Thursday, December 6, 2012

Banking stocks one of the best performers in 2012
The banking sector has been one of the best performing sectors on the bourses through 2012. The BSE Bankex Index has risen 55% since January 2012 compared with a 26% rise in the Sensex. Not only has the index beaten the Sensex, it has also given the highest returns among sectoral indices.

Stocks of Dena Ban, Jammu & Kashmir Bank and Karnataka Bankhave doubled in market value since January 2012. Though the management has denied it, speculation of a likely merger of Karnataka Bank with a larger private sector bank was one of the key triggers behind the rally in Karnataka Bank in recent weeks.

Operationally, all three banks have reported good earnings growth in the past three quarters. Asset quality of these three banks is also relatively stronger than many other banks.

And while most banking stocks have outperformed there are a few than have not. The stock of Lakshmi Vilas Bankfor instance is down 9% year-to-date. Indian Bank has gained a mere 4% and Punjab National Bankand Bank of India have risen 6% and 8%, respectively. Not only have these banks disappointed on the earnings growth, their non-performing assets as a percentage of total advances have also been rising over the past few quarters.

With the exception of Punjab National Bank, which trades at a price to book value of 1.01 times, Lakshmi Vilas Bank, Indian Bank and Bank of India are all trading below their book value. The BSE Bankex Index trades at a price to book value multiple of 2.06 times.

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