Investors can consider banks and finance cos shares on further declines, say analysts

ET Intelligence Group: Shares of banks and financial companies have slumped in the last few trading sessions dragged down by selling from foreign investors. Fund managers said the high foreign ownership in banks makes them vulnerable to further outflow but investors could consider these shares on further declines.

"Banking stocks are high beta. They are more susceptible to the macroeconomics, and the currency volatility can have a cascading effect on the banks. Also they are over owned by the foreign investors who are the sellers in the market right now," said Pankaj Murarka, head of equity at Axis Asset Management.

After the recent correction, valuations of various private banks such as Axis Bank, IndusInd Bank, Yes Bank and Kotak Mahindra Bank appear attractive, said analysts. These stocks are trading at a price-to-book value between 2.2 times and 4 times, which is marginally below their 5-year average.

Murarka said, "We look at this as a good opportunity to buy with biased towards private banks due to their superior growth, better asset quality and lower capital requirements."

Public sector banks, although relatively cheap, should be avoided due to poor asset quality and overhang on equity infusion for meeting capital adequacy norms.

Investors need to be choosy while picking non-banking stocks. They advise against buying lenders in vehicle and infrastructure financing.

The country's second largest mortgage lender - LIC Housing Finance looks attractive in case of a correction. Bajaj Finance may be a good buy if it corrects given the healthy growth in consumer lending.

"As the Indian economy growth comes back, banks would be the biggest beneficiaries. This correction can be looked at as a good opportunity to buy," said Vikas Khemani, head of wholesale capital markets at Edelweiss Capital.