HDFC Bank most valuable bank in the emerging market outside China

HDFC Bank has gone past Russia's Sberbank to become the most valuable bank in the emerging market outside China. HDFC Bank’s current market capitalisation is $78.4 billion against Sberbank's $74.4 billion.

Chinese banks are leading the pecking order in the emerging market, with Industrial & Commercial Bank of China topping the list with a market cap of $273.4 billion, followed by China Construction Bank ($225.1 billion). Globally, America's JPMorgan Chase is the most valuable with a market cap of $353 billion, followed by Bank of America at $282 billion.

There are four lenders from India that now rank among the world's 500 most valuable companies. HDFC Bank is followed by its housing finance cousin Housing Development Finance Corporation (HDFC), Kotak Mahindra Bank and State Bank of India.

In all, there are now 11 Indian companies among the world's 500 biggest firms in terms of market cap. Tata Consultancy Services tops the chart with a market cap of $103 billion, followed by Reliance Industries.

“There has been a sharp rally in the stock prices of retail lenders in the past few years, as investors have bet on India's retail lending market,” said Dhananjay Sinha, head research, Emkay Global Financial Services.

He added HDFC Bank has been one of the biggest gainers, thus making it one of the most expensive banking stocks in the world.

HDFC Bank is currently trading at 4.7 times its latest annual book value, against a global average valuation of 1.3 times. Chinese banks are even cheaper, trading at 0.8 times their book value on an average.

HDFC Bank has also been one of the top performing major banks globally last year. It has given 14.3 per cent return to its shareholders or equity investors in the past 12 months. In contrast, globally, banks’ share price has been under pressure in the past 12 months due to financial headwinds from the rise in interest rates and the trade war between US and China on one hand and European Union on the other. On an average, banks’ share price is down by around 2 per cent globally in the past one year. There are 65 banks in the list of world's 500 biggest firms by market cap.

Analysts expect HDFC Bank to maintain its momentum, given the faster retail growth in India and continued poor show of public sector banks. “Retail credit will maintain its growth momentum, given its low penetration in India and government emphasis on boosting consumption demand in India,” said G Chokkalingam, founder & managing director, Equinomics Research & Advisory Services.

Banks in India, including HDFC Bank, however, are still pretty small compared to major global banks on financial parameters such as revenues, profits and assets.

For example, Russia's Sberbank is nearly three times bigger than HDFC Bank in terms of annual revenues and four times more profitable. Russia's biggest banks also beat State Bank of India, the country's top lender in terms of revenues and profits.

Banks in China are even bigger with China Construction bank topping the charts with revenues of $164 billion in its latest trailing 12 months and net profits of $37.2 billion. Its country cousin Industrial and Commercial Bank of China topped the earnings charts with net profits of $43.7 billion in its latest trailing 12 months on revenues of $159.6 billion. In comparison, HDFC Bank reported revenues of $15.7 billion in FY18 and net profits of $2.8 billion.