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Stocks Under $10 with 50-100% upside potential - 14 days FREE!

5 Indian Stocks to Watch

3. HDFC Bank (HDB) is one of larger private banks in India with a retail focus.

The bank underperformed the banking benchmark recently. However, we expect the bank to outperform after the recent volatility witnessed in banking stocks. A track record of consistent performance and management bandwidth ensures that downside risks are capped.

HDFC management indicated that its loan growth would be 3% to 7% in excess of systematic growth. Consequently, net interest income growth would be robust due to higher loan growth and stable net interest margins.

Overall, asset quality is likely to improve, given the strong growth impulses in the economy. However, earnings could be impacted from probable losses from microfinance institutions and HDFC's exposure to the telecom industry.

HDFC has a strong base of low-cost deposits and is a value pick in the scenario of a rising cost of funds, and the bank is expected to maintain net interest margin of 4% in the medium term.

Besides, a higher capital base, an expanding loan book and a strong net interest margin would deliver earnings growth of 30% over the next few quarters. The stock is trading at 3.7 times its 2012 adjusted book.

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