MA Yusuffali is a savvy businessman-cum-investor from Kerala who is settled in Abu Dabhi. He owns the Lulu Hypermarket chain. He is a recent (2013) entrant in the Forbes Billionaire’s list with a net worth of $1.6 Billion (Rs. 8,400 crore) (click here to learn how MA Yusuffali made his billions).
M. A. Yusuffali yesterday bought a chunk of 3 crore shares (2.23%) of South Indian Bank at Rs. 21 each, for a total consideration of Rs. 63 crore.
All indications at the ground level suggest that the time is opportune to start buying banking stocks. For the first time since several quarters, inflation is showing signs of cooling down. The CAD has also come down marginally and the rupee has remained stable. All this suggests that the RBI might start the slow but inevitable process of lowering interest rates.
When the market gets a whiff that interest rates are being reduced, banking & NBFC stocks will just fly. Before you know it, they will be up 20-40%. So, you have to position yourself in these stocks in advance.
South Indian Bank is one of the top rated banks. It has a strong regional presence and good technology network. It has a strong deposit franchise, robust loan growth and improving asset quality. It is also a possible acquisition for a big bank wanting to expand. It was first spotted by Raamdeo Agrawal and he made quite a packet from it in the heydays when banking stocks were in favour. Even Rajan Shah of Angel Broking made a quick buck from South Indian Bank.
Then, when South Indian Bank got subdued due to the high interest regime, Renuka Ramnath of Multiples Equity got interested. She bought a chunk of 20 million shares at a price of Rs. 22 per share via a QIP issue in September 2012.
Incidentally, MA Yusuffali has a number of other banking stocks in his portfolio such as Federal Bank, Dhanlaxmi Bank and Catholic Syrian Bank. He holds a massive chunk of 315.77 lakh shares of Federal Bank (3.69%) worth a whopping Rs. 264 crore. He bought the shares in July 2013 and is its’ single largest shareholder. He has 52.90 lakh shares in Dhanlaxmi Bank (4.88%) worth Rs. 20 crore. He also has a 4.99% stake in the unlisted Catholic Syrian Bank.
If you are looking for banking or NBFC stocks, you have a wide choice. Personally, I am in favour of the dominant blue chip powerhouse stocks because they will be the first ones to surge when the trend changes. You can see that even in a difficult environment, these stocks have shown CAGR earnings of 20-30% & you can imagine what they will do in a benign environment.
HDFC Bank, for instance, is a terrific pick at the moment. It is a blue chip growing at 25% CAGR with stable asset quality. Motilal Oswal has a convincing report on why the time is ripe to grab HDFC Bank. Its’ valuations are at the lowest in 11 years, the report says.
Another dominant player with ambitious expansion plans is IndusInd Bank. Ramesh Sobti of IndusInd went on record to say that the worst was behind them and that things would improve from April 2014. Emkay made it clear that “Massive expansion plans, adequate capital, proven track record and sound management put Indusind Bank in strong position to ramp up its growth when macro turns favourable”.
Yet another option is Bajaj Finance, a top-quality NBFC vying to be a bank. Bajaj Finance’s management has stated that it will end the year with a 25% growth. Daljeet Kohli of IndiaNivesh called its Q3 results “Stellar performance continues with stable asset quality”. The valuations at 1.9x and 1.6x P/ABV for FY14E and FY15E respectively are attractive, he said.
One of the other contenders that you can look at is Repco Home Finance which comes highly recommended by Basant Maheshwari of Basant Top 10 fame. Basant Maheshwari has given very convincing reasons why Repco Home Finance is destined to become a multibagger like its illustrious peer Gruh Finance.