Stock price increase doesn’t have to come from just rerating. Earning growth is also an important factor and so far bank earnings haven’t slowed down.
Moreover, multiple rating has got nothing to do with asset mispricing. Mispricing is when market is not rewarding earning growths for a stock at the average sector valuation. Valuation rerating and derating are more driven by sector dynamics and collective wisdom, of the market participants, about the future of a sector.
Every sector goes through cyclicity in valuation ratings. Take IT sector in 2022 and 2023. All the stocks got badly derated and we saw the arguments from naysayers telling that IT story is done (with typical threadbare analysis of their valuations, business prospects etc). All IT stocks got beaten which doesn’t mean that market was mispricing them for 2 years. It’s just that market was pricing them at their earning growth on depressed sector valuation.
Market changed its mood about IT sector in 2024 and started rerating the sector even though earnings still haven’t started to come through. I can provide similar data points for the other sectors.
Coming to financial sector, all the private players (Kotak, Axis, Bajaj Fin, Indusind) have seen their multiples getting derated due to various external factors well summarized in this thread.
So when the rating cycle for banking industry turns and HDFC bank doesn’t benefit then it will make sense to analyze all the things wrong with the bank and pricing aspects. Before that making any predictions about stock prices is futile.
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