- Invested for long term as long as the growth story keeps delivering.
- Keep following the credit cycle to play the bottoms, recovery, and euphoria.
- Key monitorable right now is who will be the next CEO and what direction they will take. Another one is application for universal bank. Probably Equitas will apply before them. If the application is accepted by RBI it may lead to higher valuations given better return metrics it will unlock, if RBI rejects then could lead to some near term pain.
- Valuation rerating is mostly done. Probably fair valuations at 2-2.5x current PB. Market can take the sector to euphoric valuations of 3-4x current PB but I wont base an investment thesis on this.
- I would start trimming if valuations cross 3x 1yr fwd PB. At those valuations market will be underpricing risks just as it has overpriced risks post COVID.
- FY24 should end at a BVPS of 28. Apply whatever PB multiple you think is fair on it. FY25 can end at 34 BVPS.
- Talking of absolute downside for an investor. Taking COVID as an example, such a black swan could wipe out 25% of networth. So 28 could become 21 BVPS. Worse valuation during COVID was 0.7 PB maybe. So the stock could potentially go down to 14.7. This is a floor set as an investor on their downside. As the BVPS grows at 25% CAGR this floor will also keep rising. For someone who invested at 20, their investment will be above this floor in 2 years. Post that theoretically even a COVID type event could happen again and they won’t be in absolute loss ever.
- To conclude, stay vigilant at both pessimistic times and euphoric times for wealth creation & preservation opportunities. Play the cycle and earnings the best you can. No one will be able to play it perfectly. You will be rewarded for the work put in but you cannot take the stress of ups and downs in this sector, better avoid this sector.
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