📍 Background
Britain’s first major speculative boom in industrial equities.
The trigger: 1843–1844 saw real success stories (Great Western, Midland, London & Birmingham).
Parliament approved over 1,000 railway companies and projects during the boom.
Many were paper companies with no track built — funded via deposits and leverage.
Between 1843–1846, the market capitalization of railway shares quadrupled.
In equity valuation, three key concepts often create confusion for investors: beta, the equity risk premium (ERP), and the company-specific risk premium (CRP). Together, these drive the cost of equity, which directly impacts how we value stocks.
Beta measures a stock’s sensitivity to the overall market. If the market goes up by 1%, a stock with:
Beta > 1 usually rises by more than 1% (more volatile than the market).
Beta < 1 usually rises by less than 1% (less volatile than the market).
Beta ≈ 1 tends to move in line with the market.
Important: Beta captures systematic risk (linked to the market), not company-specific problems. A stock can underperform massively over 5 years and still have a beta above 1 if it tends to move sharply with market cycles.
Investors often struggle to evaluate whether a bank or financial stock is cheap, fairly valued, or expensive. Traditional valuation metrics like P/E ratios can be misleading in financials, where Return on Equity (ROE) and Book Value (BVPS) growth drive long-term value. This is where the Gordon Growth Model (GGM) provides an elegant framework.
In this article, we’ll:
Break down how GGM works for banks.
Use Shriram Finance (FY22–FY25) as a real-world case study.
Apply the model to project potential IndusInd Bank valuations by FY27 under different ROE scenarios.
The GGM is derived from the Dividend Discount Model but adapted for banks, where P/BV multiples are closely linked to profitability.
The formula for justified P/B multiple is:
Where:
ROE = Return on Equity
g = Sustainable growth = ROE × Retention ratio
r = Cost of Equity (typically 12% in India)
👉 The intuition: Banks that deliver higher ROE relative to their cost of equity deserve higher P/B multiples.
Rajiv Anand’s background is actually a quiet but important edge for IndusInd right now. Let’s break it down point-wise:
Early in his career, Rajiv spent time in equity research and capital markets before moving into banking/AMC.
This gave him direct exposure to how analysts and investors model banks: what line items they reward (e.g. ROA, ROE, NIM stability, fee income quality, provisioning discipline) and what red flags crush valuation (e.g. weak governance, opaque disclosures, asset-quality surprises).
That lens is not common for most career bankers — but it is second nature for Rajiv.
Warren Buffett Warns Markets Aren’t Always Rational, Says If There Was ‘Oil Discovered in Hell’ Then ‘All of the Oil Men’ Would March There.
Warren Buffett, the chairman and CEO of Berkshire Hathaway (BRK.B) (BRK.A), has often used parables and anecdotes to illustrate deeper truths about markets and human behavior. One of the more memorable is the story passed down from his mentor Benjamin Graham: “Oil discovered in hell.” The phrase comes from an old story Graham told to explain why investment professionals often act in ways that defy rational analysis. In the tale, an oil prospector arrives at the gates of heaven, only to be told by St. Peter that the compound reserved for oil men is already full. The prospector asks for permission to say just four words to those inside. Granted the chance, he shouts, “Oil discovered in hell.” At once, the entire group of oil men rushes off, leaving heaven’s gates open. When St. Peter offers the prospector a place inside, the prospector hesitates, saying he may as well join the others — after all, there might be some truth to the rumor.
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“It does not matter how slowly you go, so long as you do not stop.”
“Our greatest glory is not in never falling, but in rising every time we fall.”
“When it is obvious that the goals cannot be reached, do not adjust the goals, adjust the action steps.”
“The greatest wealth is to live content with little.”
“An unexamined life is not worth living.”
“Courage is knowing what not to fear.”
Considering the shaken confidence of the world in USD, all thanks to its gigantic money printing and Trump policies, INR appreciating to USD is not a fiction and can be a reality even though everyone alive today has seen only the opposite of this phenomenon. But given the backdrop of whats happening with USA and its 37+ trillion debt going out of hand why can't a country like India which is growing the fastest, is politically stable and ticking the right policy boxes get stronger relatively on currency front or at least get disparity to its PPP a little less.
In terms of PPP USD is 21 while on exchange rate it is 88. This results in a disparity factor of ~4.2. China has diparity factor of 1.8x, Japan 1.1x, Germany similar.
| Rank | Economy | Economic Type | Estimated Ratio (PPP ÷ Market) |
|---|---|---|---|
| 1 | India | Emerging | ≈ 4.0× |
| 2 | China | Emerging | ≈ 1.8× |
| 3 | United States | Advanced | ≈ 1.0× |
| 4 | Japan | Advanced | ≈ 0.9–1.1× |
| 5 | Germany | Advanced | ≈ 1.0–1.2× |
| 6 | UK | Advanced | ≈ 1.1× |
| 7 | France | Advanced | ≈ 1.0–1.2× |
| 8 | Brazil | Emerging | ≈ 2.0–3.0× |
| 9 | Italy | Advanced | ≈ 1.0–1.2× |
| 10 | Canada | Advanced | ≈ 1.0× |
Foreign banks can currently hold up to 15% in an Indian private sector bank (with prior RBI approval).
Aggregate FDI limit for private banks is 74%, but individual entities (especially foreign banks) are restricted to 10–15%.
Exemptions are given on a case-by-case basis (e.g., RBI allowed DBS to fully merge Lakshmi Vilas Bank).
Post-demerger:
ABFRL (the listed entity) = Pantaloons + TMRW (D2C platform) + Ethnic wear brands + TCNS Clothing
Aditya Birla Lifestyle Brands Ltd (ALBL) = Van Heusen, Louis Philippe, Allen Solly, Peter England, Innerwear, Reebok, American Eagle etc.
✅ 1. Definitions
| Metric | Meaning | What it reveals |
|---|---|---|
| Gross Margin | = (Revenue - Cost of Goods Sold) / Revenue | Measures core value addition; how much profit is made after producing the product |
| Operating Margin | = Operating Profit (EBIT) / Revenue | Measures overall business efficiency, including marketing, R&D, employee costs, admin, etc. |
Matthew Berry and his paper “Mean Reversion in Corporate Returns”:
Here are some key red flags to watch for before investing in banks like Axis Bank (or any other financial institution):
1. Pan-India Scale with Strong Rural Penetration
🧭 Key Industry Insights (from CEO & MD commentary)
The industry experienced severe stress and a credit downcycle in FY25.
Gross Loan Portfolio (GLP) declined 13.9% YoY to ₹3.81 lakh crore.
Disbursements fell 38% YoY to ₹71,500 crore as of March 2025.
Delinquency remained high, especially in the PAR180+ bucket, but early delinquency (PAR1–30) showed improvement:
PAR1–30 dropped to 1.4% by March 2025 (from 2.1% in Sept 2024).
PAR31–180 dropped slightly to 6.2% by March 2025.
Key takeaway: The sector was hit hard by overleveraging and external shocks, but early signs of recovery were visible in Q4FY25.
🚨 Negatives (Short-Term Perception Risk)
Abrupt CEO + ED Exit
– In banking, sudden exits without succession planning raise red flags.
– Markets hate surprises—especially in a sector that runs on trust.
Internal Rift with the Board
– Shows lack of alignment at the top. Even a ₹1.5 crore dispute indicates breakdown of communication or trust.
– Raises concern whether the transformation drive (tech, digital, profitability) will lose momentum.
No Immediate Replacement
– Delay in naming a credible successor may spook some investors.
In 2017, a behavioral economics study in rural Bangladesh posed a simple choice to poor participants:
Would you prefer $6 now or $18 after three months?
Surprisingly, 70% chose the $6 — a guaranteed but far smaller reward.
The researchers were puzzled. Why would someone reject a 200% return in just 90 days?
The answer lies in something deeper than numbers — and it reveals a psychological pattern that dominates even the modern stock market.
Logistics Sector Growth: Expected CAGR of 9.3%, with premium warehousing (Grade A) growing at 15%. Demand is rising due to e-commerce, consumption, infrastructure build-out, and government initiatives like Gati Shakti and the National Logistics Policy.
Multimodal Logistics Push: Driven by Dedicated Freight Corridors (DFCs), port-rail-road connectivity, and cost efficiency, India is seeing a shift to integrated logistics platforms. MLL is building multimodal capabilities to meet demand.
E-commerce & Quick Commerce: Hyperlocal delivery is booming, especially in Tier 2/3 cities. Quick commerce alone accounts for 65% of e-grocery orders, up from 13% in 2022. This trend is reshaping warehousing, last-mile delivery, and tech investment.
Digital Transformation: Indian logistics is embracing AI, IoT, drones, AR, real-time tracking, and digital twins. Tech is now key to operational efficiency and customer experience.
Imagine you're sitting in a packed theater. Suddenly, smoke starts seeping in from the back. Maybe it's a minor issue, or maybe there's a fire — no one knows yet. But instinct kicks in. Some people rush for the exits. Others freeze. A few even shout warnings. The calm dissolves into chaos.
This scene perfectly captures what happens in the stock market when a company or sector experiences a major negative event — whether macro (like a global crisis) or micro (like a governance issue, regulatory overhang, or earnings collapse).
The geometric (non-linear) relationship between Return on Equity (ROE) and Price-to-Book Value (PBV) is deeply tied to the long-term compounding of earnings and value creation.
The reason PBV expands geometrically with ROE is:
A higher ROE allows the company to compound book value faster
That higher compounding justifies a higher multiple today, because:
Future earnings are much larger
Market discounts future cash flows; higher ROE implies better reinvestment opportunities
A 30% ROE business can double book value in ~2.5 years, while a 10% ROE business takes ~7 years
This difference in earnings growth and reinvestment efficiency leads to an exponential divergence in intrinsic value over 5, 10, 15 years — hence, the PBV market assigns also diverges non-linearly.
The Securities and Exchange Board of India (Sebi) has barred former IndusInd Bank CEO Sumant Kathpalia and four other senior officials from trading in the securities market, following allegations of insider trading linked to a massive accounting discrepancy.
Aditya Birla Fashion and Retail Ltd (ABFRL) has successfully demerged its Madura Fashion & Lifestyle (MFL) division into a new, separately listed entity named Aditya Birla Lifestyle Brands Ltd (ABLBL). This strategic move aims to unlock value by allowing each business to pursue tailored growth strategies and optimize capital structures.
Delinquent Loans (PAR 31+ Days):
📈 ₹43,075 crore – up 163% from ₹16,379 crore in FY2024.
Gross Loan Portfolio (GLP):
📉 Declined 13.9% to ₹3.81 lakh crore, from ₹4.43 lakh crore in FY2024.
PAR 31–180 Days:
⬆️ Rose to 6.2% (from 2.1%).
PAR >180 Days:
⬆️ Increased to 5.1% (from 1.6%).
90+ Days Past Due (DPD):
⬆️ More than doubled to 6.0%, from 2.4% a year earlier.
The term "kitchen sink" in the context of corporate earnings refers to a strategy where a company takes significant one-time charges, write-offs, or provisions in a single quarter to clean up its balance sheet, often to address accumulated issues and set a lower base for future performance. IndusInd Bank's Q4 FY25 results, announced on May 21, 2025, are a recent example, with a reported net loss of ₹2,328.92 crore, driven by ₹1,979 crore in derivative losses, ₹674 crore in overstated interest income, and microfinance portfolio stress.
🧠 What is Probability?
Probability is the likelihood or chance that a certain event will happen.
While AI can excel at pattern recognition and data analysis, experienced human traders have unique advantages that can outperform AI in specific market conditions. This checklist is designed to help you identify and exploit these edge cases effectively.
The Indian financial sector is broadly divided into two key segments: banks and non-banking financial companies (NBFCs). While both play critical roles in credit delivery and financial intermediation, their business models, risk profiles, and income generation capacities differ significantly. These differences translate into varied valuation levels in the stock market.
There is an interesting parallel between IndusInd Bank's current situation and Axis Bank's 2018 episode—both involve:
A regulator-triggered disruption (Axis: NPA divergence, IndusInd: derivative accounting issues).
CEO's tenure cut short or not extended (Shikha Sharma denied extension; Sumant Kathpalia exiting before term completion as on 29th april 2025).
A committee of executives managing operations temporarily.
Let’s break this down:
“The best business at the wrong price is a bad investment.” - Warren Buffett
The 1970s "Nifty Fifty" episode is one of the most important and misunderstood lessons in market history, and Howard Marks often refers to it to illustrate the dangers of overpaying, regardless of business quality.
In the rhythms of history and markets, there’s a fascinating Greek term that captures the essence of dramatic turnarounds: enantiodromia. Coined by the philosopher Heraclitus and popularized by Carl Jung, enantiodromia means that anything that reaches an extreme will eventually turn into its opposite. In simple terms, when a system goes too far in one direction, it corrects by swinging back the other way. And nowhere is this psychological and philosophical concept more relevant today than in the Indian tea industry.
Tulip Mania is one of the most famous speculative bubbles in history. It took place in the Dutch Republic (now the Netherlands) in the early 17th century, reaching its peak in 1636-1637 before crashing dramatically.
Both Railway Mania and the Dot-Com Bubble were driven by revolutionary technologies that changed the world. However, they also saw massive speculation, unrealistic valuations, and an eventual crash. Let's break them down across multiple parameters:
| Parameter | Railway Mania (1840s) | Dot-Com Bubble (1999-2000) |
|---|---|---|
| Main Tech Revolution | Railways, steam locomotives, and faster transportation networks. | The Internet, digital connectivity, and online businesses. |
| Core Value Proposition | Faster movement of goods and people, reducing travel time by 90%. | Instant access to information, digital commerce, and global connectivity. |
| Actual Impact | Railways reshaped economies and made industrialization much faster. | The Internet changed communication, shopping, finance, and business forever. |
Investment Rationale
The Indian tea sector is at an inflection point after a decade-long downturn. Government interventions, supply constraints, and rising domestic demand indicate that the cycle is turning. Goodricke Group Ltd., backed by the multinational Camellia Plc, stands out as one of the few well-managed, high-quality tea producers in India. With a strong balance sheet, premium tea gardens, and high promoter holding (74%), Goodricke presents a compelling investment case for significant capital appreciation.
The Hinduja Group has pledged around 30 crore shares of Ashok Leyland (mkt cap ~ 60k crores), the group's flagship company in India. The pledge was created through Hinduja Automotive, a UK-based holding company and a key part of the Hinduja Group, which serves as the primary vehicle through which the Hinduja family holds its stake in Ashok Leyland.
As of 31 December 2024, promoters held 51.10% stake in Ashok Leyland. Hinduja Automotive held 34.72%.
Risk is measurable; it can be quantified and hedged against. For example, if a company operates in a cyclical industry, investors can analyze past cycles to gauge the extent of earnings volatility.
Uncertainty, on the other hand, is when there isn’t enough information to make a precise assessment. It causes markets to react with fear, often leading to excessive pessimism.
Investors who can differentiate between the two and take advantage of overreactions to uncertainty often unlock massive wealth creation opportunities.
IndusInd Bank has historically been admired in the banking industry for several reasons, making it one of the standout franchises in Indian banking. Here’s why it earned that reputation:
Big Shock Event:
Underlying Business Strength:
One strategy that many investors deploy is betting on turnarounds including myself and I am always on the lookout for a turnaround as that creates maximum wealth in the shortest period of time.
Now what I have experienced is that there are two types of turnarounds:
1. Business Turnaround
2. Sentiment Turnaround
Let’s dive into how large institutions with deep pockets—like hedge funds, proprietary trading firms, or FPIs—exploited the earlier, looser position limit rules for index derivatives in India to generate profits or influence intraday volatility, and why the new maximum position limits (effective 2025) deter such strategies.
In 2012, large tea estates were the primary producers of tea in India, contributing approximately 75% of the total tea production, while small tea growers (STGs) accounted for about 25%. It is 45% now and 55% is ontributed by STG as on 2023 production data.
the growing dominance of small tea growers (STGs) over large estates is a major reason for the dire state of the Indian tea industry. Here’s why:
1. Always go against tide. Buy when others are selling and sell when others are buying. 2. If you believe in the growth prospects o...
