It is very difficult to justify the price of sharemarket based on
return because there are other factors as well to consider like the
reputation of the company, its board management, performance over the
years, dividend history, its future growth and return prospects et al.
There are 31 commercial banks, about 80 development banks (national and regional levels) and almost the same number of finance companies operating in Nepal. The investors seem to have faith in the commercial banks rather than the other two. I recently met some investors new to equity market while applying for the IPOs of commercial banks and in interactions with them I see blind faith that- "This is a A class commercial bank so its price wont come below Rs.100. This is the reason I am applying though I am relatively new to sharemarket." However, the same cannot be said of all the development banks and finance companies. The scripts of development banks and finance companies which have networth equal to Rs.110-115 are trading in the range of 80-95. The reason for this could be recent series of news about fraud and mismanagement in the development banks and finance companies. That is not to say that there have never been cases of frauds in commercial banks but we have not witnessed any major problems apart from NBB and NCC in the past. Therefore, I would say it really depends on the investors' perception about the company which determines its price.
If you look at today's trading the scripts of top three commercial banks are trading in the range of Rs.1800-2000. If an investor buys the scripts of the banks at current price and the banks provide a return an average return of 60% to their shareholders, the return would be mere 3.15% on his/her investment. Like you said he/she might have better prospects buying the scripts of cheaper development banks and in return getting better dividends but there seems to charm in the scripts of commercial banks and will continue to remain in the future as well.
Therefore, I would conclude that the price of script depends on factors other than the returns. It also largely depends on other the factors as I mentioned above-reputation of the company, its board management, performance over the years, dividend history, its future growth and return prospects et al.
Src : Freak Money, Jamb Forum
There are 31 commercial banks, about 80 development banks (national and regional levels) and almost the same number of finance companies operating in Nepal. The investors seem to have faith in the commercial banks rather than the other two. I recently met some investors new to equity market while applying for the IPOs of commercial banks and in interactions with them I see blind faith that- "This is a A class commercial bank so its price wont come below Rs.100. This is the reason I am applying though I am relatively new to sharemarket." However, the same cannot be said of all the development banks and finance companies. The scripts of development banks and finance companies which have networth equal to Rs.110-115 are trading in the range of 80-95. The reason for this could be recent series of news about fraud and mismanagement in the development banks and finance companies. That is not to say that there have never been cases of frauds in commercial banks but we have not witnessed any major problems apart from NBB and NCC in the past. Therefore, I would say it really depends on the investors' perception about the company which determines its price.
If you look at today's trading the scripts of top three commercial banks are trading in the range of Rs.1800-2000. If an investor buys the scripts of the banks at current price and the banks provide a return an average return of 60% to their shareholders, the return would be mere 3.15% on his/her investment. Like you said he/she might have better prospects buying the scripts of cheaper development banks and in return getting better dividends but there seems to charm in the scripts of commercial banks and will continue to remain in the future as well.
Therefore, I would conclude that the price of script depends on factors other than the returns. It also largely depends on other the factors as I mentioned above-reputation of the company, its board management, performance over the years, dividend history, its future growth and return prospects et al.
Src : Freak Money, Jamb Forum
