Sunday, October 13, 2013

Analysis on returns of Banks

Recently due to the FII pulling out money from the Indian Stock markets a lot of good Public sector banks were available at a good dividend yield and discount. Though the actual reason for discount is not necessarily bad business the dividend yield and discount part attracted me to do an analysis on how public sector banks and private banks performed over a period of time

Following are the graphs of two banks 

As you see both the banks are dividend paying companies though the amount of dividend varies for each bank.
Both of them performed well over 10 years time frame.

Following are the returns of if 1,00,000 is invested in these stocks on 03 Jan 2013.
The amount invested in andhra bank would have been by now 2,50,000 plus a dividend of 2,07,000 so it would translate to 4,57,000 at a market price of 54. However if the market price is 120 then it would be a staggering 7,07,000. I mentioned 120 since the stock was trading at 120 a few days ago. So at 4,57,000 the returns would have been 15% per annum which is good.

The same one lac invested in HDFC bank would be now around 14,88,000 plus a dividend of 55500 which totals up to 15,43,568 . As you see HDFC did not return money to investors buy used it to invest in business which generated better.  The returns are at 28% per annum which is stellar.

The same one lac invested in FD at 9% average would have been now around 2,58,000. 
The above example show why equities are a good bet for longterm so always invest for atleast 5 years of time frame and continue to be stay invested.

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