Hi Abhinav
That post was at the time of the SVB collapse which fizzled away quickly. I had then sold out of Kotak but didn’t add any other bank to the portfolio, except to the Equitas position. I have now sold out of Equitas as well as I am finding better risk reward in other themes. I think the banking landscape is not prepared for a desperate HDFC Bank doing everything in its power to raise deposits, which will likely come at the expense of deposits of other banks. HDFC in 9M Apr-Dec accounted for 15% of all incremental deposits, while their present market share in deposits is 10%. And they have a long way to go to make up for the gap in deposits to advances that has resulted from the merger.
So my sense is that we will have higher costs of capital for all banks, and potential NIMs compression all year, at least till we see a sizable uptick in debt funded private capex, or till interest rates drop which I don’t expect will happen till late 2024 at the earliest going by the RBI governors comments at an interview he did with CNBC in Davos. HDFC Bank may take 2-3 years or so to get the deposits in order and NIMs up, the interest rate cuts notwithstanding. if it takes them 3 years, by then they would have grown their book value by 40-50% at least, and should potentially trade at 3-3.5 times trailing book as NIMs and return ratios would have improved, implying a 50-80% upside from present levels in three years which is not extraordinary but not bad either. Kotak and IDFC may possibly offer a slightly higher return potential with higher valuation and higher growth respectively.
These are my views, which I can change if the facts change, or my understanding improves, or if I am not able to find good better growth at cheaper prices. I wrote a detailed thread on this subject a few days back. Pasting the link here. Admins, in case this is not permitted, please let me know and I’ll edit this post.
https://x.com/vineetjain1101/status/1748533700399104268?s=20
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