Sunday, February 25, 2018

Two out of favour sectors - Pharmaceuticals and Banks

People reading this blog must be able to see my recent investment activities and find that I have been selectively investing in two out of favour sectors in the last few months or more than a year I would say. The sectors are

  • Pharmaceuticals
  • Banks
In Pharmaceuticals, there is a clear harakiri where many company saw their share price going down by more than half including Lupin (2100 in Oct 2015 to 800 now), Sun Pharmaceuticals (1150 in April 2015 to 570 now), Dr Reddy's (4250 in August 2015 to 2170 now), Glenmark (1200 in August 2015 to 535 now).

I myself started investing in some of the well run companies such as Divi's Laboratories at 1000+ in 2015 and saw its price going down to 550. Luckily, I had some courage to keep buying at lower prices and average down so my average buying price kept getting lower and settling at 670 when I last bought some shares at 550. Today since the price is again at 1050+, I am having a decent profit.

Recently, I am still investing in some of the well known names such as Abbott, Sanofi, Suven Life Sciences etc... I am not buying them at bargain prices but they are fairly valued or sometimes 20-30% more than fairly valued but I don't think they are as bublicious as their counterparts in consumer space such as Hindustan Unilever or Britannia or Pidilite or Asian Paints.

In Banks, I did buy J&K Bank at 100 and had to sell at 80 to book losses. Today it is trading at 66. But I think I was early and now with NPA numbers of all the banks clearly available, the separation of wheat from the chaff has happened. The clear winners are only few such as HDFC Bank, Kotak Mahindra and Indusind Bank but there are second tier private banks which have got my attention including Karur Vysya Bank, Karnataka Bank, Federal Bank and South Indian Bank. NPAs of these banks are not as high as 10-20% similar to public sector banks but they are not as low as 1-3% which is the case for top run private banks that I mentioned above. There is some valuation measure available from the deal that happened in 2015 when Kotak acquired ING Vysya Bank at around 15K crore. After three years, similarly sized banks like Karur Vysya available at 8K crore, Karnataka available at 4K Crore and Federal Bank at twice the size available at 18K crore does look promising. These are all long term plays on the Indian economy. I hope they turn out to be good bets.

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