Indian Private Banks are again in an enviable position. They are in a fast-growing market with very weak competition in an improving economy. The next five years should replicate the late 1990s to mid-2000s, with SOE banks losing share at fast clip to private banks. Moreover, market share gains for private banks in the more profitable segments – savings deposits, retail lending are likely to be even higher than gains in total assets.
We expect the big private lenders to grow material share, and would own all private lenders with HDFC Bank, Axis, HDFC, Kotak and ICICI our top picks.
Morgan expects an EPS CAGR of 18-24% at the large private banks. Applying long-term average multiples on these earnings implies that these stocks should deliver returns far in excess of cost of equity for a sustained period.
