Last 2 years have seen unwavering love for selected few large caps. Polarization of markets became the buzz word. Conventional wisdom of value buying was a losing game. As a result, there are some quality stocks which are in the overvaluation zone. So high are the current prices that it takes a blind to ignore the valuation gap. One such stock in the pack is Bajaj Finance.

Bajaj Finance has just surpassed SBI in Market value. This company has revolutionized the way lending is done to retail borrowers and therefore deserves a standing ovation. The stock should trade at a premium to its peers…no doubt. But, the love for this stock has gone overboard. The valuation looks so stretched that it looks like a hot air balloon waiting to be pop. In the table below, a rationale for this statement is given.

A good comparison can be drawn between SBI & Bajaj Finance. Although the market value of both the companies is nearly the same,  SBI is 11 times bigger in sales and 2.8 times bigger in profits. Also, SBI available at a 60% discount on P/E basis, and a 90 percent discount on P/B basis.

Considering that SBI has provided for more than 83% of its NPAs over the last 5 years, it’s a no brainer that its  PAT will zoom and may go past even HDFC Bank in good years. SBI is a screaming buy, while Bajaj Finance is a screaming sell. But, as we know, it is the herd mentality at play all the time.

Any takers for the market efficiency theory or that the institutional investors are a mature lot?


By Sameer Rastogi

18 years of experience, PG in Finance and has delivered Wealth Management lectures at IIM Lucknow, IBS Gurgaon and IIPM Delhi. Contributed to various newspapers. Strength – Application of Economic fundamentals to Investment

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