Sumit Mehrotra of CNBC Awaaz recently went public with a very interesting data point on the HDFC Bank stock price.
January 18, 2021, it was trading at Rs 1,511
October 16, 2023, it was trading at Rs 1,530
The return in 34 months is dismal.
He then mentioned specific time periods where the return was nil. That’s right, zero.
- 2000-2003
- 2007-2009
- 2011-2012
- 2013-2014
- 2021-2023
But get this: The CAGR of HDFC Bank over the past 20 years has been a phenomenal 23%!
First Global looked at all the listed companies in India over the past two decades. The aim was to figure out how many of them have shown some profit growth, however minuscule, every single year.
Just ONE. HDFC Bank has shown profit growth every year, over 20 years.
When the time frame was reduced to 10 years, the number rose to 16. Out of the 4,200-odd listed companies in India, 16 have shown profit growth every single year.
Here are the companies in alphabetical order.
- Asian Paints
- Associated Alcohols & Breweries
- BDH Industries
- Bharat Rasayan
- Can Fin Homes
- Dynacons Systems & Solutions
- HDFC Bank
- Kotak Mahindra Bank
- Lincoln Pharmaceuticals
- Lux Industries
- Mallcom (India)
- Medicamen Biotech
- Morepen Laboratories
- Power Grid Corporation of India
- RACL Geartech
- Vipul Organics
For TCS, the missing growth year was FY21.
HDFC Bank features in both time frames. As of July 2023, HDFC Bank merged with HDFC Ltd to become one entity. HDFC Bank is now the seventh largest bank in the world by market value, and the largest in India.
Supreme Industries would have featured had their profit not declined in FY23. Data for the remaining companies is as on March 31, 2023.
(The source for this is First Global).
So what do we learn from this?
Never let short-term blips throw you off.
There is no doubt that HDFC Bank is a quality stock. The management's guidance on key metrics led to a few downgrades. However, individual stock returns are never linear. Investors would do well to remember this. If they keep their eye on the fundamentals, they would be less prone to getting carried away by sentiment and short-term market reactions.
This is why equity investing is a long-term game. You need to have a decadal perspective. If you decide to play the short-term card, you are either trading or gambling. Holding equity does not guarantee a profitable outcome and involves risk of drawdowns. However, over longer periods, the probability of losing money in equity declines. Time reduces risk.
Neither are market returns linear. A recent data point on stock market returns by DSP Mutual Fund reiterated that point.
- 1990 to 1992: 340%
- 1992 to 2003: 0%
- 2003 to 2008: 600%
- 2008 to 2013: 0%
- 2013 to 2023: 300%
- 1990 to 2023: 6970%
The above returns are of the Nifty 50 index. The index was launched in 1996 but historical data was published from 1990. The 2023 returns are as on August 31, 2023.
This is why diversification is so important.
Investing is all about probabilities. No matter how deep your analysis. No matter how careful you are to avoid landmines. No matter how thoughtful your position sizing. And how meticulous your risk management. You just lower the probability of a blow up, but there is always a risk involved.
Play the long game. Stay focused on fundamentals. Diversify smartly.
Disclaimer: The above information is purely for information and educational purposes. It is NOT a recommendation or buy or sell or hold any stock.
