Many investors want to invest in stocks that have very limited downside risk. In the last one year the Sensex has collapsed from levels of 30,000 points (March 2015) on the Sensex to the present levels of 25,300 points.
It has dragged stocks sharply lower with many of them falling as much as 50 per cent in the last 1 year. Typically, people with a high level of risk, invest in stocks that are called high beta stocks. These stocks fall sharper, when the markets fall and rise sharper, when the markets gain.
This is one of the finest banks in the country, that has generated investor wealth like no other bank. It has the best asset quality among the larger private sector banks and continues to report 20-25 per cent growth every quarter.
The stock is the number 1 in portfolio of most mutual funds in the country. When the markets fall, you see hardly any fall in the stock price of HDFC Bank.
It is a great stock to own for those who are risk averse, and have very little tolerance for risk. The bank's gross NPA for the quarter ending Dec 31, 2015 was just 0.97, as against ICICI Bank's 4.72 and SBI's 5.10. This is one of the biggest reasons why it is a much preferred banking stock.
Of course, in terms of p/e multiples and price to book the company's valuations are high, but, it will always command a premium, given its solid asset quality and robust quarter on quarter growth.
IndusInd Bank is almost similar to HDFC Bank. The stock hardly falls in a falling market and is another stock that is a banking favourite.
Non performing assets of the bank are significantly better than most peers in the business, and the bank continues to chalk out robust growth quarter on quarter.
Again, in terms of p/e and price to book the stock is expensive, but it continues to be a risk free bet. Banking stocks have rallied significantly in the last few weeks, as risk-on rally is back. There is a potential for HDFC Bank and IndusInd Bank to keep trending higher and as mentioned the downside risk for these stocks is really very low.