Fidelity's Danoff Likes HDFC Bank in Wager on Indian Economy

  • Among large Indian banks HDFC has the lowest bad loan ratio
  • HDFC profits rose by at least 20 percent annually since 1998

William Danoff, the money manager who oversees Fidelity Investments’ $103 billion Contrafund, recommended buying shares of Indian private-sector bank HDFC Bank Ltd.

“It is a blue-chip, safe way to invest in an improving market,” Danoff said at the Great Investors’ Best Ideas Foundation conference in Dallas on Tuesday. “I’m betting on Modi over Putin all day long,” he said, referring to Indian Prime Minister Narendra Modi and Russian President Vladimir Putin.

HDFC Bank has the lowest ratio of nonperforming loans among India’s the biggest lenders, helping the bank achieve a faster rate of loan growth than its peers. Its bad loan ratio stood at 0.95 percent of total loans as of June 30, compared with 4.29 percent at State Bank of India, exchange filings show.

Danoff, 55, whose Contrafund is beating 94 percent of rivals this year, said he thinks private-sector banks in India will benefit from the country’s economic growth more than state-run competitors.

That squares with an estimate in a report by a central bank-appointed committee in May 2014 which predicted that private banks’ share of the country’s total banking assets will rise to 32 percent by 2025, from 12.3 percent in 2000. HDFC Bank, started in 1994, currently has a market share of about 4 percent, according to an exchange filing.

Profit Growth

Led by Managing Director Aditya Puri, HDFC Bank boosted loans by 22.4 percent in the year to June, compared with about 10 percent for the industry. The company has increased profit by at least 20 percent every year since 1998, a feat unmatched by any of the world’s 200 biggest lenders, data compiled by Bloomberg show.

Fidelity Contrafund’s largest position as of Aug. 31 was in Berkshire Hathaway Inc., according to data compiled by Bloomberg. The fund held 7.5 million American depositary receipts of HDFC Bank as of Aug. 31, the data show. Fidelity Contrafund, which has the majority of its assets invested in U.S. stocks, has about 8.1 percent in non-U.S. equities, according to data posted on its website.

HDFC Bank’s shares have climbed 666 percent in the past decade, more than double the S&P BSE India Bankex Index’s 299 percent increase. The stock trades at 4.3 times its book value, versus 2.2 for the 10-member S&P BSE India Bankex Index. SBI, the nation’s biggest lender by assets, trades at 1.1 times its book value.

Fifty-three of 60 analysts tracked by Bloomberg who follow HDFC Bank recommend investors purchase the stock. The Mumbai-based lender’s shares have gained 14.7 percent this year and traded at 1,090.55 rupees at 9:18 a.m. in Mumbai.

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