Lets discuss a Index today which has a different composition and is very volatile in India, popular Index of Bank knows as Bank Nifty.Bank Nifty is marching ahead since last few days infact as on 25th June 2024 for the last one month it’s up by 7.42%.
Analyzing HDFC Bank's Impact on the Bank Nifty Index, Current Valuations, and Future Growth Potential
If we see the composition of Bank Nifty index, it’s interesting to see that HDFC Bank has a 29.42% as on 31st May data allocation to Bank Nifty, which describes the heavy weight of HDFC in Bank Nifty now if you compare HDFC price as on 25th June 2024 in the last one month it’s up by 12.79%.+ Now, it’s inevitable that HDFC is a significant allocation to the bank Nifty index. Let’s discuss the stock’s financial; please remember that the discussion and calculation are only for education. They should not be considered as buy or sell advice. Current market cap of HDFC Bank as of 25th June 2024:Rs. 13,02,250 cars. The current price as of close is Rs. 1711/-.Book value as of date is Rs. 519/- per share. The current price trades at 3.30 times the book value ( calculation 1711/519 is approximately 3.30). Now let’s discuss if 3.30 times the book value is expensive or cheap. Firstly, let’s compare that with its peers.ICICI Bank, as of now, trades at 3.95 times the book value. Axis Bank trades at 3.02 times the book value. The above information shows it’s more expensive than Axis but cheaper than ICICI Bank.
Now, let’s finally check the historic valuations of HDFC Bank.If you see the graph below of HDFC Bank’s price-to-book ratio over the last 18 years, the median price-to-book ratio is 4.4 times, which means that considering the current book value of 519, it should come to 2282 rs per share. Also, considering 4.4 times the book value, which is the median value, the book value grows to 620 in a year, and at the same level of 4.4 times the book value, the share price comes to 2728.
Considering 4.4 times the book’s current book value, there is at least a 33% upside left in the stock price. And if you think of book value as 620 within a year and 4.4 times book value on current price, there is approximately 59% upside left in stock. Please note that these are based on historical data and assumptions.
Last but not least, let’s check the DII holding in the stock in September 2023, which was 30.39%. As of March 2024, it has become 33.33 %, an increase of 2.94%. This means Mutual fund companies find value in this stock even when other stocks in the same market are at historically high prices. Even if you check the technical of HDFC Bank, this seems to be on a stronger front.
With government capex increasing in many sectors, even private players have started participating in the capex cycle. This has some multiplier effect on consumption and will eventually drive financial growth.
Disclaimer: We are not SEBI registered, and we are not recommending any buy or sell transaction on any stock. Views are entirely personal, just an expression of opinions and data. Users can discuss and make their own decisions.