rajpgokul

Thanks @Viking for the kind words. Fairfax Financial has become our top position now (mostly accumulated between 2019-21). Your consistent updates on Fairfax Financial has been very useful and I don't think, I have any insight or analysis that is unique from what is already shared in this forum (both on the insurance underwriting and investment portfolio). IDBI Bank - Good asset, but not sure if it could be a good deal: The reason IDBI is a good asset is because of its high quality deposit franchise. CASA deposits (non-term deposits/ float at very low cost) is the best indicator of a deposit franchise. IDBI bank has 17.5 billion USD of CASA (50.5% of overall liabilities) and is probably the highest in the industry. Only a mature branch network can have a large CASA deposit base and hence it is difficult for a new entrant to build it organically. In Indian banking, the public sector banks (government owned) always had the best deposit franchises and the private banks have the best lending franchises. The market is now mature where the large private sector banks (Top-3) are able to hold on to low cost deposits even during crisis. Since IDBI Bank is going to be the first government bank to be privatized, the value of this low cost deposit base will be hugely valuable in the hands of an efficient private operator who can lend responsibly. IDBI bank has an overall cost of funds of 4.3% (almost 280 bps below Indian GSec) for its 34 billion USD of liabilities. This itself would allow it to earn ROA's of 1.5% without taking any credit risk on their balance sheet. In a capital constrained country like India with numerous lending opportunities, this is a huge moat to have. For example, Fairfax operated CSB Bank which is a 104 year old bank with a strong presence in the Indian state of Kerala has a CASA ratio of 27% (950 million USD). For CSB Bank to grow 25%+ on a sustainable basis, the limiting factors is not on the lending side, but in raising deposits at a reasonable cost (as they are an unknown entity outside South India). IDBI Bank with its large scale and pan-India deposit franchise would thus be a very good asset to own. The reason I have doubts on it being a good deal is because of it being a rare asset that is going to be sold through an auction during a good cycle. All the 3 reported frontrunners - Kotak bank, Fairfax and Emirates will look at it from a 1-2 decade perspective and hence would be ready to have lower returns in the short term. Kotak has a strong incentive to bag the asset as they can immediately derive synergies and roll-out their lending franchise on top of IDBI's deposit franchise. Emirates has a strong balance sheet and this is the only way for them to enter Indian banking and hence they would be happy to earn a 10% CAGR over 15 years. Fairfax has no edge in this auction. Indian banking sector is attractive because credit demand will grow at 12-15% CAGR over the next decade and the well run Indian private banks will take market share from public sector to grow at 16-20% CAGR. Indian regulator does not give out deposit taking licenses or banking licenses easily (6 new licenses over the last 25 years) and hence the Indian banking license is very valuable. India went through a very bad corporate loan cycle from 2012-2021 and the turnaround has already happened. IDBI had the worst non-performing loan ratio and the management has completely provided for the same. The Indian stock markets have re-rated Indian public sector banks (almost up 3X since 2021) and IDBI bank now trades at par with private banks at 1.8X price to book value. Thus, this is not like CSB Bank when Fairfax bought during crisis and turned it around by appointing good management team. Thus, I believe that IDBI bank will be fully valued in an auction with the buyer happy to compound earnings/ book value rather than look for re-rating from the acquisition multiple. Thus, the deal would be dilutive to near term shareholder returns in my view as our hurdle would be higher than someone looking at it from a decadal perspective. The cheque size would be large at 5-7 billion USD and hence the bid could be through Fairfax India partnering with Fairfax Financial and other global investors. Let's see how it evolves and we can calibrate our investment accordingly. Thanks.

Recently wrote-up a note on Fairfax India on SumZero. Sharing it here. Might have some additional information on the airport asset that might be useful. Thanks. Fairfax India - Gokul (1).pdf

Your guess on this issue is as good as mine. My personal opinion is that no one will even remember about this in the next 1-2 years. The long term trend of India becoming a very close ally of the Western countries in Asia is certain. India is certainly not China or Russia (people who equate them have zero understanding of how India operates) and would continue to be a great market for stock pickers. As investors, our focus should be to buy the right businesses at attractive valuations and spend as little time as possible on the irrelevant news cycles.

For whatever it's worth, I am sharing my views as someone who lives in Tier-2 India and invests globally, I believe that a lot of the inputs in this thread recently are so out of touch with reality. We may not like Modi's social policies, but to think that he is taking India in the direction of Russia or China is totally absurd. India has a democracy that is so deep rooted with enough checks and balances for many of you to fully appreciate. You just need to check the electoral track record of Modi's party in state elections (India has a very federal structure). To put it in perspective, even at the peak of his popularity now, Modi's party is not in power in almost all major cities - Delhi, Bangalore, Kolkata, Chennai, Hyderabad. The only large city they control is Mumbai and even that is through 2 allies and the local civic body is with the opposition. A lot of the western media writing about India is similar to what media houses write about Trump. You can hate Trump or Boris Johnson, but to believe that, electing them is equivalent to US/ UK becoming Russia slowly is non-sense. The reason why Prem Watsa writes so positively about Modi (other than earning brownie points with the establishment) is because most reasonable Indians and close India watchers would know that he is taking the right decisions to grow the economy and build the base for the next 1-2 decades by investing in large scale infrastructure, running tight government budgets, reforming key policies, making India more capitalistic etc etc. I too genuinely believe Modi is transforming the country in the right direction even though I may not vote for him. People with skin in the game like domestic investors or westerns firms investing large sums in India understand the positive change that is happening in the country. Please do not take the Economist or FT editorials so seriously.