Feeding on hope and reform, banking bulls on the charge

Going by the bad loans and earnings reports, there is no reason to believe that Indian banks are out of the woods. But equity investors are saying that they may well be the ugly ducklings of stock markets. The BSE Bankex rose 1.65 per cent on Monday — the highest among sector indices — and state-run banks advanced 3.6 per cent.

What’s driving the optimism? There may be many things that contribute to a stock rally. In this case, it may just be the faith in the government itself. The government investing nearly a third of the promised Rs 70,000-crore this year has lifted the spirits. Bad loans may not come to an end anytime soon, but banks may get the legal structure to punish the defaulters soon.

What’s more, their valuations are affordable. Bank of India is trading at a price to book value of 0.29, Canara Bank at 0.41 times, Oriental Bank of Commerce at 0.27 and the State Bank of India at 0.97, which many believe is the icing on the cake.