Archive for the ‘Finance and Banking’ Category.


I have uploaded the spreadsheet for sundaram finance in valueinvestor india google group.

Please use link – to download the file. Please also see the disclaimer, as I am not recommending this stock. The spreadsheet analysis (correct or wrong) is my personal analysis of the company.

You can find the sum of the part analysis of the company under the tab – sum of parts.

Please feel free to leave a comment if you find something wrong in the spreadsheet.


I have written earlier on banks

On valuation approach of banks

More thoughts on valuation of banks

Various factors to evaluate banks

Margin of safety and Banks

I recently posted on a Financial services company ‘
sundaram Finance’ which has a business model similar to banks.

I have been analysing banks as a group, trying to understand their business models better. I found the following articles useful to understand the working of a bank

Asset liability management function of banks

Various factors in evaluating banks

NPA and various factors in understanding Bank NPA’s

A few additional thoughts on the business model of banks

– The traditional lending business of banks is now becoming a smaller portion of the business. The ‘other income’ portion which comes from various activities such as distribution of financial products, cash management etc is now becoming more important as this income is not sensitive to interest rate changes and requires less capital
– The % of other income to total profit is higher for the newer private banks than the PSU banks. In addition lower NPA and more profitable growth has resulted in a higher valuation for private banks such as HDFC, ICICI etc
– Banks have been consistently increasing the proportion of their variable rate products. This enables the bank to reduce their Asset liability mismatch.
– Banks profits, especially of PSU banks were subdued last year due to the increase in deposit rates. However PSU bank assets tend to follow the higher rates with a lag. Private banks are able to manage these fluctuations better through various derivative products. I think PSU banks are still lagging in this field. As a result it is likely that several PSU banks will see an expansion of margins as deposit rates stabilize and the Asset yields improve
– NPA’s in most PSU banks though higher than Private banks are still better than a few years ago

I have done a preliminary analysis of the various banks and have found Private sector banks to be fairly or in some cases slightly over-valued. However there are some PSU banks such as Allahabad bank, which I feel are undervalued. I will be posting on Allahabad bank and a few other banks later.


update : Oct 09
well, the euphoria has increased even more since i posted, which was just a few days back. Reliance and a few other stocks like L&T are the new dotcoms of 2007. I am getting a sense of deja-vu ..can see a replay of 2000 here, alteast the initial part. Soon we will have people justifying the current run-up saying how it is ‘different’ this time.
Personally, in this bi-polar market i can see quite a few undervalued stocks and would prefer to concentrate on them than get pulled into this frenzy.

The S&P CNX nifty (NSE index) has risen by around 13.2 % in the last one month with the main move happening after the fed rate cut on 18th. The funny thing is that all reliance stocks have shot up since then.

The following is the increase in the price of these stocks in the last one month

RIL – reliance industries – 20.5%
Reliance energy – 75%
RNRL – 115%
Reliance communication – 13.1%
Reliance Chemotex – 147%
RPL – 41%

So I guess anything with the name reliance is in a bull market. The industry does not matter, only the management should be with reliance.

I cannot figure out what is happening. There seems to be two markets now. One is in a bull phase consisting of reliance stocks and a few others, with the rest of the market more or less even. So my approach is to stay away from the overvalued stuff and hold or buy what seems undervalued. Ofcourse i am not into momentum trading, so this approach may not work for those who are into that.

Disclosure – I hold RIL and REL. So I have one portion of my portfolio galloping whereas the rest is barely moving.