Riding the wave

Despite having stellar asset quality with zero net non-performing assets, Housing Development Finance Corporation (HDFC) was a victim of the IL&FS default fallout. The stock had hit a 52-week low of Rs.1,646 on October 23, 2018, as investors took a flight to safety. With India’s shadow bankers facing a liquidity crunch, investors have been distancing themselves from non-banking finance companies. But thanks to HDFC’s decent performance over the past two quarters (average net income growth of 12.1%), the stock recovered some of its losses, gaining 21% over the last four months. Currently the stock trades at Rs.1,984 as of March 22.

And as the stock continues its upward trajectory, HDFC chairman Deepak Parekh offloaded shares worth Rs.510 million on March 15. After the sale, Parekh’s stake in the firm declined from 0.07% to 0.05%. While Parekh may have decided to cash in on some of the profits, analysts are still bullish about the stock.  Global research house CLSA states that housing demand remains the most stable despite the recent turmoil in financial markets and the stock is among its top picks in the financial services sector. It sees scope for healthy growth and market share gains as peers consolidate.

Similarly, ICICI Securities also believes that HDFC is a good bet as it has maintained its leadership position despite a challenging macro environment. “This is owing to its unique strengths such as a strong franchise, brand pedigree, large network and dedicated business,” the report states.

However, large institutional investors are treading cautiously. Foreign portfolio investors have marginally reduced their stake from 74.76% in December 2017 to 72.20% in December 2018. Top two largest foreign institutional investors in HDFC — Oppenheimer Developing Markets Fund and Europacific Growth Fund — have marginally reduced their stake from 3.69% and 1.99% to 2.78 and 1.85% respectively. The Government of Singapore, however, has increased its stake from 1.98% to 2.13% during the same period.  Mutual funds have also upped their stake marginally from 6.65% in December 2017 to 7.85% in December 2018.