HDFC Bank dominated headlines as a crash in the stock price led to wide-spread selling, with the market clocking its worst day in 19 months on January 17.
Ladderup Wealth Management managing director Raghvendra Nath, however, thinks that India’s largest private lender is going through a consolidation phase following the HDFC merger, prompting investors with a short-term outlook to consider alternatives.
HDFC Bank, which closed over 8 percent down, remains one of the healthiest banks with low level of non-performing assets, Nath, who has more than 29 years of corporate experience, tells Moneycontrol. Edited excerpts:
Are valuations stretched? The market has rallied 15 percent from October lows?
Markets are in a bullish zone for the past 10 months. Generally, during bullish periods, valuations tend to look overstretched. However, this rally in the markets was supported by strong and improving fundamentals of the Indian economy and corporates.
Furthermore, the reduction of major macro and political risks has contributed to the positive outlook. Investors have maintained their allocations due to the positive trajectory of the Indian economy and market has been buoyed by substantial flows, sustaining these rich valuations.
Is the market about global growth and possible inflation risk given the situation in the Red Sea region?
Over the last few months, global markets have been in favourable conditions, primarily attributed to a decline in inflation and the anticipation of interest rate cuts by major central banks in the near future.
While there is global attention on issues such as the Red Sea situation and the Israel–Hamas conflict, as long as these do not significantly escalate, the associated risks should remain manageable. As of now, these geopolitical concerns do not pose a substantial threat to global economic growth or the inflationary outlook.
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Is the green hydrogen business looking lucrative in the clean energy space?
Currently, clean energy is a prevailing theme worldwide, with countries actively striving to maximise the utilisation of green hydrogen and other clean-energy sources to fulfill their energy needs. Despite the attractiveness of green hydrogen due to the abundance of water, its commercialisation is still in the early stages.
It is expected to take several years for green hydrogen to become a mainstream energy source. Meanwhile, attention from investors and markets remains focused on the wind, solar, and electric vehicle (EV) sectors.
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Are you really about HDFC Bank's growth, especially after the HDFC merger or is it just a prolonged period of consolidation?
It is probably in a phase of consolidation, prompting investors with a short-term outlook to consider alternatives. However, HDFC Bank remains one of the healthiest banks in the sector with low level of NPAs (non-performing assets).
Following its merger, it has attained a size comparable to global majors. We have no doubt in terms of synergy benefits of the merger, however, for such a large franchise the benefits of merger will accrue in due course of time.
And we are confident in relation to the growth prospects for the bank, considering the aggressive branch expansion undertaken by the bank, gradual shift in market share from public sector to private sector banks in relation to deposits and the synergy benefits expected out of the merger with HDFC.
Also read: Indian economy to grow at 7% in FY25, inflation to ease further: RBI Governor at Davos
Do you expect better growth in FMCG companies in FY25?
Fast Moving Consumer Goods is a matured business and is characterised by moderate growth, and in 2023, this growth was muted due to high inflation and uneven monsoon.
Subdued rural demand because of stagnant income levels and limited employment opportunities in rural India has contributed to this moderation. Unless there is a positive shift in these factors, the FMCG sector is anticipated to grow at a moderate pace.
Do you expect the auto space to post double-digit growth?
The industry shows promising signs of double-digit growth in the near term, especially with the resolution of supply chain constraints post-COVID. The upper and high-medium classes have exhibited robust growth, evident in the increased sales of SUVs this year.
However, long-term growth is expected to be moderate, given the government's focus on developing infrastructure for efficient mass transport systems like metro projects.
Do you see moderation in NBFCs growth from Q4FY24 in the light of RBI regulations?
Recent RBI regulations on unsecured retail lending may result in a short-term impact on growth, as NBFCs will need to allocate additional capital for provisioning.
Despite this, over the long term, NBFCs are anticipated to achieve healthy growth due to sustained strong credit demand, particularly in retail loan segments. The robust outlook for retail lending is underpinned by the underleveraged status of the Indian economy.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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