Bank stocks are gaining momentum in recent times, with share prices surging significantly in the past one year. The second quarter profit performance of banks has also been very impressive. The price-earning ratio (PE) of private banks at aggregate level showed an increase on November 11 this year against that of November 11, 2008. In the case of public sector banks (PSBs) too, PE ratio showed an increase, though marginally, during the same period.
The private banks’ PE ratio was higher than PSBs in both the study periods, as indicated by a comparison between 21 PSBs operating in the country and 17 private banks.
Kishor P Ostwal, CMD, CNI Research, said, ?The Indian economy has started performing well and has recovered ahead of other economies. Stimulus packages by the government and RBI have helped credit offtake substantially, especially in sectors like metal, auto and housing, resulting in improved profitability of banks.?
However, a significant increase has been witnessed in Bankex stocks also. PE ratio of Bankex increased by 4.17 points to 13.96 times, as compared with 9.79 times last year. M-Cap of Bankex increased by 90.6% to Rs 5.37 lakh crore from last year’s Rs 2.82 lakh crore.
The aggregate market capital of 21 public sector banks has increased by 84.5% from Rs 1.75 lakh crore on November 11, 2008, to Rs 3.22 lakh crore on November 11 this year. Their four quarters trailing net profit has increased by 44.5% during the study period, increasing PE ratio from 6.80 on November 11, 2008, to 8.68 on November 11 this year. With higher profit growth, public sector banks have managed to increase their PE ratio. Top three PSBs in terms of PE ratio on November 11 are SBI, IDBI Bank and PNB.
Private sector banks achieved a 94.3% increase in market capital on November 11, but the trailing net profit has increased by 20.5% to Rs 11,910 crore. The PE has increased from 14.57 on November 11, 2008 to 23.50 on November 11, 2009.