NEW YORK - Indian Bank are falling in line with that of their American peers in terms of valuation. PNC Financial on November 3rd, 2010 had a market capitalization of $4 billion less than ICICI Bank despite having double the amount of assets, and earnings power. Today the bank (PNC) has $6 billion more in market cap with the same statistics. The valuations still has a ways to go but it is more respectable today.
Indian banks are valued highly because of what the future may hold for the Indian economy. 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.
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. Since our original article from November 3 stating the implausible valuations between the banks. Since then we have seen investors move out of foreign based banks and back into American financial institutions. But the valuations still treat India as a AAA economy while viewing America as a CCC economy. The American banks still have a ways to go to catch up to their Indian peers. Or Indian banks will need to drop substantially in value.
To read our report on BAC click here and PNC click here.
No comments:
Post a Comment