Posts

Showing posts from 2013

INDUS INDUS BANK--BUY

The bank has been able to maintain steady asset quality in spite of its exposure to truck financing.
August 3, 2013: Recent measures taken by the Reserve Bank of India (RBI) to curb liquidity and arrest the steep fall in the rupee have sent most banking stocks hurtling down. Among those that have borne the brunt is IndusInd Bank, which has corrected 16 per cent in the last one month. The concern has been due to the bank’s higher dependence on costlier wholesale short-term deposits. This could increase its cost of funds in the near term and impact its net interest margin (NIM). While NIM may see some pressure in the short term, the long term prospects of the bank still seem strong. Its earnings have grown at an annual average of 45 per cent over the past three years. The bank has improved its return on assets significantly from 1.1 per cent in 2009-10 to 1.8 per cent bringing it on par with most leading private sector banks. A growing and well diversified loan book, improving low…

Stock Selection: The most important number

Image
Invest in companies where the management ensures the highest return on the invested money
I strongly believe that the single most important number, at least for me, when considering investment in stocks, is return on equity or RoE (this is the number that Moneylife relies on the most, though we look at other parameters too.—Editor). It is essentially profit after tax (PAT) expressed as a percentage of the total net worth (or shareholders’ funds, as the Americans refer to it). In simple words, it tells me how efficiently the company uses shareholders’ money and how much it earns with that money. All other things—market share, brand value, corporate governance, competencies, etc—are secondary. If a company is good, its numbers should ultimately get reflected in superior earnings.

No one wants to invest in a company that makes the right noises, but does not earn enough ‘bang on the buck’, as they say. One of the first things I look for is that RoE, in the Indian context, should not be le…