Banking on India with ICICI

05/21/2019 5:00 am EST

Focus: GLOBAL

Carl Delfeld

editor, Cabot Emerging Markets Investor

This is an excellent time to add some exposure to India to our portfolio. Investing in a leading private bank is a conservative and effective way to benefit from India’s 7% plus economic growth, states Carl Delfeld, international investing expert and editor of Cabot Emerging Markets Investor.

Institutional investors are also like adjusting their strategies to increase allocations to India as a hedge on continued fallout from U.S.-China back and forth.

India offers both a large and youthful population (50% under the age of 25) with potential “catch up” growth to China as its urbanization rate of about 30% is about where China was two decades ago.

On the financial front, there have been great strides made as many of India’s population open bank accounts for the first time.

    • In 2011, only 35% of adults in India had a bank account.
    • In 2014, this number rose to 53%.
    • In 2017, 80% of adults in India had a bank account.

And there are still 191 million Indians without a bank account. ICICI Bank Ltd. (IBN) is capitalizing on this emerging growth trend with a blend of 60% retail and 40% corporate business.

Its last quarter highlights its strength and prospects going forward. Fee income rose 15% year over year. Retail loans were up 22% and core-operating profit surged 26%. The bank has a healthy net interest margin of 3.72% and non-performing loans were down 50%.

It is interesting that 95% of ICICI’s retail banking transactions are done digitally—outside of a branch. This lowers costs and boosts margins.

In addition to banking, ICICI has a joint venture with Prudential with an 11% share of a market estimated to be greater than $250 billion. Life insurance premiums were up 16% in the last quarter year over year.

This is a solid bank in a promising market. For now, we recommend buying one half of our intended position in the stock.

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