If you buy HDFC Bank when it underperforms, you will prosper
HDFC Bank has a glittering track record on the Bourses.
It qualifies as a textbook example of a “compounding machine“.
Morgan Stanley has pointed out that since FY2010, the stock price and earnings per share (EPS) have both registered a fabulous CAGR of 20 percent.
This has led the stock to deliver eye-popping gains of 668 percent over the past 10 years.
However, there are occasions when the stock price has not tracked earnings over one to two years.
This provides the golden opportunity to intrepid investors.
Buying the stock during these periods has historically generated outsized returns, Morgan Stanley says.
“We believe that the stock currently offers such an opportunity,” it is added.
Weakness in banking space is a blessing in disguise because arch rivals are feeble
It is no secret that investors are presently loath to buy NBFC and Banking stocks owing to the surging NPAs and other ailments.
However, these problems have proved to be a blessing in disguise for HDFC Bank.
The competition (such as Yes Bank, Axis Bank, IndusInd Bank etc) have become feeble owing to surging NPAs.
This has enabled HDFC Bank to snatch market share from the arch rivals, says Morgan Stanley.
Morgan Stanley has also opined that HDFC Bank’s loan growth will remain very strong for the next two to three years.
“Investment in technology and increase in rural penetration (organic and in partnership) should enable it to keep growing loans. There will be some quarterly volatility given the size, but the backdrop for the bank will keep growing at 18-20 percent,” it said.
HDFC Bank is a “solid long-term play”
Morgan Stanley has described HDFC Bank as a “solid long-term play“.
The logic is that HDFC Bank has a good funding franchise and low-cost deposits, which are around 40 percent of total deposits.
In addition, HDFC Bank has sustained strength in loan growth and margins and acceleration in earnings growth in the coming quarters.
“Earnings outlook of HDFC Bank is strong with CAGR at nearly 20 percent over the next three years. Compounding implies meaningful margin of safety for longer-term investors.
Historically, the stock has done well over a 12-month period from current levels and we would expect similar performance,” Morgan Stanley said.
HDFC Bank is an “alluring investment opportunity“: Nomura
Nomura, also an elite merchant banker, has also given HDFC Bank a clean chit and described it as an “alluring investment opportunity“.
“We do not see any significant challenges to its ability to compound earnings and estimate 18 percent CAGR over FY19-21F,” Nomura opined.
I am buying HDFC Bank every single day for past 9 months: Saurabh Mukherjea
Saurabh Mukherjea, the authority on Coffee Can Investing Portfolio, has also come out with all guns blazing in favour of HDFC Bank.
“Our consistent focus has been to look for companies with outstanding fundamentals …. Every single day, for the last 9 months, we have bought HDFC Bank for our clients’ portfolio. I also hold it in my own portfolio,” Saurabh said.
#MarketMaster | Saurabh Mukherjea, Marcellus Investment Managers says believe the market is bracing itself for a poor Q2 earnings season; @KotakBankLtd, Bajaj Finance & @HomeLoansByHDFC are good picks for a portfolio#OnCNBCTV18 @latha_venkatesh @_anujsinghal @_soniashenoy pic.twitter.com/jgvcHGmIin
— CNBC-TV18 News (@CNBCTV18News) August 30, 2019