Despite up to 30% year-to-date gains, shares of certain public sec- tor banks (PSBs) continue to trade at less than one time their forward book values, an analysis by top broker- ages show. Shares of Ben-galuru-based Canara Bank, which have risen by over 30% since the beginning of the current calendar year, for in stance, are currently trading at just 0.7 time of HS- BC Global Research’s FY17 estimated book value per share of `470.
Analysts attribute the strong gains in the shares of PSBs like Canara Bank to expectations of strong earnings in Q2 FY 17 on the back of high growth in treasury in- come due to the rally in g- secs. The yield on the 10 year benchmark government bond has dropped by over 70 bps — from 7.54% to 6.81% — since the end of Q2 FY16.
“We expect most banks, es- pecially PSU banks, to show strong treasury gains for 2Q. A drop in bond yield implies higher pension liabilities, though our discussions with a few PSU banks suggest that most of them may postpone their provisioning to 2H,” note analysts at HSBC Global Research in a recent report.
On the other hand, shares of Bank of Baroda, which have lost 3.6% in value so far in CY2016, are still trading at close to 1x of their estimate book value per share of `164.
Lying low
