CHAPTER 1

INTRODUCTION
&
THEORETICAL BACKGROUND OF THE STUDY

INTRODUCTION
India is a vast country, so the sectors contributing to the countrys GDP is
also big in number. India has shown a rapid growth rate in its GDP from
past two decades mainly because of the rapid expansion and success of

selected sectors. One of them being banking sector. Banking Sector of

India has always been an exemplary sector to other nations especially
when it comes to stability, contribution towards GDP, balancing money
flow into the economy and uninterrupted growth. Banking Industry has
such a strong foundation that thousands of analyses have been carried out
not only by Indian researchers but also by foreign experts. But the
enthusiasm is still the same. Research work relating to performance and
contribution of banking sector, growth and future prediction of the same
has been the primary research even carried out every year by RBI. Many
extensive researches like factors affecting the growth and development of
public or private sector banks, impact of economic factors on the
profitability of particular bank or banks, fundamental analysis of
selectedbanks, etc., have also become a core of education curriculum in
manyinstitutions in India.
The strength of the financial institutions in India can be evaluated by
analyzing the effect of sub-prime crisis on different sectors of the economy
including the vital, banking sector. In 2007-08, commercial credit growth
slowed to 22%. It slowed further to 18% in 2008-09. But banks maintained
their return on assets in 2008-09 at the same level as in the preceding
boom years of 2004-08. By the end of 2009, the industry picked up its
growth pace and registered twice and trice of its earlier profits. It suggests
that no matter what the ups and downs of the economy, the Indian banking
sector can deliver a return of 1% on assets, a benchmark of good
performance in banking. India today seems to have a crisis-proof banking
sector.
The growth in the Indian Banking Industry has been more qualitative
thanquantitative and it is expected to remain the same in the coming years.
Based on the projections made in the "India Vision 2020" prepared by the
Planning Commission and the Draft 10th Plan, the report forecasts that the
pace of expansion in the balance-sheets of banks is likely to decelerate.
The total assets of all scheduled commercial banks by end-March 2010 is
estimated at Rs 40,90,000 crores. That will comprise about 65 per cent of
GDP at current market prices as compared to 67 per cent in 2002-03. Bank
assets are expected to grow at an annual composite rate of 13.4 per cent
during the rest of the decade as against the growth rate of 16.7 per cent that
existed between 1994-95 and 2002-03. It is expected that there will be
large additions to the capital base and reserves on the liability side.
From the above data, it can be broadly said that there has been a gradual
shift in business from public to private and foreign banks. The diagram

below shows the shift:

CHANGE IN DIFFERENT BANKING SECTOR SHIFT

SHIFT

Source: Report on trend and progress of banking in India 200809, RBI website, www.rbi.org.in, accessed on
January 12, 2010.

Fig. 1
Thus, the stability of Indian Financial System cannot be questioned. It has
been proved in the world crisis which was initiated by USA and stuck
various nations throughout the world. While worldwide Banks were
collapsing down, Indian banks expanded their wings. If stability is talked
about, then Indian stock market also owns a major portion of it. The stock
market in India has been off late influenced heavily by multinational
companies. With the liberalization of economy, several major players in
the international market have started their operations in India. Due to this,
there is a tremendous increase in the stock trading volume. Stock exchange
has also adapted them in an equally effective way to handle this volume.
So as to ensure an effective and transparent trading practice, stock
exchanges are now using automated screen-trading facility. Stock
exchange brokers are now dealing in millions of Indian rupees using
computerized operations.
This research study deals with the combined growth of the two
industries:Banking scrip which are traded in large volumes in secondary
market. TheBanks taken for study are Axis Bank, HDFC Bank, ICICI
Bank, State Bank of India and Bank of Baroda. These have been taken
after analyzing the magnitude of volumes in which they are traded in the
stock market. Moreover, depending upon the ownership of the bank, first
three (3) banks are of private nature and the latter are public sector banks.
The project studies the performance and growth of each of the bank
mentioned above during the current year (i.e.2009-10) and a comparison is
made with last years financial statement (i.e.2008-09). Apart from the
financial analysis, different technical indicators have been taken for
understanding the movement of scrip prices of different bank.

OBJECTIVES OF THE RESEARCH

Main Objective
To determine the factors which investors look into before
investing/trading in a particular stock.
To inform investors of stock market about scrip of banking
companies which are traded in volumes so that the investors can earn
more money based on the factors that make the stock market volatile.
Specific Objective
To identify the level of knowledge of the investors regarding
ShareMarket and trading.

 To determine the probable purpose of traders behind investment in

stock market.
To understand the risk taking capacity of investors.
To determine what percentage or portion of income investors are
likely to trade in share market.
To know and compare the financial position and analyze
theperformance of each bank.
To identify investors perception about investment in Banking Sector.
To provide an insight to the Company, under which the research is
being carried out, about the perception of the investors.

SAMPLING PROCEDURE
Simple Random Sampling procedure is carried out among clients of
Indiabulls Securities Limited and other traders apart from the company.
DATA CAPTURE INSTRUMENTS
Questionnaire acted as the primary instrument for capturing the primary
data.
DATA COLLECTION METHODS
A Sample size of 40 traders has been taken for research which includes
both clients of Indiabulls Securities Ltd. as well as individual traders
mainly from Hyderabad and Kolkata. Online questionnaire has been made
for the convenience of the investors trading online.
DATA ANALYSIS
Data analysis is done with the help of primary data extracted
throughquestionnaires via MS Excel.

THEORETICAL BACKGROUND OF THE STUDY

FUNDAMENTAL ANALYSIS
The intrinsic value of an equity share depends on a multitude of factors.
The earning of the company, the growth rate and the risk exposure of the
company has a direct bearing on the price of the share. These factors in
turn rely on the host of other factors like economic environment in which
they function, the industry they belong to, and finally companies own
performance. So basically the whole fundamental analysis is divided into
three main parts: Economic Analysis
Industry Analysis
Company Analysis
Economic Analysis
The level of economic activity has an impact on investment in many ways.
If the economic grows rapidly, the industry can also be expected to show
rapid growth and vice versa. When the level of economic activity is low,
stock prices are low, and when the level of economic activity is high, the
stocks prices are high reflecting the prosperous outlook for sales and
profits of the firms. The analysis of macroeconomic environment is
essential to understand the behaviour of the stock prices. The commonly
analyzed macroeconomic factors are as follows: Gross Domestic Product (GDP)
Savings and Investment
Inflation
Interest Rates
Budget
Tax Structure
Balance of Payment

 Infrastructure Facilities
Monsoon and Agriculture
Considering all factors for economic analysis is not always feasible and
also not always required. Depending upon the type of research, some of
the above factors are considered for analysis. In this analysis, important
factors like GDP, Inflation and Interest rates are taken as indicators as
these factors directly influence the Indian Stock Index. After the individual
analysis a comparative analysis is made to draw the relationship between
them.
Industry Analysis
The service industry has been at the forefront of the rapid growth of the
Indian economy. Indias banking sector compares favourably with most of
its global peers on the ground of asset quality, capital adequacy,
profitability and overall contribution to GDP. In India, almost
30,000villages have bank branches out of around 7,00,000 villages. Indian
Banking sector has always sustained well mainly due to its strong
Monetary and Fiscal policy. The global economic meltdown has not had a
deep impact on the banking system in India. The banks in India have a
strong fundamental structure and are well protected from the economic
crisis. The robust economic growth in India, low defaulter ratio, non
existence of complex financial products, constant monitoring by the
central bank, efficient monetary policy and the non aggressive close
banking culture has shielded the Indian banking sector. Today in India
there are totally 56,640 branches, 893,356 employees and 27,088 ATMs.
Public sector banks account for 87.7 per cent of the offices, 82 per cent of
staff and 60.3 per cent of ATMs. The banking system in India, controlled
by the Reserve Bank of India, is dominated by Scheduled Commercial
Banks (SCBs) with a pan-India presence.
Company Analysis
A basic problem while comparing a firms performance over time is that
the firms size is always changing. Firms of different sizes are also difficult
to compare. Thus, different means have been adopted for easy comparison
and analysis of performance of different banks.
Common-size statement

Common-size

statements

are

used

to

standardize

financial

statementcomponents by expressing them as a percentage of a relevant

base. Generally for Comparative Balance Sheet Analysis, components of
Balance Sheet are taken as a percentage of Total Assets. But at the time of
Comparative IncomeStatement Analysis, all revenues and expenses are
expressed as a percentage of Total Sales.
It provides useful information and gives insight about economic
characteristics of different industries and of different firms in the same
industry. Percentage wise comparison helps identify differences. It
provides a common platform for inter-firm or inter-industry comparison.
Cross-Sectional Comparisons is the most effective and suitable way
ofcomparing two or more firms. In this research, Cross- Sectional
Comparison analysis is done for Axis Bank, ICICI Bank, State Bank of
India and Bank of Baroda.
Dividend payout ratio Dividend payout ratio helps investors/traders
toevaluate the internal strength of a company. A company providing
increasing rate of dividend to its shareholders every year is always desired
by any trader. The increase in dividend helps grow the portfolio income of
the investors.Dividend payout ratio = Dividend paid / Earning per
Share.Growing companies will typically retain more profits to fund growth
and pay low or no dividend. A low dividend payout ratio can indicate a
fast-growing company whose shareholders willingly forego cash
dividends, because the company uses the extra money to generate higher
returns and, in turn, a high stock price. But a low dividend payout ratio can
also point to a company that simply can't afford to pay dividends.
Similarly, a high dividend payout ratio can indicate a blue-chip that pays
high dividends and whose stock price is temporarily depressed. But a high
dividend payout ratio can also point to a mature company with few growth
opportunities.
Income statement
Common-size statements analysis is incomplete without analyzing the
Income Statement of any company. Its true that Balance Sheet analysis
displays true financial position of a company but although it is advisable to
go for Income Statement analysis as the performance of the company for a
particular year or a period of years gives a rough idea about the growth and
yearly profit trend of the company. In Income statement analysis all
incomes and expenses (before and after gross profit) are taken as a
percentage of Sales and then compared either year-wise or company-wise.
Cash flow statement
A Cash Flow Statement (CFS), along with Balance Sheet and

IncomeStatement, are the three most common financial statements used to

judge acompanys performance and overall health. The same accounting
data is used in preparing all their statements, but each takes a companys
pulse in a different area. The CFS discloses how a company raised money
and how it spent those funds during a given period. It is also an analytical
tool, measuring an enterprises ability to cover its expenses in near term.
Generally speaking, if a company is consistently bringing more cash than
it spends, that company is considered to be of good value. A cash flow
statement is divided into three parts: Operating
Investing
Financing

Cash flow from operating activities

It indicates cash that was generated over the year or the financial period
from the companys core business transactions. This serve as a better
indicator than earnings, since non-cash earnings cannot be used to pay off
bills and other short-term liabilities. Investors tend to prefer companies
that produce a net positive cash flow from operating activities.
Cash flow from investing activities
This section largely reflects the amount of cash the company has spent
onCapital Expenditure, such as new equipments or anything else that
needed to keep the business going. It also includes any acquisition of other
businesses and monetary investments such as money market funds, etc.
This is very important as this gives an indication of future revenue growth.
Cash flow from financing activities
This section describes the going-on of cash associated with outside
financing activities. The financing activities mainly tell investors what the
company is using (debt of Equity) to fund its expansions or operations.
Typical sources of cash inflow would be cash raised by selling stocks and
bonds or by bank borrowings. Likewise, paying back a bank loan would
show up as a use of Cash Flow, as would dividend payments and common

stock repurchases.
RATIO ANALYSIS
Ratio is a relationship between two figures expressed mathematically.
Financial ratio provides numerical relationship between two relevant
financial data. Financial ratios are used to compare the risk and return of
different firms in order to help equity investors and creditors make
intelligent investment and credit decision. Such decisions require both an
evaluation of changes in performance over time for a particular investment
and comparison among all firms within a single industry at a specific point
in time. The informational needs and appropriate analytical techniques
used for these investment and credit decisions depend on the decision
makers time horizon. Short-term bank and trade creditors are primarily
interested in the immediate liquidity of the firm. Long-term creditors (e.g.,
bondholders) are interested in long-term solvency. Creditors seek to
minimize risk and ensure that resources are available for the payment of
interest and principal obligations. Equity investors are primarily interested
in long-term earning power of the firm. As the equity investor bears the
residual risk (which can be defined as the return from operations after all
claims from suppliers and creditors have been satisfied), it requires a
return commensurate to that risk. The residual risk is highly volatile and
difficult to qualify, as it is the equity investors time horizon.
But when it comes to analyzing a Banking company, the ratios for
analysisneeds to be slightly different so as to suite the requirements of
banking firms. Basically, banking industry is like trading company, where
banks trade on capital or funds. Unlike manufacturing industry, there is not
much of processing. Hence some of the ratios developed for
manufacturing industry are not relevant. For example, Fixed Assets ratio,
which is very important ratio for comparison in manufacturing firms,
becomes irrelevant in banking sector analysis as the fixed assets are not
used to process the material and generate income. Similarly, there is no
inventory turnover ratio. Therefore, on one side some of the ratios are not
relevant; on the other side there are ratios which require some
modification.

TECHNICAL ANALYSIS
Technical Analysis is a study of the stock market considering factors
related to the supply and demand of stocks. Technical Analysis doesnt
look at underlying earnings potential of a company while evaluating stocks
{unlike fundamental Analysis}. Fundamental Analysis seeks to determine
future stock price by understanding and measuring the objective "value" of
equity. The study of stock charts, known as Technical Analysis, believes
that the past action of the market itself will determine the future course of
prices. It uses charts and computer programs to study the stocks trading
volume and price movements in the hope of identifying a trend. In fact the
decision made on the basis of technical analysis is done only after inferring
a trend and judging the future movement of the stock on the basis of the
trend. Technical Analysis assumes that the market is efficient and the price
has already taken into consideration the other factors related to the
company and the industry. It is because of this assumption that many think
technical analysis is a tool, which is effective for short-term investing.
Evolution of Technical Analysis
Technical Analysis as a tool of investment for the average investor thrived
in the late nineteenth century when Charles Dow, then editor of the Wall
Street Journal, proposed the Dow Theory. He recognized that the
movement is caused by the action/reaction of the people dealing in stocks
rather than the news in itself. Walter Deemer was one of the technical
analysts of that time. He started at Merrill Lynch in New York as a member
of Bob Farrell's department. Then when the legendary Gerry Tsai moved
from Fidelity to found the Manhattan Fund in 1966, Deemer joined him.
Tsai used to consult him before every major block trade, at the start of a
time when large volume institutional trading became the norm and the

meal ticket for brokers. Deemer could recreate market history on his charts
and cite statistics. He maintained contact with the group of other pros
around then, who shared their insights with each other in a
collegialconfidence worthy of the priesthood.
Technical Analysis is done by identifying the trend from past movements
and then using it as a tool to predict future price movements of the stock. It
can be done by using any of the following methods:
Moving Average cross overs
Bollinger Bands
Moving Average Convergence/Divergence (MACD)
Relative Strength Index
a) Moving Average The market indices do not rise or fall in
straight line. The upward and downward movements are interrupted
by counter moves. The underlying trend can be studied by
smoothening of the data. To smooth the data moving average
technique is used.
The moving averages are used to study the movement of the market as
well as the individual scrip price. The moving average indicates the
underlying trend in the scrip. The period of average determines the period
of the trend that is being identified. For identifying short-term trend, 10day
to 30day moving averages are used. In the case of medium term trend
50day to 125day are adopted. 200day moving average is used to identify
long term trend.
Individual stock price is compared with stock market indices. The
movingaverage of the stock and the index are plotted in the same sheet and
trends are compared. If NSE or BSE index is above stocks moving
average line, the particular stock has a bullish trend. The price may
increase above the market average. If the Sensex or Nifty is below the
stocks moving average, the bearish market can be expected for the
particular stock.
If the moving average of the stock penetrates the stock market index
fromabove, it generates sell signal. Unfavorable market condition prevails
for the particular scrip. If the stock line pushes above through the market
average, it is a buy signal.
Buy and sell signals are provided by moving averages. Moving averages
are used along with the price of the scrip. The stock price may intersect the
moving average at a particular point. Downward penetration of the rising

average indicates the possibility of a further fall. Hence sell signal is

generated. Upward penetration of a falling average would indicate the
possibility of the further rise and gives the buy signal. As the average
indicates the underlying trend, its violation may signal trend reversal.
Moving Average Crossover
The moving average crossover indicator prompts for two parameters
shorter moving average and a longer moving average. When long term and
short term moving averages are drawn, the intersection of two moving
averages generates buy or sell signal. When the scrip price is falling and if
the short term average intersects the long term moving average from above
and falls below it, the sell signal is generated.
If the scrip price is rising, the short term average would be above the long
term average. The short term average intersects the long term average from
below indicating a further rise in price, gives a buy signal. But, if the short
term averages moves above the long term average and the long term
average is falling, investor should treat intersection with suspicion. The
short term movement may not hold long. Hence, the investors should wait
for the long term average to turn up before buying the scrip. Similarly, if
the short term average moves below the long term average before the long
term average has flattened out or before it reverses its direction, the
investor should wait for the fall in the long term average for reversal of
direction before moving out of the scrip.
If the periods used in the calculation are relatively short, for example 15
and 35, this could signal a short-term trend reversal. On the other hand,
when two averages with relatively long time frames cross over (50 and
200, for example), this is used to suggest a long-term shift in trend.
b) Bollinger bands: The purpose of Bollinger Bands is to provide a
relative definition of high and low. By definition, prices are high at the
upper band and low at the lower band. This definition can aid in
rigorous pattern recognition and is useful in comparing price action to the
action of indicators to arrive at systematic trading decisions.
The use of Bollinger Bands varies widely among traders. Some traders buy
when price touches the lower Bollinger Band and exit when price touches
the moving average in the centre of the bands. Other traders buy when
price breaks above the upper Bollinger Band or sell when price falls below
the lower Bollinger Band. Moreover, the use of Bollinger Bands is not

confined to stock traders; options traders, most notably implied

volatility traders, often sell options when Bollinger Bands are historically
far apart or buy options when the Bollinger Bands are historically close
together, in both instances, expecting volatility to revert back towards the
average historical volatility level for the stock.
When the bands lie close together a period of low volatility in stock price
is indicated. When they are far apart a period of high volatility in price is
indicated. When the bands have only a slight slope and lie approximately
parallel for an extended time the price of a stock will be found to oscillate
up and down between the bands as though in a channel.
Traders are often inclined to use Bollinger Bands with other indicators to
see if there is confirmation. In particular, the use of an oscillator like
Bollinger Bands will often be coupled with a non-oscillator indicator
like chart patterns or a trend line; if these indicators confirm the
recommendation of the Bollinger Bands, the trader will have greater
evidence that what the bands forecast is correct.
c)
Moving
Average
Convergence/Divergence
(MACD)
:
MACD (moving average convergence/divergence) is a technical
analysis indicator created
by
Gerald
Appeal
in
the
late
1970s.http://en.wikipedia.org/wiki/MACD - cite_note-0 It is used to spot changes in
the strength, direction, momentum, and duration of a trend in a stock's
price.
The MACD "oscillator" or "indicator" is a collection of three signals (or
computed data-series), calculated from historical price data, most often the
closing price. These three signal lines are: the MACD line, the signal line
(or average line), and the difference (or divergence). The term "MACD"
may be used to refer to the indicator as a whole, or specifically to the
MACD line itself. The first line, called the "MACD line", equals the
difference between a "fast" (short period) exponential moving
average (EMA), and a "slow" (longer period) EMA. The MACD line is
charted over time, along with an EMA of the MACD line, termed the
"signal line" or "average line". The difference (or divergence) between the
MACD line and the signal line is shown as a bar graph or histogram time
series.

Since the MACD is based on moving averages, it is inherently a lagging

indicator.
Exponential moving averages highlight recent changes in a stock's price.
By comparing EMAs of different lengths, the MACD line gauges changes
in the trend of a stock. By then comparing differences in the change of that
line to an average, an analyst can identify subtle shifts in the strength and
direction of a stock's trend.
Traders recognize three meaningful signals generated by the MACD
indicator.
When:

the MACD line crosses the signal line

the MACD line crosses zero

there is a divergence between the MACD line and the price of the
stock or between the histogram and the price of the stock

Graphically this corresponds to:

the blue line crossing the red line

the blue line crossing the x-axis (the straight black line in the middle
of the indicator)
higher highs (lower lows) on the price graph but not on the blue line,
or higher highs (lower lows) on the price graph but not on the bar graph

And mathematically:

MACD signal = 0

EMA[fast,12] EMA[slow,26] = 0

Sign (relative price extremumfinal relative price extremuminitial)

Sign (relative MACD extremumfinal MACD extremuminitial)

Signalline crossover
Signalline crossovers are the primary cues provided by the MACD. The
standard interpretation is to buy when the MACD line crosses up through
the signal line, or sell when it crosses down through the signal line.

The upwards move is called a bullish crossover and the downwards move
a bearish crossover. Respectively, they indicate that the trend in the stock
is about to accelerate in the direction of the crossover.
The histogram shows when a crossing occurs. Since the histogram is the
difference between the MACD line and the signal line, when they cross
there is no difference between them.
The histogram can also help in visualizing when the two lines are
approaching a crossover. Though it may show a difference, the changing
size of the difference can indicate the acceleration of a trend. A narrowing
histogram suggests a crossover may be approaching, and a widening
histogram suggests that an ongoing trend is likely to get even stronger.
While it is theoretically possible for a trend to increase indefinitely, under
normal circumstances, even stocks moving drastically will eventually slow
down, lest they go up to infinity or down to nothing.
Zero crossover
A crossing of the MACD line through zero happens when there is no
difference between the fast and slow EMAs. A move from positive to
negative is bearish and from negative to positive, bullish. Zero crossovers
provide evidence of a change in the direction of a trend but less
confirmation of its momentum than a signal line crossover.
Timing
The MACD is only as useful as the context in which it is applied. An
analyst might apply the MACD to a weekly scale before looking at a daily
scale, in order to avoid making short term trades against the direction of
the intermediate trend.[2] Analysts will also vary the parameters of the
MACD to track trends of varying duration. One popular short-term set-up.
False signals
Like any stock market forecast, the MACD can generate false signals. A
false positive, for example, would be a bullish crossover followed by a

sudden decline in a stock. A false negative would be a situation where

there was no bullish crossover, yet the stock accelerated suddenly upwards.
A prudent strategy would be to apply a filter to signal line crossovers to
ensure that they will hold. An example of a price filter would be to buy if
the MACD line breaks above the signal line and then remains above it for
three days. As with any filtering strategy, this reduces the probability of
false signals but increases the frequency of missed profit.
Analysts use a variety of approaches to filter out false signals and confirm
true ones.
d) Relative strength index (RSI) : The Relative Strength Index (RSI)
is a technical indicator used in the analysis of financial markets. It is
intended to chart the current and historical strength or weakness of a stock
or market based on the closing prices of a recent trading period. The
indicator should not be confused with relative strength.
The RSI is classified as a momentum oscillator, measuring the velocity and
magnitude of directional price movements. Momentum is the rate of the
rise or fall in price. The RSI computes momentum as the ratio of higher
closes to lower closes: stocks which have had more or stronger positive
changes have a higher RSI than stocks which have had more or stronger
negative changes.
The RSI is most typically used on a 14 day timeframe, measured on a scale
from 0 to 100, with high and low levels marked at 70 and 30, respectively.
Shorter or longer timeframes are used for alternately shorter or longer
outlooks. More extreme high and low levels80 and 20, or 90 and 10
occur less frequently but indicate stronger momentum.
The Relative Strength Index was developed by J. Welles Wilder and
published in a 1978 book, New Concepts in Technical Trading Systems,
and in Commodities magazine (now Futures magazine) in the June 1978
issue. It has become one of the most popular oscillator indices.
The RSI is presented on a graph above or below the price chart. The
indicator has an upper line, typically at 70, a lower line at 30, and a dashed
mid-line at 50. Wilder recommended a smoothing period of 14

Wilder posited that when price moves up very rapidly, at some point it is
considered overbought. Likewise, when price falls very rapidly, at some
point it is considered oversold. In either case, Wilder deemed a reaction or
reversal imminent.
The level of the RSI is a measure of the stock's recent trading strength. The
slope of the RSI is directly proportional to the velocity of a change in the
trend. The distance travelled by the RSI is proportional to the magnitude of
the move.
Wilder believed that tops and bottoms are indicated when RSI goes above
70 or drops below 30. Traditionally, RSI readings greater than the 70 level
are considered to be in overbought territory, and RSI readings lower than
the 30 level are considered to be in oversold territory. In between the 30
and 70 level is considered neutral, with the 50 level a sign of no trend.
Divergence
Wilder further believed that divergence between RSI and price action is a
very strong indication that a market turning point is imminent. Bearish
divergence occurs when price makes a new high but the RSI makes a
lower high, thus failing to confirm. Bullish divergence occurs when price
makes a new low but RSI makes a higher low.
Overbought and oversold conditions
Wilder thought that "failure swings" above 70 and below 30 on the RSI are
strong indications of market reversals. For example, assume the RSI hits
76, pulls back to 72, then rises to 77. If it falls below 72, Wilder would
consider this a "failure swing" above 70.
Finally, Wilder wrote that chart formations and areas of support and
resistance could sometimes be more easily seen on the RSI chart as
opposed to the price chart. The center line for the Relative Strength Index
is 50, which is often seen as both the support and resistance line for the
indicator.
If the Relative Strength Index is below 50, it generally means that the
stock's losses are greater than the gains. When the Relative Strength Index
is above 50, it generally means that the gains are greater than the losses.
Uptrends and downtrends

In addition to Wilder's original theories of RSI interpretation, Andrew

Cardwell has developed several new interpretations of RSI to help
determine and confirm trend. First, Cardwell noticed that uptrends
generally traded between RSI 40 and 80, while downtrends usually traded
between RSI 60 and 20. Cardwell observed when securities change from
uptrend to downtrend and vice versa, the RSI will undergo a "range shift."

Example of RSI Indicator Divergence

Next, Cardwell noted that bearish divergence: 1) only occurs in uptrends,

and 2) mostly only leads to a brief correction instead of a reversal in trend.
Therefore bearish divergence is a sign confirming an uptrend. Similarly,
bullish divergence is a sign confirming a downtrend.
Reversals
Finally, Cardwell discovered the existence of positive and negative
reversals in the RSI. Reversals are the opposite of divergence. For
example, a positive reversal occurs when an uptrend price correction
results in a higher low compared to the last price correction, while RSI
results in a lower low compared to the prior correction. A negative reversal
happens when a downtrend rally results in a lower high compared to the
last downtrend rally, but RSI makes a higher high compared to the prior
rally.
In other words, despite stronger momentum as seen by the higher high or
lower low in the RSI, price could not make a higher high or lower low.
This is evidence the main trend is about to resume. Cardwell noted that
positive reversals only happen in uptrends while negative reversals only
occur in downtrends, and therefore their existence confirms the trend.

LIMITATION OF STUDY
In spite of online questionnaire the study could only be conducted in
two cities i.e. Hyderabad and Kolkata and that to with a very small
sample size of 40 traders due to time constrains.
Technical Analysis is a vast area to cover so only few indicators
weretaken for analyzing different scrip price.
Calculations involved in determining future price of different scrip could
not be dealt with in this research so prices are predicted by drawing
Trendline on charts of different indicators.

CHAPTER 2
LITERATURE REVIEW

Equity analysis refers to the analysis of trading securities from the point of

view of their prices, returns and risks. All investments are risky and the
expected return is related to the risk. Their analysis will help in
understanding the behaviour of security prices and the market and in
decision making for investment. If it is analysis of only one scrip, it is
called micro analysis of a company. If it is analysis of market of securities,
it is referred to as a micro-picture of the behaviour of the market.
Banks are the major part of any economic system.
They provide a strong base to Indian economy as well. Even in the share
markets, the performance of banks shares is of great importance. This is
justified by the proof that in both BSE and NSE we have separate index of
the banking sector shares. Thus, the performance of the share market, the
rise and the fall of market is greatly affected by the performance of the
banking sector shares and this report revolves around all factors, their
understanding and a theoretical and technical analysis of the same.
Marcus Ingram, Speros Margetis, (2010). A practical method to
estimate the cost of equity capital for a firm using cluster analysis,
Managerial Finance, 36(2).
Abstract
Purpose The purpose of this paper is to propose and test a method for
selecting a portfolio of public firms which can be used for computing the
cost of equity capital for a non-public firm or division of a firm.
Design/methodology/approach This method relies on cluster analysis and
a large sample of firms. Using the accounting data from the firms,
portfolios are formed that are expected to have a high degree of withingroup similarity on measures of systematic risk, such as beta. The average
beta of the group can be used as an estimate of the beta of the target firm
within the group, which is then used to compute the cost of equity capital
of the target.
Findings Cluster analysis shows significant potential to group together
firms that are found to have high similarity in systematic risk. Cost of
equity capital estimates made using the betas of the proxy portfolio firms
are predictive of the measured betas of randomly selected target firms.
Research limitations/implications This research has shown significant

predictive relationships between accounting data and market based cost of

capital estimates, but the relationship is noisy, and the fit of the model
could be improved with additional calibration.
Originality/value This approach uses well known data and methodology,
but is unique in this application. This suggests many other potentially
fruitful applications may be found for cluster analysis in financial research.
Dr. Thillai Rajan Annamalai, Mr. Ashish Deshmukh, (2011). Venture
Capital and Private Equity in India: An Analysis of Investments and
Exits, Journal of Indian Business Research, 3(1).
Abstract
Purpose - The Venture Capital and Private Equity (VCPE) industry in India
has grown significantly in recent years. During five year period 20042008, the industry growth rate in India was the fastest globally and it rose
to occupy the No. 3 slot worldwide in terms of quantum of investments.
However, academic research on the Indian VCPE industry has been
limited. This paper is an attempt to meet the gap in research on the recent
trends in the Indian VCPE industry.
Design/methodology/approach - Studies on the VCPE transactions have
traditionally focused on one of the components of the investment lifecycle,
i.e., investments, monitoring, or exit. This study is based on analyzing the
investment life cycle in its entirety, from the time of investment by the
VCPE fund till the time of exit. The analysis was based on a total of 1912
VCPE transactions involving 1503 firms during the years 2004 08.
Findings - Most VCPE investments were in late stage financing and took
place many years after the incorporation of the investee firm. The industry
was also characterized by the short duration of the investments. The type
of exit was well predicted by the type of industry, financing stage, region
of investment, and type of VCPE fund.
Originality/value - This paper highlights some of the key areas to ensure
sustainable growth of the industry. Early stage funding opportunities
should be increased to ensure that there is a strong pipeline of investment
opportunities for late stage investors. VCPE investments should be seen as
long term investments and not as "quick flips". To achieve this, it is

important to have a strong domestic VCPE industry who can stay invested
in the portfolio company for a longer term.

CHAPTER 3
COMPANY PROFILE

INDUSTRY PROFILE ~ BROKERAGE FIRMS IN INDIA

The Indian broking industry is one of the oldest trading industries in the
world. It has been around even before the establishment of the BSE in

1875. Despite passing through a number of changes in the post

liberalization period, the industry has found its way towards sustainable
growth. It is more than a century old, dynamic and forward looking, well
conversant, highly innovative and adaptable. During the past decade, the
Indian brokerage industry has undergone a dramatic transformation. The
Indian broking industry today is one of the most transparent and
compliance oriented businesses. Earlier the broking industry of India was
characterized by long settlement cycles and large scale bad deliveries. But
now with the advent of T+2 settlement cycle and dematerialization it has
undergone a positive transformation. Large and fixed commissions have
been replaced by wafer thin margins. Another main feature of the Indian
broking industry is that it is highly competitive.
There have also been major changes in the way business is
conducted.Technology has emerged as the key driver of business and
investment advice has become research based. At the same time, adherence
to regulation and compliance has vastly increased. The scope of services
offered by the broking firms have enhanced from being equity products to
a wide range of financial services Greater need for capitalization has
induced several firms to access the capital market. It has also got a good
amount of foreign exposure. Foreign firms are showing increasing interest
in taking equity stakes in domestic broking firms. This is due to the
increased efficiency of the broking firms in the country.

COMPANY PROFILE ~ INDIABULLS SECURITIES LTD.

Indiabulls Group is one of Indias top business houses with businesses

spread over Real Estate, Infrastructure, Financial Services, Securities,

Retail, Multiplex and Power sectors. The group companies are listed on
important Indian and Overseas markets. Indiabulls has been conferred the
status of a Business Superbrand by The Brand Council, Superbrands
India.
VISION To be the largest and most profitable financial services
organization in Indian retail market and become one stop shop for all non
banking financial products and services for the retail customers.
MISSION Rapidly increase the number of client relationships by
providing a broad array of product offering to emerge as a clear market
leader.
GROUP STRUCTURE
Indiabulls Group has five separately listed companies with subsidiaries
which contributed in enhancing scope and profile of the business.

Source: Indiabulls Securities LimitedFig. 3

Indiabulls Financial Services Limited

Indiabulls Financial Services Limited was incorporated on January 10,
2000 as M/s Orbis Infotech Private Limited at New Delhi under the
Companies Act, 1956. The name of company was changed to M/s.
Indiabulls Financial Services Private Limited on March 16, 2001. In the
year 2004, Indiabulls came up with its own public issue & became a public
limited company on February 27, 2004. The name of company was
changed to M/s. Indiabulls Financial Services Limited.
The company was promoted by three engineers from IIT Delhi, Mr.
RajeevRatta (Co-founder & Vice Chairman), Mr. Sameer Gelhaut
(Chairman) and Mr. Saurabh K Mittal (Director), and has attracted more

than Rs.700 million as investments from venture capital, private equity and
institutional investors and has developed significant relationships with
large commercial banks such as Citibank, HDFC Bank, Union Bank, ICICI
Bank, ABN Amro Bank, Standard Chartered Bank and IL&FS.
Indiabulls Securities Limited....... A jewel in the crown of
IndiabullsGroup
Indiabulls Securities Limited is Indias leading capital markets company
with All-India presence and an extensive client base. Indiabulls Securities
is the first and only brokerage house in India to be assigned the highest
rating BQ 1 by CRISIL. Indiabulls Securities Limited is listed on NSE,
BSE & Luxembourg stock exchange.
Indiabulls also provide commodity brokerage services under
IndiabullsCommodities Limited (ICL). It deals in research work and
formation of reports on agri-commodities and metals. ICL has one of the
largest retail branch networks in the country.
Mr. Divyesh Shah is the Chief Executive Officer of Indiabulls
SecuritiesLimited.
PRODUCTS OFFERED
Equities and Derivatives
Offers purchase and sale of securities (stock, bonds, debentures etc.).
Broker assisted trade execution.
Automated online investing.
Access to all IPO's.
Equity Analysis
Helps to build ideal portfolio.
Satisfies need by rating stocks based on facts-based measures.
Free of cost for all securities clients.
Depository Services
Depository participant with NSDL and CDSL.
Helps in trading and settlement of dematerialized shares.
Performs clearing services for all securities transactions.
Offers platform to execute trade and settle transactions.
Sales Team Structure
Sales force in Indiabulls Securities Limited is divided into two groups,
i.e.Online & Offline.

Customer Care Department

It provides solution to the queries of customers as well as branches from
acentralized location based out of Gurgaon.
Milestones Achieved
Developed one of the first internet trading platforms in India.
Amongst the first to develop in-house real-time CTCL (computer
tocomputer link) with NSE.
Introduction of integrated accounts with automatic gateways to
clientbank accounts.
Development of products such as Power Indiabulls for high
volumetraders.
Indiabulls Signature Account for self-directed investors.
Indiabulls Group Professional Network for information and
tradingservice.

CHAPTER 4
DATA ANALYSIS
&
INTERPRETATION OF DATA

FUNDAMENTAL ANALYSIS
Before stepping into the analysis of all factors together let
individuallyunderstand the factors that have an impact on the area of this
research.
1. ECONOMIC ANALYSIS
Gross Domestic Product (GDP)
GDP indicates the rate of growth of the economy. GDP represents
theaggregate value of the goods and services produced in the economy.
GDPconsists of personal consumption expenditure, gross private

domesticinvestment and government expenditure on goods and services

and net export of goods and services. Growth is usually calculated in real
terms, i.e. inflation-adjusted terms, in order to net out the effect of inflation
on the price of the goods and services produced.
Quarterly GDP rate by March 2010 was 9.4% which continued to fall
throughout the year ending March 2011. This decline was mainly due to
the effect of recession in some sectors like IT, Tourism sector, Export
sector, etc. which depended on foreign countries for its earnings. The GDP
rates were 9.3% in June, 8.9% in September, 8.3% in December and 7.8%
in March 11. By the end of December 2011, it showed a fall to 6.1%
mainly due to high inflation rate. By march 2012, GDP rate recorded 3
years low to 5.3%.
The diagram below shows Annual GDP Growth Adjusted by Inflation

Source: TradingEconomics.com

Fig. 4.1.0

Inflation Rate
In mainstream Economics, the word inflation refers to a general rise
inprices measured against a standard level of purchasing power. Previously
the term was used to refer to an increase in the money supply, which is
now referred to as expansionary monetary policy or monetary inflation.
Inflation is measured by comparing two sets of goods at two points in
time, and computing the increase in cost not reflected by an increase in
quantity.
Monthly inflation rate is taken for indentifying the fluctuations. In each
month of the year 2010, inflation is showing a continuous fall and it
follows until the end of November 2010 at 9.70%. Before January it
showed a slight dip during December at 8.33% compared to last month.
But in January it bounced back to 9.47% and there after showed a low
inflation rate for the next three months (Feb: 9.30%, Mar: 8.82%, Apr:

8.82%). By the end of January 2012, it became 7.5%. A high rate of

inflation is not desired by any nation as it hampers the production and
GDP growth of any economy. During February and June 2012, inflation
rate remained stagnant at 6.60% - 7.55% but still being high.
The diagram below shows the Annual Change on Consumer Price Index
since
2010:

Source: TradingEconomics.comFig.

4.1.1

Interest Rate
Interest rate or Bank rate affects the cost of financing to the firms. The
interest rate term structure is the relation between the interest rate and the
time to maturity of the debt for a given borrower in a given currency. A
decrease in interest rate implies lower cost of finance for firms and more
profitability. More money is available at a lower interest rate for the
brokers who are doing business with borrowed money. Availability of
cheap fund encourages speculation and rise in the price of shares.
Even much before 2010, the interest rate has been constant to 4.25% but
During 2010, interest rate was increased by every month. From 4.25% to
4.5%, then to 4.75%, 5%, 5.5%, 6%, 6.25% and so on during the month of
April, may, July, august, October, December respectively. However, in the
following month it further gained to 7.5%, 8%, 8.25% 8.5% for the rest of
the month in the year 2011 along with first two months of the 2012. It was
in the month of May 2012 that was the first time after 16 months interest
rate was slightly cut by 0.50% basis points to 8%.
The diagram below shows Central Bank Overnight Rate since 2010:

Source: TradingEconomics.comFig.

4.1.2

Relationship between GDP, Inflation rate & Interest rate

GDP, Inflation and interest rate are inter-dependent on each other. For
stock market investors, annually growth in GDP is vital. If overall
economic output is declining or merely holding steady, most companies
will not be able to increase their profits, which is the primary driver of
stock performance. However, too much GDP growth is also dangerous, as
it will most likely come with an increase in inflation, which erodes stock
market gains by making investors money (and future corporate profits) less
valuable.
Again, investors aim to preserve the value of their money by opting for
investments that generate yields higher than the rate of inflation. In
developed economies, banks try to keep the interest rates on savings
accounts equal to the inflation rate. However, when the inflation rate
raises, then companies or governments issuing debt instruments need to
lure investors with a higher interest rate. Inflation is an autonomous
occurrence that is impacted by money supply in an economy. Central
governments use the interest rate to control money supply and,
consequently, the inflation rate. When interest rates are high, it becomes
more expensive to borrow money and savings become attractive. When
interest rates are low, banks are able to lend more, resulting in an increased
supply of money.Alteration in the rate of interest can be used to control
inflation by controlling the supply of money in the following ways:

 A high interest rate influences spending patterns and shifts

consumers and businesses from borrowing to saving mode. This
influences moneysupply.
A rise in interest rates boosts the return on savings in building
societiesand banks. Low interest rates encourage investments in
shares. Thus, therate of interest can impact the holding of particular
assets.
A rise in the interest rate in a particular country fuels the inflowof
funds. Investors with funds in other countries now see investment
inthis country as a more profitable option than before

Source: TradingEconomics.comFig.

4.1.3

The chart above displays last two years GDP, inflation rate and interest
rate where GDP is quarterly calculated, inflation and interest rate is
monthly drawn so as to make an easy pictorial comparison. When inflation
was between 10-14%, GDP growth rate was around 8-9% at a stagnant
interest rate of 6%. But with a slight rise of inflation during july11, leads
to a fall in GDP at the same interest level of 7%. Again a further rise in
inflation after jan12 to 8%, the dip in GDP at 6% was seen, interest rate
remaining constant at 8.25%. By the end of March 2012, GDP Fall to 5.3%
along with high inflation rate of 6.95% and interest rate remained being
height at 8.5%.
2. INDUSTRY ANALYSIS
India has over 20 stock exchanges with NSE and BSE being the main
ones. There are over 8,000brokers registered with the SEBI. The NSE
ranks fourth among the top exchanges in the world, with respect to the
number of trades in equity shares.

Ban
ks are venturing into new avenues such as wealth management,
privatebanking, doorstep banking, credit cards, investment advisory
services andvarious financial products.
Impact of Inflation and interest rate on Banking Sector
The amount of bank lending declines with inflation. Inflation affects
banklending even at relatively low inflation rates-the median ratio of bank
lending to GDP in the second quartile is 10 percent smaller than in the first
quartile, and the median inflation rate in the second quartile is only 6.6
percent. Interest rate fluctuation also affects the working especially the
lending capability of a particular bank. RBI uses interest rate as a weapon
to tame inflation. With an increase in inflation rate, RBI increases the bank
rates so that excess loan able funds can be sucked out from the hands of
commercial banks and therefore, the purchasing power of people is
reduced. Thus, the inflation is curtailed. Hence, both are directly related.
3. COMPANY ANALYSIS
Common-size statement analysis:
The following table shows the different components of 4 banks taken
forresearch of Balance Sheet as on 31st March, 2012. The table also
displays the percentage column with respect to their respective Total
Assets. The analysis is done to support the Fundamental analysis of the
research. It provides a better understanding of the past and current position
of the banks under study. The comparison is done on various aspects of
one or more combined components of Balance Sheet like debt to assets,
equity to assets, cash and other assets to assets, etc. which determines the
financial status of the company. As we know financial position is a vital
aspect for stakeholders to show their interest in the company.

COMPARATIVE BALANCE SHEET

(in crores)

STATE
BANK OF
INDIA

BANK OF
BARODA

ICICI
BANK

AXIS
BANK

(in % of total )

STATE
BANK
OF
INDIA

BANK
OF
BAROD
A

ICICI
BANK

0.09
0
0
6.05
86.03
5.26
2.54
100.00
%

0.24
0
0
12.50
53.94
29.59
3.71
100.00
%

0.14
0
0
7.84
77.05
11.92
3.02
100.00
%

AXIS
BANK

Capital and Liabilities:

83,280.16

27,064.47

59,250.09

22,395.34

1,043,647.36

384,871.11

255,499.96

220,104.30

127,005.57

23,573.05

140,164.91

34,071.67

80,915.09

11,400.46

17,576.98

8,643.27

1,335,519.22

447,321.47

473,647.10

285,627.78

0.05
0
0
6.23
78.14
9.50
6.05
100.00
%

54,075.94

21,651.46

20,461.29

10,702.92

4.04

4.84

4.31

3.74

43,087.23

42,517.08

15,768.02

3,230.99

Advances

867,578.89

287,377.29

253,727.66

169,759.54

Investments

312,197.61

83,209.40

159,560.04

93,192.09

Gross Block

14,792.33

4,921.59

9,424.39

3,583.67

Accumulated Depreciation

9,658.46

2,580.09

4,809.70

1,395.12

Net Block

5,133.87

2,341.50

4,614.69

2,188.55

332.68

70.77

Other Assets

53,113.02

10,224.73

19,515.39

6,482.93

Total Assets

1,335,519.24

447,321.46

473,647.09

285,627.79

3.22
64.96
23.37
1.10
0.72
0.38
0.02
3.97
100.00
%

9.50
64.24
18.60
1.10
0.57
0.52
0
2.28
100.00
%

3.32
53.56
33.68
1.98
1.01
0.97
0
4.12
100.00
%

1.13
59.43
32.62
1.25
0.48
0.76
0.02
2.26
100.00
%

Equity Share Capital

Share Application Money
Preference Share Capital
Reserves
Deposits
Borrowings made by bank
Other Liabilities & Provisions
Total Liabilities

671.04

412.38

1,152.77

413.2

2.39

Assets
Cash & balance with RBI
Balance with Banks, Money at
Call

Capital Work In Progress

ANALYSIS:
Common-size balance sheet provides some valuable insight. Looking at
the common-size balance sheets the following points can be identified: Investments of ICICI bank is the highest (i.e. 33.68%) of total
assetsfollowed by Axis Bank (i.e. 32.62%). On the other banks
investmentlies between 18% - 24% of total assets.
Total Loan Funds to assets of Bank of Baroda is 93.85% which
iscomparatively highest but the variation with other banks is less and
this rate is mainly contributed by high deposits in each case. State
Bank of India is the next in number at 93.71% of assets. It is relevant
from the above table that the dependence of State Bank of India on
Equity Capital is 0.05% of total assets which is very less as
compared to other banks. It solely depends on its deposits and
borrowing from other sources.
As mentioned above, the Equity capital is least for State Bank of
India and highest is ICICI bank with 0.24% of total assets. On the
other hand, Axis bank and Bank of Baroda are 0.14% and 0.09% of
total assets respectively.
The Borrowings made by banks are as high as 29.59% of total assets
in case of ICICI rest others are below 12%. The probable reason may
be the amalgamation of ICICI bank with the Bank of Rajasthan.
ICICI and Axis bank has high property investment of 0.97% and
0.76% of total assets respectively.
Other assets to total assets are as high as 4.12% of total assets
whichrepresents ICICI bank. State Bank of India contributes 3.97%
of its total assets as other assets the least being 2.26% for Axis bank.
As far as Total Deposits to total assets is concerned its high for Bank
of Baroda followed by State Bank of India, Axis bank and ICICI with
78.14%, 77.05% and 53.94% respectively.
Income Statement Analysis
Some very common parameters have been taken for easy understanding
ofComparison. The parameters are sale, other expenses, gross profit and
net profit margin, taxation, Equity dividend rate and EPS all have been
compared on both grounds i.e. comparison between two financial year as
well as inter-bank comparison.
The table in the following page shows the above discussed statement: -

Comparative Income statement

State bank of India

Bank Of Baroda

(in crores)
ICICI Bank

Axis Bank

31-03-11

31-03-12

31-03-11

31-03-12

31-03-11

31-03-12

31-03-11

31-03-12

Sales

81,394.36

1,06,521.45

21,885.92

29,673.72

25,974.05

33,542.65

15,154.81

21,994.65

Other income

15,824.60

14,351.45

2,809.18

3,422.33

6,647.90

7,502.76

4,632.13

5,420.22

Employee Expenses

14,480.17

16,974.04

2,916.78

2,985.58

2,816.94

3,515.28

1,613.90

2,080.17

Other Expenses

8,535.26

9,094.95

1,713.05

2,123.39

3,800.31

4,335.16

3,165.53

3,926.93

Total interest

48,867.96

63,230.37

13,083.66

19,356.71

16,957.15

22,808.50

8,591.82

13,976.90

Gross profit

25,335.57

31,573.54

6,981.61

8,630.37

9,047.55

10,386.47

6,415.69

7,430.87

Provisions Made

10,381.34

1,331.29

2,554.82

1,583.04

1,280.03

1,143.03

Net depreciation

6,689.71

6,776.02

1,408.64

1,018.84

1,609.33

2,338.17

1,747.17

2,045.63

8,264.52

11,707.29

4,241.68

5,006.96

6,465.26

5,151.38

3,388.49

4,242.21

Prior year adjustment

Reserve written back

635

671.04

392.81

412.38

1,152.77

1,151.82

410.55

413.2

2577.92

2577.92

1682.67

1878.44

11527.14

11517.72

2200.56

2234.65

40.6

38.42

42.97

45.69

100

100

53.6

54.08

GovernmentShare

59.41

59.41

53.81

53.81

CapitalAdequacyRatio

11.98

13.86

14.52

14.67

19.54

18.52

12.65

13.66

130.15

174.46

107.98

121.42

44.72

56.08

82.54

102.67

Total taxation
Extra ordinary item
Net profit / loss

Equity capital
Equity Dividend Rate (%)
Agg. Non-Promotor Shares (in
Lacs)
Agg. Non-Promotor Holding(%)

EPS (in Rs.)

Comparative income statement

State bank of India
31-0331-03%
2011
2012
change

31-032011

Bank Of Baroda
31-03%
2012
change

31-032011

ICICI Bank
31-03%
2012
change

31-032011

Axis Bank
31-032012

Sales

100

100

11.29

100

100

10.6

100

100

17.32

100

100

Other income

19.9

21.08

1.19

17.64

16.32

-1.32

24.46

29.09

4.63

26.74

33.9

15.28

17.97

2.69

15.56

14.08

-1.48

6.34

7.49

1.15

9.21

10.79

9.25

10.65

1.4

8.14

8.74

0.61

16.32

15.03

-1.01

17.17

21.09

Total interest

67.28

66.66

-0.62

66.05

64.43

-1.62

73.09

68.44

-4.66

65.98

57

Gross profit

28.09

25.81

-2.28

27.09

29.07

1.17

28.71

37.86

9.15

34.38

45.03

Employee Expenses
Other Expenses

Provisions Made

5.85

6.91

0.34

6.37

4.18

-2.2

12.25

17.06

4.82

8.67

11.94

Net depreciation

7.93

6.7

-1.23

7.39

7.06

-0.33

4.37

5.14

0.77

8.95

11.49

0.63

0.49

-0.14

14.3

12.91

-1.39

14.76

18.32

3.56

12.09

15.66

3.57

16.75

21.61

Prior year adjustment

Reserve written back

Equity capital

0.89

-0.1

2.42

2.19

-0.23

3.58

4.34

0.76

3.31

3.48

Equity Dividend Rate

(%)

0.45

-0.45

0.6

-0.6

0.35

-0.35

0.92

1.03

Agg. Non-Promoter
Shares (in Lacs)

4.04

3.63

-0.41

11.15

10.08

-1.07

35.08

43.37

7.56

16.51

18.49

Agg. Non-Promoter
Holding(%)

0.06

0.06

-0.01

0.31

0.28

-0.03

0.32

0.39

0.07

0.46

0.46

Government Share

0.09

0.08

-0.01

0.36

0.32

-0.03

CapitalAdequacyRatio

0.02

0.02

0.09

0.16

0.08

0.05

0.08

0.03

0.13

0.14

EPS (in Rs.)

0.23

0.2

-0.02

0.4

0.5

0.1

0.11

0.14

0.03

0.47

0.53

Total taxation
Extra ordinary item
Net profit / loss

ANALYSIS:
The following points have been noted from the table shown below: In case of State Bank of India (SBI), Bank of Baroda (BOB) and Axis
Bank Sales has shown an increase among which SBI being the
highest with 11.29% growth followed by Bank of Baroda and Axis
Bank with10.64% & 7.4% increase respectively. ICICI banks which
have shown a decline in their sales when compared to previous year
sales.

 Other income contributes very less to sales in case of SBI i.e. 21.08%
of sales. Moreover, Bank of Baroda is the least in it with mere
16.23% of sales. On the other hand, Axis Bank, ICICI contributes
around 33.9%, 29.09% of sales respectively in the year 2011-12.
However, while comparing current year data with previous year it is
found that other income to sales has shown an increase of 7.17%,
4.63% & 1.19% for Axis bank, ICICI & SBI bank respectively. But
BOB has shown a decline of 1.32% in Other income to Sales in
comparison to previous year.
Total interest (payment) to sales which is a major expense to any bank
is high in ICICI, SBI and BOB with 68.44%, 66.66% and 64.43% of
sales respectively. On the other hand, Axis interest reaps out 57% of
sales respectively. But this expense has shown a decrease in later
banks than former mentioned banks when compared to previous
years data. Axiss total interest payments to sales declined by 8.98%.
ICICI also shows a decline of 4.66% followed by SBI with 0.62% and
BOB with 1.62%.
With this decrease it can be very well understood that with the
slightincrease in sales the interest burden is reduced.
Gross profit margin is highest for Axis bank with 45.03% of
salesfollowed by ICICI, BOB and SBI with 37.86%, 29.07% and
25.82% of sales. But a good increasing trend is seen in case of Axis
bank with 10.65% increase compared to 2010-11. No doubt ICICI,
BOB has also shown an increase but its quite less. However, all the
above are unlike SBI which has faced a slight drop in Gross profit
margin by 0.62%.
As tax payment is related to amount of net profit earned, it has
increased by 2.54% and 0.77% for Axis and ICICI bank respectively.
But the contribution of SBI and BOB towards payment of tax has
declined by 1.23% and 0.33% respectively.
Provisions, taxation and extraordinary item tend to reduce net
profitmargin. Even though the net profit to sales of Axis bank is
21.61% ofsales, an increase of 4.85% from last year. BOB profit
above 18% of sales which is again 3% to 4% more from previous
year whereas ICICI and SBI being lowest in net profit margin.
Moreover, SBI has shown a decline in Net profit margin by 1.39%
from last year.
Equity dividend rate to sales is 1.03% of sales for Axis bank which

is0.11% more than last year. Rest all the other banks have shown a
decline in the Equity dividend rate. However, the investors return
shows a dividend rate of 300% on SBI shares, 150% on BOB and
120% on the shares of ICICI and Axis bank respectively.
EPS to sales is 0.53% of sales for Axis bank which is followed by
BOB with 0.50% of sales. Least is of ICICI bank with 0.14% of sales
which is merely 0.03% more than previous year. However, SBI has
shown a decline in its EPS to sales by 0.02% when compared with
last years EPS to sales.

Cash flow statement Analysis

State bank of India
%
31-03-11
31-03-12 change
Net Profit Before
Tax
Net Cash From
Operating Activities
Net Cash (used
in)/from
Investing Activities

Bank Of Baroda
%
31-03-11
31-03-12 change

ICICI Bank
31-03-11

31-03-12

1805

1.79
106.
12

3342
.9
1125
.5

4238
.1
1125
2

26.7
8
899.
8

5117
1418
8

5345.
32
1869.
21

1761.
5

6.63

238.
93

335.
01

40.2
1

3857
.9

6150.
73

14180
.6
29479
.7

1392
6

1651.
93

Axis Bank
%
change

31-03-11

31-03-12

4.46
113.
17

2785
.2
1055
2

3851.
36

59.4
3

9742

28.87

5122.
98

Net Cash (used

in)/from Financing
Activities
Net
(decrease)/increase
In Cash and Cash
Equivalents
Opening Cash &
Cash Equivalents
Closing Cash &
Cash Equivalents

5097.
38

3359.
7

32925
.2
71478
.6
10440
4

6926.
2
1031
10
9618
4

165
121.
04
44
7.87

901.
29

462.
51

48.6
8

1625
.4

1382.
62

14.9
3

1692
.3

5304.
07

1787
.8
2229
9
2408
7

1138
0
2408
7
3546
7

536.
52

8074
.6
3804
1
2996
7

8907.
13
29966
.6
38873
.7

210.
31
21.2
3
29.7
2

2512
.7
1250
4
1501
7

189.5
4
15016
.9
15206
.4

8.02
47.2
4

CASH FLOW STATEMENT ANALYSIS

1. Cash flow from Operating Activities
In the year ended 2012, all banks show a negative cash flow fromoperating
activities other than State Bank of India. SBI has a negative cashflow from
operation of Rs.1804.99crore but PBT is positive atRs.13,926.10crore. It
indicates that the company has made advances but has yet not received its
payment. On the other hand Bank of Baroda, has the highest amount of
cash flow from operating activities of Rs.11,252.45crore which is mainly
due to rise in deposits. Again in case of Axis Bank, even though cash flow
is positive, its very less when compared with its PBT. The probable reason
for the gap is the decrease in Provisions and increase in short-term assets
especially Advances. ICICI Bank show Rs.1,869.21crore as positive net
cash flow from operation. However, in case of ICICI bank, CF from

operation is lower than its PBT which is a good sign as it indicates that it is
either speeding up its income or slowing down its cost.While comparing
Operating Cash Flow (OCF) from last year, it is seen that ICICI bank had
negative OCF which turned positive the year after i.e. in 2012. For the
former the change was of 640.85% and for the later it was of 113.17%.
Moreover, the highest change was for Bank of Baroda with an increase of
899.80% than last year. The effect was mainly because of excessive
increase in its Deposits which is a good sign for any bank. On the other
hand, SBI and Axis bank showed a decline of 106.12% and 99.73% than
last year respectively in their net OCF.
2. Cash flow from Investing Activities
Net Cash Flow from Investing Activities is negative in all banks
exceptICICI bank which has Rs.6,150.73crore positive net CF from
investingactivities. This is because ICICI bank sold high amount of fixed
assets to its subsidiaries. Purchase of fixed assets were made but of a very
less amount. On the other side, Axis Bank has the highest negative net
Cash flow from investing activities of Rs.5,122.98crore. Actually, heavy
amount of additions have been made in Fixed Assets which is evident from
the rise in depreciation. SBI and Bank of Baroda show a negative CF from
investing activities amounting to Rs.1761.52crore and Rs.335.01crore
respectively.
But when the above is compared to last years data, a somewhat similar
pattern is found in Axis on one hand and another type of similarity is found
in SBI and Bank of Baroda. Axis bank showed a negative net CF from
investing activities which indicated heavy capital expenditure in that year.
Moreover, they also showed a decline in capital expenditure in year ending
2012 as compared to year ending 2011 by 47.41% and 16.91%
respectively. Similarly, SBI and Bank of Baroda both had a negative net
CF from investing activity of Rs.1651.93crore and Rs.238.93crore at the
year ending 2009 but the deference lies in the next year. Unlike Axis , SBI
and Bank of Baroda shows a further increase in their Capital Expenditure
by 6.63% and 40.21% respectively. An increase in Capital Expenditure
over years indicates an expansion plan and future growth of the company.
3. Cash flow from Financing Activities
Only SBI shows a negative net CF from financing activities
ofRs.3,359.67crore rest all display a positive value. However,
negativefinancing activity is a good sign for SBI as it implies that it has
paid off theproposed dividend of 300% on face value but through Balance

sheet it isreflected that it has not raised any funds from Equity. It does not
even havea positive operating cash flow. This indicates that it has used its
currentgenerated profit and reserves to finance the above but the future
growth and expansion of the company is in question. On the other hand,
Axis bank has the highest net CF from financing activities of
Rs.5,304.07crore followed by ICICI and Bank of Baroda with
Rs.1,382.62crore and Rs.462.51crore respectively.
However, comparison shows that Axis Bank registered a highest increase
of 213.42% over last year among other banks. This increase is because of
the receipt of application money of the shares which was issued during
year ended 2011. ICICI, SBI and Bank of Barodas net CF from financing
activities declined by 14.93%, 165.91% and 48.68%.

RATIO ANALYSIS

Ratio Analysis
State bank of India
201020112011
2012

Bank Of Baroda
201020112011
2012

ICICI Bank
201020112011
2012

Axis Bank
201020
2011
20

Profitability Ratio
Return on Networth (%)

15.74

13.89

17.35

20.24

7.58

7.79

17.77

15

100.35

95.02

103.7

99.27

56.72

44.72

97.35

66

12.03

10.54

12.86

15.37

9.74

12.17

13.31

Interest Income/Total Funds

8.88

8.52

8.16

7.56

9.82

8.82

10.53

Net Interest Income/Total Funds

3.79

3.82

3.26

3.3

3.99

4.08

4.98

Non-Interest Income/Total Funds

0.11

0.1

0.35

0.3

0.08

0.08

0.06

Operating Expense/Total Funds

2.06

2.38

1.78

1.77

2.6

2.59

2.64

Non-Interest Income/Total Income

1.08

1.21

4.09

3.88

0.86

0.92

0.6

7.2

7.26

4.2

4.48

5.14

4.6

7.78

67.28

66.66

66.05

64.43

73.09

68.44

65.98

14.25

13.39

14.05

14.36

15.53

19.41

13.69

Return on Long Term Funds (%)

Net Profit Margin (%)
Managerial Efficiency Ratio

Assets Turnover Ratio (%)

Interest Expended/Interest Earned (%)

Balance Sheet Ratio

Capital Adequacy Ratio (%)
Debt Ratio

Total Debt to Owners Fund

12.81

12.19

14.99

15.96

4.42

3.91

11.49

1.36

1.33

1.37

1.43

1.25

1.33

1.43

Current Ratio

0.04

0.04

0.02

0.02

0.13

0.14

0.03

Quick Ratio

5.74

9.07

9.62

21.88

5.94

14.7

9.52

19

Coverage Ratio
Interest Cover (times)
Liquidity Ratio

RATIO ANALYSIS
Profitability Ratio
Profitability ratio indicates the performance of the company on the basis of
profits or income earned during a financial year. It is not justifiable to
interpret the profitability of a company based on only one ratio. Hence,
profitability ratio is a combination two-three profit based ratios like Return
on Net worth, Return on Long Term Funds and Net Profit Margin.
i. Return on Net worth is very high around 20.24% for Bank of
Baroda in the year end 2010 whereas Axis Bank stands with 15.67%,
SBI 13.89% and ICICI bank being the least with 7.79%. Moreover,
last years ratio reveals that Bank of Baroda was having ratio of
17.35% which was still considerably higher and an increase of ratio
over last year. ICICI bank showed a minimal rise of 0.21% while all
the rest showed a fall from the last year. Axis was previously 17.77%
and SBI was 15.74%.
Generally, a return of 10% would be desirable to provide dividends
to owners and have funds for future growth of the company.
Therefore, a higher return on Equity or Net worth of Bank of Baroda
is more likely to be one that is capable of generating cash internally.
Generally, the higher the companys return on equity compared to its
industry, the better.
ii. Return on Long term funds are as high as 99.27% and 95.02% for

Bank of Baroda and SBI respectively. Axis and ICICI bank have
moderate return on their Long term funds like 66.34% and 44.72%
respectively. However, all the banks showed a falling trend in return
on long-term funds as compared to last year. Axis, ICICI, SBI and
Bank of Baroda all being at 97.35%, 83.31%, 56.72%, 100.35% and
103.7% respectively by the year end 2011.
iii. Net Profit Margin, which is one of the most common but very
effective performance indicators, is good for Bank of Baroda and
Axis Bank although for later it is a bit higher at 16.10% as for the
former it is 15.37%. For ICICI and SBI it has a profit margin of
12.17% and 10.54% respectively. However, on comparing the current
data with last years ratio signifies that all banks, other than SBI,
have shown an increase in its net profit margin. The positive change
is in within 2% to 3.5% and for SBI it dropped from 12.03% to
10.54%.
Overall the profitability ratio of Bank of Baroda is comparatively
goodimmediately followed by Axis Bank and the rest. It reveals the
improvement in the earning capacity of the company.
Managerial Efficiency Ratio
Efficiency of any company is determined from its operational activities.
Ratios of that kind which are related to vital components of any banking
business mainly interest. Interest acts as a very crucial element for basis of
comparison between different banking firms as it makes the difference in
the profitability of two banking company.
i. Interest income to total funds is high for Axis bank with 9.38% followed
by ICICI bank with 8.82%, SBI 8.52% and Bank of Baroda with 7.56%. If
last years interest income to total funds ratio is compared with the current
year, a slight decrease in all the banks could be seen.
ii. Net income indicates interest earned after deducting interest expended.
This ratio for Axis, ICICI, SBI and Bank of Baroda it is 5.34%, 4.08%,
3.38% and 3.3% respectively. It follows an increasing trend compared to
last years net income to total funds. It was 4.98%, 3.99%, 3.79% and
3.26% for Axis, ICICI, SBI and Bank of Baroda respectively.
iii. A ratio depicting the other incomes earned as a percentage of total
funds is high for Axis bank with 12% to its total funds. It has even risen
almost double to that of last year i.e. from 0.06 to 0.12. ICICI bank
remained stagnant at 8%. On the other hand, SBI and Bank of Baroda have
shown a slight fall of 1% and 5% respectively.
iv. Non-interest income to total income ratio is comparatively very high

for Bank of Baroda with 3.88% indicating its dependence on other sources
of income after interest. It is followed by SBI, Axis, ICICI bankwith
1.21%, 1.3%, 0.92% respectively. Last years ratioindicates that Axis rose
from 0.6%, ICICI from 0.86% and SBI from 1.18% but Bank of Baroda
showed a dip from 4.09% to 3.88%.
v. Assets turnover ratio for Axis bank is 7.31% which is comparatively
high. SBI being at 7.26%, ICICI at 4.6%, Bank of Baroda at 4.48%. This
indicates the amount of sales generated from each rupee of assets. Last
year also, Axis bank was high with 7.78% of the ratio.
vi. Interest expended in proportion to interest earned is low for Axis bank
at 57%.which is positive as it implies that the company is capable of
paying off its interest dues out of interest earned. So the dependency
oninterest expense does not fall on other incomes. Highest is of ICICI
bankwith 68.44% which is a drop from 73.09% of last year. SBI and Bank
ofBaroda were as high as 66.66% and 64.43% respectively.
Balance Sheet Ratio
Capital adequacy ratio (CAR) is high for ICICI bank with 19.41%
followed by Axis, Bank of Baroda and SBI with 15.8%, 14.36% and
13.39% respectively. By the end of 2009, CAR was 15.53% for ICICI
bank, 14.25% for SBI, 14.05% for Bank of Baroda and Axis bank being at
13.69%.
Debt Ratio
Total debt to owners funds ratio is high for Bank of Baroda at 15.96
timesfollowed by SBI with 12.19 times, Axis bank with 8.81 and. The least
being ICICI bank with 3.91 times. This low ratio is positive for the
shareholders of that company. Compared to last year, all bank showed a
decline in their debts except Bank of Baroda which slightly raised its debt
ratio from 14.99 to 15.96. Axis bank curtailed its debt ratio from 11.49 to
8.81 which is a highest change among rest banks. Then ICICI being at 4.42
and SBI at 12.81times of its owners funds. Coverage Ratio Coverage
ratios are designed to relate the financial charges of a firm to its ability to
serve them.
Axis bank have a good interest coverage ratio of 1.62 times that indicates
their lower debt burden. Bank of Baroda can cover up its interest payments
1.43 times from its profits whereas ICICI bank and SBI could cover it up
only by 1.33 times. During the financial year 2010-11, no change in the
order took place. Axis bank remained high at 1.43 times where as Bank of
Baroda, SBI and ICICI bank followed with 1.37, 1.36 and 1.25 times of its
profits respectively.

Liquidity Ratio
Liquidity ratios are used to judge a firms ability to meet short term
obligations. Much of the insights can be obtained into the present cash
solvency of a company and its ability to remain solvent in the event of
adversities.
i. Current ratio even though not appropriate for analyzing banking sector
but effective when simultaneously quick ratio is also compared.All bank
remained the same compared to their past year current ratio. Axisbank,
SBI and Bank of Baroda remained intact at 0.03, 0.04and 0.02
respectively. ICICI bank showed a negligible increase from 0.13in the FY
2010-11 to 0.14 in the FY 2011-12.
ii. Quick ratio is obtained after deducting prepaid expenses and inventories
but as banks does not have any inventory sort of thing it does not
count.Generally, quick ratio of 1 is desirable for a company but in banking
it isobvious to have more than 1:1 as immediate or short term assets
arerequired for meeting different customers requirements, calculation of
CRRon net deposits and for many other purpose.
Bank of Baroda and Axis Bank both have a very high quick ratio of 21.88
and 19.19 respectively during the FY 2011-12. This indicates the high
liquid or short term assets with the company which remained
unutilized.This can also be clarified from the cash flow from operating
activitieswhich was very low but positive. Investment plans may be one of
thereasons for high liquid assets. It is not that only above mentioned
bankshave high quick ratio but ICICI bank, SBI bank also has high quick
ratios of 14.7, 7.14 respectively. However, last years quick ratio for all the
banks was comparatively very low from the current FY. Bank of Baroda
was at 9.62, Axis bank 9.52, ICICI bank 5.94, SBI 5.74 . The huge
difference in both years quick ratio may be due to the frequent fluctuations
in the CRR rate during the FY 2011-12.
TECHNICAL ANALYSIS
Interpretation of Indicators
a) Moving Average Crossover
According to this research, a comparison is made between 100day
and200day moving average of bank scrip and data collected is from 1 st
April 2010 to 31st march 2012. The charts below show the movingaverage
crossover of each bank with red line indicating short term movingaverage
and black line indicating long term.

AXIS

BANK

Fig. 4.2.1

The chat above shows the data base of Axis Bank for the past two years.
From April 2010 onwards the prices are in continuous fall and it indicates
further fall in it to the investors as the short term average remains above
the stock line. This was the phase for selling or going short. On 1 st march
2011, short term moving average intersects the stock line from above and
penetrates downward indicating an decrease in price. Investors benefit if
they go for long in such situation. The intersection of both long and short
term moving average on march 7 2011 signals trend reversal and there
after a continuous fall in the price could be seen. High price for that day
was Rs.1340 and closed at Rs.1328. Thereafter, the short term moving
average remained below long term moving average for more than a year
and it seems that it will continue to fall in the coming month.
ICICI BANK

Fig. 4.2.3

Like the above graph, ICICI Bank also faced a fall in its stock price as the
short term moving average remained above it till 19th April, 2011. Within
the 2yr span it went as low as Rs.698 thereafter rising steeply. On dec16
2011, increasing trend took over the scrip as it opened at Rs.701.65 and
closed at Rs.714.05 with the high price of the day being Rs.724. In the
later phase of the graph, the gap between the two moving average has
reduced and it is tending to a trend reversal very soon. It is very clear
stated that scrip is tending towards trend reversal thus displaying a sell
signal. It may go up to Rs.1010 but thereafter it will definitely fall.
Investors can hold till for few more days and then move out of the scrip.
With the bearish trend, investor may go for buying the scrip again.
STATE BANK OF INDIA

Fig. 4.2.4

The above chat is more interesting as it faced two trend reversals with the
same period like the others. It displays the volatility of SBI scrip. On 1st
April 2011, the short term moving average intersects the stock price from
above at an opening price of Rs.2596, high of Rs.2631 and closed at
Rs.2597.it indicated a dip in the scrip price. The dip was very long lived
and it reversed again on 09th jan 2012 when the short term moving average
crossed the price line from below. It clearly signals a bullish trend. The
stock price will easily cross Rs.2850. Investors should go buying the scrip.

BANK

OF

BARODA

Fig. 4.2.5
The above graph depicts the non-volatile nature of this scrip price. The
short term moving average went below the stock price on 6th April 2009
and then followed the intersection with long term moving average on 2nd
June 2009. Thereafter the short term moving average remained in between
the stock price and the long term moving average. `Even though the gap
between the two moving averages is reduced indicating a slow rise in
prices but its clear that it will rise further for few more months to come.It
will rise around Rs.860 in near future or even more as it is in the bullish
trend. It will take time for this scrip to show a reserve trend.

b)

Bollinger

BandsAXIS

BANK

Fig. 4.2.6

Analysis of Bollinger bands through candlestick chart is easy to

understand as well as convenient for interpretation. From the above chart it
can be easily identified on which particular day the scrip was overbought
or oversold. On 25th of may 2010, the price was low at Rs.1153 touching
the lower band but closed within the band at Rs.1163. It was a signal for
the traders to close short and go for long. Thus, the closing prices ended up
higher and higher day by day. And became closer to the upper band giving
higher return to the investors. the price opened very low below the lower
band and closed very high, long position is desired at this stage. During
june, precisely saying on 24th, the price went high at Rs.1268 and there
after it continued to increase showing an uptrend. Later it touched the
upper band giving a signal to continue for long. Thereafter, the scrip price
remained above the moving average (not visible in the graph above)
providing a signal of an uptrend and further increase in its price. By the
end of July it reached a price level of Rs.1395 from Rs.1025 in may.
During the onset of August, the scrip prices went a bit low from the
moving average but remained much above the lower envelope and again
bounced back to the rising track. Currently, its still in the rising trend as it
is above the moving average and headed towards the upper envelope.
Thus, its beneficial for traders if they play long.

ICICI BANK

Fig. 4.2.8

The graph above shows an uptrend but with a slow pace and forming
cyclical patterns. On 23rd February 2012, the scrip price was above the
moving average and thereafter it went higher and higher tended towards
the upper band of the Bollinger band by 12 th of March. On 28th of March,
the scrip price went low to Rs.853 crossing the lower band but closed at
Rs.876, lower than the opening price. Thereafter it started to rise as scrip
price continued to remain above moving average and closer to the higher
Bollinger band. It seems that a further rise in the price will occur as the
scrip price remained above the moving average but has not yet touched or
crossed the upper band.
STATE BANK OF INDIA

Fig. 4.2.9

Mid December was end of downtrend for traders dealing in SBI scrip. 19 th
December 2011 was the first positive close at Rs.1632 .This indicated a
signal to buy or long position. Thereafter the scrip price remained above
moving average. On 16th Feb., the price again penetrated the upper
envelope and closed above the envelope band at a closing price of
Rs.2349, indicating a further rise in the price. The price continued to
remain in a range bound until 16th April when price dropped from an
opening of Rs.2323 to close at Rs.2289 giving a signal to go short

BANK OF BARODA

Fig. 4.2.10

In the above chart, white or empty blank candlesticks dominate. Its a

verypositive indication for any investor or trader dealing with this scrip.
FromFebruary onwards, the price frequently penetrated the upper envelope
band and closed beyond it. Thus the price continued to rise without much
break. On 5 th of April, the price went high at Rs.697.4 penetrating the
upper envelope but closed back inside it at Rs.673.3. That was a signal to
go for short. But by the end of the month, the prices again moved above
the moving average showing a sign for increase in price in future.
Throughout July prices closed higher than the opening. On 17th of August,
the price jumped from opening price of Rs.751.1 and closed at Rs.832.45
touching the lower envelope as well as penetrating the upper band. This
was a clear signal of uptrend and will be favorable for traders to go for
long.

c) MACD
AXIS BANK

Fig. 4.2.11

In the above chart, MACD was initially falling followed by steep fall in
the scrip price. Onset of June brings a slight rise in MACD and a rising
trend can be declared during the rest of the month. A steady side
movement of the MACD along with scrip price brought a confused state
for traders but the rising each peak indicated a further rise in the price. But,
during august, MACD started fall thereafter followed by price. A falling
trend was declared. It was a signal for the traders to short and sell scrip as
the market was bearish. Just at the beginning of january, a slight rise is
experienced by the traders. It was a confirmation to buy.

ICICI BANK

Fig. 4.2.13

Prices from mid of May till end of July oscillated almost at same price
level but increased slightly by the end of July. But thereafter it fall at a
faster rate following the fall in MACD, a sign of an downtrend. A decline
in MACD is initiated along with a decreasing price therefore a
downtrendis approaching for short term traders but in the long run it seems
to be rising and benefitting the traders owning the scrip.

STATE BANK OF INDIA

Fig. 4.2.14

The chart above is quite unlike the others explained above. After looking
at the chat it is evident that within a span of 3-4 months the scrip gained a
lot in terms of its market price. MACD looks very clear and beautiful with
its steady rise gaining more momentum during August which continues.
The scrip does not indicate a trend reversal. MACD is not oscillating much
but it will surely rise in long term, if it raises, it indicates a rise further.

BANK OF BARODA

Fig. 4.2.15
The chart above shows a high degree of oscillation in its OBV. A
downtrend was experienced before June that confirmed its decline as the
traded volume was fairly high giving signal to traders to go close short and
go long. During the end of June and early July, the price remained at an
almost constant level without much oscillation. On the other hand, OBV
showed a decline. Thus, a signal of trend reversal but no confirmation to
which direction the price will move until OBV made its way up in mid of
July giving a signal of rising price. Even though the OBV and price are in
rising trend volume is not enough to support the rise. During August, daily
traded volume remained below 0.5 million. A slight fall may be
experienced by the traders in this scrip as both OBV and price are facing
downward and this in turn is supported by volume. So, the traders should
wait for a signal to close short and begin with long.

d) Relative strength index (RSI)

Axis Bank

In the above graph , An over sold at RSI 31 where the price is traded low
at Rs.803 and closed at Rs. 806 on 30th dec 2011 . which showed a reverse
in the trend, And the script started to raise from the low point . by the
middle of feb more precisely on 16th feb 2012 it reached an over bought
zone where the RSI was 77 and indicated to reverse in the trend and with
some
divergence
as
well
.

ICICIBank

In the above graph , An over sold at RSI 30 where the price is traded low
at Rs.667 and closed at Rs. 676 on 16th dec 2011 . which showed a reverse
in the trend, And the script started to raise from the low point . by the
middle of feb more precisely on 16th feb 2012 it reached an over bought
zone where the RSI was 70 and indicated to reverse in the trend and with
some divergence as well

State Bank Of India

In the above graph , An over sold at RSI 34 where the price is traded low
at Rs.1604 and closed at Rs. 1631 on 19 th dec 2011 . which showed a
reverse in the trend, And the script started to raise from the low point . by
the middle of Feb more precisely on 16th Feb 2012 it reached an over
bought zone where the RSI was 80 and indicated to reverse in the trend
and with some divergence as well.

BANK OF BARODA

In the above graph , An over sold at RSI 22.01 where the price is traded
low at Rs.681 and closed at Rs. 691 on 26th August 2011 . which showed a
reverse in the trend, And the script started to raise from the low point . by
the middle of Feb more precisely on 21st Feb 2012 it reached an over
bought zone where the RSI was 70 and indicated to reverse in the trend
and with some divergence as well.

CHAPTER 5
CONCLUSIONS AND FINDINGS.
SUGGESTIONS & RECOMMENDATIONS
BIBILOGRAPHY.
APPENDIX

FINDINGS:

Fig. 5.1
The pie chart above shows that 35% of the investors of stock market are
aware of the different investment options and have 40% to 60% of
knowledge about the day to day happening in stock market. So it can be
stated that investors are active participants.
Source: Primary data collect through questionnaire

Fig. 5.2
From the above chart it can be concluded that out of the sample size of 40,
11 people invest 30% of their total income in stock market followed by 9
people and 6 people investing 20% and 25% respectively. Broadly
speaking, 65% of the total investors in India invest 20% to 30% of their
total income in stock market.
Source: Primary data collected through questionnaire

Fig. 5.3
Figure 5.3 displays the risk taking capacity of investors of stock market. It
is found that 40% of traders are willing to take 70% risk. Around 27.5% of
traders are having 50% of risk taking capacity and around 15% traders
have excellent (90% and above) risk taking capacity.
Source: Primary data collected through questionnaire

Fig. 5.4
Different people trade with different reasons and depending upon that
investors take calculated risks or better to say the degree of risk of
investors depend on their purpose of trading. 50% of the traders trade in
stocks because the returns can be obtained within short-term where as 20%
of traders trade because of liquidity. 17% of traders focus on their capital
appreciation while investing in a particular scrip. Only 10% trade for tax
benefits and deduction.
Source: Primary data collected through questionnaire

Fig. 5.5
When it comes to trading in banking scrip, 52% of traders prefer Private
banks while 48% believe in investing in Public banks. Reasons giving
were: Fatser growth,
Capital appreciation,
High dividend,
Liquidity, etc.
Thus, many such factors afftect investors decision to invest in a particular
stock.
Source: Primary data collected through questionnaire

Fig. 5.6
After the survey, it is discovered that traders look up to various factors
before investing in banking scrip. 32.1% investors always invest on the
basis of PE ratio of current and past few periods before buying or selling a
banking scrip. On the other hand, 22% believe in inspecting dividend
payout ratio and percentage of increase in dividend per year to go for a
particular scrip. 16% of investors prefer to look into mergers and
acquitions entered into by particular bank and like wise invest in it. Some
also depend on percentage of increase in total deposits and consider as a
factor in deciding the amount to be invested in a particular scrip.
Source: Primary data collected through questionnaire

Fig. 5.7
In the above finding it was evident that investors prefer private banks over
public sector banks but Figure 5.7 shows a different sceinareo when it
comes to investment in State Bank of Indias scrip, investors never look
for option. Thus, traders rely on the performance and past performance of
SBI. Above chart also conveys the inclination of investor towards the scrip
of Axis bank. Its also a very old bank. Thus, it will be wrong to comment
that investors rely more on old and experienced banks for trading purpose.
Source: Primary data collection through questionnaire

CONCLUSION:
The above finding of the research provides valuable inputs about the
perception of investors towards scrip of different banking companies.
Interest and inflation has an impact on the stock market.
Investors possess very good percentage of knowledge about the
happenings of the share market.
The main purpose behind trading is identified as short-term returns
and liquidity.
The risk taking capacity of investors is really good i.e. investors are
ready to take 70% of risk in stock market.
PE Ratio is one factor which almost every trader look up for
evaluating scrip before trading on it
SBI fetches good dividend to traders who target high returns.

SUGGESTIONS TO INDIABULLS SECURITIES LTD.

Risk taking capacity of investors is more or less 70% so the portfolio
of such investors should be designed in such a way to have optimum
return on their investments.
Investors are ok with 30% of their income being used in trading
stock so there is an opportunity for the company to motivate
investors to open account with an amount of atleast 30% of their
income.
Different discounts and offers should be allowed to new clients to
enhance the confidence of new and existing investor.
SUGGESTIONS TO INVESTOR
Always trade after analyzing the financial statements of the company
along with the strong technical indicators like Envelope, Moving
average crossover, etc.
Study the graphs both on short term and on long term to better
understand the movements.
PE ratio along with Dividend payout ratio and EPS are important
ratios to notice while trading as they may have a tendency to change
the scrip price.

BIBLIOGRAPHY
BOOKS & JOURNALS
Chandra Prasanna, Investment Analysis and Portfolio Management.

6th edition, New Delhi: Tata McGraw-Hill Publishing Company

Limited, 2004.
S.Kevin, Securities Analysis and Portfolio Management. New
Delhi:Prentine-Hall of India Pvt. Ltd.
Technical Analysis Ideal for Beginners. Capital Market Publishers
India Pvt. Ltd.
WEBSITES:
www.indiabulls.com
www.investopedia.com
www.icharts.in
www.moneycontrol.com
www.tradingeconomics.com
www.money.rediff.com

APPENDIX
RATIOS USED FOR ANALYSING BANKS
Considering the special nature of banking industry, the following ratios are
listed which are relevant for the banking industry.
a) Return on Equity or Net worth - It measures the ability of the
management of the company to generate adequate returns for the capital
invested by the owners of the company.
Return on Equity/Net worth = Net Income Shareholders Equity
b) Total debt to Owners Fund It measures how the company is
leveraging its debt against the capital employed by its owners. Total debt
to owners funds ratio is concerned with the relationship between the long
term liabilities that the business has and its capital employed. The idea is
that this relationship ought to be in balance, with the shareholders' funds
being significantly larger than the long term liabilities

Debt to Equity Ratio = Total Debt/Liability Owners Equity or

Networth
c) Capital Adequacy Ratio It is a measure of a banks capital. This ratio
is used to protect depositors and promote the stability and efficiency
offinancial systems around the world. Two types of capital are measured:
-tier one capital, which can absorbs losses without a bank being required
tocease trading, and tier two capital, which can absorb losses in the event
ofwinding up and so provides lesser degree of protection to depositors.
CAR = (Tier One Capital + Tier Two Capital) Risk weighted assets
d) Net Profit Margin It shows the earning ability of the company. It is
that portion of the revenue which is received or expected to receive during
a particular financial year out of the sales generated.
Net Profit Margin (%) = (PAT Sales) x 100
e) Interest Income to Total Funds It measures the interest earning of
thebank on lending and advances to customers and that to in what
proportion it is to the total funds or assets. Thus it helps to identify the
return on assetsonly through interest earned. It is calculated by dividing the
Total InterestIncome by Average Assets.
f) Net Interest Income to Total Funds It identifies whether a bank is able
to pay the interest on its deposits out of the interest earned on loans.
NetInterest Income is nothing but the total interest earned after subtracting
thetotal interest payments. Again, if this net interest income is divided
byAverage Assets then is provides the percentage of net interest earned
ofAverage assets.
g) Non-Interest Income to Total Funds It is that portion which is
generated other than interest income. It includes other sources of income
of bank.
h) Operating Expense to Total Funds It signifies the ratio of average
assets to expense incurred in operating activities.
i) Interest Expended to Interest Earned This one of the vital ratios
foranalyzing the amount of depositors bank posses along with drawing
acomparison between more than one banks. This ratio is always desired
tobe one or more indicating that the bank is easily capable of paying off
itsinterest expense on deposits from the interest earned itself.
j) Interest Covered It signifies the relationship between the earnings
before interest and tax and the total interest paid or due to be paid. It is
expressed in times. It indicates how many times the company is able to pay
off its interest expense.

Interest Covered (times) = EBIT Interest due or paid

k) Current Ratio The ratio is regarded as a test of liquidity for the
company. It expresses the working capital relationship of current assets to
meet the companys current obligations.
Current Ratio = Current assets Current Liability
l) Quick Ratio Sometimes, a company could be carrying heavy inventory
as part of its current assets, which might be obsolete or slow moving.
Thus, eliminating inventory along with preliminary expense from the
current assets and then doing the liquidity test is measured by this
ratio.The ratios mentioned above along with many other ratios should be
included while doing ratio analysis but one has to collect the details from
internal sources of the respective company. However, its not feasible
when too many companies are required to be analyzed, so the above ratios
are taken for analytical comparison. Here, an individual comparison has
been drawn with last year and inter-bank comparison has also been made
simultaneously.