Investors can consider Federal Bank
Tuesday, 20 April 2010
MUMBAI, Apr 19 (Economic Times): Banking stocks are always at the forefront of the rally. This is because banking companies tend to grow at a higher rate than the corporate sector in Indian context.
And therefore, whenever optimism returns to the stock market, banking stocks are the first to catch the fever. This time was no different. The current rally started on March 9, 2009. Since then, Bank Nifty - the benchmark of banking stocks - has gone up by 105 per cent.
Several banking stocks have given better return than Bank Nifty. However, there are a few stocks, which have given return only at par with the benchmark. This includes Federal Bank, Indian Overseas Bank, Indian Bank, Karnataka Bank and Syndicate Bank.
The primary reason for their average run on bourses is that their financial performance was sub par in FY10. For instance, the net profit of these five banks fell by an average 39% in the quarter ended December 2009. And the reason for such a steep fall in profit was an average 24% fall in other non-fund based income.
It is important to realise that fall in other income was more temporal in nature, as it was due to the absence of trading gains, which depend entirely on direction of interest rates.
A few of these banks also saw an increase in their non-performing assets (NPAs). For instance, gross NPAs formed 4 per cent of gross advances for Indian Overseas Bank at the end of December 2009 quarter compared to 2.4 per cent a year earlier. Similarly, Karnataka Bank reported a 4.5 per cent gross NPAs at the end of December 2009 quarter compared to 3.7 per cent a year earlier.
And therefore, whenever optimism returns to the stock market, banking stocks are the first to catch the fever. This time was no different. The current rally started on March 9, 2009. Since then, Bank Nifty - the benchmark of banking stocks - has gone up by 105 per cent.
Several banking stocks have given better return than Bank Nifty. However, there are a few stocks, which have given return only at par with the benchmark. This includes Federal Bank, Indian Overseas Bank, Indian Bank, Karnataka Bank and Syndicate Bank.
The primary reason for their average run on bourses is that their financial performance was sub par in FY10. For instance, the net profit of these five banks fell by an average 39% in the quarter ended December 2009. And the reason for such a steep fall in profit was an average 24% fall in other non-fund based income.
It is important to realise that fall in other income was more temporal in nature, as it was due to the absence of trading gains, which depend entirely on direction of interest rates.
A few of these banks also saw an increase in their non-performing assets (NPAs). For instance, gross NPAs formed 4 per cent of gross advances for Indian Overseas Bank at the end of December 2009 quarter compared to 2.4 per cent a year earlier. Similarly, Karnataka Bank reported a 4.5 per cent gross NPAs at the end of December 2009 quarter compared to 3.7 per cent a year earlier.