Importance of Fundamental Analysis in Stock Market Taking Reference To SINDU BIKASH BANK recent FALL

Recently, MNBBL has announced that the bank has entered into a preliminary agreement to acquire Sindhu Bikas Bank Limited and Janaki Finance Company Limited. Following the announcement, the share prices of all three institutions have been declining.

In the fiscal year 2082/83, Sindhu bikas bank has the paid-up capital of Rs. 55.74 crores and had been reporting loss for three of the four quarters. One of the main reasons for this is the high percentage of non-performing loans (NPL). The EPS has also been in the negatives for 1^st, 2^nd and 3^rd quarters increasing only slightly on the 4^th quarter. The negative EPS affects the P/E ratio which investors use as on of the important factor for making investing decisions. Due to the losses incurred, net worth per share has also declined.

Table: Fundamental indicators for the fiscal year 2082/83

In the 4^th quarter of fiscal year of 2080/81 and 2081/82 the bank showed net profit of Rs. 59.06 and Rs. 117.87 million respectively.

Table: Historic fundamental indicators

This tells us that fundamental analysis of an institution is very important before we decide to invest. These quarterly performances did not show a good financial position of Sindhu Bikash Bank even though the bank was generating profits in the previous two years ending quarter. There are no distributable profits for the existing shareholders due to the losses incurred by the bank which has resulted in lower share prices after the acquisition announcement.

So, all of this shows that even though the market has been maintaining the share value, without proper fundamental analysis the share price is bound to drop on some day or in some week.