Indian Banks Still Interesting

We haven't owned the Indian banks in a long while but both ICICI (IBN) and HDFC (HBN) are looking a lot better technically of late. If you read my piece this weekend [New York Times - How India Avoided the Crisis] on how India did some out of this world stuff like "regulate," you will see why I don't believe in the "U.S. shall lead them" thesis of recovery.

A handful of countries in this world have destroyed their financial systems and are facing a deep recession. The other countries are just facing a deep recession. Which do you believe is easier to recover from? In the U.S. it appears to be group think to believe its the former, which makes little rational sense. Its a narcissistic view in my opinion. But that's belief in the power of the "government" to solve all ills.

In the Asian banks, we don't have these ludicrous capital destruction situations since they are still old school and don't have political dogma that says regulation is the bane of all evil. Now, I am not saying they will have an easy road either since the globe is interconnected and weakness in the biggest spender on the planet [us] is affecting everyone, but it's all about relative degrees of bad situations. India is also interesting to me because it's less reliant on exports than China or Brazil. So it could be the sleeper market of 2009 - at least of the former BRIC countries.

One issue with India is the almost complete lack of individual companies for Americans to buy, so over the years I've usually gone with the 2 banks when I want to go long India. (there was a closed end fund that I also used for years but some new ETNs have since arrived on the scene)

With HDB, you see a thus-far successful retrace to the 50 day moving average ($65) and now a bounce. There are two key levels here, $75 which is a "double top" (early Nov/mid Dec) - a move north of that would be very bullish and of course clearing the 200 day moving average ($79s) would be extremely constructive. So an aggressive buyer could buy on pullbacks to mid $60s with parachute ready to deploy if $63 or so breaks. A conservative investor would wait to see either $75 cleared or even better the 200 day moving average cleared.

The picture is a lot easier on IBN since the stock has been much weaker over time and is much farther below the 200 day moving average. We have the identical "multiple" top situation at $20. A close above it, and it should be off to the races. Support is around $18 and stop loss $17 or lower would be my play here.

Fundamentally I prefer HDFC to ICICI in terms of business model, but this is not a market of fundamentals.

The general country ETFs for India are not quite so constructive - the strength seems concentrated in the financials. At some point in 2009 I'll also be looking to re-enter the ETFs for Signapore, Hong Kong and the like. But the charts have yet to indicate its time.

Disclosure:No positions, but stalking

Comments

[Deepak Shenoy:]

Indian banks must place at least 24% of their deposits into government securities. G-Sec yields have dropped about 200 basis points in the last quarter, and the bonds have gone up nearly 20% in price, in the quarter.

Treasury income is likely to be through the roof, but they can't book all of it (unless they've actually got the profit home by selling stock). They can use part of the mark-to-market profit to set up provisions for potential losses elsewhere (like equity etc.)

It's likely that HDB and IBN get some leeway on treasury which has been losing money the last couple quarters. Indian PSU banks, not listed in the US, are in much better shape and much lower in price. (relatively)

2008 Dec 30 08:40 AM

[Deepak Shenoy:]

Indian banks must place at least 24% of their deposits into government securities. G-Sec yields have dropped about 200 basis points in the last quarter, and the bonds have gone up nearly 20% in price, in the quarter.

Treasury income is likely to be through the roof, but they can't book all of it (unless they've actually got the profit home by selling stock). They can use part of the mark-to-market profit to set up provisions for potential losses elsewhere (like equity etc.)

It's likely that HDB and IBN get some leeway on treasury which has been losing money the last couple quarters. Indian PSU banks, not listed in the US, are in much better shape and much lower in price. (relatively)

2008 Dec 30 08:40 AM

[andyn:]

Rates will / are coming down rapidly in India since inflation has reached 6% from double digits and is predicted to go down further.
This is good for the Indian economy since its still mostly a domestic one (exports as % of GDP is low in sharp contrast to the others like China, Russia).

Also, there is a lot of development going on in infrastructure which should bode well to bridge over the recessionary tendencies the world over.
The stock market unfortunately was in the hands of foreign institutions and hence suffered along with the rest of the world. But the fundamentals of the Indian companies have not changed much.

IBN, HDB are good vehicles to ride the India story from here.
IBN in particular has been unduely punished with rumours and should return back to the mid-20's from here.

2008 Dec 30 10:12 AM