Foreign investors are buying Indian financial firms, attracted by prospects of a fresh credit cycle, which could boost shares of the country’s largest lender.
Indian shares are trading at a record-high valuation premium to their Asian counterparts, BNP Paribas said, but foreign investors have found a bright spot in the financials, finding their strong fundamentals relatively cheap.
Data released by the National Securities Depository Ltd this week showed optimism was reflected in the inflow as foreign investors bought net purchases of Indian financial stocks worth $1.74 billion in November.
This is more than a third of the total net inflows of $4.44 billion for the month.
“Delicious” evaluation
Indian financial stocks are trading at a premium to their historical averages, but that’s not necessarily what comparable investors are seeing.
“As a foreign investor, when you compare valuations across India, financials seem more reasonably priced than some other sectors,” said Rob Brewis, fund manager at UK-based Aubrey Capital Management.
Paying double-digit multiples for consumer banks such as HDFC Bank Ltd (HDBK.NS) or ICICI Bank Ltd is “more palatable”, Brewis said, as the potential for loan growth in India “emerges” compared to almost anywhere else. Maybe better.” Market.”
The six fund managers Reuters spoke to were optimistic about a new capex cycle in India, driven by infrastructure investments from the government.
This growth cycle coincides with the cleanest balance sheets of banks in the last five-six years and average corporate leverage at a decade low, Manishi Roychowdhury, head of equity research, Asia Pacific at BNP Paribas, wrote in a note .