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Recommendation Date : 21-Jun-2010 Last Update Date : NA
Bank :
India did well in containing the negative effects of the credit crisis that emerged in the western world last year. This was primarily on account of sound banking principles and a strong regulatory framework. As for the growth prospects of banking companies, we think the trend that good quality and large corporates are currently showing is that of taking the equity dilution route through private placements, funding through ECB and issuing FCCBs. This is likely to hurt banks on their net interest margin front. Just like automobile stocks, banking stocks too have run up substantially and this will result in a limited upside. One stock from this space that we are quite bullish on is IFCI. This company enjoys a good relationship with corporate India historically. The main factor that goes in favour of this company is the high possibility of its disinvestment. Though management quality remains suspect we believe the stock is available cheap for now. A low-risk high-return candidate is almost available at its book value. We expect this to become a multi-bagger if the above scenario of disinvestment unfolds. This of course depends on when the government agrees to its disinvestment. The price at which disinvestment happens would depend on how much control the government is willing to concede to the buyers.
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