Just to continue with the example of HDFC on how listing of the subsidiaries benefit the parent. First of all as you mentioned, diluting the stake through IPO provides money straighaway to the parent. This money could be used in many ways but for financial institutions where money is the main raw material, it means a lot.
Secondly, as long as the listing of subsidiaries has not happened, the market determined value of the subsidiary is not ascertained. Once listing happens, price discovery on the bourses takes place and an approximate value can be ascribed to the holding value in the subsidiary. One can also go further and calculate the sum of the parts valuation by applying valuations to the core business and valuations of subsidiaries (after applying appropriate holding company discount).
Another optionality for listed subsidiaries is (not relevant to hdfc as I dont see this happening) that if the management feels it appropriate it can sell off the subsidiary and realise some value out of it. Especially if the subsidiary doesn’t fit into the long term vision of the parent company.
Regarding the NBFC sector, I have always maintained that once the story is over for a particular sector it takes a long long time to make a comeback. There will be few exceptions to this but the base rate for finding big winners in such sectors which have recently lost market fancy is low. If one buys at a huge discount, there might be some money to be made but making multibaggers out of such situations is difficult. Cheap stocks keep getting cheaper.
The usual investor psychology in sectors which have lost market fancy is to find out stocks which have not participated in the sectoral bull run or stocks which on conventional valuation parameters appear very cheap due to excessive correction and try to ride them. The only problem with this is that the sector keeps getting plagued by a slew of negative newsflow and sectoral headwinds and after brief rallies these stocks keep giving up more than they gain. AB Cap and LTFH may appear cheap on conventional P/B or P/E basis but we are not too sure when the sector is going to regain market fancy and hence better avoided. Or else if we buy it extremely cheap we have to have an exit plan ready.
Just to recap,
Real estate and Infra stocks took a pounding in 2008-09 after having created a lot of wealth due to market fancy (and some strong sectoral tailwinds). Post the correction at every fall stocks like ivrcl, jp associates, suzlon etc have appeared very lucrative at some point of time but look where they are now.
Pharma stocks had a strong run up from 2011-15 or even 2016 in some stocks but post that most of them started correcting and kept going down. Even market leaders like sun pharma and lupin labs are currently at a third of their respective tops. Not to mention the second and third rung stocks. And all along the way down these appeared cheap if compared to valuations at the peak.
What we need to know is that the (hypothetical ) valuations accorded by markets to these companies at peak consist almost 50% or more of froth and rest due to real business valuations. (just an example about valuations at peak) If we use these as benchmark to compare valuations when stocks have corrected post achieving the peak, these will obviously appear cheap but can still become cheaper because the business environment keeps getting tougher and earlier growth trajectories are hard to achieve. Peak margins and growth rates are difficult to regain and after a long long time of correction/sideways movements, some sort of equilibrium in the business is achieved. This equilibrium often is achieved after the sector goes through catharsis where a lot of companies suffer large doses of pain and defaults/closures/bankrupticies etc. This process takes a few years to many years. In the meanwhile new sector/sectors emerge as market favourites and these start creating wealth. We need to focus on these to make decent money.