The other day I read the newspaper headline, "SBI stock rallies over 7% post Q-1 results". I was happy for a moment because I owned SBI shares. I felt the company was doing good and might have earned bumper profits. I was wrong. SBI earned 31% less profits when compared to previous years. I was taken aback by this paradox.
To know this, I researched thus.
An absolute news about a company might not always be meaningful (while evaluating a stock). Because, as they say "Half knowledge is dangerous" . One should not evaluate any news in isolation. Now lets us consider other news in conjuncture with the SBI stock.
1.Banks' balance sheets have been taking a big hit from the past one and a half years, due to the slew of measures taken by Raghuram Rajan to clean up banks' books. This has caused an increased amounts of provisions made by banks. What are provisions? Provisions are those parts of profits that are set aside in anticipation of certain bad news (in our case NPA's). NPA's are those kinds of loans which you gave to your friend but he doesn't repay you on time or according to your terms.
Imagine you are to receive 100 rupees (Loan receivable) from your friend. He doesn't pay 20 rupees (NPA) and to this effect, you have to set aside/incur 20 rupees of your pocket money (Net profits). This is the cycle of NPA(in short). And this is the dismal state of todays banks in India.
2. Further, as a result of economic downturn (many lenders turning into NPA's) as well as Rajan's intervention (many more loans being recognised as NPA), many banks like Punjab National bank, Bank of Baroda, Bank of India etc have reported huge losses. Now it is a cheerful news that SBI is making little profits, if not losses amid this lacklustre.
3. Also there are many market experts out there, whose job is to estimate the company's profits based on everything that affects the companies. Its good news if company is able to outdo those expectations. In our case, for example, ETnow estimated profit of 2475 crores vs actual profits of 2530 crores.
So after all this analysis, I did feel that SBI stock has enough to cheer about. That is why:
Traders bought more SBI shares > demand exceeded the supply > stock price has risen.
Quick facts:
1.Stats of SBI
To know this, I researched thus.
An absolute news about a company might not always be meaningful (while evaluating a stock). Because, as they say "Half knowledge is dangerous" . One should not evaluate any news in isolation. Now lets us consider other news in conjuncture with the SBI stock.
1.Banks' balance sheets have been taking a big hit from the past one and a half years, due to the slew of measures taken by Raghuram Rajan to clean up banks' books. This has caused an increased amounts of provisions made by banks. What are provisions? Provisions are those parts of profits that are set aside in anticipation of certain bad news (in our case NPA's). NPA's are those kinds of loans which you gave to your friend but he doesn't repay you on time or according to your terms.
Imagine you are to receive 100 rupees (Loan receivable) from your friend. He doesn't pay 20 rupees (NPA) and to this effect, you have to set aside/incur 20 rupees of your pocket money (Net profits). This is the cycle of NPA(in short). And this is the dismal state of todays banks in India.
2. Further, as a result of economic downturn (many lenders turning into NPA's) as well as Rajan's intervention (many more loans being recognised as NPA), many banks like Punjab National bank, Bank of Baroda, Bank of India etc have reported huge losses. Now it is a cheerful news that SBI is making little profits, if not losses amid this lacklustre.
3. Also there are many market experts out there, whose job is to estimate the company's profits based on everything that affects the companies. Its good news if company is able to outdo those expectations. In our case, for example, ETnow estimated profit of 2475 crores vs actual profits of 2530 crores.
So after all this analysis, I did feel that SBI stock has enough to cheer about. That is why:
Traders bought more SBI shares > demand exceeded the supply > stock price has risen.
Quick facts:
1.Stats of SBI
Q-1 Q-4 Change
GROSS NPA 6.95 6.5 0.45
PROVISION (2.9) (2.7) (0.2)
NET NPA 4.05 3.8 0.25
2.SBI's first and the only woman chairperson is 36th on the Fortune world's most powerful women
3.SBI has the largest yearly total assets and turnover among banks in India.
