ICICI Bank’s multi-decade opportunity

By Sunny Bangia, Portfolio Manager, Antipodes Partners

Some of the most compelling long-term investment opportunities to be found today lie within the dynamic and rapidly evolving global emerging market landscape.

One of those, which Antipodes has conducted extensive analysis on in recent years, is Indian credit growth. We see this as a multi-decade growth story in a modernising nation that is amongst the most underbanked in the world.

A key metric: household debt to GDP

Below we have illustrated the extremely low levels of household debt in India vs GDP per capita. The ratio of household debt to GDP is intricately linked to income levels within a country.

However, even accounting for India’s low GDP per capita, we think at around 13%, household debt to GDP is under-penetrated and has scope for significant growth in the years ahead.

Investing in ICICI Bank
Source: Antipodes

As income levels in India continue to rise, our modelling shows that household debt to GDP can reach around 28% by 2030 and 56% by 2060.

This implies that loans-to-households in India can grow at around four times, or 15% at a compound annual growth rate (CAGR) to 2030. 

To 2060, this would be around 16 times, or an 8% CAGR.

Backing a market leader

Inefficient and bureaucratic public sector banks still make up most of the Indian system loans at 70%. However, India’s private sector banks are quickly taking share, with our largest portfolio holding, Indian stock, ICICI Bank (NSE: ICICIBANK) leading the pack. 

Since our initial purchase in 2016, ICICI has risen nearly four-fold and still presents outstanding value given the long runway for growth.

Our conviction is supported by three key factors:

  1. Competitive cost of funds from the building of strong retail deposit franchises in recent years.
  2. Best-in-class management teams.
  3. Leadership in technology innovation and agility.

My own personal experience as a customer of ICICI Bank, has further enhanced our conviction – the technological transformation within the franchise has been remarkable over the past decade and the company is beginning to reap the rewards.

Profitability & growth

ICICI Bank provide investors with cheap banking exposures relative to their rapid growth profiles. 

Investing in ICICI Bank
Source: Antipodes

The franchise is delivering leading levels of profitability & growth within a burgeoning banking landscape – owing to the strategic foresight and strong execution of the management teams in charge.

We project ICICI can compound earnings at 15-20% per annum and provide 15-20% ROE over an extremely long timeframe.

For investors, this is just one example of how combing an extraordinary top-down market opportunity, with strong bottom-up stock picking execution can provide stronger and smoother exposure to global emerging markets. 

Antipodes Partners is a fund manager with offices in Sydney and London. It offers access to its portfolios through UCITS Funds, Cayman Funds and Collective Investment Trusts.