Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Last Week in Event SPACE: Coca Cola Amatil, Shimachu, AMP, Hitachi, Jardines, Evergrande

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

After trading at a premium of just over 10% for a long time, <a href="https://www.smartkarma.com/entities/hdfc-bank-ltd" target="_blank" data-smartkarma-citation="entities:559:1" rel="noopener">HDFC Bank (ADR) (HDB US)</a> is now trading at a 20% premium to <a href="https://www.smartkarma.com/entities/hdfc-bank-ltd-4b6b7a92-9087-468d-9dbe-ab169e77f014" target="_blank" data-smartkarma-citation="entities:558:1" rel="noopener">HDFC Bank (HDFCB IN)</a> with the spike coming in the last couple of weeks during which time the volumes on the ADR have been higher than normal.While there may be more flow coming on the ADR, we feel that the premium should peak in the near future and recommend selling the ADR, buying the local shares (or the single stock futures) and hedging the USDINR FX. With local shares available to foreign investors, existing holders of ADRs should look to switch to the local line.In this Insight, we look at the ADR premium, the shareholding pattern on <a href="https://www.smartkarma.com/entities/hdfc-bank-ltd-4b6b7a92-9087-468d-9dbe-ab169e77f014" target="_blank" data-smartkarma-citation="entities:558:1" rel="noopener">HDFC Bank (HDFCB IN)</a>, the ADR headroom, the FPI holding on HDFC Bank, and catalysts that could take the premium higher or lower.

After trading at a premium of just over 10% for a long time, HDFC Bank (ADR) (HDB US) is now trading at a 20% premium to HDFC Bank (HDFCB IN) with the spike coming in the last couple of weeks during which time the volumes on the ADR have been higher than normal.While there may be more flow coming on the ADR, we feel that the premium should peak in the near future and recommend selling the ADR, buying the local shares (or the single stock futures) and hedging the USDINR FX. With local shares available to foreign investors, existing holders of ADRs should look to switch to the local line.In this Insight, we look at the ADR premium, the shareholding pattern on HDFC Bank (HDFCB IN), the ADR headroom, the FPI holding on HDFC Bank, and catalysts that could take the premium higher or lower. 

HDFC Bank ADR - Too High a Premium to Pay

Silver Point

Thomas J. Monaco

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

Equity Bottom-Up

*Solid Results In FY 2Q21: Kotak Mahindra Bank (KMB.IN) [Kotak] reported a fairly stellar FY 2Q21 earnings result of INR 21.8 bn – exceeding FY 1Q21 results by INR 9.3 bn or 75.5% - a high quality beat of consensus as well; and*Strong Credit Metrics Across The Board: Gross NPLs were flattish linked quarter, while net new NPLs increased just INR 1.1 bn or 7.6% on an annualized basis. Further, despite the loss provisioning decline of INR 5.9 bn (61.7%), loss reserves at KMB increased INR 2.8 bn (7.4%) as NCOs continue to decelerate.

*Solid Results In FY 2Q21: Kotak Mahindra Bank (KMB.IN) [Kotak] reported a fairly stellar FY 2Q21 earnings result of INR 21.8 bn – exceeding FY 1Q21 results by INR 9.3 bn or 75.5% - a high quality beat of consensus as well; and*Strong Credit Metrics Across The Board: Gross NPLs were flattish linked quarter, while net new NPLs increased just INR 1.1 bn or 7.6% on an annualized basis. Further, despite the loss provisioning decline of INR 5.9 bn (61.7%), loss reserves at KMB increased INR 2.8 bn (7.4%) as NCOs continue to decelerate. 

Kotak Mahindra Bank – Surprisingly Strong Performance

Specialist in Indian Banking and Economic Research

Hemindra Hazari

Aditya Puri, the iconic first CEO of <a href="https://www.smartkarma.com/entities/hdfc-bank-ltd-4b6b7a92-9087-468d-9dbe-ab169e77f014" target="_blank" data-smartkarma-citation="entities:558:1" rel="noopener">HDFC Bank (HDFCB IN)</a>, will finally step down on October 26, 2020 after 26 years at the helm. In this period he rightly deserves the credit for making HDFC Bank India’s most valuable bank, with a market capitalisation of US$ 92.1 bn, and the largest private sector bank in India. His leadership qualities, banking <a href="https://www.linkedin.com/pulse/12-lessons-from-grand-master-banking-mr-aditya-puri-aseem-dhru/" target="_blank" rel="noopener">acumen</a>  and ability to predict change in trends at an early stage insulated the bank from the pitfalls that befell the rest of the banking industry in India.  His single minded dedication to profit maximisation ensured HDFC Bank’s premium valuation on the capital market. While commentators have highlighted his positive attributes, stakeholders and the public should also be aware of his Achilles Heel, namely a history of non-compliance to banking norms and regulation, which was publicly visible when he was heading Citibank’s corporate business in India in 1990. The ruthlessly efficient business model he implemented in HDFC Bank brought with it certain unsavoury aspects of banking: non-compliance with regulatory norms, practices highlighted by the <a href="https://www.cobrapost.com/blog/investigation%20hdfc-bank-introduction/949" target="_blank" rel="noopener">Cobrapost expose</a>, the <a href="https://hemindrahazari.com/2020/09/20/us-firms-class-action-suits-hdfc-banks-auto-loan-malpractices-have-hit-the-fan/" target="_blank" rel="noopener">mis-selling</a> of products to unsuspecting customers, the high pressure on lower level staff to achieve ambitious targets and the lack of transparency to stakeholders on important developments such as  irregularities at the bank and the sudden  <a href="https://hemindrahazari.com/2020/07/13/another-top-executive-leaves-hdfc-bank-but-dont-try-finding-the-news-in-the-media/" target="_blank" rel="noopener">exits</a>  of senior staff. Sashidhar Jagdisan, Puri’s handpicked successor, inherits a strong banking platform geared towards shareholder returns and growth, but he should ensure that HDFC Bank avoids the fate of Wells Fargo, a bank much admired by Puri before it suffered setbacks due to mis-selling and poor adherence to regulatory norms.

Aditya Puri, the iconic first CEO of HDFC Bank (HDFCB IN), will finally step down on October 26, 2020 after 26 years at the helm. In this period he rightly deserves the credit for making HDFC Bank India’s most valuable bank, with a market capitalisation of US$ 92.1 bn, and the largest private sector bank in India. His leadership qualities, banking acumen  and ability to predict change in trends at an early stage insulated the bank from the pitfalls that befell the rest of the banking industry in India.  His single minded dedication to profit maximisation ensured HDFC Bank’s premium valuation on the capital market. While commentators have highlighted his positive attributes, stakeholders and the public should also be aware of his Achilles Heel, namely a history of non-compliance to banking norms and regulation, which was publicly visible when he was heading Citibank’s corporate business in India in 1990. The ruthlessly efficient business model he implemented in HDFC Bank brought with it certain unsavoury aspects of banking: non-compliance with regulatory norms, practices highlighted by the Cobrapost expose, the mis-selling of products to unsuspecting customers, the high pressure on lower level staff to achieve ambitious targets and the lack of transparency to stakeholders on important developments such as  irregularities at the bank and the sudden  exits  of senior staff. Sashidhar Jagdisan, Puri’s handpicked successor, inherits a strong banking platform geared towards shareholder returns and growth, but he should ensure that HDFC Bank avoids the fate of Wells Fargo, a bank much admired by Puri before it suffered setbacks due to mis-selling and poor adherence to regulatory norms.

Time to Junk the Less Savoury Parts of the Legacy of HDFC Bank’s Iconic CEO

Asset Allocation & Fund Positioning, Copley Fund Research

Steven Holden

Asset Allocation & Fund Positioning

Copley Fund Research

Copley Fund Research provide research and data on asset allocation among Global and Emerging Market equity funds.  The analysis details absolute and relative positioning across countries, sectors and industries together with highly granular data on single stock and single fund allocations.  The data is updated monthly with time series going back to January 2011.

Global Research - Analysis of 165 prominent Global equity funds, combined AUM $335bn
GEM Research - Analysis of 127 prominent global EM equity funds, combined AUM $250bn

Asset Allocation - Global and GEM Equity

Cross Asset Strategy

<ul>
<li>GEM managers strengthen Indian exposure during the recent market turbulence.  Average weights now stand at 9.61%, up from a low of 8.69% at the end of March 2020.</li>
<li>Ownership levels have increased across Energy, Consumer Discretionary, Health Care and Tech sectors but decreased in Utilities, Real Estate, Materials and Financials.  </li>
<li>
<a href="https://www.smartkarma.com/entities/reliance-industries-ltd" target="_blank" data-smartkarma-citation="entities:198:1" rel="noopener">Reliance Industries (RIL IN)</a> makes leadership challenge, closing in on <a href="https://www.smartkarma.com/entities/hdfc-bank-ltd-4b6b7a92-9087-468d-9dbe-ab169e77f014" target="_blank" data-smartkarma-citation="entities:558:1" rel="noopener">HDFC Bank (HDFCB IN)</a> as India's most widely held stock.</li>
<li>Recent ownership increases have pushed <a href="https://www.smartkarma.com/entities/reliance-industries-ltd" target="_blank" data-smartkarma-citation="entities:198:1" rel="noopener">Reliance Industries (RIL IN)</a> to the 3rd most widely invested stock and the largest Indian holding on an average weight basis. </li>
</ul>Analysis taken from our Global Emerging Markets research, covering 243 EM active funds with combined AUM of $370bn.


GEM managers strengthen Indian exposure during the recent market turbulence.  Average weights now stand at 9.61%, up from a low of 8.69% at the end of March 2020.
Ownership levels have increased across Energy, Consumer Discretionary, Health Care and Tech sectors but decreased in Utilities, Real Estate, Materials and Financials.  

Reliance Industries (RIL IN) makes leadership challenge, closing in on HDFC Bank (HDFCB IN) as India's most widely held stock.
Recent ownership increases have pushed Reliance Industries (RIL IN) to the 3rd most widely invested stock and the largest Indian holding on an average weight basis. 
Analysis taken from our Global Emerging Markets research, covering 243 EM active funds with combined AUM of $370bn.

India:  Confidence Returns Among EM Active Managers

India

HDFC Bank Ltd. offers a wide range of services to the global corporate sector. The Bank provides corporate banking and custodial services and is active in the treasury and capital markets. HDFC also markets project advisory services and capital market products such as Global Deposit Receipts, Euro currency loans, and Euro currency bonds.

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HDFC Bank (HDFCB IN)

Last Week in Event SPACE: Coca Cola Amatil, Shimachu, AMP, Hitachi, Jardines, Evergrande

The weekend is here! Pour yourself a coffee, grab a comfortable seat, and sift through a brief summary of insights on various events discussed...

David Blennerhassett

HDFC Bank ADR - Too High a Premium to Pay

With the HDFC Bank ADR premium spiking to 20% in the last couple of weeks, we look at the ADR premium history and suggest scaling into a short ADR/...

Brian Freitas

Kotak Mahindra Bank – Surprisingly Strong Performance

KOTAK MAHINDRA BANK: Surprise, Surprise, Surprise. Both Credit Metrics and Ne Interest Income Improves As Risk Substantially Declines

Thomas J. Monaco

Time to Junk the Less Savoury Parts of the Legacy of HDFC Bank’s Iconic CEO

While commentators have highlighted Puri's positive attributes, stakeholders should also be aware of his Achilles Heel, namely a history of non...

Hemindra Hazari

India: Confidence Returns Among EM Active Managers

Global EM managers strengthen India exposure during the recent market turbulence. Ownership increases across Energy and Consumer Discretionary,...

Steven Holden

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