If you apply a common sense approach, you will realize that interest rate cuts are around the corner. This follows from the steady decline in inflation and FM Arun Jaitley’s recent statement that “Rate cut by RBI will give ‘good fillip’ to economy”.
So, we have to ensure that our portfolio has adequate representation of rate sensitive stocks like banks, NBFCs, autos, real estate etc.
If you are looking for a stock which will benefit from a benign interest-rate structure without messing around with recalcitrant borrowers and NPA headaches, you can consider CARE Ratings. In a recent piece, I have distilled the wisdom of Rakesh Jhunjhunwala on why rating companies are a sensible and safe investment. You should also read the interview of DR Dogra, MD of CARE, where he has explained the company’s business model. The best part is that after getting the fee for the rating, the company also gets a “surveillance fee” over the period of the loan for keeping a watch on the shenanigans of the borrower.
If you are looking for higher returns with higher risk, you can consider Capital First, which is backed by the mighty Warburg Pincus. The stock is on a strong growth trajectory. V. Vaidyanathan, CMD, said that he expects a growth of 25-30% for the next few years. The company has also issued a corporate presentation which will help you understand their business model.
If you want the middle path between growth and risk, Karur Vysya Bank can be a good choice. Rakesh Jhunjhunwala holds 3,506,897 shares (2.9%) worth Rs. 186.56 crore at the CMP of Rs. 532. Interestingly, the investment was made by the Badshah in the year 1993 by investing a paltry sum of Rs. 50 lakhs. This tells you the power of compounding!
Daljeet Kohli’s latest report explains the entire nitty-gritty of Karur Vysya Bank. The bottom-line of the report is that KVB expects a pickup in loan growth in H2FY15 coupled with an increase in NIM and a stable asset quality. Daljeet foresees a target price of Rs. 620 for the stock.