Friday, April 23, 2010

Best Indian Stocks – Finance

To start with, I take immense pleasure and pride in telling the readers that some of my recent recommendations have given exceptional returns over the last 2 months and the fact that these stocks are going to give even more returns in future further adds spice to it.

I have recommended Parekh Aluminex, Usher Agro and Brandhouse retail in my last two articles(http://www.stockanalysisonline.com/2010/02/best-indian-stocks-for-short-medium.html) and all these three stocks have given more than 70% returns in the last two months. In fact Brandhouse is up 89% followed by Usher agro (85%) and Parekh Aluminex (75%). I have invested in these stocks and have made some money and I do not know how many who read my blog invested in it. But if you have invested and made money, I am happy for you.

As a sequel to my last two posts, I am giving here some of my thoughts regarding financial stocks that can be bought at this period of time (April 23, 2010). I am not going to recommend stocks like HDFC, State Bank of India and HDFC Bank as all these top stocks are trading at higher valuations than peers. But I am going to tell few stocks that are trading at relatively cheaper levels compared to other private banking peers.

Why Financial Stocks?

The recession that haunted us for the last two years is slowly giving way for prosperity. Financial companies are going to be playing a huge role in shaping our economy through high domestic consumption and discretionary spending. Disposable income of the middle income population is increasing and that’s going to be the trend for the next 2-3 decades which will highly influence the discretionary spending. People will go for Auto loans, Home loans, Personal loans and they might also invest in stocks and other financial instruments. All these activities are directly linked with the financial companies one way or other and that is a good enough reason to think about financial stocks. No brainer !!!



Mahindra & Mahindra Financial Services

This is a Non Banking Financial Company (NBFC) involved in Auto loans (primarily to Mahindra vehicles), Home loans, Rural financing and Personal loans. They also accept deposits. If you look at the numbers, Mahindra Finance clearly outsmarts other similar peers and is trading at far lesser valuations considering the potential. It has announced bumper result for the Q4 FY10 quarter and EPS for the current year stands at Rs.35. The stock is trading at Rs.425 with a PE Multiple of only 12.5 which is huge discount to other financial stocks like Shriram Transport Finance, Kotak Mahindra Bank, Yes Bank, Axis Bank and Indusind Bank. Only public sector banks trade at lesser valuations. They might also apply for banking license in the coming years and the company has huge potential to tap the Indian domestic consumption. I believe this stock can give multifold returns in the next 5 years.


Indiabulls Financial Service

Indiabulls Financial Service provides Home loans, Vehicle loans, Personal loans and Consumer Credit and is one of the fastest growing companies in India. Once the economy improves and the real estate market picks up, Indiabulls is better positioned to take advantage of the huge discretionary spending. As a parent company Indiabulls Financial Service has stakes in subsidiaries as well. The stock is trading at Rs.130 with a PE Multiple of 13 (EPS – Rs.10) and considering the huge potential in this sector, this can give excellent returns over the long term.


India Infoline

India Infoline covers the entire financial services spectrum which includes brokerage, home loans, auto loans, personal loans, Asset management, wealth management and commodity trading. Brokerage business is going to pick up soon (Once the market improves and people start investing in equities) and they distribute loans through moneyline brand which might get listed in future. Financial position of the company is good and considering the many businesses that are under, this company can give very good returns in another 5 years. Currently this stock is trading at Rs.115 with a PE Multiple of 16.5 (EPS – Rs.7).






GRUH Finance

Promoted by HDFC, this company has announced very good Q4 FY10 result. GRUH again involved in Housing finance but primarily cater to the rural population. GRUH is trading at Rs.253 at a PE Multiple of 13 (Rs.19.86 *13). HDFC has 61% holding in GRUH and considering the parent company success, GRUH can give serious returns over the long term.

Apart from the above mentioned companies, there are few more good ones which I am giving below.

LIC Housing Finance
GIC Housing Finance Limited
Dewan Housing Finance company

I am not saying that people should invest in all the above stocks. But based in the risk appetite, one can choose 1 or 2 stocks among the above mentioned ones and start accumulating. Once the market improves and Bull Run sets in, you will not repent your decision.

Kumaran Seenivasan
http://www.stockanalysisonline.com/

15 comments:

Nannu,  April 23, 2010 at 10:29 PM  

Dear Kumaran,

Nice article. I totally agree with you that the financial stocks will perform really well in a growing Indian economy. My question is would it be a good idea to wait for a correction, before buying the stocks you have recommended because the market has already gone up.
Also i have bought Parekh Aluminax based on your recommendation. But i wanted to accumulate more of Parekh. What is your recommendation on buying Parekh at current valuation.

Thanks for your earlier recommendations and articles. It has really helped me in understanding a lot about stock markets

Thanks and Regards,
Nannu

Rishi April 24, 2010 at 2:20 AM  

hi,

i share your opinion about the indian financial sectors and mostly the NBFC.

i strongly believe though from the list, IBFSL is going to be the clear winner. one point i would add to ur summary abt IBFSL is the fact that they also own 40% of the ICEX jointly owned by the likes of MTNL, IDFC etc.

i wonder if you have done your recommendation / study based only on EPS and P/E and the fact that "finance" is important for the rising middle class. have you also considered the FCCB that IBFSL has issued / why their interest payments for last march was 1000 crores when they have a comfortable cash position in their balance sheet etc.

more info on that front would be useful...

thanks!

Kumaran April 24, 2010 at 2:01 PM  

Rishi,

I considered many more parameters to select these stocks but I mentioned only EPS as I wanted to keep it short. Regarding the 1000 crore interest paid by IBFS, I did see that. Being a private financing company, they might have got the loans at higer interests and if you see the Current ratio, it stands at 18. So, they are clearly preserving cash to ride out this recession and also to take advantage of the future growth. But the interest payment has reduced in the recent quarters.

-Kumaran.

Kumaran April 24, 2010 at 2:06 PM  

Nannu,

If you have selected a particular financial stock, then slowly keep accumulating in batches rather than waiting for correction. I do not see any huge downside at this point of time and no stock is trading at bubble valuation. Regarding parekh, I can't really tell the direction now. It might go up or go down as well. But when I recommended, it was at cheap valuations.


-Kumaran.

jamesvaikom April 25, 2010 at 7:40 AM  

Sir,

Good to see Gic in your list. Even now dividend yield of this stock is higher. This is a dead stock for last few months. But I think down side risk of this stock is low if market falls.

Vijay April 25, 2010 at 9:44 AM  

Kumaran,
As usual, great post. I like how you provide supportive argument with "Why Financial Stocks?" to back up your stock picks.

Keep posting...

Thanks,
Vijay

zarir wadia April 26, 2010 at 1:18 PM  

Hi, Kumaran,
As Always, a very good post.
Regarding accumulation of stock that one already has, Is it okay to buy more of Power Finance corporation as i do have this in my stock portfolio.
Thanks and Regards.
Zarir

Kumaran April 27, 2010 at 12:06 AM  

Zakir,

Power Finance is again a very good stock and if you have a long term view, you can still buy even at this price.But my suggestion would be to buy in batches of small quantities and more in dips.

-Kumaran.

Hariprakash April 27, 2010 at 3:59 AM  

Dear Kumaran,

I have read your blog and have just started with my first lessons in trading. I found the information informative and interesting. I have invested in Ranbaxy at Rs. 450/-. Is it good for long term investment. After bought the stock ( a week before ) it has been fluctuating and the trend is downward. Is it worthwhile holding on this stock. Please advice . Please suggest some good stock for short term investment where I can make some money so that I will find it interesting enough

Hari

Anonymous,  April 27, 2010 at 5:42 AM  

Dear Kumaran,

Fresh investor and just learning the tits and bits. I have invested in Ranbaxy a week ago for Rs.450/-. The market is very volatile. Is it advisable to hold on this stock for some time.

Regards,

Hari

Udhab,  April 27, 2010 at 2:05 PM  

Really excellent post, dear Kumaran. Thank you so much.

zarir wadia May 5, 2010 at 8:40 AM  

Thanks, Kumaran for the advice.
Zarir

Anonymous,  May 12, 2010 at 5:32 PM  

Dear Kumaran,

Nice infromative blog. As a fresh investor I would like to see more analsis from you side.

In 6 months doen the line, how u see the India market. Please let me know if this is the right time enter into market.

Warm Regards,
Sony

sharetipsinfo July 14, 2010 at 7:11 AM  

Stock market is a place where people can earn money and can loose quick money. Still if we see on the positive side many investors have changed there fortune just by investing money in the stock market. Now the question is how come one can earn money from stock market?

One should make it clear that by any mean stock market is not for gambling. Stock market investments require lot of hard core research. Any investment in share market if done with proper research can be fruitful else no one knows if it’s done based on speculation. Now another question is from where to get all the information. Well for that one can start reading newspaper, following good stock market sites, watch out NSE and BSE closely and use internet as major tool for research off course with many technical analysis tools and fundamental data.

Regards

SHARETIPSINFO TEAM

Anonymous,  July 18, 2012 at 2:58 AM  

Nice blog.. even i was analysing Gruh FInance and Mahindra & mahindra Financial Services.. Liked the information provided on this link as well.. Gruh Finance

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