Category Archive : Stock Market

HDFC Bank Valuation Update

HDFC Bank Valuation Update

Impact of Corporate Tax Rate Cut on HDFC Bank’s Valuation

Introduction

In this article, we are going to discuss the HDFC Bank Valuation Update Post Corporate Tax Rate Cut by considering valuation factors like Revenue growth, PBT growth, PAT projection, PE ratios and Market Capitalisation etc. What will be the impact of corporate tax rate cut on the valuation of HDFC Bank, what is the potential upside for the stock.

HDFC Bank Valuation Update Post Corporate Tax Rate Cuts

  • Finance Minister Nirmala Sitharaman had announced the corporate tax rate cuts measure to boost economy. It is one of the biggest reform in stimulating the GDP growth rate of the country.
  • This move has significant positive implications for corporate profitability, the broader economy and market valuations.
  • With the enhanced profitability of the corporates, companies can either pay higher dividends or use their retained earnings for the business expansion.
  • Thus, the capital expenditure and investments by the corporates can lead to a big growth in coming quarters. So, we can clearly get the how important is this structural reform done by Government of India.
  • There are many pros and cons of corporate tax rate cut on Indian economy.
Detailed Stock Analysis by Invest Yadnya
Detailed Stock Analysis by Invest Yadnya

Lets discuss the impact of corporate tax rate cut on ITC Ltd stock valuation in detail.

HDFC Bank Valuation Update

  • It is the biggest private sector bank (according to the market capitalization) among peer private banks. Current Market cap is Rs.6,73,807 Cr.
  • HDFC Bank is well-diversified in a range of banking and financial services including retail banking, wholesale banking and treasury operations
  • Here, we are doing the valuation analysis of the HDFC bank on the basis of following valuation factors : Revenue Growth, Profit Before Tax (PBT) Growth, PE Ratio, Market Capitalisation etc.

CAGR Growth of Revenue & Profit Before Tax (PBT)

HDFC Bank Valuation Update – PAT Projections FY2019-20
HDFC Bank Valuation Update – PAT Projections FY2019-20
  • Here, we have calculated the CAGR growth of revenue and Profit Before Tax (PBT) of HDFC Bank Ltd.
  • For FY2018-19 :
    • Revenue = Rs.98,972 Cr
    • PBT = Rs.32,200 Cr
  • After calculating the CAGR growth, the lowest PBT growth rate (Here, 19.99% ie. 20%) is taken for further calculations of PBT projections for FY2019-20.
  • Thus, PBT Projection FY2019-20 = Rs.32,200 Cr * (1.2) = Rs.38,640 Cr
  • Corporate tax rate of ITC Ltd was 35% earlier. Now, Considering the new reduced corporate tax rate for FY2019-20 ie. 25.17%,
  • Profit After Tax (PAT) Projection FY2019-20 = Rs. 38,640 Cr (1 – 25.17%) = Rs.28,980 Cr
  • PAT for 2018-19 was Rs.21,078 Cr, so year-on-year % growth in PAT for FY2019-20 would be almost 37% due tax rate cut effect.
  • However, we should take into consideration one important thing that this 37% growth can not be achieved for FY2020-21 because of the same effective tax rates for FY19-20 and FY20-21.
  • So, a drastic growth in PAT this year (FY2019-20) is a one-time effect of corporate tax rate cut. And thereafter, around 20-25% PAT growth is expected from the bank.

Market Capitalization Projections

HDFC Bank Valuation Update – Market Cap Projections
HDFC Bank Valuation Update – Market Cap Projections
  • The historical average PE ratios for 3, 5 and 10 years are 26.57, 25.72 and 25.49 respectively.
  • So we have calculated the future market cap projections of the bank by considering those PE ratios also.
  • By considering the realistic expectations from the market, we are taking the current PE Ratio also for calculating its market cap projection.
  • Thus, Current PE = 30.3 and PAT FY2019-20 projection = Rs.28,980 Cr
  • Market Cap Projection of ITC Ltd stock = 30.3 * Rs.28,980 Cr = Rs.8,78,094 Cr
  • While, the current market cap = Rs.6,73,807 Cr
  • So, % Growth in the market cap with current PE ratio would be = 30.31%
  • However, the current higher PE ratio (30.3) of the bank as compared with its 3 year, 5 year and 10 year average PE ratios is the effect of :
    • Rise in the stock price (Almost 9%) due to improved sentiments of the market and increased buying on account of
      1. Increased profitability of the bank post tax rate cuts
      2. Expectation of higher dividend payout to the shareholders
  • So, while analyzing the market capitalization projections of the bank, we should consider its historical PE range. In this way, we can make the realistic projections and interpret the correct potential upside for the HDFC bank valuation.
  • Thus, by considering the average historical PE, we expect the stock’s PE projections will come down to around 25. Thus, a healthy growth of almost 13-17% in the market capitalization can be achieved by the bank in coming quarters.

Summary

  • In addition to the corporate tax rate cuts effects explained above, strong positioning, healthy balance sheet growth and superior asset quality & management, the bank is well poised to deliver consistently with margin leadership & robust returns.
  • So the future growth rate of the company is also very positive over medium to longer term perspective
Yes Bank Stock Review

Yes Bank Stock Review

Should You Invest in Yes Bank?

Introduction

In this article, we are going to discuss Yes bank stock review based on parameters like promoter stake sell, asset quality troubles and limited growth capital etc. Should you invest in Yes Bank in the scenario of recent promoter stake sell by Co-Founder Rana Kapoor.

Detailed Stock Analysis by Invest Yadnya
Detailed Stock Analysis by Invest Yadnya

Yes Bank Stock Review – Should You Invest in Yes Bank?

Yes Bank Stock Review
Yes Bank Stock Review

Promoter Stake Sell by Yes Bank Founder Rana Kapoor

  • Yes Bank co-founder Rana Kapoor is in talks with Paytm founder Vijay Shekhar Sharma to sell his stake at the bank.
  • In August Kapoor had offered to sell his stake in Yes Bank to Sharma. According to reports, he also offered the stakes of his family members for up to Rs 2,000 crore.
  • Kapoor, his family members and the investment firms they control own a 9.54 per cent stake in Yes Bank. At current valuation, Kapoor and his family’s shareholding is worth Rs 1,550 crore.
  • Rana Kapoor’s family owns stakes in Yes Bank through firms Yes Capital and Morgan Credits.
  • If this deal follows through then it will be the first time a fintech company or its promoter will buy a sizeable stake in a commercial bank.

Deterioration in the Market Capitalization

Yes Bank – Deterioration in Market Capitalization
Yes Bank – Deterioration in Market Capitalization
  • The market capitalization of Yes Bank is deteriorated from almost Rs.90,000 Cr (in August 2018) to around Rs.14,371 Cr as on today. (decreased by almost 84% in 12 months).
  • The shock price is came down from Rs.400 to Rs.55 now.
  • In spite of such a lower valuation of the stock at current date, promoter want to sell his stake in the bank. What does it indicate? Is it a signal of the dampened growth potential of the bank?

Asset Quality Troubles

Yes Bank – Rating Profile of Corporate Exposure (Q1 FY20)

Yes Bank – Rating Profile of Corporate Exposure (Q1 FY2019-20)
  • In Q1 FY2019-20, asset quality of Yes Bank deteriorated as slippages continue to rise at Rs.4,500 Cr. Out of which :
    • Rs.2,500 Cr came from Watch List
    • Rs.2,000 Cr was from BB & Below book
  • The rating profile of the bank’s corporate exposure is shown in the above diagram.
  • BB & below book rose from 7.1% to 9.4% in Q1 FY2019-20 in largely due to two financial service accounts. It is a very negative sign for bank.
  • Gross NPA is increased to 5.01% in June-2019 quarter from 0.83% in September-2016. If NPAs started increasing and is more than bank’s net interest margins (NIM), then how can any bank survive?
  • It shows the degradation in the asset quality of the bank and the higher corporate exposure from BB & Below rating.

Limited Growth Capital

Yes Bank – Reduced CASA Deposits & CASA Ratio (Q1 FY20)
Yes Bank – Reduced CASA Deposits & CASA Ratio (Q1 FY20)
  • Deposit growth of the bank was limited to 5% YoY led by de-growth in CASA deposits YoY as well as QoQ.
  • Accordingly, CASA ratio fell sharply by to 30.2% in Q1 FY20, from 33.1% in Q4 FY19 and 35.1% in Q1 FY19.
  • Thus, we can see a pressure on deposit growth of bank. In the subdued CASA growth, it will be difficult for the bank to sustain future earnings.
ITC Ltd Stock Valuation Analysis – Market Cap Projections

ITC Ltd – Stock Valuation Analysis

Post Corporate Tax Rate Cut Impact on Valuation of ITC Ltd

Introduction

In this article, we are going to discuss ITC Ltd stock valuation analysis post corporate tax rate cuts by considering valuation factors like Revenue growth, PBT growth, PAT projection, PE ratios and Market Capitalisation etc.

ITC Ltd Stock Valuation Analysis | Post Corporate Tax Rate Cut Impact

  • As we have discussed in our earlier article, Finance Minister Nirmala Sitharaman announced the corporate tax rates cut on Friday, 20th September. The step has significant positive implications for corporate profitability, the broader economy and market valuations.
  • With the enhanced profitability of the corporates, companies can either pay higher dividends or use their retained earnings for the business expansion.
  • Thus, the capital expenditure and investments by the corporates can lead to a big growth in coming quarters. So, we can clearly get the how important is this structural reform done by Government of India.
  • BSE Sensex rallied almost 3300 points in just 2 days (1900 points on Friday + 1200 points on Monday) and closed at 39,090.03 on Monday, 23rd September.
  • Among the 30-pack Sensex, 16 stocks ended in the green and 14 in the red. In terms of index contribution, HDFC Bank, HDFC Ltd, ICICI Bank and ITC Ltd. were the top stocks.
Detailed Stock Analysis by Invest Yadnya
Detailed Stock Analysis by Invest Yadnya

Lets discuss the impact of corporate tax rate cut on ITC Ltd stock valuation in detail.

ITC Ltd Valuation Analysis

  • ITC is one of India’s foremost private sector companies with a market capitalisation of Rs. 3.13 Lakh Crore.
  • ITC has a diversified presence in FMCG, Hotels, Packaging, Paperboards & Specialty Papers and Agri-Business.
  • We are doing the valuation analysis of the stock on the basis of following valuation factors : Revenue Growth, Profit Before Tax (PBT) Growth, PE Ratio, Market Capitalisation, etc.

CAGR Growth of Revenue & Profit Before Tax (PBT)

ITC Ltd Stock Valuation Analysis – PAT Projections FY2019-20
ITC Ltd Stock Valuation Analysis – PAT Projections FY2019-20
  • Here, we have calculated the CAGR growth of revenue and Profit Before Tax (PBT) of ITC Ltd.
  • For FY2018-19 :
    • Revenue = Rs.44,983 Cr
    • PBT = Rs.18,444 Cr
  • After calculating the CAGR growth, the lowest growth rate (Here, 6.24%) is taken for further calculations of PBT projections for FY2019-20.
  • Thus, PBT Projection FY2019-20 = Rs.18,444 Cr * (1.0624) = Rs.19,595 Cr
  • Corporate tax rate of ITC Ltd was 32% earlier. Now, Considering the new reduced corporate tax rate for FY2019-20 ie. 25.17%,
  • Profit After Tax (PAT) Projection FY2019-20 = Rs.19,595 Cr (1 – 25.17%) = Rs.14,663 Cr
  • (For the detailed calculations, please refer above table.)

ITC Ltd Market Capitalization Projections by considering Historical Average PE Ratios

ITC Ltd Stock Valuation Analysis – Market Cap Projections
ITC Ltd Stock Valuation Analysis – Market Cap Projections
  • The historical average PE ratios for 3, 5 and 10 years are 30.49, 31.26 and 30.90 respectively.
  • So we have calculated the future market cap projections of ITC Ltd by considering those PE ratios also.
  • However, by considering the realistic expectations from the market, we have to consider the current PE Ratio of ITC Ltd for calculating its market cap projection.
  • Thus, Current PE = 24.69 and PAT FY2019-20 projection = Rs.14,663 Cr
  • Market Cap Projection of ITC Ltd stock = 24.69 * Rs.14,663 Cr = Rs.3,62,029 Cr
  • While, the current market cap = Rs.3,15,000 Cr
  • So, % Growth in the market cap would be = 14.92%
  • Thus, ITC Ltd’s market cap can reach up to Rs.3,62,029 Cr by the end of current financial year 2019-20.
  • Also, with the active participation of institutional investors for buying ITC stock would suggest the re-rating of the stock. Since, Both the Indices (Sensex as well as NIFTY) have considerable weightage for the stock.
Bull Markets in India

What is a Bull Market? | 5 Bull Runs in India

Understanding Bull Markets in India

Introduction

In this article, we are going to discuss the 5 Bull runs in India. What is a bull market, in which period and scenarios these bull runs happened in India etc.

What is a Bull Market?

  • The term “bull market” refers to a time or a period when the stocks are on an upward trend. It is derived from the term “bullish”. In this case Bullish is a metaphor for charging or moving forward.
  • It is important for us to understand what a bull run signifies and what are its micro and macro-economic implications.
    • In a bullish market, sentiments of investors are high. The small and mid-cap companies tend to take the maximum advantage of this optimism.
    • There is increased cash flow in the market and hence the companies expand and grow at an accelerated pace.
    • Apart from the growth of individual companies and the market itself, the economy of the nation also improves which is reflected by increased GDP growth.

Which are these 5 Bull Runs in India?

India, being a developing economy, has witnessed several bullish periods since independence. Indian bull runs, on an average, have lasted for 32 months with the longest and slowest one being the most recent one.       

To better understand a “Bull Run” we must now look at the history of few bull markets in India.

Bull Markets in India
5 Bull Markets in India
1985-86
  • The first one being the one in 1985-86. The bull market of 1985 began with Rajiv Gandhi becoming the youngest Prime Minister of India after the unfortunate assassination of his mother and former Prime Minister Indira Gandhi. The death of Indira Gandhi shook the entire nation. Aftermath of the incident resulted into a triumphant victory for the Indian National Congress. Hence started the new age of Indian Politics.
  • Market was, correspondingly, filled with optimism under the able and charismatic Finance Minister V.P. Singh. V.P Singh laid out a cognizant reform for long term fiscal policy and rationalization of excise duties.
  • Further, Rajiv Gandhi gave subsidies to corporate companies in order to increase Industrial Production which triggered dramatic growth in economy and consequently the markets witnessed new highs. Rajiv Gandhi was also instrumental in bringing about the IT and Telecom Revolution. With prolific reforms from the new government, market surged from 230 to 670 levels, a growth of nearly 3 folds, in a time frame of less than 2 years.
  • The bull run came to an end with the disclosure of Bofors scam in 1987 which shook the nation’s confidence and brought down the market in correction.
1991-92
  • The country, however, did not wait for long to see another “bull market” which is infamously known as the Harshad Mehta Bull Market. This bull run started in the year 1991 which was again ignited by the formation of new government when INC (Indian National Congress) returned to power by overthrowing the then ruling coalition government of Janata Dal, BJP and other Left parties.
  • Dr. Manmohan Singh became the Finance Minister under the Prime Ministership of PV Narsimha Rao. The historic budget of 1991 proved decisive and path-breaking for Indian economy and thus triggered the skyrocketing uptrend of Indian Stock Market. SENSEX shot up by around 300% in less than 18 months.
  • The magnitude of this uptrend was such that it would result in negative equity return for a decade. Unfortunately, this rally was fuelled by the notorious mastermind Harshad Mehta a.k.a the “The Big Bull”.
  • B. Com graduate, Harshad Mehta started his career as a salesperson in New Age India Assurance Company Ltd. During this time, he got attracted towards the Share Market and soon worked his way up to be named as the “Amitabh Bachchan of Stock Market”.
  • In his scam, Harshad Mehta exploited the loopholes in Banking System by forging fake bank receipts in Ready Forward Deals. In short, Mehta used to illegally raise cash from Ready Forward deals and invest it in Share Market.  The reputation of Mehta was such that he manipulated the entire stock market according to his will and manged to hike the demand of certain shares like ACC, Sterlite and Videocon.
  • This resulted in stocks like ACC (Associated Cement Company) to jump from Rs. 200 to Rs. 9000 within 3 months. The stock markets were overheated, and the ‘bulls’ were on a mad run.  
  • In the end, Mehta sold off majority of his stocks in order to book profits which irrefutably crashed the market. By 1994, the market came down to almost 30% of the 1992 peak value.
Detailed Stock Analysis by Invest Yadnya
Detailed Stock Analysis by Invest Yadnya
1998-2000
  • The dawn of Internet in 1998 marked the next bull cycle in India. While the US was amidst the dot com bubble, Asia was under the Y2K scare (a bug which was expected to afflict Computer Systems in the year 2000).
  • However, India was not daunted by this and took this opportunity to foray into global software markets by providing debugging services. Thus, began the rally of IT stocks in share market.
  • Within 2 years, BSE IT Index gained over 1000%. More than 30% of SENSEX was now made up of IT companies. All this resulted into overvaluation of IT stocks and thus the market started correcting in 2000. During this period (1998-2000), SENSEX rose from 2,700 to almost 6000.
2003-2008
  • The next Bull Cycle began in the summer of 2003 which was brought by the Infrastructure and global Liquidity. After the dot-com bubble burst in US and Y2K incident in Asia, the global markets, including Indian, had corrected to considerable proportions.
  • Sentiments of investors had now started to restore all across the globe. A significant characteristic of this Bull run, which made it distinct from the previous bull runs, was that it was not India-specific.
  • Many other countries like China and Brazil also climbed to all time highs in this period. US on the hand was witnessing a boom in realty sector which resulted into it being submerged in subprime mortgages.
  • Banking sector of US was eventually exposed in 2008 with the collapse of Lehman Brothers. Consequently, Wall Street crashed, and its impact rippled all across the world. As a result, the Indian Markets fell on several occasions in 2008.
  • From peak levels of 20,000, SENSEX came down to 8,000. Thus, marked the end of another Bull Run.
2013-2018
  • The bull run of 2013-18 is considered as the longest bull run in Indian history. Nonetheless, it was also the slowest. During this period, SENSEX was at 18,000 level, its lowest, in 2013 and managed to touch 38,000 in August of 2018, i.e. a growth of nearly 2 times in 6 years.
  • The bull run started in 2013 with the rise of Modi in Indian politics. It was a period when anti-incumbency was at its peak and the nation was infuriated with revelation of scams and corruption. India desperately wanted a new Leader. In 2014, Modi led his party, BJP, to victory with NDA forming the government at the centre.
  • Prior to the National Politics, Modi had been the Chief Minister of Gujarat for three consecutive tenures. Industries in Gujarat prospered under his realm and he was therefore expected to reproduce same results in Centre as well. With initiatives like Make in India and Digital India, BJP did not disappoint the Market.
  • In 2017, Mid-Cap and Small-Cap companies surged to new highs. The rally was expected to continue in 2018, but the NBFC crisis of September 2018 shook the sentiments of the investors.
  • Although the markets did not fall considerably, yet they were not able to grow at the same pace again. In 2019, the market was again shaken by global tensions (trade war between US and China) and volatility in crude price.
  • With the highly criticized budget of 2019 coupled with the GDP rate falling below 5%, the bull run is now believed to be over.

Conclusion

  • Bull runs, thus, might provide lucrative opportunities for making quick money for traders, but, on the contrary, are not so welcomed by value investors (who are in for the long run).
  • It is therefore rightly said by Mr. Warren Buffet, “Be fearful when others are greedy and be greedy when others are fearful”.
10 Most Favourite Stocks of Mutual Funds

10 Most Favourite Stocks of Mutual Funds

Stocks with Highest Allocation in Equity Mutual Funds

Introduction

In this article, we are going to see the 10 most favourite stocks of mutual funds considering data as on August 2019. These 10 stocks are having highest allocation in equity mutual funds.

10 Most Favourite Stocks of Mutual Funds

  • As far as the equity oriented mutual funds are concerned (funds having equity allocation), the total AUM as on August 2019 is around Rs.10.31 Lakh Crore.
  • This AUM of Rs.10.31 Lakh Crore is contributed by :
    1. Pure Equity Funds
    2. Hybrid Oriented Funds (with Equity allocation)
    3. Index Funds
    4. Index ETFs
    5. Sectoral Funds
  • It means the above all type of funds have made investments in stocks worth of Rs.10.31 Lakh Crore in stocks.
  • Indian Mutual Fund industry’s Average Assets Under Management (AAUM) stood at Rs.25.64 Lakh Crore in August 2019. So we can see, around 40% of the total AUM of the entire mutual fund industry is contributed from investments in stocks.
Total AUM of Equity Mutual Funds
Total AUM of Equity Mutual Funds

Which are the top 10 stocks contributing to this 10.31 lakh Crore AUM?

Not surprisingly, out of these 10 stocks, 6 stocks belongs to banking and financial services sector (3 corporate banks, 2 retail banks and 1 housing finance company). Out of the rest 4 stocks, one company each from IT, construction and Engineering, FMCG and diversified conglomerate.

  10 Most Favourite Stocks of Mutual Funds
10 Most Favourite Stocks of Mutual Funds

1. HDFC Bank

  • HDFC Bank is the stock having highest allocation in total mutual funds portfolios with equity allocation.
  • Around Rs.71,142.1 Cr is invested in HDFC bank by all mutual funds. So, if we consider the total AUM of Rs.10.31 Lakh Crore, HDFC bank alone is holding almost 6.9% of total equity AUM of all the mutual funds. It shows the confidence all the mutual fund houses is having for HDFC Bank.
  • HDFC Bank is a Retail-oriented bank. It has given the profit growth of almost 20-25% y-o-y since last 10 years, having a great consistency in profit growth numbers. For the same reason, HDFC Bank has been enjoying a premium valuation in the market.

2. ICICI Bank

  • ICICI Bank is the second highest stock in terms of allocation by mutual funds in their portfolios.
  • Mutual funds have made a investment of around Rs.59,465.4 Cr in ICICI Bank out of total Rs.10.31 Lakh Cr equity investment. Thus, ICICI Bank is holding 5.7% share in total equity mutual fund AUM.
  • ICICI bank is a corporate bank. The NPA pressure of corporate banks from last 2-3 years is now fading down slowly. The profits of corporate banks are going to be promising in coming quarters. And with the improved earnings, Earnings per share of corporate banks and overall Sensex and Nifty Indices can go up in future. Thus, with these improved EPS numbers, price-to-earnings ratio can be rationalized in course of time.

3. Infosys Ltd.

  • Infosys is the only one IT stock in 10 most favourite stocks held by mutual funds.
  • It might be because of the higher percentage of promoter holdings (72.05%) in case of TCS. The free float market capitalization of TCS is very small. As a result, there is very little scope for the domestic institutional investors (DIIs) like mutual funds to buy the stock (TCS) and include it in their portfolios.
  • On the other hand, in case of Infosys, promoter holding is only 13.15%. So there is very good scope for mutual funds to buy the healthy growth delivering IT stocks like Infosys. The total investment in Infosys is almost Rs.44,960 Cr with 4.3% allocation in total equity oriented funds AUM.

4. Reliance Industries Ltd.

  • Reliance Industries Ltd (RIL) is a diversified conglomerate company. Equity mutual funds are having a consistent allocation in RIL.
  • Since last 2-3 years, allocations in RIL have seen a decent growth with the current holding of Rs.40,312.3 Cr by equity oriented funds. This allocation in RIL contributes around 3.9% of total AUM.
  • Reliance Industries stock is trading at a PE 19.31, which is higher than its 3 years, 5 years, 10 years average PE ratio. With the improved earnings visibility from Reliance Jio and Reliance Retail, RIL is enjoying a premium valuation. Jio and Retail both the businesses are going at fast pace and both can come with IPOs in coming years.
  • So, due to the very high free float of RIL and higher earnings visibility in future by the stock, equity funds are buying RIL and trying to increase the allocation of the stock in their portfolios.

5. Larsen & Toubro Ltd.

  • L&T is a construction and engineering conglomerate player. Mutual funds are invested around Rs.33,281.3 Cr in L&T stock. While the % allocation of L&T is around 3.2% of entire equity AUM.
  • L&T is a very good stock in terms of corporate governance, consolidated businesses growth(Financial Services, IT). L&T is delivering a consistent growth in its profits over the years. And therefore, it can be a good bet for the investors to hold the stock for their long-term portfolios.
Detailed Stock Analysis by Invest Yadnya
Detailed Stock Analysis by Invest Yadnya

6. State Bank of India

  • SBI is the biggest bank of India not by market capitalization but from business point of view in term of credit/loans given in the market. The investment in SBI is around Rs.33,066.2 Cr by mutual funds with 3.2% allocation in the stock out of total equity exposure by mutual funds.
  • Just like ICICI bank, SBI is one of the corporate banks with high earnings visibility. With the decrease in the provisioning (kept aside for NPAs from operating profits earlier), the profitability of the bank is increasing and will improve even more in coming quarters. So we can say that SBI is coming out and relieving from NPA pressure slowly.
  • The current profitability of all corporate banks, which is around Rs.4,000 Cr will grow to almost Rs.80,000 Cr by FY2020-21. So we can clearly get the growth trend for the stock in future and this is the

7. HDFC Ltd.

  • HDFC Ltd. is focusing on the housing demand in ‘Affordable Housing’ segment. It has a great opportunity in housing finance after the merger of Gruh Finance and Bandhan Bank.
  • The company is having a consistent growth potential to deliver the profit growth in coming years. So, Domestic Institutional Investors like mutual funds are very positive about HDFC Ltd. The current holding in HDFC Ltd is around Rs.31,521.9 Cr, with almost 3% allocation in the total equity AUM of mutual funds.

8. Axis Bank

  • Axis Bank comes under the corporate bank segment. Equity oriented mutual funds have invested around Rs.30,326.5 Cr in Axis Bank. The stock is having 2.9% allocation in entire equity AUM of mutual funds.
  • Just like other corporate banks ICICI Bank and SBI Bank, the earnings visibility of Axis Bank is improving in near future due to the reduced NPA pressure. And in the revival phase of corporate banks, we believe Axis bank is running ahead of ICICI Bank and SBI Bank. So it is a very good opportunity for mutual fund houses.

9. ITC Ltd.

  • ITC Ltd is a FMCG conglomerate company. The current holding of ITC Ltd is almost Rs.28,105.7 Cr, with the % allocation of 2.7% by the mutual funds of equity orientation.
  • The major contributors are the Index funds and Index ETFs in this allocation of 2.7% for the stock. Because of high free float of the stock, it is mandatory for the Index funds and Index ETFs to have the allocation for ITC Ltd. Moreover, ITC Ltd is having a good weightage in the Sensex and Nifty indices which is beneficial for the stock to increase its holdings by the index funds.

10. Kotak Mahindra Bank

  • Kotak Mahindra Bank is the one of the best banks in retail banking. It is a well-managed bank, with a great vision for future growths.
  • Mutual funds have made a investment of around Rs.59,465.4 Cr in Kotak Mahindra Bank. Thus, the bank is holding 2.3% share in total AUM of equity-oriented mutual funds. And this allocation have seen a consistent growth by the mutual funds.
  • As we all know, the promoters are required to reduce their holding as per the RBI’s regulations. So in this scenario, DIIs like mutual funds are very positive to increase their holding in Kotak bank once the free float will be available in the market.

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