During COVID, doomsayers in the market believed that most public sector banks would go bust and that the Government had nothing in its arsenal to stop that. Gross NPAs were very high, and banks were coming to the lower end of capital adequacy ratios. There was no light at the end of the tunnel. Pessimism was very high, and the consensus was that these names should not be owned.

From there, it has been quite a roller coaster journey for the believers. Gross NPAs came down significantly, and capital adequacy ratios are very comfortable. This public sector bank trade has been a success for a handful of investors and humiliating for many. All the heavy lifting that these banks did during COVID will translate into significant performance going forward. The question that remains is whether there is more leg to this trade.

Today, the book value of SBI is 342, and the stock is trading at 617. While the price to book of 1.8x is not cheap by historic standards, we have seen much higher levels in previous bull runs. If the market shows that kind of confidence in SBI, some amount of the glory will also reflect on the top 3 public sector banks.

As for the smaller banks, we will see them consolidate or be divested. For starters, IDBI Bank is on sale and has received interest from foreign investors.

There’s still a long way to go. It’s still early days. Those investors who believed, and caught the trend early, have much to cheer about. Those who missed the bus are waiting to climb on.

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