P/E might not be the best metrics to value banks as they tend to be cyclical. I think Indian market has not experienced this cyclicality in the private bank as some private banks have been able to capture increasing share from public sector banks even during lean years.
It is difficult to see IDFCFB getting valuation of higher than 1.5 P/B when banks with higher scale, profitability and consistent track record are also available at cheaper valuation compared to historical trends.
I believe larger Indian banks should start to narrow valuation premium with global banks over next 3-5 years as Indian market get more integrated with global capital market with growing size.
What will be incentive for someone to own combined HDFC bank at $200 billion valuation when larger and more profitable American banks are available at cheaper valuation.
Indian banks might have higher growth but valuation premium will start coming down with decreasing incremental growth especially in dollar terms.
| Subscribe To Our Free Newsletter |
