Indian Overseas Bank Valuation Shifts to Attractive Amid Mixed Returns

Valuation Metrics Signal Improved Price Attractiveness

Indian Overseas Bank currently trades at a P/E ratio of 14.05, which is a significant factor in its upgraded valuation grade to “attractive” from the previous “fair” rating. This P/E multiple is modest compared to some peers in the public sector banking sector, such as Canara Bank at 6.74 and Indian Bank at 9.42, but higher than others like Bank of India and Bank of Maharashtra, which are rated “very attractive” with P/E ratios below 7.5. The P/BV ratio of 1.84 further supports this valuation shift, indicating that the stock is trading at less than twice its book value, a reasonable level for a public sector bank with improving fundamentals.

Additionally, the PEG ratio of 0.28 suggests that the stock is undervalued relative to its earnings growth potential, a positive sign for investors seeking value with growth prospects. This PEG figure is competitive within the sector, with Canara Bank at 0.27 and Indian Bank at 0.53, highlighting IOB’s favourable valuation in relation to its earnings growth trajectory.

Financial Performance and Asset Quality

IOB’s latest return on equity (ROE) stands at 13.11%, reflecting a solid capacity to generate profits from shareholders’ equity. The return on assets (ROA) is 1.06%, which, while modest, is consistent with public sector banking norms. Importantly, the bank’s net non-performing assets (NPA) to book value ratio is 1.95%, indicating a manageable level of credit risk relative to its net worth. This level of asset quality is crucial in maintaining investor confidence, especially in a sector often scrutinised for asset quality concerns.

Stock Price Movement and Market Capitalisation

Indian Overseas Bank’s current market price is ₹34.68, showing a slight increase of 0.84% from the previous close of ₹34.39. The stock has traded within a 52-week range of ₹33.01 to ₹52.40, indicating some volatility but also room for upside potential. Despite this, the market capitalisation grade remains low at 2, reflecting the bank’s mid-cap status and the need for further market cap expansion to attract broader institutional interest.

Comparative Returns Versus Sensex

Examining IOB’s returns relative to the Sensex reveals a mixed performance. Over the past week, the stock outperformed the Sensex with a 1.82% gain compared to the index’s 0.16%. However, over the one-month and year-to-date periods, IOB underperformed, declining 6.90% and 4.07% respectively, slightly worse than the Sensex’s corresponding declines of 4.78% and 4.17%. The one-year return is notably negative at -31.05%, contrasting sharply with the Sensex’s positive 5.37% gain, signalling challenges faced by the bank in the recent past.

Longer-term returns paint a more encouraging picture. Over three years, IOB has delivered a 29.64% return, somewhat trailing the Sensex’s 36.26%. More impressively, the five-year return stands at 214.13%, significantly outperforming the Sensex’s 64.00%, underscoring the bank’s strong recovery and growth over the medium term. The ten-year return of 39.28% lags the Sensex’s 232.80%, reflecting the bank’s cyclical challenges and sector-specific headwinds over the last decade.

Sector Comparison and Peer Analysis

Within the public sector banking universe, Indian Overseas Bank’s valuation metrics position it as an attractive option, though not the most compelling. Several peers, including IDBI Bank, Bank of India, Bank of Maharashtra, UCO Bank, and Central Bank, are rated “very attractive” with P/E ratios ranging from 6.83 to 13.53 and PEG ratios mostly below 0.35, signalling deeper value opportunities. However, some of these banks carry higher risk profiles or asset quality concerns, which investors must weigh carefully.

IOB’s P/E ratio of 14.05 is higher than many of these peers but is justified by its stronger ROE and manageable net NPA levels. The PEG ratio of 0.28 further supports the notion that the bank’s earnings growth is not fully priced in, offering a potential margin of safety for value-oriented investors.

Rating Upgrade and Market Sentiment

Reflecting these valuation improvements and fundamental metrics, Indian Overseas Bank’s Mojo Grade was upgraded from “Sell” to “Hold” on 2 February 2026, with a current Mojo Score of 50.0. This rating adjustment signals a cautious optimism among analysts, recognising the bank’s improving price attractiveness while acknowledging ongoing challenges in the sector and the broader economy.

Market sentiment appears to be stabilising, as evidenced by the modest positive day change of 0.84% on 3 February 2026. Investors are likely monitoring the bank’s quarterly results and asset quality trends closely, given the importance of credit costs in shaping future profitability.

Investment Considerations and Outlook

Investors considering Indian Overseas Bank should weigh the improved valuation metrics against the bank’s historical volatility and sector-specific risks. The attractive P/E and PEG ratios suggest that the stock is reasonably priced relative to earnings growth, but the recent underperformance over the one-year horizon and the relatively low market capitalisation grade indicate caution.

IOB’s asset quality metrics, including a net NPA to book value ratio of 1.95%, are encouraging but require ongoing monitoring given the cyclical nature of credit cycles in India’s banking sector. The bank’s ROE of 13.11% is a positive indicator of profitability, yet investors should remain vigilant about macroeconomic factors that could impact loan growth and provisioning requirements.

Comparatively, while some peers offer “very attractive” valuations, Indian Overseas Bank’s balance of valuation and fundamentals may appeal to investors seeking a blend of value and moderate growth potential within the public sector banking segment.

Conclusion

Indian Overseas Bank’s shift from a fair to an attractive valuation grade marks a significant development for investors evaluating public sector banks. The bank’s P/E ratio of 14.05 and P/BV of 1.84, combined with a low PEG ratio of 0.28, underpin this positive reassessment. While the stock has experienced mixed returns relative to the Sensex, its longer-term performance and improving fundamentals justify a Hold rating with cautious optimism.

As the bank navigates sector challenges and capitalises on growth opportunities, its valuation attractiveness may continue to improve, making it a noteworthy candidate for investors seeking exposure to India’s public sector banking space with a focus on value and quality metrics.

Unlock special upgrade rates for a limited period. Start Saving Now →