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Recap: RIL and SBI


I predicted in an earlier post that Reliance Industries (RIL) and SBI were good investments. That was December 16, 2005. The Sensex was 9100 then.

Today the Sensex is at 10860. That’s an increase of nearly 20% from December 16!

So have my suggestions gone up that much? Let’s see.

Reliance Industries (RIL)

RIL’s value on Dec 16, 2005 was Rs. 850. Shares were demerged since then, so every shareholder in RIL got shares in four other companies. Let’s see the current market value of the total.

RIL: Rs. 775
Reliance Capital Ventures: Rs. 26.7
Reliance Energy Ventures: Rs. 45.45r
Reliance Natural Resources: Rs. 38.5
Reliance Infocomm: Rs. 322.7

This gives us a toal value of Rs. 1208. Which is a 42% increase over the December 15 price. That is about 22% more than the Sensex!

My suggested strategy: Hold existing levels. Buy when the price goes below 725. My target for this share in one year is Rs. 950 (at a 15 predicted P/E).

SBI (State Bank of India)

I suggested the share when its price was Rs. 922. It’s now Rs. 962. That’s an increase of 4.3% but far lesser than the Sensex. This was therefore not the best advice but I believe that SBI has great longer term prospects. Why?

1) Four subsidiaries : State Bank of Patiala, State Bank of Hyderabad, State Bank of Saurashtra and State Bank of Indore are proposed to be listed separately. This is great because like in RIL, the value unlocking will result in a bigger overall valuation.

2) In the same news article SBI is said to be considering a stock split – so you’ll get two shares for the price of one. This means the share price comes down by half, but that also means more affordability.

What’s bad for it is that interest rates have gone higher meaning potential defaults in loans, and lower lending potential. But the rate hike has been minimal.

My suggested strategy: Hold. Buy when it goes below 930. Target in one year is Rs. 1,100.

Note: I hold both of these stocks. You must understand that, because I could be biased because of my holding in these stocks.


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