Wednesday July 25, 2012
by Yiannis Mostrous, editor Global Investment StrategistAlthough a slowing economy and political turmoil have created a volatile investment climate in India this year, I believe
HDFC Bank Ltd. (
HDB) should be in every long-term oriented investor's portfolio.
India's macro picture is not the prettiest in Asia right now and political gridlock is a major hurdle for investors. That said, the price of equities is now factoring in a lot of bad news.
Even in the current environment, the bank's management is confident of growing revenue up to 6 percent higher than the industry's average growth rate, given that a large portion of branches have been added recently and are yet to reach optimal capacity. At the same time, the bank has achieved the lowest cost per employee in the industry.
The bank is following the government's guidelines for priority sector lending. Consequently, the majority of HDFC Bank's new branches are located in non-metropolitan regions that are under-penetrated by the banking industry.
This is the result of a regulatory mandate that management has used to attract more savings accounts from smaller towns. About 62 percent of HDFC Bank's branches are outside India's nine biggest cities.
The Indian government has placed an emphasis on lending to the agricultural sector, as the government continues to nurture peripheral growth.
From a longer-term perspective, the bank is a big beneficiary of a demographically young nation with rising incomes and strong domestic demand. HDFC Bank remains a buy at current prices.
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