Investing 50K Indian Rupees for Long-term Growth: Best Stocks to Consider

When considering how to invest a sum of 50,000 Indian Rupees over the long term, the decision can be overwhelming. Many may seek advice from those experienced in the stock market, but it is essential to conduct thorough research and defer to professional financial advisors. This article aims to provide insights into investing in IDFC First Bank and exploring small cap companies, serving as a starting point for your investment journey.

Why IDFC First Bank?

For individuals looking to invest over a decade, IDFC First Bank stands out. To guide you towards this decision, I present a conservative analysis based on projected loan growth, liability management, provisions, revenue, expenses, and profitability.

Loan Book Growth

As of now, IDFC First Bank’s loan book is valued at 131,395 crores. Assuming a conservative growth rate of 20% for the first three years, the loan book could reach 228,000 crores by the end of the third year. This growth rate is projected to decline to 18% for the next three years, reaching 375,000 crores, and then to 15% over the final four years, culminating in 2032 with a loan book of 655,000 crores.

Healthy Liability Management

Approximately 70% of the bank’s liabilities will come from CASA (Current Account Savings Account) and Retail TD (Time Deposit), where the interest rate is minimal, around 3% to 6%. The remaining 30% will be funded through bonds or other borrowings, maintaining a balanced and healthy mix of liabilities.

Provisions and Revenue Projections

Based on advisory guidance, provisions are expected to grow from 1.8% to 2% to 2.2% as the loan book matures. This will provide a more conservative cushion against potential risks. Revenue, driven by interest income and fee income, is expected to reach 15% of advances in the first three years, 13% in the following three years, and 12% in the final four years.

Operating Expenses and Interest Expense

Operating expenses are projected to decrease from 75% of revenue to 52% of revenue as the bank matures. The interest expense, currently averaging 5%, is expected to reduce to 3% to 4% as the bank leverages on low-cost deposits.

Profitability Projections

Considering the financial projections, the bank can be expected to reach a profitability of 3072 crores in the third year, 5500 crores in the sixth year, and a robust 8400 crores by the tenth year. Assuming 25% corporate tax and no further dilution, the earnings per share (EPS) can be estimated as follows:

Year 3: EPS 4.94 rs/share (100–125 rupees) Year 6: EPS 8.85 rs/share (175 to 220 rupees) Year 10: EPS 13.5 rs/share (270 to 340 rupees)

Based on a conservative assumption, the stock price could range from 300 to 380 rupees in 10 years, implying a potential return on investment of 20-27 CAGR (Compounded Annual Growth Rate).

Investment in Small Cap Companies

For investors looking to diversify their portfolio, small cap companies present a high-risk, high-reward scenario. These companies are often more agile and can potentially offer better returns over the long term, given the added risk.

Conclusion

While the analysis of IDFC First Bank is based on conservative assumptions and industry knowledge, it serves as a starting point for your investment research. It is crucial to conduct thorough due diligence and consult SEBI registered financial advisors before making any investment decisions. This article aims to provide valuable insights and encourage informed decision-making.