Guys today which means (April 5th 2024) the stock is at 1529.

I feel that HDFC Bank currently is at beautiful valuations, if you have an opportunity to buy any stock where you can hold it for short to medium term. You can consider buying this.

Basic Analysis:

Here are my points. This is going to be long, so be patient and try to understand and it is not rocket science to find it difficult but you should concentrate.

This is how the stock price is moving from the past years since 2011. It is regularly growing along with its revenues and profits generated by the bank.

Now let’s zoom in a little bit and observe the past three years.

Now from this observe the chart from 2021 to till today. It is at the same price in Feb 2021 as well. But when you see the revenue growth and profit growth, you will be shocked.

Now before getting into results please have a look at two short definitions of two technical terms which have to be learned before having a look at results. These are useful for your investing career a lot. Ignore if you already know these.
PE Ratio and EPS, what are those, read this: What is EPS and PE Ratio?

From this, 

1. Have a look at only Net Profit, in the year 2021 March net profit is around 31857 crores and now you can see TTM (Trailing twelve month) is around 60 thousand crores.
2. EPS in 2021 March is at 57.74 rupees and now at TTM it is at almost 90 rupees.

But the stock price has not moved anywhere, it is just consolidating up and down a little bit.

Now you should ask me from the past all years the stock is growing along with its profits generated and now from 2021 why it didn’t grow, that’s where the PE contraction comes into picture. Now what is PE contraction? It is another chapter, just remember for now that whenever PE contraction happens stock doesn’t move much even if it’s generating good profits.

PE Ratio history:

This is the history of stock PE, right now stock PE is at 17. The average PE of HDFC Bank PE is around 25.

But a very interesting point is just have a look at the history when the stock PE fell to 17, it is only twice one during 2008-2009 crisis and two during covid which is 2020. And now it is at 17.

The game is not over yet. Now let’s have a look at Price to Book value.

Price to Book Value history:

If you don’t know what the price to book value is, I can give you an example, when you go and want to purchase a real estate property, the market value will obviously be more than the book value from the government’s point of view.

But here the stock’s book value will be calculated by the money that will be paid to its shareholders, if all the assets are liquidated. Currently the book value of HDFC Bank is at 519.

The story is similar to its PE Ratio, the price to book value is currently less than 3. Have a look at the history again it is less than 3 during 2008 – 2009 and during covid.

After all these things, it is obvious that HDFC Bank is trading at a very attractive price. I am not getting into more technical things, these are enough to understand our main point.

Now just to add a few more important points, In July 2023, HDFC Bank and HDFC Ltd were merged. But still I don’t see any problems for the growth of HDFC Bank.

NOW COMMON SENSE POINTS:

Now let’s use our “common sense” and understand some very important points,

1. Right now interest rates are high and the federal bank chairman has already made comments that they will be reducing the interest rates multiple times this year.
2. The Reserve bank of India (RBI) as well are going to reduce interest rates as well which everyone knows.
3. If you want to take a loan, would you like to take during high interest rates or low interest rates, then obviously banks will be able to give out loans and a lot of people will be taking loans during low interest rates.
4. Very important point, Elections in India, As everyone knows BJP is going to lead and Modi will be PM again, which is going to be a stable government and markets want a stable government to be in power. (I am not a BJP or Congress supporter). When this happens markets will be rewarding very well.

Hope you got all my points, Please comment and ask if you have any doubts. Please do let me know if you have any suggestions.

This is not a stock recommendation, I just want to put all my analysis and decision is upto you.
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