There is a very aggressive mortgage rate war out there. cut mortgage rates to 6.65% until March 31. The SBI gives it 6.70% and 6.8%. How do you read this? Would the note size of these home loans be much smaller than before Covid?
It is an indicator that there is nowhere to lend. Most businesses are able to access capital, and they’ve realized that when capital is available at these valuations, why the hell are they borrowing money? Let’s dilute. So everywhere we see QIPs, PE fundraisers, business sales. I don’t meet a promoter who wants to borrow money in the end. He is likely to raise capital and keep it in the bank.
The drop in mortgage rates comes from the desperation of not having enough opportunities to lend money. How much can you lend on personal loans, unsecured loans, etc. It’s not the smartest way to play the game. Historically, home loans have been the most stable platform for most institutions. HDFC ruled the roost and would continue to do so because their DNA and cost structure are so different.
These banks will come often, play the game and try to get you as a customer, but all they tell you is that there are no major borrowers and they have reviewed individuals as borrowers because who wanted to borrow, you didn’t want to lend and instead target those who don’t want to borrow. So, it is very particular. More and more you will see this happening because the simple demand for loans has collapsed in the economy and this is the challenge for the economy and the banks. So yes, it’s there but not so much that we get excited.
Would you buy HDFC? It’s a fantastic deal but the title is underperforming?
I don’t think it’s underperforming. The action was revalued quite strongly. I have an interest in this stock and I am not selling it. It went from Rs 1,500 to Rs 2,800. It came back to Rs 2,500, if I’m not mistaken. It’s an amazing franchise and they’ve done an amazing job doing two things – balancing corporate real estate loans and individual real estate loans, also making side investments. And of course there is the holding company. They own the best bank in the country, the best life insurance company, the best AMC in the country. It is the story of India at the end of the day.
What they don’t have is Fintech in their wallet. So they have a problem there. Maybe they will come by HDFC Bank. but there is no better substitute for the Indian economy than HDFC as an institution. The problem is, it’s so over-held as a stock that if the FII decides to sell or a large FII decides to get rid of it, there will be a big correction in the stock.
As a retailer if you are starting your life, this is the stock that I want to keep for my children’s education, for my retirement. It is in a category of its own. Don’t evaluate it on a day-to-day basis. Instead, in 17 years that stock should pay for your son’s education.