Banking Training: Know Your Banking Companies (HDFC Bank)

25 Dec, 2019 Divesh Mishra

Stock Market Price

Students often ask questions about a bank’s stock market price and as to what it exactly means. As per RBI guidelines it is mandatory for the Public and Private Sector banks to restrict the promoters’ shareholding. They have to offer their shares to as wide as possible. Through this offering members of public and investing companies purchase these offered shares. Share market, as a result is the most transparent, fair and long term route to dilute the promoters’ equity.

All public and private banks, as a result are listed and quoted on the stock markets in India.  The price of a particular stock, say HDFC Bank, is the amount of money at which a bona fide person can purchase it from the stock market. Again, for your ready reference, the price of one equity share of HDFC Bank on 17/08/18 was Rs.2077.35. Simply put, this is the amount which you should have had in your account to buy one single share of HDFC Bank on 17/8/18. The share would be available for sale / purchase at two share markets: National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). The share prices keep changing during the day as per the market demand. On 17/8/18, the share price of HDFC Bank Limited fluctuated between Rs. 2071.65 and Rs. 2093.05 on the NSE. The demand of a particular share, however, is related to many factors such as the performance of the company, quality of its business, quality of the management, future business potential and the optimism of the investors.

By purchasing one or any number of shares of a company, you become the owner of that company. For example, if HDFC Bank comprises of approximately Rs. 271 cr shares, your 1 share makes you the owner of HDFC Bank Limited to the extent of 0.00000003%. Good Luck!!

The capital of a company is distributed into the number of equity shares. An equity share can denote any face value: Rs 1, Rs. 2, Rs. 5 or Rs. 10. Sometimes even Rs. 100. The face value of Rs. 10 used to be the most common. Still it is. However, large companies, with a purpose to broadbase the number of shareholders and to encourage ease of purchasing by modest investors, do break the face value into smaller denominations. HDFC Bank used to have a Rs. 10 face value of its share which it broke into Rs. 2 face value share.

Any member of public can buy one single share of HDFC Bank Ltd which has a Face Value of Rs. 2 and a market value of Rs. 2077.35 (closing price of 17/08/18) and after buying can say that he / she owns HDFC Bank Limited to the extent of 0.00000003%.

 

Market Capitalisation

The combined value of all the equity shares of a company in the Stock Market is known as the Market Capitalisation of that company. Again, this too is dependent upon the share price of the company at any given time and varies from moment to moment and day to day. Citing the example of HDFC Bank Limited, the total value of its shares at NSE on 17/08 was Rs. 5,63,027.92 Crore. If one divides this amount by the share price (Rs. 2077.35), one will get the number of shares which the HDFC Bank’s capital is divided into 271,03,18,049 equity shares.

The share of HDFC Bank is also listed at the New York Stock Exchange and as a result, the company falls under dual regulatory controls: of SEBI ( in India and of SEC (Securities and Exchange Commission) of USA which is headquartered in Washington. Naturally, the international investors would be interested in knowing the market capitalisation in US Dollars. To get this, you need to divide the market capitalisation in Rupee by the value of US Dollar at the USD rate of that day which was Rs. 70.

It comes to USD 80.43 billion. This is the third largest company in India in terms of market capitalisation after RIL and TCS.

 

Price To Earning Ratio (P/E Ratio)


The relationship between a company’s stock price and its earnings per share. You can calculate  The P/E ratio is calculated by dividing a company’s current stock price by its earnings per share (EPS).

EPS can be calculated by dividing the income of the company by the number of equity shares outstanding.

In case of HDFC Bank Limited, its Net Profit for the Financial Year 2017-18 was Rs. 17486.73 cr. Its EPS works out to approximately 67.38.

Now that we know the EPS, what will be the P/E Ratio? It will be 30.83.

 

Stock price and P/E ratio


While a company’s stock price reflects the value that investors are currently placing on that investment, a share’s P/E ratio indicates how much investors are willing to pay for every Rupee of profit by that company. The market price of a given stock is needed to calculate its P/E ratio, but in many ways, the P/E ratio offers better insight into the stock’s growth potential. It also gives a tool in the hands of the investor to have an industry or peer to peer comparison.

Generally speaking, a high P/E ratio points to that buyers expect higher future profits. Yet, it is not always a better investment decision than one with a lower P/E ratio, as a high P/E ratio can also point towards the share being overvalued. If you invest in an overvalued stock, you run the risk of losing money if it doesn’t meet investors’ high earnings expectations.

On the flip side, when a company’s stock has a low P/E ratio, it may indicate that the stock is undervalued. Investors can often buy undervalued stock at a discount and then profit when the price of that stock climbs. That said, sometimes a low P/E ratio reflects a genuine lack of growth potential.

Some other tools of measuring performance of a listed company for investment purpose is: its dividend paying history, depth of the stock (low market capitalisation will give huge fluctuations in the share price), fair business practises, return on capital employed and its book value.

Some more facts about HDFC Bank:

No of Branches    :    4,787

No of ATMs     :    12,635

Cities present  :    2,691

Market Share   :    6.1% in assets

Market Share   :    5.6% in liabilities

Holds Top 3 No in :    Auto Loans/Personal Loans/CMS/SCM