Private sector is more promising than PSU bank stocks -27 March 2014

PSU bank stocks are down and out. The State Bank of IndiaBSE 1.23 % has plunged to Rs 1,741 from Rs 2,051, Canara BankBSE 0.51 % has fallen toRs245 from Rs371, and Bank of India has tumbled to Rs205 from Rs289 in a span of a year. Many PSU banks are trading below their book value. Bank of India trades at a P/BV of 0.54, while Canara Bank trades at a P/BV of 0.48. SBIBSE 1.23 % is trading at a P/BV of 1.31. Despite these beaten down valuations, there are no takers for these stocks. 


Analysts continue to prefer private sector banks like ICICI Bank, HDFC Bank, Kotak Mahindra BankBSE -0.58 % and Axis Bank, among others, despite a spurt in stock prices and rise in valuations. Stocks of HDFC BankBSE 0.32 % have moved up to Rs750 fromRs610, Kotak BankBSE -0.58 % to Rs765 from Rs631 and ICICI BankBSE -0.35 % to Rs1,250 from Rs1,012. HDFC Bank trades at a P/BV of 4.9, while ICICI trades at a P/BV of 2.1. 


Way Ahead of Competition In the last two decade, private sector banks — ICICI Bank, HDFC Bank, Yes Bank, Axis BankBSE 0.20 % and so on — have been gaining market share at the expense of state-run banks. For example, they have increased their current account savings account market share to 17 per cent in 2013 from 14 per cent in 2009. "The focus on retail segment has helped new private sector banks in the last five years when the economy passed through a slowdown," says Alpesh Mehta, banking analyst, Motilal OswalBSE 2.17 % Securities.