RBL, IndusInd, Bandhan Bank become 'value' buy, soar up to 7%; here's why

Indian private bank stocks were in top tier on Wednesday as the Nifty Private Bank index soared 4.10 per cent. In comparison, the Nifty50 was up by 3.01 per cent at 22,453 levels.

Shares of RBL Bank, IndusInd Bank, Bandhan Bank, and City Union Bank surged by 7.2 per cent, 6.7 per cent, 6.6 per cent and 6.4 per cent, respectively in intraday deals. 

Other banks including Federal Bank, IDFC First Bank, Kotak Mahindra Bank, HDFC Bank, Axis Bank and ICICI Bank shot up between 2 to 6 per cent each in intraday trade.

The outlook for private banks has become attractive after the formation of a coalition government clouded sentiment for public banks.

According to analysts incremental re-rating in public sector undertakings (PSUs), including public banks, looks difficult given valuation concerns. Besides, a coalition government may force the Bharatiya Janata Party (BJp) to put privatisation drive on the backburner.

"However, the expected focus of the coalition government on rural India, coupled with normal monsoons may suppot sectors like auto, and private banks," said a report by Prabhudas Lilladher.

The PSU Banks counter faced heavy selling on Tuesday, as the Bharatiya Janata Party fell short of a clear majority, settling on 242 seats. 

The NDA tally predicted to cross 350-400 seats by pollsters fell below 300 at 292 seats out of a total 543 seats. While the opposition party INDIA alliance secured 234 seats causing heavy selling in the Indian stock market. 

Following this, the benchmark Sensex plunged 4,389 points, while Nifty50 fell 1,379 points on Tuesday with sectors such as PSU Banks, capital goods, metals and power stocks feeling the heat. 

That said, while credit book of banks may witness sector reallocations, overall business of banks wouldn’t face any major headwind. Given strong balance sheets and comfortable valuations, HDFC Securities remains positive on BFSI space.

At 14:30 PM; the Nifty Private Bank index was 4.78 per cent. In comparison the Nifty 50 index was up 3.01 per cent. The index is presently trading at price to earnings multiple of 14.75 times, this lower than its two year average of 17.43 times.