Raamdeo Agrawal is a veteran stock picker who has seen many bull and bear markets. One can be sure that his advice is backed with real-life experience.
In his interview to ET, Raamdeo Agrawal expressed confidence that PSU Banks presented values across the board. He explained that their business segments are corporates, large and SMEs and that there is no dearth in their credit growth and pre-provisioning profits. The problem was in the credit cost. However, that is a cyclical thing, he explained and pointed out that when the economy is in a bad shape, there will be a fat credit cost.
Raamdeo Agrawal pointed out that the market had got unduly pessimistic that the PSU Banks would get submerged in those credit losses and that nothing can alter the situation. At the height of pessimism, the stocks start selling very cheap.
Raamdeo Agrawal explained that his hypothesis was that as the economy recovers and the RBI starts loosening the interest rates, credit cost will start coming down. Then, all of a sudden, there will be a change of opinion. Prices change not because of the earnings but because of the change of the opinion and sentiment. When the sentiment starts changing, large and popular banks will become the multi-baggers of the year, he said with confidence in his voice.
Is it right time to SBI?
Yes. See Raamdeo’s reasoning on why to buy SBI:
Banking stocks are Raamdeo Agrawal’s favourite and so his first stock pick was State Bank of India (SBI) the venerable PSU Blue Chip banking stock. He pointed out that he had been consistently buying the SBI stock since 2001 when it was quoting at just Rs. 200. In 10 years, SBI has been a 10-bagger but it still has tremendous value, Raamdeo Agrawal said with a twinkle in his eyes.
Raamdeo Agrawal pointed out that SBI was quoting at a reasonable valuation of less than 2 times its book value. SBI was consistently growing at about 15% and there was a good chance that it would quote at a valuation of about 2.5 times book. If that happened, then SBI’s book value in 5 years would be about Rs. 3000 and if the market was willing to pay a P/BV of 2.5 times, SBI’s market price would be close to Rs. 7,000 giving investors a 200% gain over the CMP. Even if the market continued to value SBI at 2 times book, investors would still make money, apart from dividends, Raamdeo Agrawal said.
Raamdeo Agrawal’s logic makes a lot of sense because apart from the definite capital appreciation that SBI will give, there is also a lot of peace of mind that your money is safe as you have invested in a blue chip stock that enjoys a virtual sovereign guarantee.