The reason for poor financial performance is merger
costs have gone up due to high cost deposits from HDFC and higher statutory reserve requirements. the solution is degrowth !! Management had thought they will get leeway from RBI but did not.
No operational gains are visible - while people are saying it will happen over time it may never happen at all !!
Technology wise, Service wise - competition is far better.
The bank is grappling with the merger and missing out on the growth opportunities which banks like ICICI are capturing. It may take a few years for the bank to come back and then too the return metrics may not be great. Will prefer to stay out and watchâŚ
Personally, I bank with both ICICI and HDFC and find the implementation of net banking better with ICICI. However, my concern is about loans made today with banks and how many of these loans might end up as NPAs tomorrow. We canât know for sure, but I hope HDFC performs like they have performed in the past and have made sensible decisions when underwriting loans.
Would it be correct to say that we are in that stage of the debt cycle when the loans are given out, bank loan books are growing? If yes, then we will have to wait when the debt cycle reverses from the present stage and some of these loans go bad.
Isnât it better to invest when the sentiments are bad for a company? I am hoping HDFC Bank can figure out the issues in the future. Even if the bank takes a few years to do this, it shouldnât matter for investing with a long-term perspective. It just gives us more time to increase our stake if we choose to.
Disclosure: Invested in both HDFC and ICICI. HDFC is more of a recent investment than ICICI.
The answer to this depends on an investorâs philosophy.
If you are a value investor, such negative sentiments will give you buy opportunities for longer time to buy a position in the stock in staggered manner.
But if you are momentum investor, then it is better to invest in stocks which are having tailwinds and are the favorites of the day. These stocks will give you immediate returns as long as the sector is in favor.
Stock which are not popular will be suitable only for investors who have patience and are ready to remain calm and remain convinced about the story.
No one knows whether any specific bank will perform better in future or not, but has to invest based on his/her own conviction without bothering much about the crowd. It is difficult to implement this philosophy but some investors have benefited in the past using value investment philosophy and will continue to do so in future.
Another approach is invest both in popular sectors & stocks and also in unpopular sectors & stocks from time to time. An investor can invest in both type of stocks if he/she believes in both philosophies. Probably I have used this mixed approach in the past 10-12 years and have at times invested in unpopular as well as popular stocks based on my own analysis.
For popular stocks, you need to buy at Fair Value to ensure that you are not overpaying for it, and Hope that they will be re-rated further by the Market based on their performance.
Stocks in this category were Defense stocks during 2022, IT stocks during 2020-21 and many more.
For unpopular stocks, you need to buy when margin of safety is high and those are undervalued as per your own analysis. No one can tell you whether it is undervalued or not but you need to take a call. Stocks in this category could be Coal India, NMDC, ITC during 2020-21 and Now today it could be few BFSI stocks & few Agrochemical and Chemical stocks.
I just thought of sharing my views based on my experience. Sometimes if you are lucky, both kind of stocks will perform over next 3-5 years!!
Note: I have not invested in all the stocks mentioned above. Those are only examples.
