“Banks continue to remain a very key holding for us,” Sukumar Rajah, director of portfolio management at Franklin Templeton Emerging Markets Equity, said in an interview Thursday. “There is more than adequate valuation comfort for these banks now.”
HDFC Bank Ltd. tumbled this week following third-quarter earnings that disappointed investors on liquidity and deposit metrics, despite net income beating estimates. The selloff in the country’s biggest private sector lender has raised concerns about peers such as ICICI Bank Ltd. and Kotak Mahindra Bank Ltd., due to announce earnings on Jan. 20.
For HDFC Bank, “the real issue is that the expectations set on how much of retail deposits they were going to accrue was higher than what they achieved,” said Rajah, who is managing $4 billion in assets. “This is more of an expectation-setting failure than an operational one.”
Nearly 19% of Franklin Templeton’s India Fund, which beat 85% of peers last year, is bank stocks including ICICI Bank and HDFC Bank, individually making up 7% and 6.7% of the portfolio, respectively, according to data on its website as of Dec. 31.
“It’s very exciting time for the country. There are a lot of new growth drivers,” said Rajah. “We are substantially overweight and will continue to be overweight on India.”
