Leading Independent Investment Research, Morningstar, Inc.

Morningstar

Leading Independent Investment Research

Morningstar, Inc.

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Equity Bottom-Up

<p>Second-quarter 2016 earnings for HDFC Bank broadly met our estimates; however, loan growth was higher than expected.</p><p>First-half fiscal 2016 stand-alone earnings ended at INR 55 billion, versus our annual consolidated earnings of INR 118 billion.</p><p>What the bank lost in margins (which fell by 10 basis points over the prior year to 4.2%) it more than made up with a stupendous loan growth of 29% over last year.</p><p>The bank experienced above-30% growth across 45% of its loan portfolio, comprising home loans, personal loans, agricultural loans and two-wheeler loans, as it gained market share over competitors</p><p><em>Analyst: Suruchi Jain</em></p>

Second-quarter 2016 earnings for HDFC Bank broadly met our estimates; however, loan growth was higher than expected.First-half fiscal 2016 stand-alone earnings ended at INR 55 billion, versus our annual consolidated earnings of INR 118 billion.What the bank lost in margins (which fell by 10 basis points over the prior year to 4.2%) it more than made up with a stupendous loan growth of 29% over last year.The bank experienced above-30% growth across 45% of its loan portfolio, comprising home loans, personal loans, agricultural loans and two-wheeler loans, as it gained market share over competitorsAnalyst: Suruchi Jain

Q2 2016 Earnings in Line; Increasing FVE to INR 1130 on Higher Loan Growth Expectation

<p>Barring any glaring missteps, we think HDFC will continue to generate high returns on equity, or ROE, and is favourably positioned to leverage India's strong long-term economic growth prospects.</p><p>Despite remarkable loan growth, averaging about 31% annually for the past 10 years, we like that HDFC has managed to expand its deposit base at nearly the same clip (of 29%), maintaining a low cost of funds and upholding its profitability.</p><p>Indeed, with its deposit/loans ratio at about 1.2 times, the bank has been able to produce substantial net interest margins of 4.7% on average during the past decade, and 3.6% on a risk-adjusted basis, much higher than any of its peers.</p><p>We also believe HDFC has good cost-control practices, with non-interest expenses consistently below 55% of revenue, which means more money flows to its bottom line.</p><p>As the bank expands its reach via opening more branches in both urban and rural areas, scale advantages will begin kicking in, and overheads will stabilise at lower cost/income levels than 50% going forward.</p><p>Analyst: Suruchi Jain</p><p>Full report below the fold...</p>

Barring any glaring missteps, we think HDFC will continue to generate high returns on equity, or ROE, and is favourably positioned to leverage India's strong long-term economic growth prospects.Despite remarkable loan growth, averaging about 31% annually for the past 10 years, we like that HDFC has managed to expand its deposit base at nearly the same clip (of 29%), maintaining a low cost of funds and upholding its profitability.Indeed, with its deposit/loans ratio at about 1.2 times, the bank has been able to produce substantial net interest margins of 4.7% on average during the past decade, and 3.6% on a risk-adjusted basis, much higher than any of its peers.We also believe HDFC has good cost-control practices, with non-interest expenses consistently below 55% of revenue, which means more money flows to its bottom line.As the bank expands its reach via opening more branches in both urban and rural areas, scale advantages will begin kicking in, and overheads will stabilise at lower cost/income levels than 50% going forward.Analyst: Suruchi JainFull report below the fold...

HDFC Bank's narrow moat remains intact despite new bank entrants

Research and consultancy, Tabbush Report

Daniel Tabbush

Research and consultancy

Tabbush Report

We provide research and consultancy on Asian banks. Our focus is on what we call “Asian bank research, without the noise.” We are interested in the most critical swing-factors for banks, the NPL and credit cycle, and where we believe there is a gap between perception and reality. We often focus on the less studied components of bank financial statements.  Our research is highly thematic, sometimes examining unlisted banks and companies as a window on mainstream banks. 

Being independent allows us to look at smaller banks, often overlooked by others. Analysis of BIS bank guidelines in the context of Asia, is also a focal point, while we also analyze global banks operating in the region. We use what we believe is the most comprehensive, reliable financials database, SNL Financial. S&P Capital IQ augments our database, with corporate data and CEIC, with economics. 

Asian bank research, without the noise.

<ul><li>Can any mainstream bank be immune from an economic cycle?</li><li>Is it possible for slowing economic growth, a weakening currency, infrastructure and political bottlenecks to affect all but a single bank in the same country?</li><li>Is there any precedence in Asia since 1997 or 2008, for a sharply lower rate of GDP growth to be all but invisible to bank credit and profit metrics?</li></ul><p><strong>HDFC Bank comes to mind. But our feeling is that this bank, nor any other, can truly be immune.</strong></p>

Can any mainstream bank be immune from an economic cycle?Is it possible for slowing economic growth, a weakening currency, infrastructure and political bottlenecks to affect all but a single bank in the same country?Is there any precedence in Asia since 1997 or 2008, for a sharply lower rate of GDP growth to be all but invisible to bank credit and profit metrics?HDFC Bank comes to mind. But our feeling is that this bank, nor any other, can truly be immune.

Global Asset Allocation, Politics & Governance, Ecstrat

John-Paul Smith

Global Asset Allocation, Politics & Governance

Ecstrat

Ecstrat is a consultancy advising on asset allocation between global equity markets, with a focus on the intersection of governments, geopolitics, governance and markets.
 
Over the past few years and more especially since the Great Financial Crisis (GFC), investors have become more focused on short-term market movements and real-time returns and have consequently neglected the analysis of the underlying structural themes that underpin longer term performance.
​
More specifically we believe that the evolution of governance-based relationships between investors, controlling shareholders, labour and the state is one of the primary determinants of both relative and absolute performance between individual equity markets.
 
We will endeavour to provide investors with some of the context surrounding governance-related issues which encompass many different disciplines including history, economics and political science, as well as the financial metrics which are the most obvious manifestation of the structural characteristics of each market.
 
We will pay particular attention to the shifts and potential inflection points for governance in individual markets as these are often the best lead indicators for both economic and market performance.

Cross Asset Strategy

<p><em><strong>&lsquo;Pay no attention to that man behind the curtain&rsquo;</strong>&nbsp;</em><em>- Wizard of Oz</em></p><p>The nature and scale of Beijing&rsquo;s reaction to the bursting of the China equity bubble should dispel two of the three myths which supposedly justified the bull market, namely that the administration was in firm control of events and that it was intent on implementing a programme of liberal reforms towards the economy and financial markets.</p><p>The one remaining myth, which is still being propagated by the China bulls, is that despite the continuing growth slowdown, the underlying state of the Chinese economy is sound. Mark is currently undertaking a study of the financial characteristics of the Chinese corporate sector, which we intend to publish in early September. For this piece I am taking some of his preliminary findings to <strong>illustrate the fault lines, which exist through the Chinese economy and which continue to underpin our bearish view towards the Chinese economy and equity market.</strong></p>

&lsquo;Pay no attention to that man behind the curtain&rsquo;&nbsp;- Wizard of OzThe nature and scale of Beijing&rsquo;s reaction to the bursting of the China equity bubble should dispel two of the three myths which supposedly justified the bull market, namely that the administration was in firm control of events and that it was intent on implementing a programme of liberal reforms towards the economy and financial markets.The one remaining myth, which is still being propagated by the China bulls, is that despite the continuing growth slowdown, the underlying state of the Chinese economy is sound. Mark is currently undertaking a study of the financial characteristics of the Chinese corporate sector, which we intend to publish in early September. For this piece I am taking some of his preliminary findings to illustrate the fault lines, which exist through the Chinese economy and which continue to underpin our bearish view towards the Chinese economy and equity market.

CHINA: Reform & Omnipotence Myths Dispelled

<div><div><div>Let me begin by revisiting the road map for the bear market in EM equities which I first outlined in my role as EM equity strategist for Deutsche Bank towards the end of 2010 and the start of 2011, at a time when the consensus outlook for EM economies and equities was almost unanimously bullish.</div><div>&nbsp;</div><div>I made a number of tentative predictions and recommendations, which were generally greeted with a combination of indifference and skepticism and on occasion outright hostility among most, though not quite all of the bank&rsquo;s clients.</div><div>&nbsp;</div></div></div><div><div><strong>It seems that we may now be entering the final stage of EM relative underperformance, in line with our expectations in our initiation last year where we posited the relative trade was 2/3rds through.</strong></div></div>

Let me begin by revisiting the road map for the bear market in EM equities which I first outlined in my role as EM equity strategist for Deutsche Bank towards the end of 2010 and the start of 2011, at a time when the consensus outlook for EM economies and equities was almost unanimously bullish.&nbsp;I made a number of tentative predictions and recommendations, which were generally greeted with a combination of indifference and skepticism and on occasion outright hostility among most, though not quite all of the bank&rsquo;s clients.&nbsp;It seems that we may now be entering the final stage of EM relative underperformance, in line with our expectations in our initiation last year where we posited the relative trade was 2/3rds through.

A Roadmap of the EM Bear Market and Three Myths about the China Bull Market

India

ICICI Bank Limited operates as a bank. The Bank offers saving accounts, loans, debit, credit cards, insurance, investments, mortgages, and online banking services. ICICI Bank serves customers worldwide.

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ICICI Bank Ltd (ICICIBC IN)

Q2 2016 Earnings in Line; Increasing FVE to INR 1130 on Higher Loan Growth Expectation

Second-quarter 2016 earnings for HDFC Bank broadly met our estimates; however, loan growth was higher than expected.First-half fiscal 2016...

Morningstar, Inc.

HDFC Bank's narrow moat remains intact despite new bank entrants

Barring any glaring missteps, we think HDFC will continue to generate high returns on equity, or ROE, and is favourably positioned to leverage...

Morningstar, Inc.

Is HDFC Bank Immune ?

Can any mainstream bank be immune from an economic cycle? Is it possible for slowing economic growth, a weakening currency, infrastructure and...

Daniel Tabbush

CHINA: Reform & Omnipotence Myths Dispelled

‘Pay no attention to that man behind the curtain’ - Wizard of OzThe nature and scale of Beijing’s reaction to the bursting of the China equity...

John-Paul Smith

A Roadmap of the EM Bear Market and Three Myths about the China Bull Market

Let me begin by revisiting the road map for the bear market in EM equities which I first outlined in my role as EM equity strategist for Deutsche...

John-Paul Smith

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