Would you now recommend investors to sell out of HDFC Bank and buy into ICICI Bank?

While the convergence in valuations has happened, I suggest you be careful before jumping out of HDFC Bank and fully shifting to ICICI Bank. Here is why.

a) Apart from the current convergence, you cannot lose sight of how these two banks have grown over the last many years. That is where the primary difference came on valuations front all these years.

b) ICICI Bank consistently chased growth in volumes and top line quite often at the cost of asset quality. Asset quality was incidental for their core business. On the other hand, HDFC Bank primarily focused on asset quality the business grew on momentum.

c) The true valuation test is not in good times but in tough times. In the past, it is in such tough times that HDFC Bank has held out better on valuation sustenance and also grown its market share.

d) While there has been change at the top of in ICICI Bank, it would be hard to conclude that it has undergone a shift in DNA.

How do we then see the valuation convergence? Remember, the markets always look for stories that are easy to fathom. Currently, HDFC Bank has headwinds like change at the top, merger impact with HDFC etc. The convergence is also about news flows, so be careful about any position shift.