Most of us might have faced a dilemma whether to buy the Industry leader or its nearest competitor. So lets take a look at historical returns over three years as these include 14 months of Bear market. Stock returns reflect how management of both the leader and its nearest competitor faced the global recessionary environment. I have excluded Tata Steel v/s SAIL comparison as the former has a global presence while the later is restricted to India, RIL v/s ONGC due to govt. intervention in the operation of ONGC, Sun Pharma v/s Cipla due to FDA issues at the former’s subsidiary.
SBI v/s ICICI Bank
SBI delivered 82% returns compared to just 5% returns from ICICI Bank.
HDFC Bank v/s Axis Bank
The former delivered 72% returns while Axis outperformed with a huge margin with 127% returns.
It is interesting to note that relatively SBI has outperformed even HDFC Bank which is considered to be the darling of Indian markets when it comes to financials.
Infosys v/s TCS
Surprise. Surprise. Returns from TCS (20%) are better than Infosys (12%) .
Bharti Airtel v/s Rel Comm
The gap between both the stocks returns are huge with Bharti Airtel delivering 10% returns while RCOM with a negative returns of 57%. The problem with all the ADAG companies are their focus on market share rather than profitability.
DLF v/s Unitech
Unitech’s returns were 2 times the DLF on the downside with -67% compared to -33% of DLF.
Hero Honda v/s Bajaj Auto
Inspite of losing market share to Hero Honda, Bajaj Auto’s stock has done relatively better with 185% returns compared to 112% from the leader’s stock, since it was listed after its demerger of various businesses on 26/05/08.
Voltas v/s Blue Star
Blue Star did much better than Voltas with 101% returns compared to 59% from the later. Blue Star’s focus on return ratios did the trick for them.
Exide v/s Amara Raja Batteries
Amara Raja Batteries did relatively better than Exide with 216% returns while the later delivered 197% returns. I guess Exide’s underperformence was due to its loss making life insurance business.
Welspun Gujarat v/s Jindal Saw
The leader delivered a return of 215% compared to its nearest competitor (Jindal Saw) returns of 149% over the last three years.
Conclusion: Its divided here with the leader doing relatively better to its competitor in 4 out of the 9 cases. So buying the second largest player may sometimes be the better option than the industry/segment leader.