank. “One of my best bets in the past was to buy Satyam Computer when it slipped below "10" and all investors were dumping the scam hit company.

“There’s no doubt that at some stage, the economy will rebound and when that

happens, banking stocks will bounce back. But till the government infuses capital into the balance sheet of PSU banks, it’s better to avoid these stocks,”