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Global banks are buying up stakes in Indian lenders as the country’s government and regulators become increasingly relaxed about foreign entities acquiring significant holdings.

Since the start of the year, India’s financial sector has had $8bn worth of deals from foreign companies, up from $2.3bn last year and $1.4bn in 2023, according to Dealogic data.

The transactions reflected growing investor confidence in India’s economy and had “opened up a new chapter” in Indian banking, said analysts at Mumbai-based Motilal Oswal Financial Services in a note.

They come as officials have laid out ambitions to consolidate the sector, with finance minister Nirmala Sitharaman this month saying the government wanted to create more “big banks”.

The central bank has said it is reviewing whether to relax a 15 per cent shareholding cap by any single foreign investor in a non-government-owned lender, although it has already been approving large sales on a case-by-case basis.

The sector’s biggest cross-border deal this year was the $3bn acquisition of a 60 per cent stake in mid-sized bank RBL by Dubai’s largest lender, Emirates NBD. Japan’s Sumitomo Mitsui Financial Group bought a 24.2 per cent stake in Yes Bank for about $1.7bn, becoming its biggest shareholder.

Mitsubishi UFJ Financial Group, Japan’s largest lender by assets, is in advanced talks with multiple non-banking financial groups for the purchase of a large stake, according to people familiar with the matter.

Although there have been reports of negotiations between MUFG and Chennai-based Shriram Finance for a 20 per cent stake worth $2.6bn, the people said the deal was yet to be finalised and MUFG was still exploring other options. “The situation is still fluid,” said one of the people.

MUFG declined to comment. Shriram said it was “not aware of any developments on this front”.

Foreign banks are casting a keener eye on India’s financial groups because of the country’s robust economic growth, according to Yatin Singh, chief executive of investment banking at Emkay Global Financial Services in Mumbai. He noted that likely targets included a handful of public sector banks that the government would like to privatise.

“For mature economies like Japan, which now have an ageing population and have capital, they need to find a way to deploy that capital in a way where the risk-adjusted return makes sense,” he said. “India is in that way an attractive option.”

Vikram Raghani, senior partner at JSA, an Indian law firm that has been involved in recent banking deals, said previous mergers and acquisitions might have involved lenders that were “in some kind of stress”.

“Now the mindset of the regulator and the government appears to be changing to allow banks to tap into global capital for growth and expansion,” he said. “If our banks have to go to the next level, they will need capital and international expertise.”

A person familiar with the Reserve Bank of India’s thinking said it was coming around to more foreign participation, calling the recent spate of deals a “vote of confidence” in India’s economy and banking sector.

The person added that overseas investors were targeting mid-sized banks that were easier to acquire and had more room to grow.

A partner at one of India’s leading venture capital firms said shadow banks were also garnering interest after the RBI eased restrictions put in place in 2023 in response to a post-pandemic credit binge that left many households in debt.

Since the industry’s recovery, the RBI has been telling shadow banks “you can go ahead and expand your books and grow faster”, the partner said.

One of the biggest deals this year involved Indian shadow bank Sammaan Capital, in which International Holding Company, the Middle East’s second-largest company by market value, purchased a controlling 43.5 per cent stake for $1bn.

Kunal Shroff, managing partner at private equity firm ChrysCapital, said valuations in India’s financial services sector looked attractive compared with the rest of the country’s market.

Indian equities trade at 23 times 12-month forward earnings, making it the world’s most expensive emerging market, while the country’s financial companies trade at 17 times, according to Goldman Sachs analysts.

“There’s enough credit demand,” said Singh at Emkay. “Whichever [lending] segment you pick up, you’d find a very, very large opportunity over the next 15, 20, 25 years. Anyone who’s buying a bank in India is taking, I’m sure, a 50-year view.”

One simple way to benefit from the stock market is to buy an index fund. But if you choose individual stocks with prowess, you can make superior returns. For example, the Fraser & Neave Holdings Bhd (KLSE:F&N) share price is up 55% in the last three years, clearly besting the market return of around 11% (not including dividends). However, more recent returns haven’t been as impressive as that, with the stock returning just 18% in the last year, including dividends.

Let’s take a look at the underlying fundamentals over the longer term, and see if they’ve been consistent with shareholders returns.

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While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

During three years of share price growth, Fraser & Neave Holdings Bhd achieved compound earnings per share growth of 9.9% per year. This EPS growth is lower than the 16% average annual increase in the share price. This suggests that, as the business progressed over the last few years, it gained the confidence of market participants. It is quite common to see investors become enamoured with a business, after a few years of solid progress.

The company’s earnings per share (over time) is depicted in the image below (click to see the exact numbers).

This free interactive report on Fraser & Neave Holdings Bhd’s earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Fraser & Neave Holdings Bhd’s TSR for the last 3 years was 68%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

We’re pleased to report that Fraser & Neave Holdings Bhd shareholders have received a total shareholder return of 18% over one year. And that does include the dividend. That gain is better than the annual TSR over five years, which is 3%. Therefore it seems like sentiment around the company has been positive lately. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. It’s always interesting to track share price performance over the longer term. But to understand Fraser & Neave Holdings Bhd better, we need to consider many other factors. Consider risks, for instance. Every company has them, and we’ve spotted 1 warning sign for Fraser & Neave Holdings Bhd you should know about.

Of course Fraser & Neave Holdings Bhd may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Malaysian exchanges.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

More than a hundred shoppers queued for hours outside the store to take advantage of Walmart’s “Everyday Low Prices” and shop international products that are not easily available in South Africa such as designer counter-top air fryers by Drew Barrymore, Labubu dolls and Dr.Pepper sodas.

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“I’m actually here for a specific product that you can’t really get in South Africa….it’s a children’s toy, Labubu,” Refilwe Mabale, told Reuters.

Some, like Tshepo Rambau, were hoping to snap up deals during Black Friday weekend. The 44-year-old told Reuters while standing in the queue that he was eyeing tech products like WIFI extenders.

“Hopefully I’ll get them cheaper here,” he said.

“Opening the first Walmart store in South Africa is about much more than a business milestone, it is a commitment to helping customers save money and live better by consistently delivering the lowest total cost for the basket of products they need,” Andrea Albright, executive vice president of Walmart, said in a statement.

The store, located in Roodepoort, west of Johannesburg, has has created 80 new jobs and has collaborated with 15 local small- and medium-enterprises, the retailer said.

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