11/4/2014

ANALYSING MOVEMENT OF SBI SHARE PRICES USING EMOTIONAL QUOTIENT | Plan N Progress

Plan N Progress
A Path for Prosperity

ANALYSING MOVEMENT OF SBI SHARE PRICES USING EMOTIONAL QUOTIENT

Posted on June 11, 2014

ABOUT

FINANCIAL PLANNING

I refer to my articles WHAT IS THE RIGHT VALUE OF A SHARE ? and FORMULA FOR MARKET
PRICE OF A SHARE ? an Emotional way .
State Bank of India is the premier public sector bank in India and its shares price movements are intensely
watched by the investors a s a key to banking sector shares
As a test case , I wanted to test Emotional quotient arrived by the formula described in my earlier article on
this share to know emotions

work on price movements. . Before analyzing , I just glanced through various

broker recommendation as quoted in money market .com , again a leading financial site . We can see
various recommendations from bearish to neutral to bullish stances taken by various brokerage houses
and targets from rs 1900 to Rs 3200 . . Against this backdrop , I have tried to test Emotional quotient .
For analysis purpose , I took 30.05.2009 as

the start time of the study with t= 0 as I assumed balance

sheet of 31.03.2009 would have been published by May end . I took Book value at that time to reflect the
Follow
original financial position of State Bank of India
for my study purpose As per formulas (Refer for full details

: FORMULA FOR MARKET

PRICE
OF A
Follow
Plan
N SHARE ? an Emotional way )

Progress
M(t)x =

B(t)x B(O)x
[S]^l*
E
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where

S = S(t) /S (0 )Joinand
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l =1 when E is postive and l=-1 when E is negative

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Where

E(M) = _1^n {pH(M)qC(M)}

{rW(M)sF(M)}
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Otherwise E(M) =

(M(t)x B(t)x )/(B(O)x * [S]^l ) ,

I calculated various quotients based on the book values , markets highs and lows of every year and related
index Nifty movements . Findings are as below :
2009

2010

2011

2012

2013

2014 as
on
09.06.14

BV

912

1038

1023

1251

1445

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ANALYSING MOVEMENT OF SBI SHARE PRICES USING EMOTIONAL QUOTIENT | Plan N Progress

MP

1869

2235

2236

2097

2088

2720

NIFTY

4530

5066

5550

4925

6124

7610

1.000

1.118

1.225

1.087

1.352

1.6800

NIFTY H

5380

6310

5625

6170

7360

NIFTY L

4000

4990

4540

4860

5280

S H

1.188

1.393

1.242

1.362

1.625

S L

0.883

1.102

1.002

1.073

1.166

1.049

1.117

1.085

0.853

0.521

2500

3515

2529

2551

2833

1510

2165

1576

1815

1452

E(H)*

1.466

1.950

1.330

1.047

0.936

P4571

E(AH)1.346

P(AH)3646

E(L)*

0.743

1.121

0.605

0.576

0.006

P1593

E(AL)0.610

P(AL)2518

EPS

143

144

116

174

206

EPS/BV %

15.67

13.87

11.33

13.90

14.26

0.741

Emotional
quotients
:

What these figures mean ?

1. E , the emotional quotient of SBI has oscillated between 1.95 to 0.006 as price has fluctuated between Rs
3515 to

Rs 1452 .

2. E has never gone negative and hence

market price has never gone below Book Value .

3 Presently SBI is trading at Rs 2,720 with E of 0.741 which is a lower mid range between 0.006 and 1.95
4 . If SBI can hit the maximum Euphoria of last 5 years which is at E= 1.95 , its prices can peak up to RS
4,571 .If we take average highs of last 5 years which is E=1.346 , its price can go up to Rs 3,646 .
5. If investors lose all hopes on SBI , its E can plummet to E = 0.006 , the historic low of last 5 years and price
can skip back to Rs 1,593 . If we take average of low of last 5 years which is E= 0.610

, then corresponding

price would be Rs 2, 518.

Other Parameters :
1. Earning per share of SBI has increased over the years with exception of 2011.
2. Its EPS to BV (%) has not gone below 10 % and it is hovering between 13% to 16%
3. BV is constantly increasing

Is there any deficiency in the formula ?

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ANALYSING MOVEMENT OF SBI SHARE PRICES USING EMOTIONAL QUOTIENT | Plan N Progress

Formula only tells about relative emotional values

among the stocks of the Index chosen and hence

movement of Index would change emotional value also . Further Index gets affected by the movement of the
share in question also . E would be constantly changing with movement of Index , even when there is no
change in its market value . The formula has to be fine tuned to take into account dynamic nature of S and
its dependence on E
So what we can do in this scenario ?
First an investor should is to decide whether stocks are worth picking or not .
If we go by the history of SBI , it is earning profits reasonably well over the years in spite of global slowdown
, slower growth and raising inflation in the country , changes in its top management etc . EPS is steady and
BV is raising . It is also leading public sector bank . Hence I would be willing to put my stakes here . But at
what price ?
1. Emotional quotient has swung from 0.006 to 1.95 and now it is at 0.741. This quotient is almost the same
lower side quotient 5 years back . It can go up to 1.95 over the years if history repeats . But it has also
plummeted to 0.006 in recent times . Even if it has only once gone to such a low-level , Twice it has gone
down to around 0.60 which is almost the average of 5 years low . Hence I would prefer to wait till

it reaches

at least E of 0.60 which corresponds to around Rs 2,500 price line . As I fear it may also touch historical
low of E =0.06 , I will buy starting below Rs 2, 500 and go on adding additional shares at every dip of
around Rs 200 and continue to buy till it reaches about Rs 1, 600 , the current book value of the scrip .
I know that past performance is no guarantee for future and history may not repeat also . Hence Bank
always making profit or E never turning negative is not guaranteed events .

E can turn negative and bank

can incur loss in future . I being neither astologer nor palmist , I do not know what is the future of SBI and
its shares . I leave the guessing job to other experts in the field . I may not be able to tell now whether prices
will move to 3200 or to 2000 . But I HAVE STRATEGY to implement when markets go low or high . But
being greedy to make more money than a bank deposit give and expecting it SBI prices may reach Rs 3, 500
to Rs 4,5oo over the period if E touches 1.346 to 1.95 , I will be willing to put my bets on and will be ready to
lose my investment if some thing adverse happens . . Any how the amount I will be willing to invest in SBI
will not be more than 5 % of total investment I may make in stocks . Please refer my earlier article on
investment rules I make MY GAME ! MY RULES !!
Note this strategy may work only for long-term investors and not for short-term traders .
I will be coming with analysis of another stock in my next article . If you are interested to
receive my future articles , you may follow this blog by giving your email address .
I will be happy to receive your feed back and comments on this article .
PS : I have given links to various news sources at the bottom of the blog . Interested readers may click on
them to view the latest news
DISCLAIMER :
No content on this blog should be construed to be investment advice. You should consult a qualified financial
advisor prior to making any actual investment or trading decisions. All information is a point of view, and is
for educational and informational use only. The author accepts no liability for any interpretation of articles or
comments on this blog being used for actual investments.
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