HDFC Bank

Investment case

New, early: highest expected return in our model

Why this business

India's largest private bank (₹30 lakh crore of loans, 9,700 branches, 100 million+ customers) formed by the 2023 merger with HDFC Ltd, which brought a ₹7 lakh crore mortgage book and a funding gap the bank has spent three years closing. ROA 1.7–1.8%, net NPA 0.4%, CET1 17.4%, PBT-ex-treasury growing 21%; subsidiaries (HDB Financial, HDFC Life, HDFC AMC, HDFC Ergo, HDFC Securities) are worth ~₹110 a share.

What we believe

1. 01The argument has reversed: the house avoided HDFC Bank at 4–5x book and was right; at 1.6x core book with a 16% normalised ROE it is now the highest-expected-return name in our five-bank model (base +29%, probability-weighted +27%, BUY).
2. 02Merger digestion is ending: LDR has come down from 110% to 96%, the borrowings share is falling, CASA has stabilised at 32–34%, and every quarter of deposit growth above loan growth lifts NIM (+22 bp by FY29E on our model).
3. 03It does not need to 'work' — it needs to keep compounding book at 12–14% and hold ROE near 16%. It is the best-run large bank in India on every measure we track (ROA, NNPA, CET1, PBT-ex-treasury growth).
4. 04Largest relative-risk position against the bank index (~20% index weight versus 1.8% for us) — the position is small because we are early, not because the arithmetic is unclear.
5. 05We would build toward 4–5% ahead of the CEO succession decision, sized for a binary: being early costs little (1.7% dividend yield, 12% book compounding); being late after a clean succession costs 15–20%.

Why now

See sector chapter and catalysts.

Market disagreement

• ICICI Bank: We own both. ICICI's ROA (2.2%) and CASA (39%) are better today; HDFC Bank's are converging and the price gap (1.6x vs 2.5x core book) is wider than the quality gap.
• Kotak Mahindra: Kotak at 2.0x core book earns a 12% ROE; HDFC Bank at 1.6x earns 14% rising to 16%. There is no version of the arithmetic in which Kotak is the better buy.
• SBI: We own both. SBI is cheaper (1.25x) but a public-sector bank with a lower ROA ceiling (1.1%); HDFC Bank's 1.8% ROA justifies the premium.

Position sizing

Core Large cap  1.8% of the PMS on $31 Jul 2026 (August rank 22). Core positions are owned through the cycle for leadership and cash-flow quality.

Catalysts

• CEO succession announcement (the single largest catalyst in our coverage).
• 2QFY27 NIM ≥ 3.30% and deposit growth ahead of loan growth for a fourth consecutive quarter.
• HDB Financial listing value crystallising; any buyback or dividend step-up from surplus CET1.

Risks and response

• CEO succession: the decision is the binary; a messy transition or senior exits would keep the multiple compressed for another year.
• NIM: if deposit repricing lags and NIM stays at 3.3% rather than recovering, FY28E EPS is 6–8% lower than our number.
• Mortgage-heavy book: 30%+ of loans are home loans at thin spreads; growth and margin are structurally lower than the pre-merger bank.

Thesis-break conditions

Not stated separately on this page; the risk list carries the monitoring triggers.

Review history

• 8 Sep 2026 · Yash Palod · one-pager in "Why We Own What We Own" (p31) · portfolio as of $31 Jul 2026
• 31 Aug 2026 · Classification in the August top-30: Turnaround (July book: Core)

Source: Buoyant_Why_We_Own_What_We_Own_Sep2026.pdf (portfolio as of 31 July 2026), p31. Internal; external publication of these fields is controlled by audience policy.