"Too Big to Fail" Stocks in India


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"Too Big to Fail" Stocks in India

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Type “Too big to fail Indian stocks,” you will find three names. SBI, HDFC Bank, and ICICI Bank. One can ignore ICICI on the backdrop of allegations of conflict of interest against the CEO. But first, you need to find out the concept behind “Too big to fail.”

It was popularised by US Congressman Mr. Stewart McKinney in 1984, a concept used for banks or financial institutions which are so big and interconnected that in case they fail, the economy will be at the risk of substantial damage. Later, this term gained more popularity during the 2007–08 global financial crash.

The RBI has also recognized three banks — SBI, HDFC Bank and ICICI Bank and termed it as domestic systemically important banks (DSIBs) along the lines of ‘too big to fail’ concept.

The best strategy for better returns in the stock market has been to ‘buy quality stocks when they are in pain.’ So those investors who don’t want to take much risk and also interested in some better returns, they can look forward to adding HDFC Bank and SBI in their stock portfolio.

Here is the analysis part for both the stocks:

1) State Bank of India (197 Rs.)

SBI is a fortune 500 company and India’s largest bank by its assets.

  • The government has a 57.64% stake in the company.
  • SBI has 23% of the total deposits in India. (16.3% in 2012)
  • 22,000 branches across India
  • 23.7 lakh crore worth of loan disbursed only in FY19–20.
  • 44.89 crore user base (One out of three Indian has SBI account)
  • 2,49,448 employees.
  • 30% Market share in an entire home loan in India
  • Major drawback: High GNPA of 5.4%

A Snapshot of recent research done by CLSA

Recent data:

  • Stock is trading at 0.72 times its book value.
  • SBI Q1 profit jumps 81% YoY to Rs 4,189 cr.
  • NII for the Q1 came in at Rs 26,641 crore (up 17%).
  • Provision Coverage Ratio (PCR) stood at 86.32%.
  • Net NPA at 1.86%, down 37 bps QoQ.
  • Total deposits grew at 15.96% YoY during the quarter.
  • Loans under moratorium at 9.5% in June 2020 Qtr compared with 23% at the end of March quarter of FY20.

Recent Brokers Commentary:

  • Edelweiss retained the BUY rating with a target price of Rs. 250.
  • Axis Securities assigns a BUY rating with a target price of Rs. 240.
  • ICICI Securities assigns BUY rating with a target price of Rs. 255.



2) HDFC Bank (1065 Rs.)

Started in 1994, HDFC Bank is now India’s largest bank by profit and Market Capital (5,75,000 Crore).

  • NNPA 1.26%.
  • Total deposits: 11,47,502 Crore (10 year whopping CAGR 21%).
  • Loan book at 9,93,703 Crore (10-year whopping CAGR 22%).
  • FY20 Revenue 1,22,189 Crore (10 year whopping CAGR 23%).
  • FY20 Net profit at 26,257 Crore (10-year whopping CAGR 24.44%).
  • CASA ratio 40.10%
  • Largest market share of 25% of credit cards in India.
  • In the last 21 years, HDFC bank stock rose 2500%. (CAGR 29%)

In the recent report, Citi has maintained BUY rating HDFC Bank with a price target of Rs 1,350. In my previous article, I’ve discussed HDFC bank as Top 10 Stocks on Brokerages’ Radar with 10–60% Upside Potential.

It doesn’t matter if you are a short term investor or a long term investor, you can choose to buy these gems for capital appreciation.

Thanks!

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Akshay Seth
Research Analyst (SEBI Regd.)
Linkedin | akshay.equity@gmail.com

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