Is Current Valuation of Top Bank Stocks Undervalued or Overvalued? Should You Invest | Top-5 Banks’ Valuation Comparison

3 min read

In this article, we will specifically discuss the valuation of the top-5 banking sector. So, let’s get started!

Top-5 Banks-P/B & P/E Ratio Comparison:

1) ICICI Bank:

  • ICICI Bank is currently having a Price to Book (P/B) ratio of 3.43 against the 1-year, 3-year, 5-year, and 10-year Median P/B of 3.3, 3.1, 2.4, and 2.1 respectively.
  • ICICI Bank stock has witnessed a significant re-rating of over 60% in its P/B ratio against its 10-year median.

2) State Bank of India (SBI):

  • SBI has also witnessed a strong re-rating which is also visible in the jump in its P/B ratio.
  • SBI’s current P/B ratio of 1.73 is much higher than the 1-year, 3-year, 5-year, and 10-year Median P/B of 1.6, 1.3, 1.3, and 1.2 respectively.
  • The re-rating in the P/B accounts for over 40%-45% of the 10-year median P/B.

3) HDFC Bank:

  • HDFC Bank has remained one of the favorite banks for Foreign Institutional Investors (FIIs) due to which the bank got a premium valuation in the past.
  • The premium valuation was quietly justified by several positive factors like lower Non-Performing Assets (NPAs), strong CASA ratio, etc.
  • HDFC Bank’s current P/B is around 3.28 which has downgraded against the median P/B.
  • The median 1-year, 3-year, 5-year, and 10-year P/B are 3.78, 3.91, 4.06, and 4.14 respectively.
  • Due to the re-rating of the ICICI Bank and other banks, HDFC Bank has gone through a significant de-rating.

4) Kotak Mahindra Bank:

  • Kotak Mahindra Bank was another favorite counter of FIIs in the past, but recently this stock has also witnessed a sharp correction which is also due to de-rating.
  • The Bank’s current P/B ratio is 3.83 which is much lesser than the 1-year, 3-year, 5-year, and 10-year Median P/B of 4.2, 4.5, 4.9, and 4.6 respectively.

5) Axis Bank:

  • This bank has not gotten any strong re-rating till now.
  • The Bank’s current P/B ratio is 2.02 which is much lesser than the 1-year, 3-year, 5-year, and 10-year Median P/B of 2.1, 2.2, 2.3, and 2.3 respectively.

Price to Earnings (P/E) Ratio Comparison:

Data as of 22nd September 2022

  • Bank’s P/E ratio has remained steady as there was not much volatility in the profits.

What Should Investors Do:

Foreign Institutional Investors (FIIs) have a key role in the re-rating of any stock which is visible in the case of ICICI Bank. Here, an investor should keep a close eye on the allocation of FIIs in India which currently stands at around 35% in the financial sector. Earlier, out of the total allocation towards the financial sector, HDFC Bank and Kotak Mahindra Bank were the darlings bank of FIIs but with the development of alternatives like ICICI Bank, FIIs have taken a shift. An investor needs to closely watch the profitability of the banks, credit growth, the overall increase in Net Interest Income, maintaining NPAs rate, and other factors as well. One should follow due diligence before making any investment decisions.Disclaimer: The information here is provided for reference purposes only and should not be misconstrued as investment advice. Under no circumstances does this information represent are commendation to buy or sell stocks or MF

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.