One of Rakesh Jhunjhunwala’s all-time favourite stocks is Karur Vysya Bank. The Badshah never tires of talking about how he bought a truckload of the stock way back in 1993 and how it has enriched him enormously over the decades that have gone by.
The Badshah revealed in an ET interview the reasons he bought the stock and why he has held on to it for so long:
“… in Karur Vysya Bank, maybe, I think, I had invested 50 lakh in 1993, now I think it is 200 crore. I see now it is growing at 18-20 per cent. It has a good management, is rewarding shareholders, has a good yield. I think 400 is the price and 16 is the dividend. So four rupees, a four percent yield…. Banking will be 7-8 per cent of my portfolio”.
However, what most people are not aware of is that Federal Bank is also one of Rakesh Jhunjhunwala’s favourite stocks. In the same ET interview, the Badshah revealed that he has made substantial investments in Federal Bank and other banking stocks and that they constitute 7-8% of his portfolio.
Unfortunately, Federal Bank has not done well owing to its surging NPAs. On a YoY basis, the stock has lost 28% while it is nearly flat over the past two years.
However, the recent Q4FY16 results suggest that Federal Bank is getting its act in order and the surging NPAs may be a thing of the past.
Shyam Srinivasan, Federal Bank’s MD, explained that the slippages are under control and that the main focus in FY17 is on growth.
Federal Bank reports Q4 nos. Shyam Srinivasan, MD, Federal Bank takes us through the earnings. https://t.co/ejWv5tNPeW
— CNBC-TV18 News (@CNBCTV18News) May 2, 2016
Rakesh Jhunjhunwala is known to have a sixth sense that alerts him when the time is ripe to buy beaten down stocks. He appears to have sensed that Federal Bank is getting its act in order and that the time is opportune to aggressively increase his holding in the stock.
In the March 2016 Quarter, Rakesh Jhunjhunwala has increased his holding in Federal Bank to 270,71,060 shares. The investment is worth Rs. 130 crore at the CMP of Rs. 48.
Billionaire MA Yusuffali of the LuLu group of Dubai is a strong believer in the prospects of Federal Bank. He holds 6,31,53,640 shares worth Rs. 303 crore.
Interestingly, both Billionaires have to play second fiddle to Akash Prakash’s Amansa Capital which holds a treasure trove of 7,38,16,854 shares worth Rs. 354 crore.
A number of other investors and analysts are also warming up to Federal Bank’s prospects.
Porinju Veliyath, who is known to keep a keen eye for money-making opportunities, is also prowling around the Federal Bank counter, looking for a chance to grab the stock. He sent out a subtle hint that the stock is undervalued and could soar on the same multi-bagger trajectory as SKS Microfinance:
SKS Micro & Federal Bank quoting at same price (~Rs 8000 Cr.) is irrational, I feel.
— Porinju Veliyath (@porinju) May 4, 2016
Hatim Broachwala of Nirmal Bang opined that the stock has a target price of Rs. 67 which translates into a whopping upside of 45%. His logic is sound:
“Federal Bank revamped its top management. It has inducted a new executive director, Mr. Ganesh Sankaran (from HDFC Bank) and chief operating officer, Ms. Shalini Warrier, (also from Standard Chartered Bank). The change brought in by these new officials is already witnessed in healthy QoQ corporate credit growth …. The bank is well placed to take advantage of likely macro-economic recovery, being already better capitalised with its Tier-I capital ratio at 13.4%. ….. Better operating efficiency at branches set up recently is also expected to result in a significant improvement in overall operating efficiency.”
PL is also gung-ho about Federal Bank and has predicted a target price of Rs. 54, which is an upside of 17.4%.
However, not everyone is impressed by Federal Bank’s prospects. Motilal Oswal has lowered its estimates and maintained a neutral stance.
ICICI-Direct is also unimpressed by Federal Bank’s Q4FY16 results. The wizards there recommended a ‘Hold’ of the stock.
So, in the light of the sharp cleavage of expert opinion as to the prospects of Federal Bank, we will have to keep a watch on what happens at the counter and see whether the Billionaires do take home mega gains or not!
when housing loan companies are available in exchanges, buying a bank does not make sense . In housing loan comp, NPA cannot rise, because price of real estate never decline..
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Please make sure what you are telling, who told that prices never come down, it can! If you see the housing prices then in the long term it goes upwards, but at the time of 2008 type situation, the housing price can go down too. And yes due to India’s huge population the demand is likely to be there but in the high-end category most of the investors as well as builders are facing the heat. So, never ever told that it is totally safe, yes it is relatively safe than other asset classes.
You are forgetting the main cause of 2008 crash. It was near-zero interest rate in Developed countries for many years. India has relatively high inflation and our interest rate will never be zero. Comparison with the developed world is wrong in itself.
HFCs Are best bets even for next 5-6 years.
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You have every right to be optimistic, but not everyone shares your optimism. Let future decide who turns out to be correct.
Nice post.. Banks should do well in the next 5 years timeframe…
yes real estate is thrash with all black money of indian big politician
Talk about so called big investor’s flop which are in large no. Aptech & Viceroy since 12 years given nothing.Prozone,Delta, Autoline ohh Bilcare. List is very long many he bought and got out but his followers are trapped i.e. ALok,Subex etc.
#Stockmarkettips:
Karur Vyasa bank few years back was a good stock for some handsome gains. It is a bank with major of the presence in South India. And now they have started expansion in other parts of India major in western region and Maharashtra. The growh in loan book is not up to the mark because of presence of so many other good private banks in the country, Going to other regions and doing a business with presence of so many banks is always going to be difficult for them. On average growth of 10-12% over the next few years with below average ROA and NIM’s it is unlikely to outperform the names such as HDFC Bank, Yes bank, Kotak Mahindra and Indusind and Axis bank. So one may consider investing in these names and keep adding on declines for long term vision.
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