HDFC Bank turns dominant in India’s credit card market (HDB)

HDFC Bank Limited (NYSE:HDB) looks poised to outgrow its peers in 2011 as it captures more of the credit card market and continues to surprise analysts to the upside.

With rising defaults on personal loans in India, the country’s credit card market has undergone subtle but seismic shifts over the past two years, and it’s beginning to look like HDFC Bank Limited (NYSE:HDB) is poised to come out on top. The company defied market expectations last quarter by reporting a 33 percent rise in net profits.

The number of active credit cards in India has tumbled since March of 2008 from 20.75 million to 10.82 million as of November 2010, according to the Times of India. Unlike most domestic and foreign banks operating in the country, though, HDFC has aggressively grown it’s credit card portfolio.

“Industry officials estimate that HDFC Bank is nearing leadership position, followed by ICICI Bank (ICICI Bank Limited, NYSE:IBN) and SBI Cards,” Mayur Shetty writes in the Times. “Although HDFC has been the most aggressive in card issuance, its card customers are predominantly account holders in the bank.”

Rising interest rates and higher commodity prices will likely crimp borrowing going forward, but the Head of Equities at Ambit Capital, Saurabh Mukherjea, expects HDFC to outperform the sector.

“There will be consensus pullbacks in our FY12 economic growth rates and the banking sector will see some pullback on the back of that,” Mukherjea told the Economic Times. “But by and large the higher quality banking names, HDFC in particular, will outperform the rest of the sector as we enter a softer period from an economic growth perspective.”

The Royal Bank of Scotland ranks HDFC highest among private-sector banks in India, according to Reuters. Analysts there have retained a “buy” rating on HDFC, “hold” on ICICI Bank and “sell” on Axis Bank (AXBK.BO).



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Best India stocks to buy in 2011

Here’s a look at some of the best India stocks to buy in 2011. January’s lower stock prices could present a buying opportunity, or it could be the start of a prolonged drop in stocks as the government applies the brakes to the economy in an attempt to curb inflation.

While it often takes a backseat to economic news out of China, India’s economy has surged back to its pre-crash 2008 levels. GDP is approaching double-digit growth rates, and the country seems to have everything it needs to continue growing, according to Andrew Mickey of the Prosperity Dispatch. They’ve got all the ingredients:

  • A young population
  • A growing workforce
  • Government-controlled property rights

How can you benefit from India’s growth? By picking winning stocks in rapidly growing sectors. One of the best ways to do this is by leveraging the knowledge of fund managers whose job it is to pick winning Indian stocks. A simple way to do this is by taking a look at the top holdings of a major ETF focused on Indian securities. The India Fund, Inc. (NYSE:IFN), for example, is one of the country’s largest ETFs with a market cap of $1.5 billion.

Here’s a look at the India Fund’s Top 5 holdings and the percentage of capital they’ve allocated to each stock:

1) Infosys Technologies, Ltd. (NASDAQ:INFY), 8.57 percent. One of India’s largest and most established IT companies, Infosys employed more than 122,000 employees in 2010. Infosys’s CEO Kris Gopalakrishnan expects growth to increase rapidly this year. “The top five (IT) companies are estimated to hire 160,000 to 180,000 new employees in the next 12 months,” he said recently. If Infosys hires a fifth of those 160,000 new employees, their employment number would grow by more than 25 percent this year. You’ve got to have substantial gains in profits to support that sort of expansion.

2) Reliance Industries, Ltd. (BOM:500325), 7.67 percent. India’s largest company by market cap, Reliance Industries operates in three primary sectors: petrochemicals, refining, and oil and gas. Net profits at Reliance surged 28 percent year over year in the quarter ended December 31, 2010, largely on the strength of its refining and petrochemicals businesses. The conglomerate claims that “1 out of every 4 investors in India is a Reliance shareholder.”

3) ICICI Bank, Ltd. (NYSE:IBN), 5.69 percent. India’s second largest bank, ICICI operates more than 2,500 branches around the world. The company’s looking to expand into mobile banking as a way to reach consumers who don’t live near a branch. ICICI recently partnered with Vodafone to offer banking services at the mobile company’s 1.5 million retail outlets. That could potentially ramp up ICICI’s client base as more than 50 percent of the country’s farming households do not have access to credit.

4) Tata Motors, Ltd. (NYSE:TTM), 4.35 percent. India’s largest car company, Tata Motors is also one of the country’s most ambitious. The company launched its Tata Nano – the world’s cheapest production car – in 2008. Retailing at just $2,200, the car has struggled with image problems, missed deadlines, employee strikes, safety accusations and low sales, but its evidence for me of one thing: a company that isn’t afraid to take risks. If they can successfully re-brand the “people’s car,” Tata’s P/E should drop quickly from its current 16.39.

5) Tata Consultancy Services, Ltd. (BOM:532540), 3.39 percent. The second largest company in India by market cap (behind only corporate giant Reliance Industries, Ltd.), Tata Consultancy’s IT services have been expanding rapidly as the global economy improves. According to the most recent numbers available, Tata’s revenue grew 7 percent quarter over quarter during Q3.

Despite improving numbers in India’s overall economy, not everyone’s bullish on Indian stocks. “India’s ‘free money’ punch bowl is about to be taken away,” Mickey writes. “The expected rate increases has sent India’s stock market tumbling. India’s primary index, the Sensex, has fallen nearly 10% in less than two weeks to start 2011.”

It could be a buying opportunity, or it could be the start of a prolonged drop in stocks as the government applies the brakes in an attempt to curb inflation in India.