The index is at near 34,000 points and any investment in small stocks under Rs 100, can always be risky. However, here are a few stocks that are under Rs 100 and could be worthy picks. A few stocks like Federal Bank maybe excellent pick on fundamentals.
However, some are classic turnaround stories and could generate tremedous wealth in the next few years. Here are a few stocks under Rs 100 that one should buy from a 2-3 year perspective.
Federal Bank: Strong quarter
Federal Bank had a very strong quarter for the period ending Dec 31, 2017. The Interest income at the bank was the highest ever, at Rs 950 crores. Some of the other milestones at Federal Bank was also the fact that the bank crossed Rs 100,000 crores in deposits.
Overall credit offtake continued to grow quite well for the bank. Products like Home Loan, Personal Loan, Auto Loan which have in the past seen single digit growth saw high double digit and in particular personal loan and auto loan.
The wholesale advances registered a growth of 29.62 per cent in the quarter ending Dec 31, 2017 to touch Rs. 34,364.26 Crores.
Federal Bank: Cheap on the valuations front
The gross non performing assets and the net NPA of the Bank as at the end of the Quarter stood at Rs. 2161 Crores and Rs 1156 crores respectively.
Gross NPA as a percentage dropped to 2.52 per cent and net NPA fell to 1.36 per cent. The provision coverage Ratio was also pretty decent of the bank.
The stock of Federal Bank is available at a one year forward p/e of 12 times. We believe that it deserves a better p/e multiple of 20 times, which should take the stock to 130 at the very least. With the bank now taking an aggressive stance as far as retail loans are concerned and a good control over NPAs the stock is not a bad bet.
Punjab National Bank
The bank is in the midst of a huge scam, however, it may not be a bad bet to buy into the stock at current levels for a number of reasons. The shares have the bank have lost ground from a 52-week high of Rs 245 to the current levels of Rs 98.
Of course, there is a fraud liability of Rs 12,000 crores on the bank, however, we believe that there are a few positives. Let us examine each of these.
First, let us assume that Nirav Modi does not pay and the entire liability shifts to PNB. We believe the bank can weather the storm. Its capital adequacy is reasonable.
Apart from this, there could be a swift resolution to the NPA problems under the Insolvency and Bankruptcy Code, which could lead to recoveries. Take the case of Bhushan Steel, where creditors may get back amounts.
Various other reasons to buy PNB
The bank has stake in subsidiaries like PNB Housing Finance, PNB MetLife, PNB Gilt etc., which all have tremendous value. Apart from this the company has one of the lowest equity capital among government owned banks and can always raise money through a rights issue.
It is the second largest government owned bank in the country with a branch network of a staggering 7,000 branches. A fantastic franchisee network.
You are getting a stock, which was exactly four months ago in Oct trading at Rs 230, now at Rs 98. This is a big reason to be buying the stock.
Reliance Home Finance is a stock that was carved out off Reliance Capital. This stock got listed at Rs 114 and had fallen since to Rs 81.
At the time of listing most brokerages had estimated the stock to list around Rs 120, which would be 3 times anticipated book value for 2018 of Rs 40. However, the shares of Reliance Home Finance have fallen consistently and at these levels they look very attractive.
One of the top reasons to recommend this stock would be the home finance business, which is itself growing at a rapid pace of 20 per cent. This leaves immense potential to cater to a growing market for the company.
The management of the company had recently said that it plans to increase its book size to a staggering Rs 50,000 crores in the coming years. The book size at the moment is around Rs 13,000 crores. Going ahead this should augur well for Reliance Home Finance.
Check stock quote of Reliance Home Finance
Valuations of Reliance Home Finance
The stock of Reliance Home Finance is barely traded at 2 to 2.5 times anticipated book value. This is much lower than peers like Gruh Finance, Repco Home or even any of the larger players like HDFC, PNB Housing Finance, Dewan Housing Finance, Indiabulls Housing Finance etc.
This leave tremendous scope for Reliance Home Finance in terms of valuations. Sentiments for ADAG group stocks have been positive on account of RCom's plans to sell its assets to Reliance Jio. This provides an opportunity for long term investors to enter the stock.
A list of small cap stocks that you can buy
We have also in the past recommended some small and mid cap stocks that you should own. These have the potential to generate good returns in the coming years. Read by clicking on the links below:
Taxation on shares below Rs 100
It is important to note that if you sell your shares at a profit before one year, you are liable to pay taxes and its does not matter whether your shares are under Rs 100 or not.
Short term capital gains tax on shares is applicable if you sell your shares before one year. On the other hand, if you sell your shares after a period of one year, there is no tax that is applicable. So, you need to factor the same before you sell your shares.
It is advised that if you are making a decent sum you can also pay the required taxes on the same. There are roumours that the Union Budget 2017-18 could also consider a change in the norms for how capital gains is charged. So far we do not know of any such move. Will have to wait and watch.
The article is not a solicitation to buy, sell in securities or other financial instruments mentioned in the article. Greynium Information Technologies Pvt Ltd, its subsidiaries, associates and do not accept culpability for losses and/or damages arising based on information in this article.
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