Shares of HDFC Bank touched a record high of Rs 1450, rising more than 9 percent intraday Friday after the RBI has withdrawn the limit for purchase of shares.
The Reserve Bank of India on Thursday notified that the aggregate foreign shareholding through American Depository Receipts (ADR)/Global Depository Receipts (GDR)/ foreign institutional investors (FIIs)/foreign portfolio investors (FPIs)/ foreign direct investment (FDI)/non-resident Indians (NRIs)/ persons of Indian origin (PIOs) in HDFC Bank have gone below the prescribed limit stipulated under the extant FDI Policy.
Hence, the restrictions placed on the purchase of shares of the above company are withdrawn with immediate effect, it said.
Siddharth Purohit, Senior Research Analyst at Angel Broking, said the surge was a one-off event based on a technical adjustment. He said, however, that there could be a change in valuation after the development.
Speaking to CNBC-TV18, Purohit said the focus going ahead would be on core growth, adding that HDFC Bank’s performance in recent quarters was better than its peers.
He said there is no reason to think of exiting the stock as HDFC Bank posted strong numbers regularly.
RBI monitors the ceilings on FII/NRI/PIO investments in Indian companies on a daily basis and has fixed the cut-off points two percentage points below the actual ceiling.
As on December 31, 2016, promoter shareholding in the bank was at 26.09 percent.
About 3.34 crore shares, worth Rs 4,799 crore, exchanged hands through multiple blocks on exchanges.
At 09:28 hrs HDFC Bank was quoting at Rs 1,431.90, up Rs 104.55, or 7.88 percent on the BSE.
Below is the verbatim transcript of Siddharth Purohit’s interview to Ekta Batra and Sonia Shenoy on CNBC-TV18.
Sonia: For a long term investor who is sitting and watching all of this drama play out, what do you do now because valuations have become really expensive for HDFC Bank, do you stay put or do you sort of use this as an opportunity to exit the bank?
A: As we know, it was kind of technical adjustment and on that we have seen a sharp surge in the stock and since FIIs like have a lot of interest in this stock because of the strong pedigree. So, it was a kind of one-off event, then stock went up. However now, I think what will be focused more going ahead is the core number for the core growth and that will be worst going ahead. So, if you look at for the last couple of quarters, HDFC has really performed decent or maybe much better than the industry itself. I think that trend of strong growth should continue albeit with a little moderation than what historically it had been delivering.
If you look at it from a pure fundamental point of view, this event does not change anything. However, what it changes is possibly the valuation. Based on my estimates, it is trading at 3.5 times FY18 book value. I think that at this level, certainly the upside remains capped, but I would say that this is one of the stock or one of the bank which has delivered very strong numbers. So, there is no reason that one would think of exiting and getting into other stocks.
So, this is a stock or this is a company where we are looking substantial return on equity (RoE) of close to 18 percent for many years to come and the kind of 18-20 percent growth. So, long term investors would continue and should continue to hold on to it. However, there might be certain set of investors who would take the opportunity of exiting.
Ekta: I wanted to ask you about comparison between HDFC Bank and IndusInd Bank. Valuation wise they are almost similar, but what is your sense in terms of which one would be the longer horse to back in the longer run, I mean in terms of fundamentals?
A: HDFC Bank I do not have a coverage, so, I cannot comment. However, certainly I would say that size of both the banks are different. HDFC is much bigger. So, on a higher base you cannot expect the growth rate what IndusInd is reporting to be reported by HDFC. So, IndusInd could report higher growth because of little lower base than HDFC. Again, both have their own set of business, like HDFC is more into kind of retail – obviously IndusInd is also into retail but has a strong focus on CV and other commercial financing. So, they will also continue to grow.
However, being a strong leader in the market, I think HDFC will sooner or later they will start growing again aggressively, maybe once economy starts picking up. So, I think that if you are looking at a long-term horizon then HDFC still stands out to be one of the preferred pick by investors and will continue to be among the top picks for us also.
Sonia: So HDFC Bank is your top pick, apart from that what else tops your list?
A: We also like ICICI Bank at the current level because of the valuation gap now that has reached between HDFC and also ICICI Bank. ICICI has certain concerns like in terms of asset quality as well as some growth concern is there. However, I think couple of quarters down the line maybe that will start stablising.
ICICI Bank also should start getting some different valuations, maybe upside could come once the number starts getting delivered. However, from here onwards we don’t see much downside in ICICI Bank also. So, we like ICICI Bank and we have a buy rating on that from the large banking space.