Costly stocks always remain costly, whereas stocks that appear to be cheap get cheaper over time.
In other words, quality stocks were expensive, are expensive and will remain expensive.
Even during economic downturns, top companies fall the least and are usually the first to rise when the market revives.
HDFC Bank and Kotak Bank are the leaders in the banking sector. These two stocks have fallen the least while Yes Bank, Indusind Bank and RBL Bank which were called the next ‘HDFC Bank’ by many analysts, have fallen 40% or more from their recent peaks.
Bajaj Finance is one stock that has given outstanding returns for long-term investors, yet many retail investors haven’t been able to buy the stock – simply because the price has always been moving in the upward direction.
When the IL&FS crisis happened in 2018, all NBFC companies crashed. Bajaj Finance was no exception either. The stock fell from more than ₹ 2800 to ₹ 2000 per share.
So did a quality stock like Bajaj Finance get cheap? Not really.
Before the crisis, Bajaj Finance which was commanding P.E (price to earning ratio) of around 65 rupees per share, crashed to P.E of 45.
The company remained unaffected by the crisis and the stock price quickly revived. Today, 15 months after the IL&FS crisis, the company is hitting lifetime highs everyday and each share today costs more than ₹ 4500!
But what about the other NBFC’s? Some have revived, but many others are still struggling.
Nestle and Hindustan Unilever have always remained the most expensive stocks in the FMCG sector.
It’s the same with Asian Paints. Irrespective of when you bought shares of the company, it has given good to excellent returns in the long term.
Don’t be discouraged by missed opportunities or rising share prices. If your view is long-term, most top companies still have plenty of room for growth in a country like India. Companies like Bajaj Finance, HDFC AMC, Kotak Bank etc still have a long way to go.