NEW YORK - Indian Bank stocks are being valued at a premium compared to American and European Banks of greater size.PNC Financial has a market capitalization of $2 billion less than ICICI Bank despite having double the amount of assets, and earnings power.
How can Indian Banks be valued so high? The Future I guess... But the Indian economy is 1/14 the size of the American and in twenty years at the current growth rate of each country it will be 1/4 the size. If the Indian Banks are to grow with the economy at a linear rate it would mean by 2030 their largest banks will be 1/3 the size of Bank of America by assets at the present date. Despite these facts, ICICI bank currently has 1/4 the valuation of BAC. ICICI has half the valuation of Barclays despite being 1/20 the size and having 1/8 the profitability.
Furthermore, Indian banks have inherit risk due to their large contingent liabilities on their balance sheet. They have hedges that are sometimes 400% the size of their balance sheet. U.S. Banks such as PNC Financial have showed better growth than ICICI and are currently double the size but have a lower valuation. The Indian economy and its banks have a bright future but their banking stocks valuation seem a little stretched. Ignorance is bliss for investors who would rather invest in rosy and no headlines instead of making an investment. The valuations will need to change in the future.
To read our report on BAC click here and PNC click here.
No comments:
Post a Comment