Shares of HDFC Bank, HDFC, HDFC Life and HDFC Asset Management Company (AMC) have caught on so far in 2022, and over the past one and two years.
Since January, HDFC Bank has fallen 7%, HDFC has fallen 12%, HDFC Life has fallen 14%, and HDFC AMC has lost 14%. Nifty fell 4.3% during the period.
Over the past two years, HDFC Bank has gained 16% compared to the 48% run-up in Nifty and the 22% gained in the Nifty Bank index. Mortgage lender HDFC rose 5% while HDFC Life gained 3% during this period. The most recently listed company in the group, HDFC AMC, has fallen more than 32% during this period.
“Over the past few years, almost all of their businesses from banking, mortgage finance, asset management, and insurance have seen problems with their growth, management changes, technology lead issues and seen them enter the time and value correction zone, ”said Nitin Raheja, head-discretionary equities, Julius Baer Wealth Advisors. “FPI’s relentless selling is also not conducive to HDFC group’s stock performance due to their large ownership of FPIs,” he said.
HDFC Group stocks have been trading at premium valuations for over a decade as they are considered stable bets due to their consistent revenue growth and high level of corporate governance.
HDFC Bank traded more than four times its book value in early 2020. It was the most expensive bank in the world back then. The massive sell-off in the stock dragged down its value by 20% in two years. Foreign investor holding the bank dropped from 39.35% to 37.47% last year.
“Over the past two years, there has been a mismatch between Street growth expectations and appreciation, and at the same time discounted appreciation peers with similar or better growth numbers are available. So the funds cut their position in HDFC group stocks and transferred their money to similar businesses with better risk reward, ”said Sanjeev Hota, head of research, Sharekhan.
The premium valuations of all HDFC Group listed companies vis-a-vis their peers have now dropped. HDFC AMC which traded at a PE ratio of 72 times in January 2020, is now 34 times after the stock price correction.
Some analysts say the recent correction has made their valuations more reasonable.
“We believe the HDFC group’s stock analyzes have gradually gone into a comfort zone, and material under-performance from these levels is inappropriate,” Hota said.
Vinod Nair, head of research at Geojit Financial Services, said the group’s valuations look attractive at current levels.