IDFC First Bank Limited

Thank you for finding my input informative. As a learner, I’m far from being an expert in fundamental and technical analysis, which many proficient individuals in this group can provide. They are better equipped to offer superior insights on valuation.

While you’ve inquired, I must confess I have no idea whether the valuation is expensive or cheap. Frankly, I don’t dwell on it much because it’s beyond my control. My investment hypothesis is solely based on the business. I prefer to view myself as a business owner of the bank, focusing on the business’s performance. Returns are merely a byproduct of the business’s activities, and valuation is just the market’s perception. My margin of safety lies in various factors:

For instance, in every annual report and quarterly result, I evaluate:

1. Is the management aligning with their stated objectives? Are they progressing as per their guidance?
2. Are there any corporate governance issues arising?
3. Are NPA, SMA-1 & SMA-2 under control and trending downwards?
4. Is the company generating sufficient profit for growth?
5. Are ROA and ROE trending upwards?
6. Is the management conservative yet focused on innovation?
7. And many more aspects from a business perspective.

IDFC First’s management has executed well on almost all their guidance so far. However, if, in the future, they consistently fail to meet guidance or if there’s a corporate governance issue, that would be a signal for me to exit, regardless of whether the shares are highly or cheaply valued.

Regarding your second question, there still seems to be an arbitrage opportunity of around 10% as of today if you invest in IDFC Ltd. However, this arbitrage percentage is gradually shrinking.

Alternatively, consider this perspective:
Please disregard anything I’ve said because trusting advice from a random person on the internet is not advisable. No one can understand your long and short-term goals, and without that understanding, any investment is akin to throwing darts in the air.

Disclaimer: I am not a financial advisor; I’m just a regular individual who loves learning about business.