PSU banks looking better against private peers at least for next 2 quarters: Narendra Solanki
, Head Fundamental Research-Investment Services,
Anand Rathi Shares & Stock Brokers
, notes that
PSU banks
have outperformed
private banks
due to improved fundamentals like
interest margins
and
declining NPAs
. Consequently, PSU bank valuations are approaching those of private banks, trading around 1.5-1.7 times book value. Despite recent profit booking, PSU banks are expected to maintain their advantage over private peers for the next two quarters.
Eternal held on to the 11.5% gains yesterday. How are you looking at the stock movement from here on and how much more head do you believe can be there for the stock from these levels because it is at an all-time high level for this particular counter?
Narendra Solanki:
The results were good, especially on the part of Blinkit. The results were very exciting. The food delivery business has seen a moderation but the margins are slated to improve and the growth should continue to remain strong. So, on both fronts, we continue to see improvement for the stock going ahead, especially the Blinkit turnaround is very positive for the company and that has been reflecting in the prices of the stocks lately. So, we are still positive on the stock for the medium to long term.
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What got the entire Nifty PSU basket so spooked because there were two consecutive days of big losses coming in over here. Select names like
Canara Bank
are down and out by about 3%. What is marring the entire Nifty PSU bank pack and what could be the reasons other than the earnings overhang on some from the Nifty PSU banks pack? Don't you think that the reaction is being a little overplayed right now?
Narendra Solanki:
It is a mix of two factors. One is definitely a reaction to the earnings and the other is historical performances of the past one to three months. Then the PSUs outperformed the private peers on the back of improving fundamentals like improvement in the interest margins, improvement in the profitabilities and the gradually declining NPA. So, the valuations have also started coming very close to their private peers where some PSU banks have started trading at around 1.5, 1.7 times book value.
The majority of the pack on an average was trading at around 0.9 to 1.1 price to book value while their private counterparts like larger private banks which once traded at higher than 3.5-4x book values are still trading at somewhere between 2.5 and 3 book value. So, the valuation gap has narrowed and it is a combination of near-term profit booking on back of
earnings reaction
. These both factors have played out but our view is that PSU as a pack is still looking better in comparison with the private peers at least for the next two quarters.
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