Investment FAQs with Parimal Ade (Investment Satsang- 16)

6 min read

Here are some questions asked by the viewers in the Investment Satsang dated 06th August 2021. These questions can provide you insights on some grounds. Please read these questions for knowledge purposes only and make any investment decisions only based on your research or the advice of your financial advisor.

Q For where does the bank do provisioning?
Parimal Ade:

• Banking is the business of assets and liability.
• The banks from where the deposits are taken could be saving and current account or term deposits so these are liabilities in banks’ balance sheets.
• So the people who have kept the deposits need to be paid back the principal amount with interest.
• The money that has been kept in the bank will be kept in capital adequacy, the SLR ratio, and other reserves need to be parked in government securities from the security point of view.
• The remaining money can be used to do the business.
• The major business of the bank is giving loans. The loans given by banks are charged with extra interest.
• The difference between the loan taking interest and the interest money deposited in the bank is the earning of the bank.
• The money earned in this is the operating profit, apart from this there is another source of income as well like fees, etc.
• Recently the term PPOP is used which means Pre Provisioning Operating Profit.
• From these Pre-Provisioning Operating Profits, the bank needs to create provisions.
• If the loan given by banks becomes NPA then there will be no interest nor the principal will be coming.
• But ultimately the bank needs to give back the money of the depositor. So they based on the NPAs they need to make the provisioning of the money.
• If the money is recovered for the NPA then it will be added back to the profit if not then they have to give it from the PPOP.
• Provision amount made by the bank is an important thing while analyzing the bank.

Q View on Vodafone-Idea issue & its impact in IDFC First?
Parimal Ade:

IDFC First Bank exposure to Vodafone – Idea is Rs 3,240 Cr.
• If we see the total loan book 2.9% exposure is there for Vodafone – Idea. For this, the IDFC First Bank has already made provisioning of 15% i.e, around Rs. 450 Cr.
• So they knew it is a stressful asset and might require more provisioning.
• So as the Vodafone-idea prices were coming down there was an impact on the IDFC First Bank.
• In the coming time if VI defaults or becomes NPA then need to make the provision of this particular amount.

Q Can we expect a 15% CAGR from Nifty 50 in the next 20 years?
Parimal Ade:

• There are a lot of conditions for this.
• It is always suggested that the growth expectation should be the Nominal GDP growth rate (Real GDP + Inflation). That is what one should have minimum expect from the equity side.
• If the company of sector is having the capability of great performance if there is any leader who is beating the competitors in this sector. Then the expectation should be on the higher side.
• But when you are targeting the index then, it should be nominal which should beat nominal GDP.
• Hence 15% is a bit more so it is expected to have 12% which is a rational expectation from the large-cap category if the investment is for a longer horizon.

Q Asian Paints, Pidilite, Relaxo, and IDFC First Bank is fluctuating around the same value for a while now. Is an 18 to 20% YoY stock value growth fair to expect?
Parimal Ade:

• That will be on the higher side to expect.
• Need to understand the growth expectation of that sector.
• If the growth sector and companies’ operational efficiency is growing properly and that particular sector is outperforming GDP growth, the company is outperforming its competitors then it should expect little higher returns compared to a normal rational expectation of 12 %.
• Asian Paint can be on the upper side of GDP rate or operating leverage can play out.
• The same expectation is for Pidilite.
• In IDFC first bank if the problems are solved then there could be re-rating. But the current pain the IDFC first bank is sailing through that is going to be there for some time. This will affect the stock price of IDFC First Bank.

Q How to look at the valuation of companies like CAMS/CDSL/AMC business for long-term with fixed cost saturate once established and sector underpenetrated?
Parimal Ade:

• The journey from under penetration to penetration will be good.
• The pricing capacity of CAMS and AMC is low. CDSL is good.
• Order of growth will be CDSL will grow on higher growth rate next is CAMS and then AMC.
• As the penetration is increasing the number is also increasing on the higher side.

Q It is believed value migration from fixed deposits and real estate to the capital market, which are the best stocks for this play?
Parimal Ade:

• Those companies which an investor understands very well will be the choice for the person who is investing.
• The companies whose future can be predicted or else the companies that we are using from last 10 years and will be using in next 10 years.
• So those are the companies who are going to do well.
• Domestic consumption is going to be one of the main themes for India.

Q Doing you think that Bitcoin can replace Gold in coming years ?
Parimal Ade:

• Currently, it is looking very difficult. Regulatory is another issue.
• Need to check how is the acceptance in developed countries.
• The volatility needs to settle down somewhere, some rationality should prevail.
• Currently, the government is not having in the mood to support it.
• The Idea was fantastic about bitcoin. The main idea was finite supply.
• But the problem is an infinite supply of cryptocurrencies.
• Need to understand how are we going to go to the main objective of finite supply.
• Time will tell need to wait for some more time.

Q View on IndusInd Bank for the long term?
Parimal Ade:

• There is a risk associated with such banks. But it is felt that the work is over for a lot of banks.
• But in the coming 1 or 2 quarters, there could be some kind of news and clarification.
• High capital adequacy ratio. Conservative approach from promotors is what one should look at these levels.
• In the current markets, the strong player will become stronger, and the weak will become weaker.
• That’s how the market is going to be shifting in the coming years and decades.

Q Which one is a better choice as an aggressive investor – Gujarat Gas Or Gujarat State Petronet?
Parimal Ade:

• Both are good companies.
• Aggressiveness is more in Gujrat gas compared to GSPL. Because this typical sector is a growing sector.
• The government only wants the current market share which is 6 % should be 15%. So there is a support of the government in this growth.
• In this sector, if there are competitors who can make them lose then there could be a chance of more growth.

Q View on Power Grid Corporation?
Parimal Ade:

• The future is good earning visibility is good.
• The growth is a concern being a PSU.
• Lower double-digit and higher single-digit one can expect.

Q View on AB Capital?
Parimal Ade:

• There are a lot of subsidiaries in the coming future that could be listed.
• As the market is in discounting side.
• The problem with AB capital is it never comes in the 1st position even after having a lot of subsidiaries. So that’s the concern.
• So they always try to be in a top quartile. It is not seen that there is no killer spirit which is seen in other players.
• Good for Moderate to Conservative Investors.

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