Why PFC and REC Shares Are Hammered on the Indian Bourses?

A very thought provoking question indeed. Thank you for raising it. Thank you. The answer as I see it is as follows:

People to tend to categorise and group companies into a category and give all the constituents of the group the same treatment irrespective of their individual merit. Banks and financial institutions fall under one category. Banks have accumulated a large amount of bad loans or ‘Non Performing Assets (NPAs). The Reserve Bank of India (RBI), under the previous governor, had ordered banks to wash their books and make adequate provision for losses arising from NPAs. As a result most of the banks have been declaring losses after making ample provisions against NPAs in the last few quarters and as a consequence their share prices have seen steep declines.

Banks Afflicted With NPAs

REC and PFC also have been making some provisions fir NPAs but to a very small extent. Their margins are also attractive. However the market is showing them the same treatment along with banks and has battered their stocks.

I also noticed that recently (last week) they had shown smart recovery showing 4–6% price increase in a single day.

Finally I totally agree with you. REC and PFC are showing consistently showing good results and have been unjustly battered along with bank stocks. Therefore, this is a good opportunity to buy these two stocks at low prices.

Thank you,

With Best Regards

Anand

How Value Investors Meet Monthly Expenses?

Actual Question:

How did/does Rakesh Jhunjhunwala generate regular cashflows to meet his monthly bills? What I understand is that as a value investor his money is generally locked up for years at an end in investments. What am I missing here?

Edit: What I mean to say is in the beginning of his investor days, how did he manage it?

I am fully aware that he will be holding cash in his bank account which will be replenished periodically by dividends, and also that all his money is not held in the form of capital market investments.

Answer:

Dear Friend!

Thanks for the highly valuable and thought provoking question!

I really do not know the affairs of Rakesh Jhunjhunwala so I cannot talk about him but in general I will answer your question.

Every individual generally has two types of income:

1. Active Income
2. Passive Income

 A person who makes investments has an active income in the first place, which that person spends for meeting personal expenses and invests the surplus. The only exception is when a person has a huge inheritance at an early age that he or she need not and does not work and have an active income at all.

Secondly, it is not entirely correct that a value investor’s money is completely locked-up for long term. Value investors earn significant amounts of passive incomes by way of dividends and interest every year. Value investors do not like to spend the passive income for their survival and would like to re-invest it for generating further passive income. However, if they do not have a separate active income, naturally they can spend from this passive income.

In light of the above there are two possibilities as follows:

1. Meets his monthly bills out of the active income he has
2. Spends a small portion out of the passive income generated from investments.

Thank you,

Anand

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