Why I believe HDFC Bank shares are destined to triple before 2030!

Gurdaspur is a district in North West Punjab where the plains meet the Himalayan mountains, the ancient gateway to Jammu and the Kashmir?Valley. It straddles the border with Pakistan and has played a pivotal role in Indian history. Guru Nanak was married here. The teenage Emperor Akbar was crowned here. The sepoys of 1857 were vanquished by John Company and hanged en masse here. The hill station of Dalhousie (lapse, lapse, baby), named after the Scottish Earl who stole the Koh-i -Noor diamond from a 10 year old Sikh child-prince is located here. Above all, Aditya Puri, the most successful banker in world history was born here.

Please google the price graph of HDFC Bank since its Jan 1999 IPO. The shares have risen 30,700% since the IPO or 307X, no typo here, 307X. The whole world thinks J.P. Morgan CEO Jammie Dimon is a Mozart and Picasso of banking but J.P. Morgan shares are up a modest 3X since Jan 1999 and Jammie did not join the bank as its startup CEO. So who is the greatest banker in the world? You tell me. I first met Aditya Puri in an investor dinner dhow-cruise on the Dubai Creek in the mid 1990's. He amazed me with his vision for India and technology even then as he briefed us on his plans to transform India's archaic pre-demat stock exchange trading/custody protocols and expand into India's rural heartland. This was a tough moment in Indian finance. The Kargil War/Vajpayee's nuclear test had triggered US sanctions. The reform momentum had stalled. The ego maniac General who had started the Kargil war had seized power in Pakistan and torpedoed a peace deal in Agra. The Asian FX meltdown and Russian rouble default had made EM bank stocks leprosy in the West. The Nifty traded at 11X forward earnings. I was literally laughed at by my peers when I wrote a KT newspaper?article a few years later projecting that the Sensex, then at 3000, was headed to 10,000. Yet Aditya convinced us that his IPO and bank would beat the odds to morph into India's first world class bank. I believed him but had to wait for a few years later till he listed a New York ADR as I was born on the other side of the Radcliffe Award.

I advise my Swiss bankers and Emirati friends not to ignore the Indian growth story since credit is the lifeblood of any economy and HDFC Bank is India's most valuable temple of money at $172 billion after its reverse merger with its mortgage finance parent HDFC.

India is the world's 5th largest economy with a GDP of $3.7 trillion now but with the highest GDP growth rate in the G20 at 6.5%. Multiple macro catalysts exist to make PM Modi's $5 trillion GDP target by 2030 entirely realistic. India would then boast the world's 3rd largest economy after the US and China. The growth ballast in India will accelerate?due to make in India, reconfiguration of supply chains from China, the miraculous digitalization of rural India (Mahatma Gandhi always said that India's soul was in her villages. But if he was alive today, he would?have chosen?the smartphone and not Ashoka's wheel as the symbol of Bharat's flag), a quantum rise in FDI to at least $300 billion a year, a doubling of per capita GDP to $5,000 and a deeper evolution of its capital markets.

It makes no sense to me that the world's most populous, economically vibrant nation commands a stock market valuation equal to Apple's $3 trillion market cap. There is no doubt in my mind that India will remain a magnet for portfolio flows from the West since its index weight in the MSCI EM is a joke 12% or one third of a China whose zombie banks, $5 trillion post-bubble property black hole and 340% debt to GDP ratio guarantees that PRC has now entered Japan's "lost decade" balance sheet recession.

Post-merger HDFC will have at least 15% to 16% of India's deposit and loan markets. Its?deposit market share will rise to 20% by 2030 as HDFC Bank will use its technology DNA to double its branch network and redefine its rural banking architecture into micro markets. I was stunned that the bank added 10 million new clients in FY 2023 alone with 31% CASA and 21% deposit growth without any real increase in its cost of funds. This means that Modi's dream of transforming India into the world's 3rd largest economy necessitates?that this megabank mobilizes more deposits at a faster pace as New Delhi's national champion.

The merger will be a steroid shot for growth next year since 70% of HDFC's mortgage clients do not have a primary banking relationship with it - captive murgas ripe for the plucking to extract the last rupee from the customer lifecycle value proposition. When Aditya retired in October 2020 as CEO after 26 years, I was alarmed when the RBI forced HDFC to stop accepting new credit card clients (it is the largest issuer of credit cards in an India where plastic penetration ratio is a mere 3% and its status symbol value akin to a Ferrari Testarossa?on Wall Street!) because of software bugs in its digital/mobile banking ecosystem. Yet Shashi Jagdishan, Aditya's handpicked CEO created a SWAT team to resolve the issue within a few months in his first baptism of fire in a pandemic economy ravaged by rural migrations of Biblical dimensions, an eerie replay of the deadly summer of Partition. Even as I mourned for the souls of COVID victims, I realized that Shashi has what it takes to double the bank's marketcap in the next 4 years.

In the last decade, I saw Dalal Street rerate India's consumer bluechips from 20X to 35-40X because they had highly visible, easily modelable earnings growth, vast TAM's, economies of scale, killer brand and a footprint across India's 766 districts. Note that HDFC Bank replicates all of the above features and its post-merger incarnation enjoys oligopolistic pricing power and a "Too Big To Fail" wink-nod guarantee from an Indian state that must attract at least $40 billion FII into Dalal Street to finance its capex cycles and explosive consumer?credit growth. In such a scenario, I am not being Dr. Pangloss (voyez Monsieur Candide, all is for the best in this best of all possible worlds!) when I envision that HDFC Bank commands a valuation of at least 26-30X earnings before 2030. Nestle India trades at a nosebleed 86X valuation, way above Tesla or Nvidia. United Spirits trades at 58X (drink in India ex Gujarat). My daruwallah?friends who obviously enjoy its Diageo licensed?Johnnie Walker, VAT 69, Smirnoff vodka brands to anoint it with such a stratospheric valuation metric will agree that?HDFC Bank is far more mission critical to the BJP's economic vision than United Spirits's liquid delights. Modinomics does not mix well with Sharabnomics especially after its harrowing experience with a self styled NRI king of good times who looted Indian banks for more than $1 billion.

Now fast forward to 2030 again, India is now a $5 trillion economy, courted by the West and every major power block?on the planet. The global NRI population rises to 60 million of the world's most affluent, technologically literate, productive people all over the planet and HDFC has done a series of acquisitions to build a global NRI financial services franchise a la K.V. Kamath's ICICI before 2008. 100% of rural India's savers, investors and entrepreneurs use the bank's digital engagement hubs as its 25,000 branches across India are rebranded. HDFC Bank is requested by the Pakistani government to partner in a digital banking venture after Modi signs a historic peace deal in Gurdaspur with a troika of ISI Generals who rule bankrupt Pakistan but decide that it is better to make money than waging a?fruitless, forever proxy war in Kashmir. A new dawn emerges in South Asia and midnight's grandchildren have finally?attained their tryst with destiny. HDFC Bank trades at 5000 INR in Mumbai and HDB is $180 in New York, a triple bagger for those who dare to believe Aditya's vision.