Today’s Stock of the Week is the second-largest bank in its country, and that country has the fastest-growing economy in the world. Keep reading to see why you might want to include its stock in your portfolio…
Banking on India
HDFC Bank Limited (HDB) is one of the world’s best-managed banks, but it is not well-known to Americans because it is located in India, where it is the nation’s second-largest private-sector bank.
India has the world’s fastest-growing emerging economy and the world’s second-largest population. The banking sector has been growing 15% a year. India is currently taking big and dramatic steps toward becoming a cashless society—relying mostly on cards and mobile apps—in which black-market economic activity will be much reduced. Investors fear the transformation from a cash economy will hurt the nation’s banks. There likely will be some short-term dislocation, but it is precisely the strongest banks that will emerge in even better positions over time. For example, there will be many more ATMs in stores for debit and credit cards, generating more transaction fees for strong banks as weak ones are absorbed or go out of business.
HDFC has excellent loan-loss reserves and no significant balance-sheet or loan-default problems. Earnings should be affected only mildly and briefly, in fiscal 2017, by the nation’s move away from cash—and revenue will continue growing steadily. It was $9.2 billion in fiscal 2016 and should be $11.2 billion in fiscal 2017 and $13.5 billion in fiscal 2018. The small dividend of $0.42/ADR (American Depositary Receipt)/yr. recently yielded 0.64% and appears secure.
Fiscal yr.: March. Earnings per ADR: 2018 est./$3… 2017 est./$2.25… 2016/$2.33.
This Week’s Expert
Robert T. Lutts is president of Cabot Wealth Management, Salem, Massachusetts, which manages $575 million, and author of The Great Game of Business. ECabot.com