These days so much is being wriintten about investing, that the average 30 year old knows far, far more than what I knew as a 30 year oldm. No doubt about that.

I start my Fundamental Analysis class by asking people about 2 companies to compare. So most often I get the following pairs – Tata Motors and Ashok Leyland, Hdfc bank and Icici bank, TCS and Infosys…..and so on. I guess this is also the impact of hi profile television which throws itself upon us 24/7. I can do a post on all 3..but let us restrict ourselves to Icici bank v Hdfc bank.

PS: I am an original shareholder of Hdfc bank, and have it in my portfolio as a permanent part. I trade in ICICI bank from time to time, but have never had it in my investment portfolio for very long periods of time. Right now I have some ICICI bank. Have never gone short on either of them ever.

The problem with fundamental analysis is the ability to pick 2 comparable shares. Icici bank and Hdfc bank are not comparable at all. Icici bank is a bank of course, primarily, but it also houses a mutual fund business, a market leader general insurance company, a home finance company, the top player in the life insurance business, an E brokerage company….and so on. Hdfc bank completely misses out the low hanging fruits of home finance, life insurance, general insurance – but hey hold on both hdfc bank and icici own a big brokerage business.

So the similarity ends with the banking business. Icici has a far bigger balance sheet – and is a heavy load to carry. So it will obviously run slow. However as the insurance arms get listed, its book value will go up substantially and the Price to book ratio will be JUST NOT COMPARABLE. When a bank has a bigger balance sheet, it loses its ability to be nimble. So Hdfc bank is likely to be more nimble than Icici bank. I bank has more international presence than Hdfc bank, it has an investment banking operation, and it has a legacy balance sheet – and the attendant problems. Hdfc started off as a bank earlier than Icici – Icici converted itself to a bank after being a lending institution for a long time.

Over the past 5 years, Hdfc bank has given about 3x more returns than Icici bank. This is so difficult to remove from the head of people like me that now I cannot see how the future is going to be different. However, the listing of the general insurance arm, the mutual fund, etc. can put a lot of cash in the hands of Icici bank – FREE CASH FLOW – which could make the next 10 years look different.

As an analyst if you had assumed that INDUSTRY remaining same, let me pick More Icici than Hdfc, you would  have gone wrong substantially.


Tata Motors can of course be compared to Ashok Leyland, but that will be ignoring 90% of the profits – which came from JLR. When the whole world market is doing well, TaMO will do well -however if the world outside India is doing badly, Ta Mo will suffer far more than Ashok Leyland.

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