Methinks every Indian Equity Investor needs a dose of Rakesh Jhunjhunwala (RJ) every few years! ~ any sooner it could be an Overdose ! 😆 ~ just kidding !
I like the guy ! ~ right since I interacted with him when I invited him around 15 years ago at the turn of this century for interacting in an evening Q & A session with my packed class of @ 90 participants in my Equity Portfolio Structuring and Stock Analysis Workshop at the BSE Training Institute as I thought he would add practical value & he did
“Boss ! I’m a Sadak Chaap ! ” he had told us then as also how he had reconstructed his equity portfolio to concentrate only in a few stocks after the 2000 ICE debacle…so in a sense most of his Wealth has grown only in this Millennium in the past 15 years ~ and to his credit in Selections that were not really Blue Chip or Core
Yesterday had gone for an IMC interactive meet in Mumbai to check out if RJ has sobered & matured in his ‘manner of speak’ over the years ~ I rarely watch Stock Channels ~ don’t even have a TV in office~ so was not really conversant with how & what he delivered in his appearances though knew of his initiating big stakes in companies
I am delighted to blog he has not changed ! ~ shot straight from the hip & mouth again as he always does ” I’m a satodia(translated to mean speculator) & investor & not an economist” ~ his investment portfolio has spread into the Alternatives of Bollywood Movie Production too with Kareena & Arjun starrer ‘Ki & Ka’ being his latest co production~ is into horse racing too and owns a few horses ~ passions perhaps where return on investments need not be measured in monies !?
Many perceive him as Dehati or Crude Dude for his rustic loud boorish way of speech~ but don’t let it fool you ! & he does not make any pretenses ~ he’s a CA by training & wears a fairly sharp mind
Money Talks & Crowd Laps it up all !~ many vigorously & ‘knowledgeably’ nodding in agreement
These RJ’s views & responses to questions posed should interest you :
On The Future of Equity Markets ~ Reiterates this is only the Trailer & we are going to witness a Mother of all Bull Runs.India is a thriving young Democracy with US $ 600 b in Savings every year.Equity Markets receive just US $ 50 b from this.This has to improve and it will ~ anyone ,any doubt!?
On Returns from Equity ~ Ironically while his riches have been through multibagger 1000% + equity gains in concentrated high weightage stocks like Titan & Crisil he asserts that one should be happy with 18% CAGR gains and if it goes to 24% one should be really happyread more
FY 16 has been a mixed year for Stocks with Markets on a downward drift with Sensex closing 9.4% lower at 25341
Sensex disappoints in FY 16 as many of the 30 constituents lose big value
Interesting & Heartening to it’s Shareholders ,Reliance has been the biggest constituent gainer at @ 27%while at the other end BHEL has lost half it’s value at 51% ! ~ another 11 companies have lost between @ 19% to 30 % values
Domestic Concerns revolved around second consecutive failure of monsoon in 2015 & slow pace of Reforms & Corporate Earnings Lethargy with growth in single digits despite boasts of GDP Growth of over 7% and lower Inflation and Oil Price falling 40%
Global Concerns revolved around China’s Growth slowing down considerably & It’s Stock Markets losing a lot of it’s froth in panic falls, continuing recession in Europe & expectations of the US Fed raising rate
Consequently FPI Inflows which were a record US $ 17 b in FY 2015, reversed to outflows of US 2.1 b in FY 16.These outflows would have been higher if last month March 2016 had not seen a reversal back to FPI Inflows of US $ 3.2 b
In the first three months of this Calendar Year 2016 , January & February 2016 witnessed significant outflows of US 1.67 b & US $0.8 b respectively that dropped Sensex to 23000 levels.On the back of many countries like Japan,Switzerland and Sweden embarking on Negative Interest Rate Policy,the US Fed send out dovish signals and has delayed Rate hikes.This saw FPI Equity Inflows smartly cross US $ 3 b in March 2016 getting them back into the Green in 2016 & revive the Sensex back up @ 10% to 25500 levels or else FY 16 would have seen a Sensex drop of nearly 5000 points & @ 18%,double than what it actually did in the end
Here are some FY 16 Trend observations :
Sensex closed down 9.4%.It was down @ 18 % just around a month ago but smartly pulled back on record US $ 3b FPI Inflows in March 2016
Of the 30 Sensex Constituents,amusingly after a seven year itch perhaps 🙂 Reliance is the biggest gainer at 27% taking it’s Market Cap to US $ 49 b,next only to top TCS which despite a flat year retains Top Market Cap of US $ 73b !
Six Scrips,including all weather favourite TCS (Market Cap US $ 73b) have remained flat
Of the Four Banks,only HDFC Bank stays in the Green just about,the rest have lost lot of value from one third to one fifth
India Growth Proxy Larsen & Toubro has lost 26% Value
Four Pharma Majors have also dropped significantly from 13% to 28%
Three IT Bellweathers saw Wipro down 10%,Infy up 10% and TCS in between remaining flat
Of the Five Auto Majors,the two 2-wheelers are both in the green,two ,Maruti & M & M are flat while Tata Motors has lost 30% value
Three eternal FMCG Favorites,ITC,Asian Paints & HUL have held up
After a Steel Sector Battering past few years,Tata Steel is now catching it’s breath
All Five Non Bank PSUs continue to flounder ~ BHEL has lost half it’s Value follwed by ONGC down 30% ,Coal India down 19%,NTPC down 13% & Gail down 8%
Housing Finance Leader HDFC too has taken a beating of @ 16%
Controversial Adani Group’s Adani Ports is down 20%
Telecom Leader Bharti Airtel is down 11% despite getting a 4G breather as Reliance’s Jio ,expected to be a sector disruptive force,launch continues to be delayed but should be fully operative by FY 17 year end
In 1995 IDBI the DFI came out with an IPO at Rs 130.I had given it the notorious sobriquet ‘Instant Death By Investment !’ as the Pricing was way to High.The IPO was bailed out by UTI at the time in a quid quo pro really as then IDBI subscribed to Unit 64 at the high purchase price which was a scam in itself as it was 60% higher than the actual Unit 64 NAV which hovered around par of Rs 10 !
Then in 2004 IDBI the DFI merged with IDBI Bank and in 2010 I had recommended it at Rs 130 in 2010 for several reasons.It did climb past Rs 200 the same year but then disappointed and started it’s downward slide as NPA Demons begin surfacing big time.
Last Month in the second week of February these NPA Demons caused the Share Price to drop below Rs 50
On February 29,2016 our FM made this specific budget phraseology for IDBI :
“The process of transformation of IDBI Bank has already started. Government will take it forward and also consider the option of reducing its stake to below 50 per cent”
It was a no brainer for the Share Price to begin rising the same day from Rs 58 levels to cross Rs 60
It’s now moved up @ Rs 68
Here’s the Share Price Trend of IDBI Bank from 2004 to 2016 (in Rs)
The Book Value of IDBI Bank is over Rs 110 giving the relative Valuation of 0.6….that’s of course one accepts current audited GPA levels of Rs 19615 crs ,that’s 8.94% of Advances and with a 62.92 % of Provision Coverage
Government owns 80.16% of IDBI Bank and if it is open to bring this down below 50% as proclaimed in the Budget by our FM then it begs the question ~ Will they just bring it down but yet retain Management Control or will IDBI really be up for Privatisation and therefore up for Sale ! ?
Quickly the IDBI Employees have voiced their displeasure and threatened to go on strike in the crucial last week of this month of March 2016 which closes out FY 16
Why would the IDBI Employees resist Privatisation or Government diluting it’s stake below 50!?
Seriously ask yourself this ! I reflected and immediately came up two big reasons in my view :
Insecurity of Jobs ~ This is understandable as Employees have huge job security under the Government ~ Bank can Hire but not Fire ~ at best Government can try VRS as they’ve been doing over the years in PSU Banks ~ Connect this with how bloated Government Enterprises really are on workforce be it the Railways or Coal India
Accountability & Transparency in Operations ~ This would open a Pandora’s Box in the Bank for all the NPAs & who really is responsible in the Bank to have advanced Loans that have turned Bad.Of the over Rs 2 lakh crores advances ,the Bank reportedly has an exposure of Rs 7000 crs to the JaiPrakash Group,Rs 15000 crs to the Essar Group and @ Rs 925 crs to Kingfisher Airlines.In fact the ED is investigating Vijay Mallya & his Kingfisher Airlines for Siphoning off @ Rs 300 crs Funds from the Rs 900+ crs IDBI Loan
So will our Government be influenced by the IDBI Employees opposition & not go ahead with it’s plans to sell it’s stake in IDBI Bank to bring it below 50% ?…the Budget already shows FY 17 Disinvestment Target of Rs 36000 crs + Precise Strategic Disinvestment of Rs 20500 crs.This would include IDBI Bank Stake Sale plannedread more
Last Few Years I have consciously stayed away from PSU Banks,Oil & Steel & Power Companies
Now you’ll know why !
There has been serious wealth destruction for those who had invested in them
So it was always with some degree of amusement I observed many analysts and fund managers and stock market experts recommend these over the years and justify their call even when it was obvious these companies were bleeding profusely
This Post is about PSU Banks
Who is to Blame for this Wealth Destruction ?
I squarely lay the Collective Blame on the various Central & State Governments that ruled & rule,Ministry of Finance Bureaucrats & Finance Ministers,the Board of Directors of all these Banks led by the Chairman & MDs & even the RBI Boards led by the various Governors & their deputies in these last few years….they preach Corporate Governance but do not practice it….how else will vested interests be served
They have deliberately let this come to past throwing caution to the winds when Lending and then not providing adequately and in time for the NPAs many of which were not even identified as such ….and their delay in declaring many defaulters as wilful…Supreme Court has been seized of this danger and have directed RBI to provide to it within six weeks in a sealed cover the list of all defaulters over Rs 500 crs.One Bank Chairman in the analyst meet for Q 3 FY 16 results recently refused to identify the Big Defaulter for which the Provision was made !
If it was not for the aggressive stand taken by the present Governor,Mr Raghuram Rajan and the Asset Quality Review in the second half of 2015,the Banks would have continued under providing for NPAs & even not identifying them in their entirety…the role of statutory auditors too comes under scrutiny here
The result has been a damaging Q 3 FY 16 for the PSU Banks as they have been forced by RBI to provide properly based on the AQR conducted
It is in this context I am astonished at the recent lament by none other than Mr Deepak Parekh who says that if the Banks have to undergo one more quarter of provisioning for NPAs like Q 3 it would tantamount to an Anesthesia overdose & Banks would become comatose !…Come On Mr Parekh !
RBI has asked the Banks to clean up by March 2017
My worry is that NPA Levels may increase on better & proper identification & classification and there will be more pain for these Banks.This would mean higher Provisions for the next few quartersread more
IDFC Bank makes an Exchange Debut on BSE today listing at @ Rs 70 & after a High of Rs 73.45 and a Low of Rs 67 closing too at @ Rs 70 with volumes of 4.3 million shares
What’s it Worth ?
Well the Market Cap is @ Rs 23876 crs at Rs 70.40 Share Price
Just to recall ~ IDFC received the RBI in-principle approval on April 9,2014 to set up a Bank in the Private Sector
It began the process to do so with the Scheme of Demerger being approved by the Madras High Court on June 25,2015 with every IDFc Shareholder getting 1 share in IDFC Bank for every share held in IDFC
IDFC Bank was incorporated on October 21,2014
It got listed today at @ Rs 70 with an Equity Capital of Rs 3391.53 crs (FV Rs 10) and Reserves of Rs 5289.60 crs ( largely Share Premium of Rs 5232.56 crs)
The Networth thus on listing is Rs 8681.13 crs computing to a Book Value of Rs 25.60 which at listing Price of @ Rs 70 gives a PBV of 2.73
IDFC Bank began on October 1,2015 with a loan book of Rs 46381 crs
The Capital Structure evolved as below
No of Shares Issued
Nature of Issue
Cumulative Share Capital
Cumulative Share Premium
Rights to IDFC Financial Holding Co Ltd
Scheme of Demerger
Top 10 Shareholders as on October 27, 2015
No of Shares
IDFC Financial Holding Company Limited and its nominees
President Of India
Sipadan Investments (Mauritius) Limited
National Westminster Bank PLC as Depositary of First State Asia Pacific Leaders Fund a sub-fund of First State Investments ICVC
Actis Hawk Limited
Orbis Sicav – Asia Ex-Japan Equity Fund
CLSA global markets pte. Ltd.
First State Investments (Hong Kong) Limited A/C First State Asian Equity Plus Fund
Orbis Global Equity Fund Ltd
10 JP Morgan Sicav Investment Company (Mauritius) Limited
The Non Executive Chairman is Mr Anil Baijal while the MD & CEO is Dr Rajiv Lall who holds 1998984 shares in the Bank.Another IDFC Director Mr Vikram Limaye holds 2043728 shares
Here’s how the Peer Groups look on Market Cap & Price to Book
The Big Four Private Banks
Kotak Mahindra Bank
Market Cap (Rs Crs)
Share Price (Rs) November 6,2015 Closing
FY 15 Book Value
The Smaller Four Private Banks
Market Cap (Rs Crs)
Share Price (Rs) November 6,2015 Closing
FY 15 Book Value
IDBI Bank is plagued with high Gross & Net NPAs that have risen further to 6.92% and 3.16 % respectively on September 30,2015…explains why it’s available below Book
IDFC Bank begins with a relatively cleaner slate but is certainly not a bargain at PBV of 2.75,similar to closest Peer on the Market Cap upside,Yes Bank
However as Top 10 Shareholders as above own @ 72% stake it does augur well on the bourses as floating stock will be restricted
Will be interesting to see if IDFC Bank overtakes Yes Bank in Market Cap which is 33% ahead as of date and plays catch up with IndusInd PBV Valuations
Now that would be really interesting !
Downside too is open if NPAs begin rearing some head on the loan book position of Rs 46381 crs taken over on October 1,2015 from IDFC
Will keep a watch on IDFC Bank
Did this one too on “Interpretation of Financial Statements for Stock Analysis” under NSE’s Rapid Series at their NSE BKC Complex
@ 30 Participants,both genders aged 22 to 58 from leading Broking Firms,Corporates,Banks and even Individuals who had come on dot and stayed till 8 pm ! expecting to learn how to read financial statements and market dynamics to assess risks and opportunities in Indian Equities
Common Question right from Manish Shah,who introduced himself to me in the lift going up to the Class ” How are the Markets Looking “? ~ “Where will the Sensex & Nifty head in the short term”?
Had taken a Bull along ! really !…a smaller version of the Wall Street one….told the class I love four animals…Elephants (Lord Ganesha),Lions (My Zodiac Sign),Tortoise(Good Luck & of course Bulls (I’m always one!)….and you’ll always find them on my office desk !…in fact four bulls of various sizes !…and clients know my market view on simply seeing how the bulls are placed !…if facing them straight up (↑) as they sit across me,I’m very bullish…if slanted ( ⁄ )towards them,I’m bullish…slant inclination reveals how much !….if a horizontal view (↔ ) then indicates market will remain flat to rangebound and if the bulls face me vertically (↓ ) I’m bearish !….and slant facing me shows intensity of being bearish !
That got a few knowing laughs from the participants and set off the mood for the Workshop with humour being interspersed right through
Interacted on the Sensex Dynamics right from base year 1978 and in the last 20 years from November 1,1995 to October 30,2015 when despite nearly half of the @ 4850 trading days saw the Sensex close negatively the Sensex ran up over 650% !…but is that enough!…..the Opportunities & Threats that were clearly visible during the years right from 1991 when Modern Reforms set in to 2001 when Markets had bottomed out on the ICE Age Melting to the Sharp drop in Interest rates from 14% to 7% in and around 2004 to post Lehman 2008 levels of 8000 in October 2008 and March 2009….showed them from current Sensex of 26657 how to assess fundamentally where we could be heading and the risks associated….discussed Passive Index Investing vs Active Investing and therefore the need for Fundamental Analysis and therefore the need to Interpret Financials & therefore the need to assess Value vs Price & therefore this Workshop !read more