Valuation gap between public sector and private banks narrows -

Valuation gap between public sector and private banks narrows

Credit: business-standard.com

  • Oct 25 2017 18:55About: 2 months ago
  • 8 views

The rally in public sector bank (PSB) stocks after the announcement of the government’s recapitalisation plan have narrowed their valuation gap with  

Earlier, a typical private bank was nearly four times as expensive as a PSB on average, the gap is now down to 3x. added Rs 1.19 lakh crore to their combined on Wednesday, taking it past their book value in 2016-17. In contrast, saw a marginal dip in their market capitalisation, led by HDFC Bank.

are now trading at 1.15 times their book value or net worth per share during 2016-17 on average, up from a valuation multiple of 0.9x on Tuesday. In comparison, the private banks' declined marginally to 3.42x their book value from 3.45x.

Analysts said this would enable to raise from the market and help them grow faster. “had almost stopped making fresh loans due to lack of equity support from the government and their inability to raise incremental from the market. A part of this problem has now eased after the recapitalisation announcement by the government and a consequent rally in their share prices,” said G Chokkalingam, founder and managing director, Equinomics Research & Advisory.

Historically, have traded at a discount to their private sector peers, however, the gap widened to a record high in the last few quarters due to the former’s inability to expand their business due to mounting losses from bad loans and inadequate equity support from the government.

The combined of 22 listed jumped to Rs 5.48 lakh crore on Wednesday, up from Rs 4.29 lakh crore the previous day. In comparison, their combined net worth was Rs 4.77 lakh crore at the end of March.

The combined of 16 listed declined marginally to Rs 12.4 lakh crore on Wednesday, from Rs 12.5 lakh crore a day before. Against this, had a combined net worth of Rs 3.62 lakh crore at the end of 2016-17.

Seven were trading at a premium to their book value on Wednesday against just two a day earlier. Some of the that crossed the valuation threshold on Wednesday were Punjab National Bank, Bank of Baroda, IDBI Bank, Indian Bank and Vijaya Bank.

Punjab National Bank was the single biggest gainer as its stock price surged by 46 per cent, adding nearly Rs 14,000 crore to its Other big gainers were Canara Bank (38 per cent) and Union Bank of India, Bank of India and Bank of Baroda, which gained between 30 per cent and 35 per cent in Wednesday’s trade.

Experts, however, question the sustainability of this sharp rally. “will now have to show faster growth in their net interest income and profitability in the coming months to justify the current rally. This looks tough in the near term given that bulk of the incremental capital infusion is likely to be used to compensate their losses on account of bad loans rather than to make incremental lending,” said Dhananjay Sinha, head of research at Emkay Global Financial Services.

The stocks could also come under pressure due to poor results in the current quarter and the next. “I expect a correction in in due course. Their results for the September quarter are likely to be bad and it could be the same for the December quarter. Things will look up only from the March quarter,” said Chokkalingam.




Follow Us on Twitter

Price-to-book value ratio state-owned banks jumped from 0.9x 1.15x day while private traded lower 3.42x

Related stories with Valuation gap between public sector and private banks narrows

Hear Franz Ferdinand's Winding, Synth-Heavy New Song 'Always Ascending' -World News
Hear Franz Ferdinand's Winding, Synth-Heavy New Song 'Always Ascending' 2 months ago
Franz Ferdinand released a winding, synth-heavy new song, "Always Ascending," from their upcoming LP of the same name.
Star Wars: The Last Jedi Video Of Carrie Fisher, Mark Hamill, And Rian Johnson Released -World News
Star Wars: The Last Jedi Video Of Carrie Fisher, Mark Hamill, And Rian Johnson Released 2 months ago
Star Wars: The Last Jedi, the next installment in the franchise's saga, won't be in theaters until December. However, director Rian Johnson has shared a behind-the-scenes look at the film and those that helped him bring it to life--including the cast.In t
Rock slide closes Trans-Canada between Revelstoke, Golden, until further notice -World News
Rock slide closes Trans-Canada between Revelstoke, Golden, until further notice 2 months ago
Highways officials estimate it will be at least mid-afternoon before the Trans-Canada Highway is open again through southeastern British Columbia.
Ontario makes it illegal to protest outside and near abortion clinics -World News
Ontario makes it illegal to protest outside and near abortion clinics 2 months ago
The Ontario legislature passed a bill Wednesday to create zones around the eight clinics in the province of between 50 and 150 metres in which anti-abortion protests, advising a person not to get an abortion, and intimidation or interfering with a woman's
First Batch of BMW M4 GT4 Models Delivered to Private Racing Teams -World News
First Batch of BMW M4 GT4 Models Delivered to Private Racing Teams 2 months ago
A while back BMW took the veils off its brand new BMW M4 GT4 and told us that private teams will get the chance to … The article First Batch of BMW M4 GT4 Models Delivered to Private Racing Teams appeared first on BMW BLOG
New Nintendo Switch games REVEAL as company confirms major PS4 and Xbox One competition -World News
New Nintendo Switch games REVEAL as company confirms major PS4 and Xbox One competition 2 months ago
THE NINTENDO Switch games reveals are not going to slow down in 2018, with more competition heading the way of the PS4, PS4 Pro, Xbox One and Xbox One X.
Bye-week breakdown: Positives and problems for Auburn’s running game -World News
Bye-week breakdown: Positives and problems for Auburn’s running game 2 months ago
AUBURN, Ala. — As Auburn football coach Gus Malzahn said last weekend, the Tigers’ current bye week is an important time for evaluation heading into the final month of the season. This week, SEC Country will do the same for Auburn, breaking down t
Renting luxury yachts and catamarans -World News
Renting luxury yachts and catamarans 2 months ago
Searching for a dose of uniqueness? Rental of luxury yachts and catamarans is a terrific way to get it, whilst experiencing a terrific holiday. The impressive landscapes, terrific foods and excellent provider – all this we can guarantee for you in s
Eminem’s Publisher Triumphs in New Zealand Copyright Battle -World News
Eminem’s Publisher Triumphs in New Zealand Copyright Battle 2 months ago
The National Party of New Zealand was ordered to pay $413,000 in damages for a political ad that evoked the rapper’s hit “Lose Yourself.”
WWE News: WWE Changes Twitter Header to ‘Too Sweet’ Image, Bayley, Becky, Banks, & Charlotte Take Survivor Series Hype to Twitter -World News
WWE News: WWE Changes Twitter Header to ‘Too Sweet’ Image, Bayley, Becky, Banks, & Charlotte Take Survivor Series Hype to Twitter 2 months ago
– The header image for WWE’s Twitter account right now is AJ Styles and Finn Balor doing the “Too Sweet” hand gesture following their match[.........] The post WWE News: WWE Changes Twitter Header to ‘Too Sweet’ Image, Bayley, Becky, Banks
Authorities Release Suspect Sketches and 911 Call in Sherri Papini Case -World News
Authorities Release Suspect Sketches and 911 Call in Sherri Papini Case 2 months ago
SHASTA COUNTY — New details have emerged in the 2016 case that left a young mother branded, beaten and left on the side of the freeway after disappearing for three weeks. The Shasta County Sheriff’s Department has released a 911 call and sket