Well, I couldn’t resist a little foray into the mysteries of the 401(r) Royalty investment teaser yesterday … but today, as promised, I’ll return to Dalal Street Insider to uncover some more interesting Indian investments for you. Dalal St., by the way, is similar to Wall Street, it’s the address of the Bombay Stock Exchange in Mumbai and a generic term for the Indian financial services sector..
India remains a hot topic in international investing — the debate continues to roll about whether there’s more opportunity in India’s domestic economy, or China’s export-driven employment machine, or Brazil’s resource extraction, and I don’t know which of these three emerging giants will end up outdoing the others in terms of investment returns … but I do know that something in the wind has caused newsletter publishers to turn their heads toward India again.
In addition to this new India-focused newsletter from the Sovereign Society, I’ve also noticed that the Motley Fool Global Gains folks are embarking on a “boots on the ground” trip to India again (including a visit to Dr. Reddy’s, the stock we looked at on Monday), and many of the resource letters and gold bugs are talking up India’s gold ambitions (they bought a big ‘ol stockpile from the IMF, helping to drive up prices recently, and they want more). This is as much India excitement as I’ve seen since the spasm over the launch of the first India ETFs and the enthusiasm for the introduction of Tata’s Nano a year or two ago … it may, of course, come to naught, but let’s see what other stocks Dalal Street Insider is tempting us with now.
Here are the clues for the first one:
“’The One Bank Worth Owning – And How You Can Grab Shares At A Substantial Discount!’
“This financial stock is NOT the kind you have come to despise throughout the last year.
“While American banks burned through taxpayer bailout money like it was a bonfire in 2008, this Indian bank was growing its assets and making profits – and did it all without government bail-outs or stimulus programs.
“Just for starters, this bank has…
“…Market capitalization over $15 billion. (Yes, that’s good.)
“…Total assets over $75 billion. (…this is too!)
“…And a net profit of over $740 million for its last fiscal year. (…and this is even better!)
“This conservative and strategically managed Indian bank is one you want to own shares in – lots of them.
“It grew its top line revenue by 12% last year with net profits up by 10% at a time when most banks throughout the world (especially in the US) were begging for government bailouts.
“When you own shares in this bank, you can share in those profits.
“And if you like fixed income investments, this Indian bank has maintained its regular dividend payouts while banks in the west have been slashing or (even worse) eliminating theirs!”
Tasty, eh? Well, it’s almost impossible for Americans to invest directly in India, so we can probably assume that this is one of the major Indian banks that has a US listing. Of which there are really just two. Kind of takes some of the work away for the Gumshoe, no? The two banks are HDFC (HDB) and ICICI (IBN), both of which trade as ADRs — but for those clues, this really would have to be ICICI Bank (IBN).
IBN does have over $75 billion in assets — $76.7 billion as of the last quarter, according to Morningstar (HDB is roughly half IBN’s size by that measure), and it did have a profit of “over $740 million” last year (in calendar year 2008 it was $766 million, though they’re on an April fiscal year). Most of the performance measures fell a little bit in the 2009 FY compared to 2008, at least in terms of Rupees, but they are certainly still growing, and you can make the double digit earnings and revenues growth numbers fit depending on the dates you use (and the currency). Their asset base has been falling considerably over the last year or two, as with most banks that have seen their portfolios suffer, but it has certainly held up better than most of the US banks making the headlines, and it was growing dramatically before that.
ICICI is the second largest bank in India, and the biggest private one — it has a massive branch network that is expanding incredibly rapidly (it has doubled in just a couple years, and will be increasing by a third again during the current fiscal year), they do a big business in retail banking and small business lending, as well as mortgages (which is HDB’s specialty), credit cards, auto loans and the like, and they also do investment banking and private equity deals, and they have subsidiary joint ventures for insurance, asset management, and other financial services. They also have a significant international presence with overseas branches and offices, and they seem to use those branches primarily to raise more deposits for investing at home in India.
Both IBN and HDB are remarkable growth stories, serving the exploding Indian financial services market as more Indians start to use debt, buy cars, buy homes, and, for the fortunate ones, accumulate assets. I’ve often heard it said that if you want to invest in emerging markets you can probably assume off the bat that the dominant companies in those markets will be a big bank or two, a big telecom, and, depending on the country, a large industrial conglomerate or natural resources company — that’s probably true of India, too, and if you think India’s middle class will be one of the world’s growth engines, you’d probably do well with either of the big private banks.
Unfortunately, thanks to the renewed interest in India, the perception that they are “safer” because they’re not export-dependent, and the growing feeling that economic liberalization will finally really take off in India, the banks are dang expensive — both HDB and IBN trade at pretty high forward PE ratios right now (25 and 20, respectively), with very small dividend yields at these prices, and, in the case of IBN at least, a pretty elevated multiple of book value — it seems to me that HDFC Bank has been a bit steadier than ICICI Bank, but they have both ridden the tide of global financial services stocks, and of Indian stocks in general, in more or less the same direction, huge outperformance in the early-mid 2000s, then a big crash last year that wiped out all those gains, and a wickedly fast recovery this year.
I like the story of serving Indian financial services customers over the coming decades, but if you’re not one who thinks in decades it can be tough to buy the stocks after the huge rebound this year, it’s hard to believe that they won’t again be p