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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