Sanjoy Bhattacharyya showed great presence of mind in August/ September 2013 when there was a severe crash in the stock market. He issued an advisory to investors to Stay Calm & Buy Stocks. He also advised investors to buy top-quality stocks like Supreme Industries, HDFC, Cummins India and Torrent Pharma. Needless to say, investors who heeded the sensible advice are sitting on a tidy profit today.
In his latest article in Forbes titled “Investors Often Play the Odds to Feel Good”, Sanjoy Bhattacharyya has dealt at length with complex issues of investor behaviour. The basic funda of the article is that investors foolishly focus on irrelevant issues (such as whether Narendra Modi will come into power) instead of focusing on relevant issues such as finding undervalued stocks.
The more important aspect is that Sanjoy Bhattacharyya has recommended Jammu & Kashmir Bank for investment. What Sanjoy likes about J&K Bank is the fact that it has been able to extend its dominant market share in J&K and improve its net interest margin while preserving its above-average asset quality despite the difficult political conditions in the State. Sanjoy is also impressed by the fact that J&K Bank bank has an impressive low-cost operating model and has achieved 20 percent growth in business volumes without compromising capital adequacy or taking on excessive leverage. However, what makes J&K Bank “incredibly attractive” is the fact that it is quoting at rock-bottom valuations of P/B of 1.25 & PE of 6 with a dividend yield of 4 per cent, Sanjoy Bhattacharyya added with a big smile on his face.
Interestingly, J&K Bank also happens to be the favourite stock pick of veteran value investor Parag Parikh. Parag Parikh’s PPFAS Mutual Fund holds a massive chunk of 1,16,521 shares of J&K Bank.
It is heartening to note that J&K Bank has lived up to expectations with a 40% YOY return and a 85% return over two years. This compares very favourably with the 13% YOY and 24% 2 year returns of the BSE Bank index.
However, what is surprising is that Kotak Institutional Equities has turned adverse on J&K Bank. In a hard-hitting research report, Kotak did not mince any words in recommending that investors sell/reduce J&K Bank. Kotak said that it was concerned with the growth in loans to the high-risk agricultural segment. It also said that there were “niggling issues” and that it was “puzzled” by the restructured loans.
Now, if you are scouting for a banking or financial stock, you have a very wide variety to choose from. You can choose from the powerhouse blue chip stocks like HDFC Bank, IndusInd bank, Bajaj Finance, Repco Home Finance etc. These stocks are expensive but you are assured of quality.
On the other end of the spectrum, you have the PSU Banks which are quoting at throwaway valuations. However, the cheapness is associated with dubious asset quality.
If you like, you can choose the path taken by Billionaires Rakesh Jhunjhunwala and MA Yusuffali and invest in mid-cap private banks like Karur Vysya, South Indian Bank, Federal Bank etc. Here, you get a nice mix of growth with reasonable valuations. Renuka Ramnath of Multiple Equity has chosen this path by investing in South Indian Bank and Cholamandalam Finance and made a nice little packet for herself.