We all know that banking stocks are a huge part of Nifty’s weight and it makes complete sense to be so as they serve as the backbone of the economy. However, things have not been so favorable as of now as in the past few years they haven’t performed as they used to. On the other hand, valuations have also taken a huge beating amongst warriors during the recession phase in the economy. This occurred during the pandemic when most of the markets were doing exceedingly well.
So given the current scenario, do you think it’s wise to invest in stocks? Several money managers actually believe that now is not the best time to time your market, but if you want, you surely can be given you have some knowledge and experience regarding this. Here’s what you should know about investing in banking stocks.
What do experts have to say about this?
As per experts, you need to keep your investments in Nifty in specific periods when the trading is below twice the trailing price due to PB value. It also delivers great returns over the next couple of years. Money managers have also said that during these periods, the CAGR for 1,2, and 3 years happened to be 39, 24, and 20%. Bloomberg data also showed recently that the PB value of the bank is approximately 2.04 times which is much lower than two times in June 2022.
What factors should you consider before buying a banking stock?
Finance
Always consider your financial health before investing in a bank stock. Check out whether the company has sufficient funds to cover up for liabilities of other expenses once they are due. If these funds are not available, they won’t be able to pay for their suppliers or employees which will make them go bankrupt eventually.
Risk Tolerance
It’s important to consider the risk factors before you invest in these stocks. Banking stocks usually have high volatility which also means they fall or rise very easily. If you don’t know much about this sort of risk, it’s best you don’t invest in such stocks at all!
Rate Of Interest
Interest rates are usually the amount charged on loans by banks. They could depend on various factors like economic growth, inflation, monetary policy, etc. Since interest rates fluctuate so often, the borrowing cost increases making it very expensive for consumers and businesses. High-interest rates also mean that investors shall also earn more when this kind of money is invested in such assets.
A few Hot banking stocks to invest in right now
Yes Bank
Although Yes Bank has been in the news for a few wrong reasons in the past few years, it is still considered one of India’s leading banks. Yes bank went through a crisis 2 years ago due to huge scale of mismanagement and bad loans. The RBI had to intervene and temporarily take charge of the management of the bank in order to bring some stability. The bank has made multiple structural and strategic changes which has resulted in positive results over time. Since then, the bank has been performing very well and is considered to be a hot stock to invest. Currently Yes Bank Share price is around 16.8 to 16.9.
SBI
The largest public sector bank in India – SBI, was also affected by the pandemic and the economic downturn. SBI’s profits were impacted because of growth in bad loans and higher provisions for lower interest income products. However, they have managed to maintain their strong capital adequacy ratio and have been proactive in restructuring loans for borrowers impacted by the pandemic.
Based on the forecasts, long-term increases are expected to increase stock prices. In the long haul, the revenue is expected to go up exponentially. Keeping that in mind, SBI stock can be considered a good investment. The current SBI share price is 561 rupees and is expected to go beyond 700 in the long run.
Conclusion
Overall, the banking industry plays a massive role in the smooth functioning of the economy. The growth in such sectors is a blessing for investors who want to invest. Whether it’s finance or banking, the chances of getting a good return are high if the performance is going strong. With interest rates rising and regulations tightening, the nature of such industries and their economy can really help propel the market forward, making it one of the biggest performers in the industry.
