Sunday, 9 November 2008

YES Bank: Buy

Investors can consider accumulating the YES Bank stock at the current market price (CMP) of Rs 81.9. The stock has gained 49 per cent from its all-time low of Rs 55 on October 27, but remains a good investment option for investors with a two-three year time frame.

At the CMP, YES Bank is trading at 10.4 times its trailing twelve-month earnings and 1.7 times its latest book value.

The Price-earnings multiple is at a discount to that of bigger private sector peers such as ICICI Bank, Axis Bank and HDFC Bank and is cheap for a bank which has high growth potential.

Growth in advances
While growth rates of the past two years may moderate on a larger base, healthy growth in corporate advances may result in above-industry growth rates for YES Bank. Its loan book is dominated by the wholesale business-corporate advances (58 per cent) and business banking (41 per cent).

A high proportion of core ‘other income’ (43 per cent), negligible exposure to retail advances (0.15 per cent) where there are quality concerns, low NPAs and strong profitability ratios (Return on Assets of 1.4 per cent, Return on Equity of 18 per cent) are investment positives.

Sustained growth
YES Bank has sustained strong net profit (growth 40.5 per cent), advances and deposit growth (53 per cent and 44 per cent respectively) in the September quarter.

This is backed by net interest income growing by 50 per cent, even as Net Interest Margins moderated from 2.88 per cent to 2.80 per cent. Though the yield on advances increased due to the lending rate being increased, cost of funds moderated the margins.

Due to its focus on wholesale lending, the bank has low gross NPA/advances at 0.19 per cent, the lowest among all banks. Slippages, however, cannot be ruled out as the size of the book increases.

Over the next few quarters, even as lending rates ease from current levels, robust demand for credit, liquidity easing measures by the Reserve Bank of India and growth in income from third-party distribution, resulting from branch expansion (now 14 per cent of other income), may help earnings growth.

A favourable equity market over the medium term may also aid income from treasury and financial advisory services.

Key constraint
A higher cost structure, due to a lower proportion of low-cost deposits (9 per cent), is a key constraint for the bank.

However, the bank targets 25 per cent low-cost deposits in the next 18 months, with branch expansion. Increased risk in the loan book, as it expands in size, and a sharp deterioration in the macro environment for companies, are also a risk.

Source: TheHinduBusinessLine

IDFC Classic Fund: Invest

Investments with a long-term perspective can be considered in IDFC Classic Fund. Our recommendation is underpinned by the fund’s sound portfolio of fundamentally strong companies that hold potential to generate superior returns.

The fund’s past performance has however not been extraordinary. Further given its limited track record, investors should not add this fund to their core portfolio. It could at best be a diversifier with limited exposure. Other large-cap funds such as HDFC Top 200 or DSP BR Equity may be better fits for a core portfolio.

In the last three years, the fund generated a compounded return of over 5.1 per cent, marginally beating its benchmark BSE-200, by over a percentage point.

While it was outperformed during this period by quite a few of its peer funds, IDFC Classic’s ‘fundamental approach’ towards stock-picking, with an obvious bias for large-cap stocks, may stand it in good stead in the coming years, more so as the global financial turmoil appears far from over.

The fund primarily invests in fundamentally strong companies that may or may not be the current flavour in the market.

The remainder of the portfolio is dedicated to companies or sectors that are likely to capture market fancy. And since this may entail a high sector rotation and timely theme selection, the fund’s return would, to that extent, depend on its ability to remain ‘ahead of the curve’.

The calendar year so far has been quite devastating for equity funds. While a chunk of the diversified equity funds have lagged their respective benchmarks in returns, IDFC Classic has bettered its benchmark by 3 percentage points, suggesting that its focus on large-cap companies with strong fundamentals may have worked in its favour.

While this approach to stock-picking may have limited its gains in the months after brief corrective phases in the market, such as in May 2006 and March 2007, it has kept pace with its benchmark most of the times.

On a monthly rolling return basis in the last three years, the fund has outperformed the BSE-200 in as many as 19 months. That said, the average margin of its out-performance over the benchmark has only been similar to the margin of under-performance. To that extent there have been no drastic swings in performance.

While high aggregate exposure to companies with cyclical earnings, turnaround companies and high-growth companies accounted for a significant proportion of the fund’s net assets when it was launched three years ago, its current portfolio barring few companies is largely biased towards large-caps with a relatively stable earnings outlook.

Large-cap stocks (market capitalisation over Rs 7,000 crore) now account for over 65 per cent of its overall portfolio. Further, in the last couple of months it has upped its exposure to sectors such as banks and defensives such as pharmaceuticals and consumer goods, even as it exit the metals pack.

Its portfolio now (as of September 30) sports a high exposure to sectors such as oil and gas, industrial goods and banks. The NAV per unit is Rs 12.3.

Source: TheHinduBusinessLine

Templeton India Pension Plan: Invest

Templeton India Pension Plan is an open-ended debt-oriented balanced fund with maximum allocation of 40 per cent to equity, and the rest in debt. The fund marginally beat the category average over a five-year time-frame and outpaced the benchmark by two percentage points. Its return since inception (1997), higher allocation to debt and consistent performance over market cycles augurs well for an investment.

Features: The fund’s objective is to provide regular income under the dividend option (the fund has consistently declared dividends). Investors can choose the lump-sum or systematic investment plan but need to remain locked in for three years.

Redemptions can be made in full at the existing NAV rate on attainment of age 58. Premature withdrawal is subject to a charge on the NAV. Investment is eligible for tax deduction under Section 80C up to Rs 1 lakh. The fund is subject to long-term capital gains; indexation benefit may, however, be availed.

Suitability: The fund suits investors looking to build a corpus for their retirement. As debt schemes such as public provident fund (PPF) have an investment cap of Rs 70,000 per year, investors can consider exposure to this fund to meet the rest of their investment-cum-tax benefit needs.

As the exposure to equity is limited, investors may have to start investing in the early part of their earnings life cycle to build a sizeable corpus. With Government withdrawing the commutation on pension under the Employees Pension Scheme, this fund might provide some immediate cash flow on retirement.

Performance: The fund has declined by 21 per cent over a one-year period and trailed the benchmark (40 per cent of S&P CNX 500 and 60 per cent of Crisil Composite Bond Fund Index) by few percentage points. But it has trailed the UTI Mahila Unit Scheme, which has a similar investment strategy, by 12 percentage points.

Portfolio Overview: The fund has a well diversified equity portfolio of predominantly large-caps. As of September, 66 per cent of the assets were invested in debt and AAA rated securities accounted for 90 per cent of the debt. The average portfolio maturity period is 8.89 years and yield on security is 11.03 per cent. The fund is managed by Mr Anand Radhakrishnan along with Mr Sachin Padwal-Desai and Mr Vivek Ahuja.

Source: TheHinduBusinessLine

Day Trading Guide - November 10, 2008

Source: TheHinduBusinessLine

Oriental Bank (Rs 148.50): Buy

We recommend a buy in Oriental Bank of Commerce from a short-term horizon. It is clearly apparent from the charts of Oriental Bank of Commerce that following an intermediate downtrend from January peak of Rs 321, it found support at the early July low of Rs 122 and began to consolidate sideways. In October, the stock took support at around Rs 122, a significant support level and bounced upward.

We notice that the stock’s recent bounce appears to be the second bottom of a double bottom (bullish reversal) pattern. A bullish divergence in the daily relative strength index (RSI) supports the stock’s recent reversal. The daily RSI is rising in the neutral region and the weekly RSI is also behaving similarly. The moving average convergence and divergence (MACD) is signalling a buy, supporting our view.

We are bullish on the stock from a short-term horizon. We expect the stock’s upmove to prolong until it hits our price target of Rs 164. Traders with short-term perspective can buy the stock while maintaining a stop-loss at Rs 140.

Source: TheHinduBusinessLine

DISCLAIMER: The author is not a registered stockbroker nor a registered advisor and does not give investment advice. His comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity, index or any other financial instrument at any time. While he believes his statements to be true, they always depend on the reliability of his own credible sources. The author recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, before making any investment decisions, and that you confirm the facts on your own before making important investment commitments.