India Stocks: Bank Nifty offering good value
Wednesday, November 19, 2008
As discussed before, I have started to look at components of the Indian market to create a portfolio of good companies that have been trampled and are now offering value. Today I start on the Financials which have been kicked in the teeth and continue to bleed. The Bank Nifty has twelve component banks as follows:
ICICI , HDFC Bank, SBI, Axis Bank, PNB, Kotak Bank, BoI, BOB, Union Bank, IDBI, Canara Bank, and OBC.Market capitalization (as at November 18, 2008) of the Bank Nifty is Rs 235,831 crore. The earnings after tax for the last six months totaled Rs 13,700 crore.
To arrive at a Bank Nifty fair value I have used the following assumptions and projected forward the income stream on which we have a claim for an indefinite period of time:
- Over and above current provisioning levels, write-off 2 full years of earnings
- Grow earnings at 15% for the next 10 years and 8% thereafter
- Discount this cash stream at 20% to arrive at a Net present Value
This analysis gives a fair value for Bank Nifty of Rs 331,400 crore suggesting the current market is offered at a 40% discount.
To provide a measure: the Bank Nifty was trading at a market cap of Rs 735K cr in January 2008.I continue to feel the the market is forming a bottom...and the detailed analysis is slowly suggesting the same. If you have questions on the above analysis then post them below in comments. Good Huntiing.
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