History will judge the current boom as a BFSI boom. So we have Bajaj Auto Finance which has a higher market cap than Bajaj Auto, and the BFSI easily being able to justify it. I am not here to judge, just look for money making opportunity. However, look at the risk too.

The market cap of SBI, Icici, are going north. No, not that they have learnt to manage risk, but they have started ‘unlocking’ their subsidiaries. We will now be told that Sbi life, Icici Pru life, Hdfc life, ¬†will grow at 19% p.a. for the next 30 years.

Reliance Mutual fund, UTI mf, Hdfc mf,..will grow at 20% p.a. for the next 20 years

Banks will of course grow at 20% for the next 30 years

and Nbfc? wow they are the darling are they not?

So is it true? I do not know. As a CA I have been told I cannot certify projections. So as far as I am concerned numbers over 2 years is a waste. Just an exercise of playing with excel. I have no clue what will happen if life becomes easier for Re-insurers to do business in India. Right now they are cutting the market prices working from Singapore and London.

I am not a big fan of Icici’s ability to manage risk or NPA. In a boom all these companies will deserve a Pe of 47 (issue price of I Lombard). I would not buy the share on the grounds of high PE and poor risk management skills.

Wait a minute. I have ONE solid reason to buy.

The shareholder is now very far away from the risk and the decision making.

Let me explain.

The shareholder of Icici bank, Hdfc limited, SBI, Kotak….had no hand in these organisations getting into fund management, life insurance, or gen insurance. The employees who were the beneficiaries in the fiefdom building business entered these businesses and over time have built some scale and profitability. Now the same ‘friends’ control the aum of the investing surplus. These are people who coined “buy IBM and be safe”. So the same people who went to IIT, IIM, did CA, …the same club decide the salaries, pe ratio of companies, and have control over the corpus. Remember you and I are pouring in Rs. 5400 crores a month into these guys hands? and maybe another Rs. 5000 crores in ULIP?

Where will all this money go? will they have the guts to buy some new share? (yes, yes, they have Venture cap arms too!). So the mutual funds (and the ULIP corpus) will get deployed in the same market. So they will buy ‘familiar names’ run by friends who party together. If Icici Lombard did not do well will the fund manager of Sundaram mutual fund get blamed? Or the FM of Larsen and Toubro get blamed? NO. Of course not. How could he have known? After all all the 39 mutual funds had bought the same Icici lombard did they not?

Once all these funds have will the amazingly independent and fresh thinking media stop tom toming about this awesome company which settles claims in 22 hours? NO. So more retail buying will follow. PE will be maintained at 48 – and hey presto you made money because it grew at 22%.

So with Chairmen capable of holding the PE (and increasing it), Managing directors and CFO capable of showing (ha, we say showing, not achieving) a 22% growing EPS for the next 30 years, it has to be a good buy no?

Wait. We have 43 mutual funds, 45 life insurance companies, 55 general insurance companies in the queue for IPO.

Since all of them are going to grow at 22% CAGR for the next 30 years, they are ALL SCREAMING BUYS.

After 30 years what will happen?

Go figure.

I will surely be dead by then.

My view on the forthcoming IPO: I personally do not subscribe to IPO. I will not take money and do a review. I do not care if you subscribe or do not subscribe. Either way it is your call, do not ask me. I am not a sebi registered adviser. I am just a blogger, not dependent on the blog for my next meal.

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  1. Sir, I believe stock markets across the globe have had a decent run and this is not peculiar to Indian markets (or BFSI driven valuations).

    I however agree that the high liquidity in the markets and literally free money with inflated balance sheets managed by central banks across the globe is something that is sustaining the rally. Given the macro indicators, the environment of low interest rates is likely to remain few more years and the bull run continues to pull more into the party.

  2. A million guys are coming into job market every month in India and so much of domestic and international travel. Nearly million vehicles are entering on Indian roads each month and perhaps million homes getting sold each year. People need Auto, Medical, Life, Travel and Home insurance. These insurance players are going to grow massively. I could see potential to growth in huge in under penetration market like India. No wonder, valuations are hitting sky roof.

    PS: I did not subscribe to any IPO and would not as well.

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