The big difference between HDFC Bank and Kotak lies in the existence of the company.

Lets say the current world crisis becomes more worse. And for next 5 years, the economy of the world is down. Now there is no way we are going to have a bull phase again till the market can sense that the world economy is on path of recovery.

The question is can Kotak survive for next 5 years. We have only seen difficult phases since last 4 months (from Oct 2008).

If Kotak exists at the time of next bull run and with bigger profits than today, yes Kotak's returns will outperform HDFC Bank. But the big question is IF:

The same thing holds true for many midcaps/smallcaps that have fallen 80-90% and are currently trading at single digit PE.

If these midcaps/smallcaps can survive till next bull run and can have reasonable profit growth, they are all going to be 50 Bagger +.

I looked at stock chart of many midcaps/smallcaps in last 10 years. I found that from the bottom of bear in 2001 to peak of bull in jan 2008, there have been many midcaps/smallcaps that have been 100+ baggers.

We only discuss Pantaloon, Titan and other known stocks here, but there have been many such 100+ bagger  stocks.

The challenge is to identify companies that can survive these downturns. All such companies that can survive are available at high PE (Titan, HDFC Bank) now, and all companies that no one can visualize its future are available at single digits PE.

Originally posted by HallaBol Even I completely agree that from current market price Kotak will give better returns than HDFC bank whenever the market recovers. In the last bear market to bull market also, Kotak has (even after the fall) significantly outperformed HDFC bank. Kotak is best buy around 250/- levels if available. I feel it will be available given that their results will not be great. Your returns from a stock will depend on at what price you enter the stock. PS: I hold both Kotak and HDFC bank

If the current situation continues, HDFC Bank may be available at less than Rs.1000/- even at December, will HDFC convert their warrants at Rs.1,500/-.

Shareholders of HDFC may object converting at higher price?? Is that is possible???

Edited by basant - 19/Jan/2009 at 8:40am

If the top management of HDFC decides to invest in HDFC Bank at the higher conversion price, there is almost zero chance that the investment will not go through.

Originally posted by basant It is a case of crying too late. Most of the damage in Axis has been done and it was clear to anyone that with such a high SME and corporate exposure (where there is little bargaining power for the person who provides the loan) the stress was coming. But instead of raising the alarm now when the stock is fast approaching its Fy10 Book Value these brokerages should have done that about 9 months back. I think HDFC Bank is a better alternative especially if you see a) Their branches are underutilized b) Their opex to asset ratio is 100 bps above Axis and will reduce thereby increasing profits at an increased rate c) Axis suuffers from a perception problem of the CEO leaving d) HDFC Bank should get money in December from conversion of warrthat will boast BV and EPS. But at these levels there is little to lose in Axis biut given a choice I prefer HDFC Bank.

Sir,
Any idea on loan book composition of HDFC bk? What are the sectors they are lending to? How come they are able to keep it safe and other banks are not able to follow them? Just trying to understand.