Indian bank IPOs perform poorly; index investing recommended

In India, investing in bank Initial Public Offerings (IPOs) over the last decade has led to poor long-term results for many investors. Recent drops in stocks, such as IndusInd Bank falling over 30%, highlight this trend. Currently, IndusInd Bank's stock is at its lowest since 2014, not counting the COVID-19 dip. While the Nifty Bank index had a compounded annual growth rate (CAGR) of 10% in the last ten years, IndusInd Bank lost 3% in that same time. This issue is common among smaller private banks, like IDFC First Bank and Bandhan Bank. Although there was optimism around these banks, their stock prices did not match their business growth. Some investors had hoped to find new successful small or mid-cap banks to mirror the success of larger banks like HDFC Bank. However, only a few banks like AU SFB and CSB Bank saw positive returns since their IPOs. The failure rate for the newer bank stocks is striking, with 92% losing value. In comparison, larger banks such as HDFC Bank and ICICI Bank have remained strong, accounting for a significant share of the Nifty Bank index. The top five banks controlled over 86% of the combined market cap, proving they are key players in the index's performance. Globally, similar patterns can be seen. In the U.S., larger banks thrived during recent banking crises, while smaller ones struggled. For investors unsure about choosing the right bank stocks, experts suggest it's safer to invest in the entire index rather than trying to find the next big winner. Overall, investing in indices could offer more reliable returns for long-term investors.