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.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV