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We want to buy 100,000 shares of HDFC Bank at around $50 a share, for a total investment of around $5 million. HDFC Bank is India’s largest private sector bank in terms of assets and market capitalization. It was doing very well pre-pandemic, hitting highs of around $65, before dropping almost 50% to lows of around $35 in March when the pandemic escalated in severity. Since then, it’s been consistently trending upwards to its current price of $49.33, though it still has significant stretches of runway before reaching pre-pandemic prices and is still undervalued. We believe that HDFC Bank is a good investment because although its profitability did see some negative impacts due to COVID, its asset quality remains strong and it continues to hold the greatest market share among private banks. There doesn’t seem to be any sign that its long-term profitability and growth have been impacted by COVID, which can be seen in how investors have reacted since the initial downturn in March. Furthermore, the financial sector as a whole is more insulated in terms of being impacted by COVID as consumers still have need of bank services, especially as India’s economy continues to recover from the pandemic. In terms of long-term rationale, HDFC Bank is also one of the top players in the digital payments space, and stands to benefit greatly from the continued move away from the usage of cash. HDFC Bank currently has a beta of around 0.97 and a P/E ratio of 25.54. Comparing this to its closest competitor, ICICI Bank, which has a beta of around 1.41 and a P/E ratio of 23.96, we can see that HDFC Bank is a comparatively less risky investment, and that its P/E ratio is reasonable when compared to the rest of its peers.
Housing Development Finance Corporation will offer us more exposure to India and introduce our portfolio to the financial services sector, an industry that we have been lacking to this point. We believe that recent rate cuts in India could spur more borrowing. Furthermore, the company's relatively low beta offers our portfolio more diversity as well.