Investing in India: Thesis Intact

Published on 12/11/18 | Manab Sen | 3,644 Words

The BuyGist:

  • Some headwinds have been brewing in India over the last few months. 
  • Most notable were a correction in the equity markets, increase in crude oil prices, depreciation of the rupee, and another banking crisis. 
  • The IL&FS mishap is worth exploring - it only highlights the main force behinds India's perennial banking troubles: lending to long-dated infrastructure projects and corporate loans without proper credit oversight.
  • The main pillars of the Buylyst thesis on India, however, remain on track: growth in personal consumption, growth in credit demand, mobile banking and investments in urbanization. 
  • The Buylyst's main conduit to the India story - HDFC Bank - continues to benefit from those themes. As per the latest results, it continues to remain at a safe distance from the corporate/infrastructure loan mess in the country.
  • Given the latest developments in India, we've update HDFC Bank's valuation.

The plot thickens.

This summer The Buylyst started writing about India. Cutting through the noise, we wanted to see if there were sustainable inevitabilities. We looked at India’s consumption growth story and came back with two thematic stories, the first of which was Personal Consumption Loans. Among India-based opportunities, we identified HDFC Bank as a “comfortable company” but at an “uncomfortable price”.  Therefore, HDFC Bank went into the Watch list.

The second inevitability emerged out of burgeoning cell phone penetration, mobile commerce and therefore smart phones. That remained at the back of our minds as we looked at Apple.

We also looked at another inevitability – Urbanization in India. That helped to take a view on an American water purification company, Xylem.

But the last quarter ended September 30, 2018 saw some brewing headwinds:

  1. The stock market pulled back about 3% (NIFTY).
  2. The Indian rupee declined nearly 6% against the US Dollar. 
  3. Brent Crude oil ended the quarter nearly at $85/barrel up from $74.25 as on July 1 2018 – that’s a 15% rise. It has, however, retreated back since then.
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