Lets look at the big picture. One of the narratives going around now is that since HDFC Bank is already very big in terms of market cap its growth is going to be limited. Lets take a look at TD Bank in Canada, at a market $110-120 Bn it is roughly 6% of Canada’s GDP. If Indian GDP grows at 6% for 20 years in $ terms our GDP will be close to $13 trillion and if we apply a similar ratio to HDFC Bank we get a market cap of $780B considering the current market cap of about $130B this translates to a CAGR of 9.3% in $ terms and considering historical rupee depreciation of 5% we get to 14%+ and this will go to15%+ if we consider dividends. In absolute terms this is a very good return but relatively this is even better because of the recent run up in the broader markets other opportunities are fairly limited. I am assuming the growth of HDFC Bank will be similar to credit growth in the economy (with market share gains returns can be potentially higher). This narrative is true for other big banks as well so a basket of big banks makes sense.
20 years is a long time a lot of things can change for the better or for worse but the scenario I have painted is not far fetched and we can make decent returns in Big Banks relative to other opportunities in the market.
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