PNB Gilts at Rs 55 is a good buy

PNB Gilts at Rs 55 is a good buy

By Rajiv Kapoor | 18 February, 2017

PNB Gilts Limited is a subsidiary of Punjab National Bank, operating as a dealer in government securities. The company is also engaged in the business as a non-banking financial institution (NBFC). PNB Gilts is also engaged as an agency of the National Securities Depository Limited (NSDL), providing remote e-voting facilities. The dealing segment of PNB Gilts include treasury bills/commercial papers/certificate of deposit, corporate bonds and debentures, government securities, derivatives, fixed deposits and mutual fund distribution. As a primary dealer, the company’s activities include supporting government borrowing program through underwriting of government securities, issuances and trading in a full gamut of fixed income instruments, such as government securities, treasury bills, state development loans, corporate bonds, interest rate swaps and various money market instruments, such as certificates of deposits and commercial papers. India has a diversified financial sector undergoing rapid expansion, both in terms of strong growth of existing financial services firms and new entities entering the market. The sector comprises commercial banks, insurance companies, non-banking financial companies, co-operatives, pension funds, mutual funds and other smaller financial entities. The banking regulator has allowed new entities such as payments banks to be created recently, thereby adding to the types of entities operating in the sector. However, the financial sector in India is predominantly a banking sector, with commercial banks accounting for more than 64% of the total assets held by the financial system. Government of India has introduced several reforms to liberalise, regulate and enhance the financial sector, with the Reserve Bank of India undertaking various measures to facilitate easy access to finance for micro, small and medium enterprises (MSMEs). With a combined push by both government and private sector, India is undoubtedly one of the world’s most vibrant capital markets.

India’s life insurance sector is the biggest in the world with about 360 million policies, which are expected to increase at a compounded annual growth rate of 12-15% over the next five years. The insurance industry is planning to hike penetration levels to 5% by 2020, and could top the US$1 trillion mark in the next seven years. The total market size of India’s insurance sector is projected to touch US$350-400 billion by 2020. India is one of the most vibrant global economies with a robust banking and insurance sectors and is projected to become the fifth largest banking sector globally by 2020. The bank credit is expected to grow at a compounded annual growth rate of 17% in the medium term, leading to better credit penetration. Life Insurance Council, which is the industry body of life insurers in the country has also projected a CAGR of around 12-15% over the next few years for the financial services segment. With relaxation in foreign investment rules, there has been a positive response from the insurance sector, with many companies announcing plans to increase their stake in joint ventures with domestic companies. In the next few years, there could be a series of joint venture deals between global insurance giants and local players on the back of relaxation in foreign direct investment. The limit of 49% can result in an additional investment of over Rs 60,000 crore.

With banks flush with funds after demonetisation, they are likely to park their funds in liquid mutual funds, government securities and other financial securities, and with PNB Gilts being the only listed player on the stock market, it can benefit to a large extent. On a combined book of over Rs 2,500 crore, the company posted stellar earnings for the quarter ending December 2016, with a net profit of Rs 66 crore. The PNB Gilts stock quoting at Rs 55 is a very good portfolio buy with a target price of Rs 85 in six months’ time.

Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.


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