BE WARY OF PSU BANKS

We are reproducing article written by well-known Uma Shashikant in TOI:

 

There is a common disease among investors. They love to cast themselves in the same mould as Warren Buffet. They are forever asking if there is a bargain in buying stocks that have been hammered down. This tactic is not very different from buying in a bull market, hoping to find a bigger fool who will pay more. In bear markets, investors feel prices have fallen so much that they have to go up. Those afflicted by this disease are now eyeing PSU bank stocks. Let me ask them to think before they jump in.

 

 

 

Banking business is about raising deposits and making loans and PSU banks have made a mess of the quality of their loans.Their CORE product has turned out to be defective. PROFITS thus are under strain andmore efficient competition is running away with market shares. It is difficult to see where the fundamental merit lies in picking up PSU Bank stocks.

 

Some investors will point to future growth potential. History is usually the rear-view mirror. Upto 2007, competition from young private sector banks was not as tough.

Continue Reading