Stock Review: Indian Bank

Maybe the disappointment came from the Q2 results and in the recent one week we have seen that all the banks, especially these midcap banks, have corrected by about 14-15% because of the fear of their NIM getting shrunk or maybe because the banks are forced to but I don't think that this is going to be such a serious problem because banks have raised the deposit rates by 100-150 bps largely on the short-term deposits, which ranges for about three months or so.

If I straightaway take a call on Indian Bank, they have the second highest—in fact I place in the midcap PSU banks, there are about 10-12 midcap PSU banks—they have the second highest NIM of close to about 3.7% against the average of 3.3% in case of other banks. So even if that shrinkage happens, I don't think this is going to be such a big disappointment for the stock.

Coming on the financial performance, they have an EPS of close to about 40 for FY11. They will be having a book value of about Rs 195 by March 2011. So taking P/E multiple call which is at about 6-6.5 times and price to book of 1.3 times, I think Indian Bank doesn't deserve much beating from hereon and if we have any indications coming in from the banks of increase in their benchmark prime lending rates (BPLR)—these all stocks can show a rise in the near-term as well. So my call on Indian Bank is purely from a short-term point of view—maybe for next couple of months—one can look for a return of about 10% from hereon.