Private bank stocks slump up to 21% in one month, but Gurmeet Chadha sees value. Here’s why

While private banks have underperformed benchmarks Nifty and the Sensex over the past month, banking stocks overall offer great value for investors, market veteran Gurmeet Chadha said. He further said that banks’ transition from Loan-to-Deposit Ratio (LDR) to Liquidity Coverage Ratio (LCR) augurs well for them and could potentially increase credit by 3%-7% in their books.

“Minus subsidiary values, even private Banks like HDFC, ICICI r trading at 2 times book & P/E multiples of 12-15 times. Due to FII selling, it may remain under near term pressure, banks offer great value, even some NBFCs. Also banks moving frm LDR to LCR offer scope to increase credit by 3-7% in their books,” Chadha said in a tweet.

Chadha said that he expects a 3% to 7% uptick in credit in banks’ books on the back of a switch to LCR.While both LDR and LCR are liquidity indicators in banking, they measure different aspects of a bank’s balance sheet strength. LDR shows how much of a bank’s deposits are being used to give loans while LCR measures whether a bank has enough high-quality liquid assets to survive a stress scenario.

The Nifty Private Bank has slipped over 10% in the past month versus Nifty’s near 8% slide in the same period.
Individually, HDFC Bank and ICICI Bank have fallen by 10% and 11%, respectively. IDFC First Bank remains the top loser at 21% share price erosion and is followed by 12% fall in Kotak Mahindra Bank.
Others including YES Bank, Axis Bank, The Federal Bank and RBL Bank are down between 6% and 8%.
In the 10-stock index, the lone gainer in Bandhan Bank has gained 5% in the same period.

Meanwhile, the Nifty PSU bank is down 4% over a one-month period, with Punjab & Sind Bank (PSB) emerging as the top loser, down 12%. Others like State Bank of India (SBI), Uco bank, Bank of India (BoI), Indian Overseas Bank (IoB), Punjab National Bank (PNB), Canara Bank, Central Bank of India and Bank of Baroda (BoB) have fallen in single digit up to 9%.

The state-run bank’s whose shares have seen an uptick include Indian Bank (3%), Bank of Maharashtra (2%) and Union Bank of India (1%).

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(Disclaimer: The recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of The Economic Times.)