Equity Valuation Of Hdfc Bank Ltd Economics Essay

The equity rating of HDFC Bank is done in this study sing the top – down attack where the economic system, industry and the company will be studied and the long term chance of puting in the bank ‘s portions will be found out. In the top down attack it is believed that economy/market and the industry effects have a important impact on the entire returns for single stocks. The company ‘s public presentation in the long tally is affected by the industry public presentation and besides by the overall public presentation of the economic system. When the economic system at big is at roar, there are just opportunities of the industries and the companies in that economic system to make good and future growing is possible. Not all companies do good proportionately but with proper analysis the investor can happen out where to put and multiply his/her wealth.


Economicss experts and assorted surveies conducted across the Earth envisage India and China to govern the universe in the twenty-first century. For over a century the United States has been the largest economic system in the universe but major developments have taken topographic point in the universe economic system since so, taking to the displacement of focal point from the US and the rich states of Europe to the two Asiatic giants- India and China. Here we will concentrate on Indian economic system as the growing has

GDP: The strengthening of economic activity in the recent old ages has been supported by relentless addition in gross domestic investing rates from 22.9 per cent of GDP in 2001-02 to 33.8 per cent in 2005-06. It may besides be noted that over 95 per cent of investing in the state during this period was financed by the domestic nest eggs. The expected existent GDP growing in 2007-08 is around 8.5 per cent. Agricultural GDP growing doubled to around 4 per cent in 2006-07 and is peculiarly of import in Indian context.

Interest Ratess: In an unfastened economic system, the domestic involvement rate is influenced by international rates, which in instance of India has been on the upswing since 2004. India ‘s involvement rates are expected to travel up in the average term. A higher involvement rate may be needed to command the awaited higher rising prices. With indicants of a farther hiking in the US and the European Central Bank ‘s involvement rates, it is more likely that India will follow suit. Because if India ‘s economic growing is to maintain up with that of other states in a deregulated market environment, it has to follow the involvement rhythm of the planetary economic system.

Inflation: Get downing with a rate of 3.98 per cent, the rising prices rate in 2006-07 has been on a general upward tendency with intermittent lessenings. However, mean rising prices in the 52 hebdomads stoping on February 3, 2007 remained at 5 per cent. A jet in rising prices like in the current twelvemonth has been observed in the recent yesteryear in 1997-98, 2000-01, 2003-04 and 2004-05.

Inflation, with its roots in supply-side factors, was accompanied by floaty growing of money and recognition in 2005-06 and 2006-07 so far. While GDP growing accelerated from 7.5 per cent to 9.0 per cent between 2004-05 and 2005-06, the corresponding acceleration in growing of wide money ( M3 ) was from 12.3 per cent to 17.0 per cent. Year-on-year, M3 grew by 21.1 per cent on January 19, 2007. The industrial revival and upswing in investing was reflected in, and sustained by, growing of gross bank recognition ( as per information covering 90 per cent of recognition by scheduled commercial Bankss ) , for illustration, to industry ( medium and big ) at 31.6 per cent and for lodging loans at 38.0 per cent in 2005-06. It was besides observed in year-on-year growing of gross bank recognition at 32.0 per cent in September 2006, albeit marginally down from 37.1 per cent in 2005-06. Accommodating the twin demands of easing recognition for growing on the one manus and containing liquidness to chasten rising prices on the other remained a challenge. RBI put a restraint on the rapid growing of personal loans, capital market exposures, residential lodging beyond Rs. 20 hundred thousand and commercial existent estate loans by more than duplicating the provisioning demands for standard progresss under these classs from 0.40 per cent to 1.0 per cent in April 2006. Simultaneously, it increased the hazard weight on exposures to commercial existent estate from 125 per cent to 150 per cent.

Fiscal Policy: Managing financial subject in the thick of competitory demands on public resources and revenue enhancement outgos vis-a-vis varied and frequently at odds outlooks of interest holders is a complex exercising. The last three old ages ‘ financial consequences, peculiarly measured against the shortage marks, demonstrate the effectivity of pull offing resources. It is reassuring that shortages have been contained within the mandated bounds. The upswing in growing has appeared to hold propelled the economic system to ‘take-off ‘ , and it has been accompanied with a decrease in financial shortage from a degree of 5.9 per cent of GDP in 2002-03 to 3.7 per cent of GDP in 2006-07. During the same period, gross shortage has declined from 4.4 per cent of GDP to 2.0 per cent of GDP. Tax-GDP ratio which was 8.8 per cent in 2002-03 has go up to 11.4 per cent in 2006-07. The betterment in shortage indexs has been achieved through betterment in tax-GDP ratio.

Investor ‘s Assurance: Indian economic system has achieved what it has been trusting for rather some clip. Possibly at no clip during the post-liberalization period, Indian economic system has shown such sort of optimism. It is poised to heighten its existent economic growing rate in the current twelvemonth, keeping a immense modesty of foreign exchange that is instead unprecedented, involvement rates at an all clip low and rising prices really much under control, progressively robust corporate public presentation, strong operational public presentation from the banking sector, rush in the stock monetary values and a whole scope of reforms right from new norms for issue in the primary markets to the puting up of a cardinal listing authorization to benchmarking Indian stock exchanges with the international best patterns. All these factors have boosted investor assurance in the economic system.

Employment: Both growing of population and labour force have shown significant lessening. This is a positive signal. Small Growth in the organized sector employment has been noticed in the private sector. Public sector has shown a negative growing. Significant employment coevals took topographic point in the third sector peculiarly in services industries. Significant employment growing was observed in the little and unorganized sector, i.e. , in little and bantam endeavors. Self-employment and insouciant labor continued to play a polar function in rehabilitation of the unemployed.

Since independency Indian economic system has thrived hard for bettering its gait of development. Notably in the past few old ages the metropoliss in India have undergone enormous substructure up step but the state of affairs in non similar in most portion of rural India. Similarly in the kingdom of wellness and instruction and other human development indexs India ‘s public presentation has been far from satisfactory, demoing a broad scope of regional inequalities with urban countries acquiring most of the benefits. In order to achieve the position that presently merely a few states in the universe enjoy and to supply a more classless society to its mounting population, appropriate steps need to be taken.

Trade Policy: India ‘s economic public presentation has continued to be impressive since 2001-02 and growing has been peculiarly rapid since 2003-04 averaging over 8.5 % with around 9 % in 2006-07. This public presentation is mostly due to one-sided trade and structural reforms, in peculiar in services provided by India. Rapid economic growing has besides resulted in an betterment in societal indexs such as poorness and infant mortality.

India is fixing herself for going an economic world power, and it must hasten socio-economic reforms and take stairss for get the better ofing institutional and substructure constrictions built-in in the system. Handiness of both physical and societal substructure is cardinal to sustainable economic growing.

All these issues show that India is turning and it still has enormous chance to turn even at a faster rate.

Monetary Policy: It is sensible to state that the public presentation of the Indian economic system has been by and big robust and resilient, which is attributable to economic reforms in several countries therefore bettering efficiency and fight in the system as a whole. The behavior of pecuniary policy besides has some important function in this result, in position of its success in loosely carry throughing its nonsubjective – growing with stableness, the latter embracing macroeconomic, monetary value and fiscal stableness. The positive parts of pecuniary policy were made possible by reexamining and continuously polishing the pecuniary policy model, in melody with altering economic environment and context.

Broad Money expanded by 2.4 % in June 2007 as compared to 2.0 % in the same month a twelvemonth ago. Recognition to the authorities sector continues to turn while recognition to the commercial sector dropped since April 2007. Net foreign exchange assets of Bankss slipped for the 3rd back-to-back month and non-monetary liabilities of the Bankss decreased by 15 % . Growth in the sum sedimentations remains slow during the current financial compared to the old twelvemonth. In June this twelvemonth, Investments in the authorities securities picked up by 7.3 % compared to a 5.2 % in the same month of 2006. Credit away take by the nutrient and the nonfood class have fallen aggressively.

As discussed above, in the recent old ages rising prices has risen to around 4 % and in 2006 it touched an all clip high of 6.5 % . Demand is being fed in portion by rapid growing in consumer disbursement fueled by consumer recognition. Higher oil monetary values are besides a factor. To turn to the rising prices job, the Central Bank of India raised the short-run policy rate in 2005. Higher oil monetary values are a concern to India above and beyond their inflationary impact. Since India is a major oil importer, higher oil monetary values are a hit to existent income, and the load tends to fall disproportionately on India ‘s hapless. To screen Indian families, merely a fraction of the monetary value hikings for fuel have been passed on to consumers. The difference has been absorbed by oil selling companies, most state-owned, which has necessitated authorities subsidies.

By and big pecuniary policy in the recent times have been concentrated on maintaining rising prices down to below 4 % degree and keeping a stable growing rate. The RBI, cardinal bank of India has taken disciplinary steps to accomplish the mark of 8+ per centum GDP growing and rising prices degree of less than 4 % . Recently, the rising prices degree has touched a low degree of 3.71 % in Aug 2007 and GDP has grown by more than 9 % degree.

The liquidness in the economic system has increased aggressively in the twelvemonth 2004 that is why the rising prices during that clip period besides increased with a higher rate. To extenuate the rising prices RBI efficaciously used the CRR tool and has been increasing the CRR since so. At a value of less than 5 % during 2003, CRR now stands at 7 % . The RBI is now able to keep the rising prices within 4 % .

Liquidity conditions remained reasonably comfy up to early September 2006 with the unwinding of the Cardinal Government excess balances with the RBI and continued intercession in the foreign exchange market to keep orderly conditions. During 2006-07, up to September 8, 2006, RBI had non received any command for repo under Liquidity Adjustment Facility ( LAF ) and the uninterrupted flow of financess under reverse-repo indicated a comfy liquidness place. In 2005-06, the contrary repo rate had been raised by 25 footing points each clip on April 29 and October 26, 2005, and on January 24, 2006 to make 5.50 per cent. In 2006-07, it was raised once more by 25 footing points each clip on June 9 and July 25, 2006. There was some stringency with the oncoming of the festival season and due to high recognition enlargement and escapes on history of progress revenue enhancement payment. From mid-September through October, 2006, while RBI had to supply adjustment to some Bankss through repo installation, with rearward repo operations at the same time, in net footings, RBI absorbed liquidness from the system.

Exchange Rate: Indian Rupee against the USD remained stable between Rs 40.00/41.00. Indian Rupee traded largely below Rs 41.00 in June 2007. Throughout the month Rupee gained against the USD but remained volatile and crossed Rs 41.00 exceptionally in merely one trading session. The rupee ranged between Rs 40.47/41.01 averaging at Rs 40.8 in June 2007, demoing failing towards the last trading Sessionss of the month. The cardinal bank continues to keep its limited intercession in the forex market until the inflationary force per unit areas are minimized. In June 2007 INR against the Euro demonstrated less volatility than it did against the USD. It peaked at Rs 55.09 and remained above Rs 55.00 degree in the penultimate trading Sessionss before achieving a degree below Rs 55.00. However it averaged at Rs 54.7 in June2007.

Challenges Faced By Indian Economy

Presently Indian economic system is confronting these challenges:

Prolonging the growing impulse and accomplishing an one-year mean growing of 7-8 % in the following five old ages.

Simplifying processs and loosen uping entry barriers for concern activities.

Checking the growing of population ; India is the 2nd highest populated state in the universe after China. However in footings of denseness India exceeds China as India ‘s land country is about half of China ‘s entire land. Due to a high population growing, GNI per capita remains really hapless. It was merely $ 2880 in 2003 ( universe bank figures ) .

Hiking agricultural growing through variegation and development of agro processing.

Expanding industry fast, by at least 10 % per twelvemonth to incorporate non merely the excess labor in agribusiness but besides the unprecedented figure of adult females and adolescents fall ining the labour force every twelvemonth.

Developing first substructure for prolonging growing in all the sectors of the economic system.

Leting foreign investing in more countries

Effecting financial consolidation and extinguishing the gross shortage through gross sweetening and outgo direction.

Empowering the population through cosmopolitan instruction and wellness attention. India needs to better its HDI rank, as at 127 it is manner below many other developing states ‘ public presentation. The UPA authorities is committed to furtering economic reforms and developing basic substructure to better lives of the rural hapless and hike economic public presentation. Government had reduced its controls on foreign trade and investing in some countries and has indicated more liberalisation in civil air power, telecom and insurance sector in the hereafter.

Industry Analysis

Banking development in India since Independence is impressive. It reflects successful orientation of commercial Bankss to the turning demands and complexnesss of development.

The Indian banking sector has witnessed broad runing alterations under the influence of the fiscal sector reforms initiated during the early 1990s. The attack to such reforms in India has been one of gradual and non-disruptive advancement through a advisory procedure. The accent has been on deregulating and opening up the banking sector to market forces. The Reserve Bank has been systematically working towards the constitution of an enabling regulative model with prompt and effectual supervising every bit good as the development of technological and institutional substructure. Persistent attempts have been made towards acceptance of international benchmarks as appropriate to Indian conditions. While certain alterations in the legal substructure are yet to be effected, the developments so far have brought the Indian fiscal system closer to planetary criterions.

Economic Outlook And Banking Sector ‘s Performance

Keeping in head the impact of existent sector dazes on fiscal stableness, any appraisal of the banking sector needs to be done in the background of national every bit good as international economic mentality. During the last twosome of old ages, planetary growing has been above the prognosis in about every part stimulated by strong pecuniary and financial steps. The domestic economic mentality is besides bright with the existent GDP growing rate exceling 8 % last twelvemonth and estimated to be about 7 % in the current twelvemonth. Industrial public presentation besides improved well with a strong fabrication growing for the 2nd back-to-back twelvemonth. Inflation rate has been under control, excluding some hiccough for a short period.

Aided by a good macro economic environment, Bankss ‘ underside line has improved significantly over the last two old ages. However, allow us non bury that a major subscriber to the windfall additions has been treasury net incomes fuelled by a secular diminution in involvement rates during the three old ages period from 2001 to 2004 and attendant net income engagement on sale of authorities securities. From the current twelvemonth, with the hardening of involvement rates, this trading constituent of net incomes is no longer traveling to shore up Bankss ‘ profitableness. On the contrary, most Bankss have been required to supply for the diminution in the market value of their investings portfolio. One countervailing factor has been the strong choice up in the recognition off-take due to floaty demand in the economic system and resurgence of industrial activity, which have resulted in significant addition in Bankss ‘ nucleus involvement income.

High Capital Inflows: An Opportunity Equally Well As A Challenge

As we all know, liquidity place in the fiscal sector has been rather comfy in the recent times. The floaty capital market coupled with an appreciating rupee vis-a-vis US dollar has been pulling big foreign institutional influxs during the last few old ages. While we have been seeing a high foreign exchange militias of more, high capital influxs pose a large challenge to pecuniary and exchange rate direction. In this context, operationalisation of Market Stabilisation Scheme ( MSS ) has given an extra instrument for liquidness and pecuniary direction.


Technology has thrown new challenges in the banking sector and new issues have started cropping up which is traveling to present certain jobs in the close hereafter. The new entrants in the banking are with computing machine background. However, over a period of clip they would get banking experience. Whereas the center and senior degree people have rich banking experience but their computing machine literacy is at a low degree. Therefore, they feel the disability in this respect since engineering has become an indispensable tool in banking.

Foreign Bankss and the new private sector Bankss have embraced engineering right from the origin of their operations and hence, they have adapted themselves to the alterations in the engineering easy. Whereas the Public Sector Banks ( PSBs ) and the old private sector Bankss ( excluding a really few of them ) have non been able to maintain gait with these developments. In this respect, one can mention historical, political and other factors like work civilization and working dealingss ( which are chiefly governed by bipartite colonies between the directions and the staff members ) as the chief restraints.

Globalization Of Financial Services

Turning integrating of economic systems and the markets around the universe is doing planetary banking a world. The rush in globalisation of finance has besides gained impulse with the technological promotions which have efficaciously overcome the national boundary lines in the fiscal services concern. Widespread usage of cyberspace banking has widened frontiers of planetary banking, and it is now possible to market fiscal merchandises and services on a planetary footing. In the coming old ages globalisation would distribute further on history of the likely opening up of fiscal services under WTO. India, as we all know, is one of the 104 signers of Financial Services Agreement ( FSA ) of 1997. This gives India ‘s fiscal sector including Bankss an chance to spread out their concern on a quid pro quo footing.

Indian Banks at the planetary phase:

As per Indian Banks ‘ Association study ‘Banking Industry Vision 2010 ‘ , there would be greater presence of international participants in Indian fiscal system and some of the Indian Bankss would go planetary participants in the coming old ages. So, the new mantra for Indian Bankss is to travel planetary in hunt of new markets, clients and net incomes. We should non bury that the competition is non merely on foreign sod but besides in the domestic field every bit good from foreign Bankss runing in India.

Now against these exalted aims of Indian Bankss traveling planetary, allow us see where we stand. Although, Indian Bankss have besides made their presence overseas, yet it is limited. Merely 20 Indian Bankss including private sector Bankss appear in the list of “ Top 1000 World Banks ” as listed by the London based magazine “ The Banker ” . What is even more disclosure is that State Bank of India, India ‘s largest bank, ranks 82nd amongst the top planetary Bankss. Size is progressively going of import for the planetary Bankss as it is important to improved efficiency. However, India ‘s largest bank, SBI is non even a 10th in size of the 9th largest bank, Sumitomo Mitsui, which has assets of $ 950 billion as against SBI ‘s assets of $ 91 billion. Therefore, the impression that SBI or ICICI Bank can vie in the international sphere seems far fetched at the minute.

The job is non merely one of missing the necessary size ; few Indian Bankss have the necessary merchandises or human resource capablenesss. If anything, the execution of Basel II norms has raised the saloon for Indian Bankss seeking an international presence. The top international Bankss can take down their capital demands through the usage of sophisticated hazard direction techniques and therefore vie more sharply than earlier.

Indian Banks To Meet Global Challenge

Indian banking sector has already implemented internationally followed prudential accounting norms for categorization of assets, income acknowledgment and loan loss provisioning. The range of revelation and transparence has besides been raised in conformity with international patterns. India has complied with about all the Core Principles of Effective Banking Supervision of the Basel Committee. Some of the Indian Bankss are besides showing their histories as per the U.S. GAAP. The roadmap for acceptance of Basel II is besides under preparation. All these factors give Indian Bankss much needed assurance for abroad operations. But as I said earlier abroad operations is one thing and viing against the planetary participants in the international market is rather another. And Indian Bankss have a batch of catching up to make before they can emerge as genuinely planetary participants.

Supporting Regulatory Framework

Supporting institutional and regulative model at place is critical for domestic Bankss draw a bead oning for planetary operations. RBI has appropriately changed the state ‘s regulative model from clip to clip to back up Indian fiscal establishments to defy the competitory force per unit areas placed on them by increasing globalisation.

Proper stairss have been taken to steer the banking sector to see that the Bankss pass through this passage stage by and big successfully. The reforms initiated in the banking sector have now reached a important phase. Government ‘s interest in some PSBs is reduced and as a effect public equity in these PSBs is enlarged. This led to greater duty on the bank directions since the degree of answerability has increased. Pressures of public presentation and profitableness will maintain them on their toes all the clip as the public stockholders expect good public presentation along with good returns on their equity. Many PSBs have already started the exercising of cleaning up of their balance sheets by casting the extra luggage. The VRS strategy in the recent yesteryear in some of the Bankss was aimed non merely at downsizing the work force but besides at cutting down the staff costs and increasing the public presentation degrees of the staff in the long tally.

Consolidation And Move Towards Universal Banking

The Indian Bankss are easy but certainly traveling from a government of “ big figure of little Bankss ” to “ little figure of big Bankss. ” The new epoch is traveling to be one of consolidation around identified nucleus competences. Amalgamations and acquisitions in the banking sector are traveling to be the order of the twenty-four hours. Successful amalgamation of HDFC Bank and Times Bank earlier and Stanchart and ANZ Grindlays a few old ages ago has demonstrated that tendency towards consolidation is about an recognized fact. The Indian Bankss are besides looking for such marks in regard of a figure of old private sector Bankss, many of which are non able to buffer their NPAs, expand their concern and induct engineering due to limited capital base.

Coming times may show in big banking establishments, if the development fiscal establishments opt for transition into commercial banking in line with the recommendation of Narasimhan ( II ) . In India, one of the largest fiscal establishments, ICICI, took the lead towards cosmopolitan banking with its contrary amalgamation with ICICI Bank coming through a twosome of old ages ago. Another mega fiscal establishment, IDBI has besides adopted the same scheme, and has already transformed itself into a cosmopolitan bank. This tendency may take logically to advancing the construct of fiscal ace market concatenation, doing available all types of recognition and non-fund installations under one roof or specialised subordinates under one umbrella administration. Amalgamate accounting and supervisory techniques would hold to germinate and allow fire walls built to turn to the hazards underlying such big administrations and banking pudding stones.

Competitive Strategy ( Porter ‘s Five Forces Model )

The banking industry will now be analyzed maintaining Porter ‘s Five Forces theoretical account into position. Some of the issues like market attraction and potency can be analyzed utilizing Porter ‘s Five Forces Model which are mentioned below:

Dickering power of the provider

Menaces from Competition

Menaces of New Entrants

Dickering power of the Buyer

Menaces from Substitutes

Fig 1 Porter ‘s Five Forces Model

The assorted facets of Porter ‘s Five Forces Model are discussed below:

Menaces from Competition:

The banking industry is extremely competitory. The fiscal services industry has been around for 100s of old ages, and merely about everyone who needs banking services already has them. The assorted Bankss have competition within themselves which will come under intra banking competition but there are a few services which are provided by some of the Bankss every bit good as by the participants of other industry like depositary services, investing chances and loaning installations. These services are provided by banking sector every bit good as by other fiscal companies and besides from unorganised sector. For illustration, a depositor can put their money in Bankss in a manner of sedimentation and they can besides put in other countries like station office salvaging sedimentations, common financess and other investing avenues. Due to high competition, Bankss must try to entice clients off from rival Bankss and besides from participants of other indutries. They do this by offering lower funding, preferable rates, and investing services. The banking sector is in a race to see who can offer the better and faster services, but this besides causes Bankss to see a lower ROA. They so have an inducement to take- on high hazard undertakings. In the long tally, we ‘re likely to see more consolidation in the banking industry. Bigger Bankss would prefer to coup d’etat or merge with another bank instead than pass the money to market and publicize to people.

Dickering Power of the Suppliers:

There is no such providers exist for the banking industry as the sedimentations are done by the clients merely and they have small or no say in the sedimentation rate. These clients do non hold dickering power. The other providers may be the providers of capital who might non present a large menace, but the menace of providers enticing off human capital does play a menace. If a gifted person is working in a smaller regional bank, there is the opportunity that the individual will be enticed off by bigger Bankss, investing houses, etc. Furthermore the Bankss are affected by the legal and environmental factors such as policies laid down by the authorities.

Dickering power of the Buyers:

As the instance with providers, even the purchasers does n’t present much of a menace to the banking industry as they do non hold much dickering power as per involvement rates for loans are concerned However the big institutional purchasers have some kind of dickering power.

Another major factor impacting the power of purchasers is comparatively high shift costs. If a individual has their mortgage, auto loan, recognition card, look intoing history, and common financess with one peculiar bank, it can do it highly tough for them to exchange. In an effort to lure-in clients, Bankss try to take down the monetary value of shift, but many people would still instead stick with their current bank. On the other manus, big corporate clients have Bankss wrapped around their small finger. Fiscal establishments — by offering better exchange rates, more services, and exposure to foreign capital markets — seek highly difficult to acquire high border corporate clients. As there is intense competition in the banking industry, the Bankss have to enticement clients through augmented merchandises and services.

Menaces of Substitutes:

The banking industry is affected by the presence of replacements besides as there are plentifulness of replacements in the banking industry. The presence of other investing chances besides lodging in bank and more focal point on loaning has affected the banking industry in footings of its sedimentations. As you can likely conceive of, . Banks offer a suite of services over and above taking sedimentations and imparting money, but whether it is insurance, common financess, or fixed income securities, opportunities are that there is a non-banking fiscal services company who can offer similar services. In the lending side of the concern, Bankss are seeing competition rise from unconventional companies. Sony, General Motors, and Microsoft all offer preferable funding to clients. For illustration, if auto companies are offering 0 % funding, cipher would desire to acquire a auto loan from the bank and pay 5-10 % involvement. One more thing has besides been noticed that in the recent yesteryear, the recognition has grown at the rate of 30 % while the rate of growing of sedimentation is merely at the rate of 20 %[ 1 ]. This is chiefly due to the replacements available to the investors and can hold inauspicious consequence in the long tally.

Menaces of New Entrants:

Banking industry does endure from the menace of new entrants as the authorities has liberalized the banking industry. The mean individual ca n’t come along and get down up a bank, but there are services, such as internet measure payment, on which enterprisers can capitalise. Banks are fearful of being squeezed out of the payments concern, particularly since it is a good beginning of fee-based gross. Another tendency that poses a menace is companies offering other fiscal services. Not merely the entry of new Bankss affects other Bankss but besides the entry in other sector such as the entry of NBFC ( Non- Banking Financial Companies ) besides affects the overall industry. Inside the industry besides menace of a ‘mega bank ‘ come ining into the market poses a existent menace to a regional bank.

Decision: To remain in front in the competition, Banking Industry has revolutionized the dealing and fiscal services system worldwide. Through the development in engineering banking services has been availed to the clients at all times, even after the normal banking hours, on a 24×7 footing. Banking Industry services is nil but the entree of most of the banking related services ( such as confirmation of history inside informations, traveling with the minutess, etc. ) . In today universe, advancement of online services is available to all clients of the concerned bank and can be accessed at any point of clip and from anyplace provided the topographic point is equipped with the Internet installation. Now-a-days, about all the Bankss all over the universe, particularly the transnational 1s, provide their clients with Online Banking installation.


The stock analysis of a banking company differs from that of companies in different sectors. For Bankss, normally CAMEL ANALYSIS ( C for Capital Adequacy, A for Asset Quality, M for Management Efficiency, E for Earnings and L for Liquidity ) is done through which the bank ‘s public presentation is measured.

Capital Adequacy Ratios / Nutriment:

the capital adequateness ratio measures the hazard exposure of the bank, the quality of assets and the capacity of the bank ‘s capital to prolong the hazard degree. A higher ratio is better for the nutriment of bank. However, CAR above a point indicates that the bank is fring chance to gain more concern. The Car can be calculated as follows:

CRAR ( Capital to Risk Weighted Asset Ratio ) = Entire Capital


Out of entire 85 commercial Bankss, the capital adequateness ratio of 57 Bankss was 10-15 per cent[ 2 ]. The CRAR oh HDFC bank is shown below:

Figure: CRAR ( Capital to Risk Weighted Asset Ratio ) of HDFC Bank in %

The CRAR of HDFC bank matches the industry criterion throughout the old ages. It shows that in all twelvemonth the Capital to Risk Weighted Asset Ratio is between 10-15 % as per the industry criterion. HDFC BANK maintains its capital adequateness ratio as per Thursday industry criterion. At the same clip it besides does non transcend the industry criterion working all possibilities of gross coevals and pull offing the hazard degree

From the form of dividend declaration that we have seen in the 1st undertaking, we can deduce that the dividend policy of HDFC Bank Limited is based on the demand to equilibrate the duplicate aims of suitably honoring stockholders with hard currency dividends and of retaining capital to keep a healthy capital adequateness ratio to back up future growing.

Asset Quality

HDFC Bank maintains high criterions for plus quality through disciplined recognition hazard direction. The plus quality can be measured utilizing the below ratios:

Net NPAs/Net Progresss

Gross NPAs/Gross Progresss

The two old ages ratios are shown in the tabular array below:




% Gross non executing assets to gross progresss

1.32 %

1.32 %

% Percentage of net non executing assets to net progresss

0.43 %

0.44 %

The graph below shows the per centum of net non executing assets to net progresss for the past 6 old ages.

The Gross NPAs as a per centum of Gross Advances remains the same for the above two old ages while a diminution can be seen in the per centum of Net Non Performing Assets ( NNPA ) to Net Advances. In the twelvemonth 2005-06 the NNPAs were 0.44 % of Net Progresss while in twelvemonth 2006-07 it has decreased to 0.43 % of Net Advances. The addition in Net New people’s army can be due to deteriorating assets quality but a autumn in NPA cab be due to assorted grounds. Since the Gross NPAs to Gross Advances remains the same an there is a lessening in NNPA to Net Progresss it can be said that the alteration in economic status and direction efficiency is taking to a diminution in the per centum. When we compare this with the industry norm we can see that the NPA of HDFC Bank is much lower than that of the industry. In the twelvemonth 2005-06 the Industries it was 1.22 % . Thus we can see that HDFC is maintain high plus quality than the industry.

Management Efficiency ( Staff Productivity )

Net income per Employee = Net Net income

No.Of Employees

Net Entire Income per Employee = Net Total Income

No.Of Employees

From the above graph we can see that HDFC Bank is increasing its offices and its work force twelvemonth by twelvemonth to a immense extent. After ciphering the concern generated per employee and the net income per employee, it can be seen that even though the bank is spread outing its offices and its staff, the net income per employee is staying more or less same. Even if it is worsening, the ratio is really less. This shows that increasing manpower and subdivisions, the bank is turning at a faster rate. The tabular array given in annexure shows that the mean concern generated in the banking industry in twelvemonth 2005-06 was 423.74 hundred thousand and net income per employee was 2.84 hundred thousand. If merely the private Bankss are taken, the concern generated is 677.86 hundred thousand and net income per employee was 4.6 hundred thousand in the same twelvemonth. Comparing the information with industry, we can see that HDFC Bank has outperformed the industry norm and in all the 5 old ages taken here, its norm has exceeded the industry norm.

Profitability ( Net incomes )

To mensurate profitableness, the net net income of the bank will be taken as it is an of import parametric quantity. The net net income is besides influenced by the involvement and non involvement income and disbursals. Through the below mentioned ratios, the profitableness of HDFC Bank has been tried to mensurate. Some of the assorted ratios that has been taken into consideration here are:

Interest Expense Ratio = Interest Expense

Entire Income

Non Interest Expense Ratio = Non-Interest Expense

Entire Income

Efficiency ( cost-income ) Ratio = Non-Interest Expense

Net Entire Income

Overhead Efficiency ( Burden ) Ratio = Non-Interest Income

Non-Interest Expenses

By ciphering the above ratios for the five old ages we get:






Interest Expenses Ratio






Non Interest Expenses Ratio






Efficiency ( cost-income ) Ratio






Overhead Efficiency Ratio






The addition in the above ratios indicates that the company is losing a big per centum of its income to disbursals. If it is acquiring lower, it is good for the bank and its stockholders. We can see that the involvement disbursal ratio has decreased over the old ages except for last twelvemonth. We can besides see that non involvement disbursal ratio has increased over the old ages except for the last twelvemonth. There has besides been rise in the efficiency ratio. These additions are demoing that the company is losing a big per centum of income to write off. HDFC bank demands to take down its non involvement disbursals as they are increasing more.




Technologically superior

Advanced Servicess.

Network with Correspondent Banks

Inter subdivision connectivity

Committed service degrees ( as shown by turning concern per employee )

Wide subdivision web.

Assortment of merchandises


Stringent recognition assessment system

Retention Rate is less

High default charges


Turning Market

MNCs Coming to India

Collaboration with foreign Bank

Amalgamation with HDFC Ltd.


Foreign Banks

Other Players

Global Competition

IT Security

The legal complications are likely to increase in future because of advanced fiscal merchandises implemented on computing machines

Poaching of work force by other participants

Technological up step of Public sector Bankss





Gaining per Share


Industry P/E

Market P/E


























Table 3

The P/E or the Price Earning Ratio shows the ratio between the monetary value of the portion and the earning monetary value per portion. A high P/E ratio is considered every bit favourable as it indicates that the monetary value of the portions is high. But before coming to any determination 1 should besides detect that whether the P/E ratio is high due to high monetary value of the portion or due to low gaining per portion. If the earning per portion is really low, so besides P/E ratio will be high which can misdirect some investors. So the ground behind high P/E ratio should be seen.

In instance of HDFC bank, the earning per portion has been high for all the old ages. In the last fiscal twelvemonth 2006-07, the earning per portion is every bit high as 345.45 % . This indicates that the P/E ratio is high due to the monetary value of the portion. The P/E ratio is besides high as compared to the industry or the market. This shows that the monetary value of HDFC portions is overvalued. Clearly, the P/E Numberss for the market are lower than that of the company which indicates that the company has been overvalued since 2002-2007 with regard to the industry. The HDFC stock can be said to hold over performed the Market in footings of Valuation and therefore the investor would wish to sell as they can do better earning. However, since the EPS and the growing rate are high and besides demoing an increasing tendency, it is wise for long term investors to put in these portions.


Price-to-book value ( P/B ) is the ratio of market monetary value of a company ‘s portion monetary value over its book value of equity. The P/B Ratio of HDFC Bank for the old 5 old ages are shown below:






P/BV Ratio of HDFC Bank






The Price to Book value ratio shows that the portions of HDFC Bank are being traded at higher monetary value than its book value. This shows that the market either believes that the plus value is unostentatious or the company is gaining high rate of returns on its assets. That is why the investor ‘s are ready to purchase portions at a premium. However, this besides indicates that the portion monetary value is overpriced and a rectification can go on in the market conveying the monetary values down. But in this instance, as we can see an upward tendency in the ROE and other bright chances of the company, we can construe that the investors are optimistic about the future chances of the company

P/B ratio is peculiarly utile for value investors, who are ever on the Hunt for low monetary value stocks that the market has neglected. If P/B is less than one, it usually tells investors that either the market believes the plus value is overstated, or the company is doing really severely in footings of returns on its assets.

P/B ratio indicates the built-in value of a company. Many investors have successfully used this to detect hibernating stocks, held them over a long term and booked good net incomes. Though it has its ain defects, it offers an highly easy tool for placing clearly under or overvalued companies. If this facet is considered so HDFC stock is non for the investor ‘s who hunt for undervalued stock as can be seen from the P/B that its stock is non neglected instead the chances are reflected in the stock monetary value



In the above graph MACD can be seen taking monetary value fluctuation in HDFC Bank stock, 200 yearss traveling mean and 50 yearss traveling mean. MACD is the difference between the monetary values of two traveling norms. In this instance it is 200 yearss traveling mean and 50 yearss traveling norm has been taken for the last 5 old ages data. Here simple traveling norm has been applied where equal weights has been given to the monetary values.

From the graph above it can be seen that HDFC Bank stock has been seeing upward tendency in the past old ages. There are fluctuations in the monetary values but the tendency is upward as there is consistent alteration in monetary values and both the opposition every bit good as support degrees is lifting. This can be attributed the assorted factors as the economic system is turning and so is the banking industry. HDFC Bank public presentation has besides been above the industry criterion and the investors are acquiring higher returns. The investors ‘ perceptual experience sing the public presentation of the stock is optimistic and hence we can see a bullish tendency in its monetary values.

In most of the times in the graph we can see that MACD is above nothing which indicates that the 50 yearss traveling norm is much higher than 200 yearss traveling mean demoing a bullish tendency in the market sing HDFC Bank stock. This is one ground why we are seeing an upward tendency line as the investors are bullish.

RSI ( Relative Stock Index )

The RSI compare the internal strength of a individual security. The figure of clip periods can be varied while ciphering RSI. Here in this instance it has been taken 200 and 50 yearss traveling norms to compare.

In the RSI besides we can see an upward tendency in the HDFC Bank stock. The plus of HDFC Bank deemed to be overbought once it reaches the 80 degree, as can be seen from the graph, that is it will acquire overvalued and the market will once more draw it back. Likewise if RSI reaches 20 degrees the stock will see upward tendency after that. The bank can see a downward tendency in the recent coming times as the opposition degree has been seen and there might be a downswing of monetary value. But as per long term is concerned, it is wise to put in HDFC Bank stock as the tendency is demoing that the opposition degree will maintain on increasing and besides the support degree.


Both cardinal and proficient analysis indicates that the monetary values of HDFC Bank stock will maintain on lifting. There are fluctuations in the short term monetary values but by tracking the market one can come out with high returns. Investor ‘s perceptual experience will stay bullish and the stock will execute good in the long tally besides and investors may put in this stock for long period. The monetary values are traveling up and seeing the growing chances of the company it can be said that it will go on to make so. The cardinal facets are reflected in the stock monetary values and the internal strength of the company besides indicates that the company will go on to turn and the investors will acquire returns in the long tally besides.