Government moves out, lets in private capital, it works more efficiently and delivers great returns. That’s liberalisation. The new government has the mandate to open up sectors like banking, insurance, retail and airlines to private investors. When it does, be there.
Strategy: Simply select the best performers in these sectors.
Crisil:
The 800-pound gorilla of rating agencies, it rates 1,000 firms today. If the financial sector is liberalised, that number could go up to 10,000. Crisil has retained earnings of 75 percent with an ROCE of 42 percent. It is the fourth largest credit rating agency in the world.
ICRA:
There is room for both Crisil and ICRA in the space. At Rs. 788, the company is getting close to its 52-week high of Rs. 900. But the number doesn’t capture the potential arising from RBI’s new rule that all debt products be rated.
HDFC Bank:
A cautious and solid bank, it is safe because its government bond holdings are 3 percent over the statutory liquidity ratio (SLR) requirement.Fiscal liberalisation will benefit this bank because it is in a position to scale up quickly. At Rs. 1,569, the price looks steep based on 2009-10 P/E multiple of 4. This is very much the stock for those who like conservative growth.
Kingfisher Airlines:
The company has a debt-equity ratio of 3:1. And it makes losses. If foreign capital is allowed, you can be sure of one thing: Vijay Mallya will make sure Kingfisher gets it. That will make life a lot easier for the airline.
Oracle Financial:
It suffered when oreign banks went broke. But its earnings jumped 77 percent and revenues rose 23 percent in 2008-09. As its clients come off the ventilator, they will need to be rewired. Oracle Financial will be waiting.
Risk: The ambiguity of regulatory changes, however, gives them some additional risk. Given that US banks have behaved so badly, it is going to be hard for government to liberalise the financial sector.
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