HDFC Group, which was the most liked stock of retail investors as well as the most institutional investors, has seen underperformance in the past year. HDFC, HDFC Bank, HDFC Life, HDFC AMC are the HDFC Group stocks that have seen huge underperformance in the last year. Underperformance has been with its peers as well as with the benchmark comparison as well. Though the stock prices seem to lose their shine, the underlying fundamental performance does not depict so. All the group stocks have either significantly grown YoY or have gained market share from their peers.
(Closing prices as on 2nd March 2022)
From the above slide, we can clearly see the underperformance in the past year. It has clearly underperformed the benchmark with huge margins. The biggest underperformance is from HDFC AMC. Here the most important reason is that the AMC industry is losing its grip as passive investing is gaining strong momentum when compared with active investing. Over the past 1 year, the Nifty 50 index has given absolute returns of 12.49%, while all of the HDFC group stocks have given negative returns over the 1-year period.
HDFC Ltd’s 52 week high is 3,021 and the current price is 2,277, which is a 25% drop from its 52-week high price. The 52-week high price was made on 15th Nov 2021 while the 52-week low price of 2,259 is made on 2nd March 2022. When we consider the valuations angle, its current PE is trading at a 22% Discount to its 1 year Median PE. While the 5-year discount is almost 6%. The Same picture is with the PB ratio as well, current PB is at a 19% premium to its 1-year Median PB and 16% premium to its median 3-year PB. It is at a 4% discount to its 5-year Median PB.
HDFC Bank has also seen huge underperformance in the past year. It made a high of 1,724 on 19th Oct 2021 and is now currently down 21% from its all-time high price. It recently made its 52-week low of 1,353 on 2nd March 2022. The stock is clearly underperforming its peers. ICICI Bank has given a return of 12.08%, Axis Bank with -1.94%, IndusInd with -16.68% and Kotak Bank has given -5.94% in the past year. But the company’s fundamental is very strong over the same period. It reported Profit After Tax of 10,342 crores in Q3 FY22 vs 8,758 crores in Q3 FY21, a growth of 18% YoY. When a company consistently reports such growth numbers on its higher base as well, such a company’s one-year underperformance should never create uncertainty. Because over time, Share price ultimately has to catch up with the fundamentals.
The insurance sector has seen huge volatility in its profitability numbers due to the pandemic. Rising Covid claims have resulted in volatility in Profit After Tax numbers of all the Insurance Companies. HDFC Life the strongest player amongst the Insurance Companies group has fallen 28% from its 52-week high of 776 which was made on 15th Nov 2021. The stock recently made a low of 520 on 28th Feb 2022. On account of strong parentage, the company enjoyed higher valuations. Its current PE is 99.37 which is still substantially high. Its 1-Year Median PE is 112.41 and 3-Year Median PE is 91.91.
Amongst the whole HDFC Group, HDFC AMC has seen the most underperformance. It is down 38% from its 52-week high of 3,363 which was made on 13th Sept 2021. But HDFC AMC is not the one underperforming, the whole AMC industry has seen underperformance. Nippon India AMC is down 14.54% in the past year and UTI Asset Management is up 43.68% in the past year. Most of the AMCs have shown underperformance as investors are favoring passive investing over Active Investing.