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Thursday, July 14, 2011

Development Credit Bank, Rakesh Jhunjhunwala & Speculation

I came across a news report about Development Credit Bank and it's stock price. It was reported in April that Rare Enterprises, investment company of Rakesh Jhunjhunwala had bought 1.2 million shares. With this news, the stock rose from Rs. 42 levels to Rs. 65 levels in 3 months when stock market was on roller coaster ride.

As a well known fact, Rakesh Jhunjhunwala is a multi bagger stock picker and investor in Indian stock markets. So when he is buying stocks of any company, people follow him blindly. But is it really a good stock to buy from value investing perspective or it is just a speculation in the name of Rakesh Jhunjhunwala and people taking advantage of short term stock trading opportunity in it.

Read the news article here.

If I look at Development Credit Bank from value investing perspective, it is a mid cap stock with 1291 crores market capital. The stock trades at P/E of 60 at current stock price of Rs.65. Price to book value ratio of 2.30 with NO dividend yield. It was a loss making bank in 2009 and 2010 but turned profitable in 2011. This looks to be the only positive trigger.

Does that means, even after not having a good stock value, Rakesh Jhunjhunwala is invested in stock and knows something for future of bank that other investors do not know? Or is it simply a short term stock trading opportunity that he and other stock traders are taking advantage at the cost of common investors? By the time common investors realize this, all big investors would be out of stock, stock might come down where it belongs to and common investors left looking at their RED portfolio!

I will post a detailed stock analysis of Development Credit Bank soon here.

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