HFCs Update - Defensiveness merits premium - Espirito Santo Securities

HFC stocks have underperformed the Bankex by more than 15% YTD, on increased competition and regulatory concerns, with investors expecting spreads to fall and growth to slow. Whilst we think spreads can indeed fall, we still expect 15% ROE from the retail business with c.2%-5% ROE being added by the corporate business and hence a blended 18-20% ROE.

So we believe HFCs offer robust ROEs married with highly defensive business models, the lowest sector credit costs and >20% growth rates - a pretty compelling combination. Hence we still like the sector and highlight LICHF as our top pick.

We regard HDFC highly, but we're Neutral give sub 10% upside. DEWH has the highest upside potential but perceived governance issues remain an overhang.

Source : Equity Bulls

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