HDFC merger | HDFC Bank share price: Will the HDFC twin deal set the trend for mega mergers? Vallabh Bhanshali answers

“The merged entity will have such a huge weight on the index that because of its institutional character, track record and its relevance for India’s development in future, whoever wants to come to India and it is also going to be a big owner. should,” says Vallabh Bhansalidirector, reward group.

HDFC-HDFC Bank merger is the deal of the season or it could be the deal of the year. How should one read in this mega merger?
I would say, it is more than a season or a year as HDFC financial sector represents one of the most glorious chapters in Indian corporate history. Vision was started by HD Parekh. Not many know about his ambition, conservatism, customer service, frugality, values ​​and then Mr. Deepak Parekh adopted it in almost 50 years. Books have been written and much more needs to be written about it. So this merger is like the final piece of a grand design that has played out over the past several decades. It is a very good day for the sector, the market and even the country. I am happy to hear about this development.

Can it be said to be big, which is happening in the banking sector? If HDFC Bank and HDFC Ltd merge, it will not only create a megastar, it also means what is essentially inertia for the financial sector.
It should also be seen in the broader context of what is happening in India. India is changing, the size of India is changing, the nature of its financial sector in terms of penetration of financial services, credit, demand, number of transactions, everything is changing. I have seen the stock exchange change and what was once big cannot be recognized today, because it is so insignificant.

It has to be seen in this too that the mega merger may seem huge, but this is the form of things to come. For example, in America, we saw big banks like Bank of America and Chase Manhattan coming together. As a country’s economies get bigger, as technology changes, size becomes a necessity and so while it may seem huge in that context, it is pertinent in terms of how India should shape up. Used to be. So size is important to serve the India of tomorrow. We will find that all the players are getting older to stay in the same place.

Axis Bank is growing from a takeover; HDFC Ltd. and HDFC Bank are merging and forming a behemoth; Kotak Mahindra Bank has not listed a single subsidiary and ICICI Bank has many different players and each has a different strategy?
It depends on how the situation happened. In the case of HDFC, the housing finance company came first and then it formed all the wonderful kids and each one is a significant player in their field. So its origin is different from Axis Bank and Kotak Bank and hence they have different design in that origin but one has to look for the size.

HDFC has listed many of its babies, so everyone has to list the babies. Everyone has to– in no time if Kotak hasn’t done it, maybe just waiting to get in shape, but they have to stay important players, attract talent, give them all. will have to be listed. The right type of ESOPs for your people. So these are all market needs, business needs.

Will HDFC Bank be like everyone else’s portfolio now? There was a time when Infosys, Reliance were essential in everyone’s portfolio. Will this merged entity now be like a pure play on India and Bharat?
Too many. HDFC Bank should be its own in any case. It may be even bigger and this is irrespective of sector specialization because it will have such a huge weight on the index, because of its institutional character, because of its track record, because of its future In relevance to India’s development, it’s going to be even bigger, it’s great for the country. One needs some stock of that kind which will not only set the standard for the country in various aspects but will also be known globally among financial players of all types and sizes across the globe.

Maybe by force and not by choice, but the PSU sector has consolidated. Big banks are consolidating. What is the future of small banks?
As I said, size has become a necessity as the country gets bigger and so in a capitalist system, creative destruction happens all the time. So some of the smaller players will merge into one and become relevant and continue to exist in that form and shape. We all have to accept it. I don’t feel too sad about it, it is an essential part of the journey of an enterprise and much more in a dynamic country. So, some of those things will happen, the faster they happen, the better for everyone, for the employees, for the shareholders, and for the country.

The other disruptive segment that is small but has made huge strides is the entire fintech world. What should be the first reaction for someone who is considering starting a fintech company or is already a part of fintech?
They have their place in fintech and their own capabilities so they don’t bother with the size of the players who were there and coming together. Fintechs are meant to disrupt others, so they don’t worry about this kind of disruption. A lot of fintechs get disrupted but it is a part of their design. Fortunately, they create new businesses for fintech. They need to reach customers in as many ways as possible and a lot of fintechs get into the food chain, so I don’t necessarily see this as bad news for fintechs. It may be neutral for the better for them.

When investors say Indians are betting on the financial sector, should they bet on size, scale, synergy, or is it better to focus on the other side which is effort and disruption?
I would say there are two-three important things in financial services, one is cost of funds, second is security and third is customer experience. They are more important. If you don’t have them, nothing will matter. If you have, you will definitely get the size and then if the size to start with costs more, then you will have difficulty. So, there is a natural limiting and enhancing mechanism here. The PSUs were huge but size didn’t help them.

I am also taking the liberty of understanding the bigger macro picture because last week, the global headline global yield curve inverted and historically when this has happened, a recession has begun. If a recession starts, it’s bad news for us, bad news for the financial sector and everyone else.
Let us understand that these are waves but we have seen that these waves get smaller and smaller. This recession is going to come from the days of recession. But if you look, you know how technology is disrupting some of it, so we had the geographic innovation in terms of China becoming a big player. What China was doing, now India is becoming a part of it. Technology is expanding markets and reducing costs. So, while in the traditional sense, the yield curve would represent some things, we’ll have to see how it actually plays out.

Some recession is inevitable and given the employment situation in America, we need a recession. I think they are slowing down from their point of view but does it mean slowdown for the whole world? I think the world is united and divided in the installation of this more sophisticated technology. I don’t necessarily see that this is the kind of recession we saw in the 60s, 70s, 80s that can be pushed to 2008, when we had more than just a recession. We had a complete disruption of the financial system in the world.

But after that we are seeing a much more nuanced game of things. When we had a taper tantrum, all of a sudden the markets went down but within a few weeks they started recovering as people were responding to the situation in different ways. This will continue and people will react in different ways and we need to look at our ground reality in comparison to some of this big macro things.

You have always emphasized two things; Focus on the earnings cycle and look at the entry point that will give you the margin of safety. How do you view earnings momentum and what is the margin of safety for long-term investors?
The margin of safety will be in the stock you have purchased. Obviously when markets are very high, all stocks are high but that doesn’t mean there will always be counter-cyclicality. When the index as a whole rises, there is excitement, the margin of safety is lower, the entry itself is more difficult, but in some commodity companies that may be seeing continued earnings growth.

The whole oil shock has taught people that oil isn’t going away as quickly as people thought. There are additional trends. While a lot of renewable energy assets are being crated, conventional energy is highly consumed and therefore may not be pure energy or net carbon neutral as people thought. So it is these trends and countertrends that keep popping up that can create entry opportunities.

New businesses such as lithium-ion and the entire supply chain behind lithium-ion batteries are emerging as it is new and is now growing in scale. So, something new is happening in today’s world which creates new opportunities which the market has not studied and one will find entry points in the best of times and worst of times.

While the equity market is at an almost all-time high, the bond market is painting a frightening picture. Who will do right, who will do wrong?
No one knows who will do it right or wrong, but there are concerns about inflation, yields boosting and the curve turning in major global markets. So some of these concerns are inevitable, some of the inflation at home is structural in nature and with commodity prices being so high, there is nothing one can do about it. One has to worry that due to supply chain disruptions and unknown reasons these things may get out of hand and hence people will be cautious.

As long as these larger factors of caution remain unresolved or unresolved, some of these trends will remain uncertain and this creates safety for people. For example, it is better to buy insurance in advance than to be late. So, most players are pretty fine with it rather than being too concerned about it. The trends will be up and down but as an equity player, we are quite fine with the markets going down from time to time as it is very healthy and necessary.

Do you see the potential and strong possibility for an average investor to imagine that for the next three to five years, we are in for double-digit returns?
It is very difficult to say these things, but in the long run, getting reasonable returns is sure. Obviously this portfolio depends on the constitution. If one is aligned with well-managed companies, you know that their market power, etc. has built in profit protection. Yes, some of that is to be expected.

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