HDFC Bank, market’s favourite megabank, is surrounded by a lending crisis

All around HDFC Bank Ltd., India’s biggest lender by market value, the news seems to be bad and getting worse: economic growth is slowing, loan losses are rising and shadow banks are mired in crisis.

And yet investors keep piling into HDFC Bank’s stock, convinced it will emerge a winner from India’s financial woes. The lender's market value has surged by $21 billion over the past year, more than any other bank worldwide. Among the 25 biggest lenders globally, no other stock commands a higher price relative to earnings or net assets.

Bulls say they have good reasons to be optimistic: HDFC Bank will grab market share from embattled shadow lenders and benefit from a flight to quality by investors who’ve grown wary of smaller competitors.

While skeptics argue that the bank is vulnerable to India’s economic challenges -- pointing to its large consumer loan exposure and the looming retirement of its longtime leader -- even they say betting against HDFC Bank is risky.

Among 54 analysts who cover the stock, only one has the equivalent of a sell rating.

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