Determining Factors | Value Research Stay invested in IDFC as it trades below its 5-year median PE and remains fundamentally sound...

Determining Factors

Stay invested in IDFC as it trades below its 5-year median PE and remains fundamentally sound...

I have 5,100 shares of IDFC which I bought for an average price of Rs 144 per share. This holding forms 52 per cent of my total portfolio. Kindly suggest whether I should continue my existing holding or move some money to a large-cap stock. If yes, please suggest 2-3 scrips. My holding period is 18-20 years.
- Vivek Agarwal

The question asked by you has two aspects. One is stock specific and the second is portfolio related.

Stock related: IDFC is focused on the infrastructure financing space and has done well in the past, growing its loan book and its profits consistently at a 5-year CAGR of 19.3 per cent and 15.6 per cent respectively. The book value too has grown at a rate of 13.4 per cent.

There is a huge opportunity going forward as India is a still a developing country and infrastructure development requirements are increasing. In a report by the Planning Commission, regarding the 12th five-year plan, the Commission evaluated that India required infrastructure investments to be around Rs 11 lakh crore every year for the next 5 years. There was a problem as there had been inaction on the government's behalf till a couple of months back but the recent libralisation measures and possible further measures by the government in the run up to the next elections could boost the amount of loans disbursed.

The company raises money through bonds, commercial papers and ECBs and has also been able to raise money through FIIs at competitive costs. It is currently trading below its 5-year median PE, so you should stay invested for the time being as it is fundamentally sound. But a 52 per cent holding in a single stock is too high and you should reduce and diversify your stake once the price reaches normal levels. Also, both gross and net NPAs had increased in FY12 compared to FY11 but have reduced consistently for three consecutive quarters since then.

Portfolio related: Investment strategy is very much dependent on your investment objective and age. These factors are very essential in building the overall portfolio. Further, since your investment objective is still far, 18-20 years, you can continue with your aggressive portfolio for the next 5 to 10 years depending upon the opportunity. But after that you should start diversifying your portfolio in 12-15 large-cap and blue chips stocks which are a part of major indices like the Sensex or the Nifty.

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