If you invest via MFs (lumpsum or SIP)…money moves from individuals to institutions…that reduces the CASA (or deposits) for your bank…all these are various ways how money moves
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Probably they are doing sector rotation 
Anecdotes apart, I also have this feeling that lot of financial savings gradually moving to equity from traditional products amd more so in Urban areas. HDFC is currently more Urban focussed. Someone may say even IDFC is urban focussed but they are playing different game…
Would be good to see how HDFC Securities performed…
Eventually you buy from someone, be it individual or institution, unless they immediately withdraw that money and keep in cash or take it out of the country that money will be in the banking system either as casa or term
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We need to also look at Deposit growth at other banks.
If they are also struggling to grow Deposits in line with their Loan growth then this is industry wide phenomenon. To some extent it could be happening due to cash requirements during certain periods or people are shifting money to RBI Floating Rate Bonds, Post Office and Equity MF(s). We need to look at trends of these 3 instruments as well.
Certainly Equity MF SIP has moved up in 2023, so that could be one of the reasons but we can not jump to conclusions so easily.
I believe that, BFSI sector is going through lean period in terms of Share Price growth. This is also evident in Kotak Bank. Kotak Bank is doing much better but still their share price is standstill during 2023. So we need to look at reasons for the BFSI sector as well.
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HDFC Bank 3Q results were below expectations, especially on the Deposits collections. Management was showing confidence earlier that they will be able to garner Deposits at good pace and it didn’t happen this quarter.
But we should also see how other big banks (esp. SBI and ICICI) fared on deposit collections this quarter to gauge how bad HDFC performed. If everyone slowed then the problem is less severe (systemic).
I will not be concerned much if we found that everyone slowed, since it means overall banking sector slowed and when better opportunities come in future then HDFC have good chance to capitalize on them.
But one thing is for sure: the Large base effect has indeed material impact on HDFC Bank. Markets had got it right earlier and I personally overlooked it. Now I have reduced my long term HDFC returns expectations, from 17-20% earlier to 12-16% now. I think HDFB bank is still a good investment bet on return-risk profile.
I am not bothered about NIM reduction much. NIM of 3.5 is not bad if they can keep it for long.
Also, I really don’t mind if markets derates HDFC bank further. I will be happy to buy more at P/BV of 2.0-2.5.
Disc.: HDFC Bank is significant part of my portfolio.
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I would tend to agree with this view. Mr. Market is pessimistic about this stock similar to ITC, Coal India in 2021. If it gets de-rated to P/B of 2.0-2.5, it would be still a good buy and can generate decent 14-15% returns from that level.
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Market is 20% knowledge and 80% behavior.The same HDFC just 1-2 weeks before was start running and those who was not invested started to think like FOMO and today when the Market is again giving the opportunity to buy it,nobody wants to buy but when FII start buying the same stock again and it start going upward, people again feel FOMO and this cycle keep on going.My expectation is moderate and level 1450 and below is good time for me to start buying this high quality stock in systematic manner and sit tightly.Good stocks available at good valuations only after a bad news come out and if that bad news is temporary in nature, i pack my bag to start buying that stock.
I may be wrong and contra views are welcome.
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Since HDFC has become too big, 2nd largest company by market cap, i think, so even if it is bought at these levels, whats the CAGR return expectations one can have from such a big elephant?
I hold ICICI bank and IDFC First bank…And sold HDFC bank for this reason…
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I have done Price CAGR calculations above in this thread.
I have considered Exit P/B of 3.0 and 3.5 and Book Value Growth of 10% to 12%, which can result into 11% to 14% Price CAGR if bought at around 1450 or below.
If we consider Exit P/B of 2.75 then may be returns could be lower than 11% but that seems like worst case scenario. But it is possible.
I agree that, we should be little cautious considering its large size, but still it could be a good stock to hold or buy at lower levels for portfolio stability.
I may be wrong in my analysis.
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Why buy individual stock if it gives less than 15 percent returns?
We can buy the index for better return or equal return to HDFC Bank ar this stage
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Price to book has been on downward march in last 10 years as well as last 5 years. In 2019 , PB was around 5 which is urrently at 2.75, I think…so after 5 years exit PE may be around 2 or so. This may give Index returns at best. Holding 1 stock vis a vis index for same returns will distort the risk-reward equation.
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Understanding [in my own words] from Q3FY24 Conf. Call:
What’s the main concern? Q3 results hint at upcoming unsustainable growth rate or lower ROA/ROE. Indicators:
- Elevated LDR [Loan Deposit Ratio]: Deposits [expected retail collections were 50~80% higher] are not outpacing the loan dispersal | Mgmt.: Lack of liquidity in the system after 3.5 Yrs. RBI driven to contain the inflation without increasing interest rates | Wholesale funds as source of deposit were passed due to low profitability - high competition among banks on the basis of rates.
- Bottomed out LCR [Liquidity Coverage Ratio]: Investments and cash on the asset side funded more than 50% of this quarter loan dispersal. Not a sustainable approach. Either
- Loan dispersal be slowed [lower growth…Mgmt.: Not tethered to a particular number in a point of time. However, aspire to maintain past growth rates (double the Balance Sheet size) over a period of time (4~5 Yrs.)], or
- Retail deposits must increase
- Needs more branches [Mgmt.: Might do 800~1000 by year end instead of 1500, which was the earlier forecast | Future pace of addition depends upon regulatory mix (rural vs. urban) fulfillment instead of any hard number]
- Offer higher rates as the driver [Mgmt.: Not a preferred path at the cost of profitability - Lower NIM/ROA/ROE]
- CASA growth [Mgmt.: Needs to inch upwards with time]
- Higher amount of non-recurrent earnings: Tax writeback, RBL share sale etc.
To decide further course of action, each investor shall ponder upon:
- Is this a temporary phase compared to one’s investment horizon?
- What levers bank has to come out of this situation? [Retail mix [Unsecured in particular], CASA improvement, higher mortgage share, cross-selling of products etc.]
- What’s the alternative opportunity?
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This looks liks issue was not with deposit increase but rather loans increased at much higher pace?
If CASA growth is decreasing as compared to other banks, what is the root cause?
With more branches, intention is to increase deposits further but should a bank of such quality start doing that when they need it the most?
I mean, in banking, the quest for deposits should preceed loan growth or vice versa?
From whats going on it seems bank is not fully prepared yet of the tremendous loan growth which lies ahead…Is that a good thing or bad? Good because existence of such growth or bad because this growth is catching at wrong foot as liability side may not be prepared?
Pls correct me if my understanding of the root cause is wrong here? Thanks
Yes. In case of INDUSIND BANK, HDFC BANK, KOTAK BANK, the Median P/B is above 4 for past 10 years and now it is moving down in the past 5-6 years.
Premium Valuations which these banks had enjoyed during 2010-2020 has been de-rated by Mr. Market.
Where as ICICI BANK and SBI are trading above their 10 Year Median P/B. Axis Bank is trading close to 10 Year Median P/B.
This happens generally when banks like ICICI BANK, SBI, AXIS BANK start reporting Lower GNPA/NNPA and they get re-rated by Mr. Market. This has happened to some extent before 2012 as well.
When Mr. Market starts believing that, Banks have cleaned their books and Now their GNPA will remain in control or reduce, then its starts giving higher P/B to such Banks.
Also, this means that Market is not happy about KOTAK BANK and HDFC BANK going forward. Hence they have de-rated them.
When credit cycle turns around, and GNPA starts rising then this trend reverses or can reverse in future. It is difficult to predict whether KOTAK BANK and HDFC BANK will maintain their GNPA at current levels or not. If Yes, they may get rewarded by Market and P/B can move up or will remain close to 2.5 or 3.0.
We have to wait and watch for next 5-6 years for that. Till that time, every investor can build their own judgement on this and either remain invested in these 2 well managed banks or can switch to other large banks.
I have not considered IDFC FIRST BANK as it has limited history.
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Apple mkt cap in 2010 was 100 billion$
In 2020, it was 1 trillion$(10 bagger in 10 years)
A person who do not buy Apple share assuming that “elephant cant grow”, missed the opportunity to get a 3 bagger in the next 4 yrs. Now in 2024,its mkt cap is 3 trillion$.
There are many such examples in stock market. Any giant cap possess same story.
As long as the company is in the right country, run by right management, holds/grows customers through its brand value, company continues to grow at reasonably good rates.
HDFC bank is one such financial conglomerate. At 16 PE, its a steal.
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I would tend to agree with you. In fact, my investment experience suggests that, when many people are having pessimistic view on the stock and stories are being floated saying that, now this stock can not grow as the best days are over, it is time for Value Investors like us to start looking at it more seriously.
Since I am already invested in HDFC Bank unable to increase my position, but I have taken a position in Kotak Bank during 2022-23 since it is also being available at reasonable valuations in my opinion.
Many investors were pessimistic about HDFC as well in 2014 and were chasing Mid Caps which got hammered during 2018-19 and HDFC was the good stock to own at that time since they listed HDFC AMC and HDFC Life Insurance, but many were pessimistic about it in 2012-13.
Another such example is ITC and Coal India during 2021-22. When negative stories are floating generally it is time to buy if you have your own investment thesis and conviction.
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Agree with you. Unable to increase my position in the bank as it is already one of my largest holdings. But have seen this pattern playing out again and again. Back in 2017 TCS & IT pack were underperforming and many stories floated. In 2021 ITC was underperforming and many stories were floated. Now it is HDFCBK’s turn. D: Invested & Biased.
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Value Punks has covered this topic in their latest article.
This pattern of negative stories being floated is repeated pattern as evident in ITC and various other stocks from time to time. Large Cap Managements generally have the bandwidth and competency to overcome these kind of short term problems and can emerge as Winners after few years. Such stocks test your patience for few years and then reward you.
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Quoting from The Signal (today’s edition)
The bull run in equities is taking low-cost money away from bank savings and current accounts to other instruments such as mutual funds and shares-linked insurance plans. As a result, they have to pay higher interest rates to attract deposits. On the lending side, nimble-footed shadow banks such as Bajaj Finance, Shriram Finance, and LIC Housing Finance are luring away lucrative retail borrowers from banks. The RBI, worried about the explosive growth in unsecured loans such as credit cards, is already clamping down.
A random investor’s rant about HDFC Bank branch expansion:
What is the benefit of opening a branch between 1-2 km rather than 5-6 km when most of the people prefer to bank online.
No one has time to visit a branch and instead of improving their tech positioning, they’re opening more branches.
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I do have the same question since the urban population is becoming tech savvy. In my locality, I get to see 7 to 8 HDFC branches within a 5 km radius and am wondering how much does it cost to run these on a daily basis. For the past 12 years my salary account was/is with CiTi and StanChart and did not have the need to visit them once except to collect physical statements for visa purpose
Disc holding
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