Is HDFC Bank Limited (HDB) A Smart Long-Term Buy?

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Baillie Gifford, a large-scale investment management firm in the UK, published its “Long Term Global Growth Fund” second quarter 2021 investor letter – a copy of which can be downloaded here. A quarterly return of 13.59% was recorded by the fund for the second quarter of 2021, compared to the 7.53% return of its MSCI ACWI benchmark. You can view the fund’s top 5 holdings to have an idea about their top bets for 2021.

In the Q2 2021 investor letter of Baillie Gifford, the fund mentioned HDFC Bank Limited (NYSE: HDB), and discussed its stance on the firm. HDFC Bank Limited is a Mumbai, India-based financial services company, that currently has a $130 billion market capitalization. HDB delivered a -2.34% return since the beginning of the year, while its 12-month returns are up by 50.95%. The stock closed at $70.57 per share on July 30, 2021.

Here is what Baillie Gifford has to say about HDFC Bank Limited in its Q2 2021 investor letter:

HDFC is India’s leading residential mortgage provider. It is the low-cost provider of mortgages, a significant advantage and competitive strength in a commodity industry. The company has been a beneficiary of rising Indian income levels and improving housing affordability for the expanding middle class. Greater financial inclusion has allowed mortgage provision to extend to a larger portion of India’s population and HDFC is well positioned to benefit from this growth. The company also has an excellent long-term credit record with a focus on profitable growth and has shown good capital allocation over many years. We think the company can grow profitably for many years to come and have invested following the opening of the Indian market.”


Based on our calculations, HDFC Bank Limited (NYSE: HDB) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. HDB was in 27 hedge fund portfolios at the end of the first quarter of 2021, compared to 31 funds in the fourth quarter of 2020. HDFC Bank Limited (NYSE: HDB) delivered a 0.41% return in the past 3 months.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

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Disclosure: None. This article is originally published at Insider Monkey.