Stocks to buy: In the aftermath of the recent downturn in the Indian stock market, many quality stocks, despite their strong fundamental and technical perspectives, experienced profit-booking. This situation presents an opportunity for investors, as these stocks are expected to generate alpha returns when the Indian stock market bottoms out. Among these quality picks, shares of Union Bank of India and Canara Bank stand out as attractive from a valuation perspective.
According to stock market experts, Canara Bank and Union Bank shares may look attractive from a valuation perspective, but in the wake of the high-interest rate regime peaking out, one needs to look at the CASA while choosing a bank stock. They said that a lower cost of funding would enable a banking stock to deliver higher returns in the medium to long term as their fair value would be higher than their current market price.
Canara Bank vs Union Bank: Which is better?
On choosing between Canara Bank and Union Bank shares, Saurabh Jain, Vice President — Research at SMC Global Securities, said, “From valuations perspective, both PSU bank shares look attractive. The Union Bank delivered positive Q4 results in 2024, but their guidance was below the market expectations, leading to a downturn in Union Bank’s share price. As the higher interest rate has peaked, the cost of funding has suddenly become an important factor when choosing a banking stock. So, if we compare the CASA of these two banks, my choice would be Canara Bank shares, as its funding cost is lower than that of Union Bank. So, Canara Bank is expected to deliver more profitability in upcoming quarters.”
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The SMC Global Securities expert said that Canara Bank shares are available at a PE multiple of 6.71, whereas Union Bank share price is available at a PE multiple of 7.10.
On the technical analysis of Union Bank and Canara Bank shares, Shiju Koothupalakkal, Technical Research Analyst at Prabhudas Lilladher, provided the following insights. He stated, “Technically, Canara Bank’s share price has reached its lowest point at ₹535 apiece and is showing signs of a potential increase to ₹585 to ₹590 in the near term. However, Union Bank’s share price is still showing weakness and may further decline towards ₹128 apiece level. Additionally, once Canara Bank’s shares break out above ₹590 on a decisive basis, we could expect the PSU bank stock to reach ₹630 to ₹635 apiece level. Therefore, my recommendation to Canara Bank shareholders is to hold the stock, maintaining a stop loss at ₹535 apiece level.” He also advised Union Bank shareholders to hold the stock, maintaining a stop loss at ₹128 per share level.
On the suggestion to the fresh investors, the Prabhudas Lilladher expert said, “Fresh investors can buy Canara Bank at CMP for short-term and medium-term targets of ₹590 and ₹635 apiece. However, they must maintain a buy-on-dips strategy till the stock is above ₹535 to ₹540 zone and a strict stop loss at ₹535 is also required. On breaching the ₹590 resistance on a decisive level, one can upgrade the trailing stop loss at ₹575 per share level.” However, he advised fresh investors to avoid taking any fresh position in the Union Bank stocks.
Disclaimer: The views and recommendations provided in this analysis are those of individual analysts or broking companies, and not Mint. We strongly advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and individual circumstances may vary.
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Published: 14 May 2024, 12:40 PM IST
