Thanks - wanted to see if there is clarity on this and you are basically right. I now actually read the relevant section 94(8) of the income tax act wherein the first clause says that the precondition for the section to apply is that the shares / securities are bought within a period of three months prior to the record date. So the nuance is not whether shares were bought after bonus was announced but whether it was bought within three months prior to the record date (in practice this period will have a large overlap with the period between the bonus announcement date and the record date).
Reproducing my original reply below (slightly modified to take into account my understanding of the relevant tax laws).
Suppose you are holding some shares of HDFCBANK. For illustration suppose you had bought 100 shares at 1600 each in say Sep2024 (the buy date needs to be 3 months prior to record date because section 94(8) of IT act). Suppose that you now sell your 100 HDFC shares - for ease of calculation let us suppose that you sell your 100 shares at 1000 each. Then on these shares you would have a realized loss of (1600-1000) * 100=60K. When you receive the bonus shares their acquisition cost would be zero and you would be sitting on unrealized gains of 100*1000 = 100K. This realized loss can help you save/defer a little tax in the following way.
(1) Suppose also that you are fortunate enough to be currently having realized short term capital gains of say 60K (from some other transaction). So ordinarily you would liable to pay STCG of 20% of 60K = 12K on this realized. However if you are fortunate enough to have bought HDFCBANK shares sufficiently prior to record date, you can set off the realized loss on HDFCBANK shares to reduce your tax liability for the current financial year. However, you are still sitting on the unrealized gains of 100K on the bonus which will create higher tax liability when you sell. For example if you sell them after sep2026 at a price of 1000 each you will have to pay LTCG tax of 12.5% of 100K = 12,500/-. Overall this saves you some tax (12000 + 12.5%*40K - 12500) = 4500 but also it defers your tax liability to a later period.
(2) Now suppose you wanted to rebalance/derisk your portfolio a bit. The premium valuation of HDFCBANK is mostly on account of its historical stellar growth rate and suppose you are not sure this can be sustained going forward and you want to reduce the exposure to this growth deceleration risk. Now if bonus had not been issued, then doing a rebalancing you incur capital gains tax. However because of the bonus issue and having a realized a loss on selling half of your holdings as above, you can buy another lender stock with lesser/deferred tax liability. For example a lender like LIC Housing Finance (LICHSGFIN) is much cheaper (PE of 5.6 compared to 21.2 and PB of 0.85 compared to 2.85) but has a more moderate historical growth rate and return on equity compared to HDFCBANK. Some such rebalancing can reduce your risk (but might also reduce your reward in case HDFCBANK manages to return to its historical growth rates).
Note: (1) Please read the remarks above and relevant tax laws such as section 94(8) of IT act and make sure to be compliant with relevant tax laws.
(2) Full disclosure: am holding both HDFCBANK and LICHSGFIN. Possibly biased. Plan to rebalance a bit myself.
Yes this is correct. This is precisely one of the reasons I have not invested or never had courage to invest in ICICI Bank after 2010 on wards. As of today, it is considered as improved and transformed bank but we may have to be careful. Hence in Banking slow and steady banks will survive for much longer periods.
P/B ratio has improved from 2.0 in August 2023 to almost 3.1 till recent correction. So some of the negative theories claiming that, HDFC Bank will never trade at P/B of 3.0 has proved wrong. I have written about this possibility earlier in this thread.
Going forward, Now we need to be watchful as HDFC Bank has recently expanded their Loan Book beyond large companies and increased the loans to SME(s), which looks change from their earlier strategy.
goin forward over long & very long term, how do you see HDB financial and HDFC bank either competing among themself or a synergy for each other in growing their respective business & product innovation? As your mentioned example rightly shows that for continuous growth, sticking to just one segment of companies, retail segment or product types may not be feasible over long termā¦
As of now, my understanding of HDB Financial Services is limited. To me it looks like, HDBF is more into Consumer loans, Gold Loans, Retail loans from Tier-2-3-4 towns and looks quite different model than HDFC Bank. But there could be some overlap and synergies but need to look into it in more details.
Actually, it is a good point which you mentioned since it is now a listed entity so we need to closely look into both HDBF and HDFC Bank from competition perspective.
From a layman perspective, all this financial engineering is just bonkers. First they consolidate everything under HDFC Bank via HDFC merger and then step out to list another subsidiary separately. Is that a sign of ābiting off more than they can chewā? now they are spitting something out.
Are staid banks like HDFC geared to serve Gen Z? I donāt have a clear answer. What triggered this thought is the video below, posted by Gen Zāer, of her visit to a bank to deposit money. This new generation is completely digital. And staid banks, like HDFC Bank, are the very opposite of digital. What is the bankās plan to tackle this? How does the bank look over the next decade?
Irrespective of a bank is digital or not, one has to visit the branch to perform activities like cash deposit, locker etc. I believe most people use UPI, credit card, NEFT/RTGS and as long as the bank infrastructure is able to support this, they will do well. The banks focusing on rural and underserved markets will grow fast in my opinion
For cash deposit, even the most digital banks - one will have to visit the branch and fill the form. Unless one wants to do it in ATM deposit which is also much easier
Sorry for getting off-topic; I will delete this chatā¦
Can someone please tell me if there is any discussion page available for SBI, PNB, or other PSU banks?
I tried to find one, but couldnāt find any.
