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A BRIEF ANALSIS ON BANKING FUNDS AT ANGEL BROKING LTD

INTRODUCTION :

Prices of securities in the stock market fluctuate daily on account of continuous

buying and selling. Stock prices move in trends and cycles and are never stable. An

investor in the stock market is interested n buying securities at a low price and selling

them at a high price so as to get a good return on his investment.

Stock market prediction analyses can generally be classified as either fundamental

or technical. The former approach considers the cause of market behavior, while the latter

studies the effect. Thus, technical analysis is based only on quantifiable market data,

while fundamental analysis includes data related to the market situation, time of year,

company prospects and so forth. Technical analysis has attracted a large following

amongst trading practitioners but has been criticized in the past by theoreticians.

Technical Analysis is a method of evaluating securities by analyzing the statistics

generated by market activity, such as fast prices and volume. Technical analysis does not

give the intrinsic value of a security, but instead it includes charts and other tools to

identify patterns that can suggest future activity. The rationale behind the technical

analysis is that the share price behavior repeats itself over time and analysts attempt to

derive methods to predict this repetition. A technical analyst looks at the past share price

data to see if he can establish any patterns. He then looks at the current price data to see ifany of the established patterns are applicable and if so, extra extrapolations can be made

to predict the future price movements. Although past share prices are the major data used

by technical analysts, other statistics such a s volume of trading and stock market indices

are also utilized to some extent.

A leading technical Analyst provides a more specific definition:

The technical approach to investment is essentially a reflection of the Idea that

prices move in trends that are determined by the changing Attitudes of investors toward a

variety of economic, monetary, political, and psychological forces. The art of technical

analysis, for it is an art, is to identify a trend reversal at a relatively early stage and ride

on that trend until the weight of the evidence shows or proves that the trend has

reversed.

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Technical analysis studies supply and demand in a market in an attempt to

determine what direction or trend will continue in the future. In other words, technical

analysis attempts to understand the emotions in the market by studying the market itself

as opposed to its components.

It should be noted, however, that more recent studies in the literature have given

some support to the technical approach. The technique developed in this paper has

focused solely on technical analysis.

In the investment process, performing of security analysis is very essential as it

involves examining several individual securities (or group of securities) within the broad

categories of financial assets previously identified. One purpose for conducting such

examinations is to identify those securities that currently appear to be miss-priced. There

are many approaches to security analysis. One of the approaches is known as technical

analysis.

.Basic Premises

The basic premised underlying technical analysis, as articulated by Robert.A.Levy, is as

follows.

1. Market prices are determined by the interaction of supply and demand

forces.

2. Supply and demand are influenced by a variety of factors, both rational

and irrational. These include fundamental factors as well as psychological

factors.

3. Barring minor deviations, stocks prices tend to move in fairly persistent

trends.

4. Shifts in demand and supply bring about changes in trends.

5. Irrespective of why they occur, shifts in demand and supply can bedetected with the help of charts of market action.

The field of technical analysis is based on three assumptions:

1. The market discounts everything.

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2. Price moves in trends.

3. History tends to repeat itself.

The Market Discounts Everything

A major criticism of technical analysis is that it only considers price movement,

ignoring the fundamental factors of the company. However, technical analysis assumes

that, at any given time, a stock's price reflects everything that has or could affect the

company - including fundamental factors. Technical analysts believe that the company's

fundamentals, along with broader economic factors and market psychology, are all priced

into the stock, removing the need to actually consider these factors separately.

Price Moves in Trends

In technical analysis, price movements are believed to follow trends. This means

that after a trend has been established, the future price movement is more likely to be in

the same direction as the trend than to be against it. Most technical trading strategies are

based on this assumption.

History Tends To Repeat Itself

Another important idea in technical analysis is that history tends to repeat itself,

mainly in terms of price movement. The repetitive nature of price movements is

attributed to market psychology; in other words, market participants tend to provide a

consistent reaction to similar market stimuli over time. Technical analysis uses

chart patterns to analyze market movements and understand trends. Although many of

these charts have been used for more than 100 years, they are still believed to be relevant

because they illustrate patterns in price movements that often repeat themselves.

Overview of Indian Banking Market

The Indian banking market is growing at an astonishing rate, with assets expected

to reach US$1 trillion by 2010. An expanding economy, middle class, and

technological innovations are all contributing to this growth.

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A new Celent report, Overview of Indian Banking Market, examines the impressive

growth of this industry, largely due to an expanding economy and growing consumer

middle class in need of financial services. India's economy is growing at a rate of 8%,

with banking assets increasing at a CAGR of 24% from 2001 to 2006, from US$374.4

billion in 2003 to US$616.15 billion in 2006. While public sector banks still dominate

Indias banking industry, the private sector is growing, with global players now actively

competing with domestic banks.

The countrys middle class accounts for over 320 million people. In correlation with the

growth of the economy, rising income levels, increased standard of living, and

affordability of banking products are promising factors for continued expansion.

The Indian banking Industry is in the middle of an IT revolution, focusing on the

expansion of retail and rural banking. Players are becoming increasingly customer-centric

in their approach, which has resulted in innovative methods of offering new banking

products and services. Banks are now realizing the importance of being a big player and

are beginning to focus their attention on mergers and acquisitions to take advantage of

economies of scale and/or comply with Basel II regulation.

Indian banking industry assets are expected to reach US$1 trillion by 2010 and arepoised to receive a greater infusion of foreign capital, says Prathima Rajan, analyst in

Celent's banking group and author of the report. The banking industry should focus on

having a small number of large players that can compete globally rather than having a

large number of fragmented players."

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This report provides a detailed overview of the Indian banking industry, analyzing the

various type of participants, market needs, etc. The report examines the trends and drivers

that are reshaping the market, from technology to maturation. It also details the various

issues that need to be addressed by market participants in order to seize the tremendous

opportunities available in India

Indian Banking Industry

Description:

The Indian Banking industry, which is governed by the Banking Regulation Act of India,

1949 can be broadly classified into two major categories, non-scheduled banks and

scheduled banks. Scheduled banks comprise commercial banks and the co-operative

banks. In terms of ownership, commercial banks can be further grouped into nationalized

banks, the State Bank of India and its group banks, regional rural banks and private sector

banks (the old/ new domestic and foreign).These banks have over 67,000 branches spread

across the country.

The first phase of financial reforms resulted in the nationalization of 14 major banks in

1969 and resulted in a shift from Class banking to Mass banking. This in turn resulted in a

significant growth in the geographical coverage of banks. Every bank had to earmark a

minimum percentage of their loan portfolio to sectors identified as priority sectors. The

manufacturing sector also grew during the 1970s in protected environs and the banking

sector was a critical source. The next wave of reforms saw the nationalization of 6 more

commercial banks in 1980. Since then the number of scheduled commercial banks

increased four-fold and the number of bank branches increased eightfold.

After the second phase of financial sector reforms and liberalization of the sector in the

arlynineties, the Public Sector Banks (PSB) s found it extremely difficult to compete with

the new private sector banks and the foreign banks. The new private sector banks first

made their appearance after the guidelines permitting them were issued in January 1993.

Eight new private sector banks are presently in operation. These banks due to their late

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start have access to state-of the-art technology, which in turn helps them to save on

manpower costs and provide better services.

During the year 2000, the State Bank Of India (SBI) and its 7 associates accounted for a

25percent share in deposits and 28.1 percent share in credit. The 20 nationalized banks

accounted for 53.2 percent of the deposits and 47.5 percent of credit during the same

period. The share of foreign banks (numbering 42), regional rural banks and other

scheduled commercial banks accounted for 5.7 percent, 3.9 percent and 12.2 percent

respectively in deposits and 8.41 percent,3.14 percent and 12.85 percent respectively in

credit during the year 2000.

Current Scenario

The industry is currently in a transition phase. On the one hand, the PSBs, which are the

mainstay of the Indian Banking system, are in the process of shedding their flab in terms

of excessive manpower, excessive non Performing Assets (Naps) and excessive

governmental equity, while on the other hand the private sector banks are consolidating

themselves through mergers and acquisitions. PSBs, which currently account for more

than 78 percent of total banking industry assets are saddled with NPAs (a mind-boggling

Rs 830 billion in 2000), falling revenues from traditional sources, lack of modern

technology and a massive workforce while the new private sector banks are forging

ahead and rewriting the traditional banking business model by way of their sheer

innovation and service. The PSBs are of course currently working out challenging

strategies even as 20 percent of their massive employee strength has dwindled in the

wake of the successful

Voluntary Retirement Schemes (VRS) schemes.

The private players however cannot match the PSBs great reach, great size and access to

low cost deposits. Therefore one of the means for them to combat the PSBs has been

through the merger and acquisition (M& A) route. Over the last two years, the industry

has witnessed several such instances. For instance, Hdfc Banks merger with Times Bank

Icici Banks acquisition of ITC Classic, Anagram Finance and Bank of Madura.

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Centurion Bank, Indusind Bank, Bank of Punjab, Vysya Bankare said to be on the

lookout. The UTI bank- Global Trust Bank merger however opened apandoras box and

brought about the realization that all was not well in the functioning of many of the

private sector banks.

Private sector Banks have pioneered internet banking, phone banking, anywhere banking,

and mobile banking, debit cards, Automatic Teller Machines (ATMs) and combined

various other services and integrated them into the mainstream banking arena, while the

PSBs are still grappling with disgruntled employees in the aftermath of successful VRS

schemes. Also, following Indias commitment to the W To agreement in respect of the

services sector, foreign banks, including both new and the existing ones, have been

permitted to open up to 12 branches a year with effect from1998-99 as against the earlier

stipulation of 8 branches. Talks of government diluting their equity from 51 percent to 33

percent in November 2000 have also opened up a new opportunity for the takeover of

even the PSBs. The FDI rules being more rationalized in Q1FY02 may also pave the way

for foreign banks taking the M& A route to acquire willing Indian partners.

Meanwhile the economic and corporate sector slowdown has led to an increasing number

of banks focusing on the retail segment. Many of them are also entering the new vistas of

Insurance. Banks with their phenomenal reach and a regular interface with the retail

investor are the best placed to enter into the insurance sector. Banks in India have been

allowed to provide fee-based insurance services without risk participation invest in an

insurance company for providing infrastructure and services support and set up of a

separate joint-venture insurance company with risk participation. Aggregate Performance

of the Banking Industry Aggregate deposits of scheduled commercial banks increased at a

compounded annual average growth rate (Cagr) of 17.8 percent during 1969-99, while

bank credit expanded at a Cagr of 16.3percent per annum. Banks investments in

government and other approved securities recorded a Cagr of 18.8 percent per annum

during the same period. In FY01 the economic slowdown resulted in a Gross Domestic

Product (GDP) growth of only 6.0percent as against the previous years 6.4 percent. The

WPI Index (a measure of inflation) increased by 7.1 percent as against 3.3 percent in

FY00. Similarly, money supply (M3) grew by around 16.2 percent as against 14.6 percent

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a year ago. The growth in aggregate deposits of the scheduled commercial banks at 15.4

percent in FY01percent was lower than that of 19.3 percent in the previous year, while the

growth in credit by SCBs slowed down to 15.6 percent in FY01 against 23 percent a year

ago. The industrial slowdown also affected the earnings of listed banks. The net profits of

20 listed banks dropped by 34.43 percent in the quarter ended March 2001. Net profits

grew by 40.75percent in the first quarter of 2000-2001, but dropped to 4.56 percent in the

fourth quarter of 2000-2001.On the Capital Adequacy Ratio (CAR) front while most

banks managed to fulfill the norms, it was a feat achieved with its own share of

difficulties. The CAR, which at present is 9.0 percent, is likely to be hiked to 12.0 percent

by the year 2004 based on the Basle Committee recommendations. Any bank that wishes

to grow its assets needs to also shore up its capital at the same time so that its capital as a

percentage of the risk-weighted assets is maintained at the stipulated rate. While the IPO

route was a much-fancied one in the early 90s, the current scenario doesnt look too

attractive for bank majors. Consequently, banks have been forced to explore other avenues

to shore up their capital base. While some are wooing foreign partners to add to the capital

others are employing the M& A route. Many are also going in for right issues at prices

considerably lower than the market prices to woothe investors.

Interest Rate Scene:

The two years, post the East Asian crises in 1997-98 saw a climb in the global interest

rates. It was only in the later half of FY01 that the US Fed cut interest rates. India has

however remained more or less insulated. The past 2 years in our country was

characterized by a mounting intention of the Reserve Bank of India (RBI) to steadily

reduce interest rates resulting in a narrowing differential between global and domestic

rates. The RBI has been affecting bank rate and CRR cuts at regular intervals to improve

liquidity and reduce rates. The only exception was in July 2000 when the RBI increased

the Cash Reserve Ratio (CRR) to stem the fall in the rupee against the dollar. The steady

fall in the interest rates resulted in squeezed margins for the banks in general.

Governmental Policy After the first phase and second phase of financial reforms, in the

1980s commercial banks began to function in a highly regulated environment, with

administered interest rate structure, quantitative restrictions on credit flows, high reserve

requirements and reservation of a significant proportion of lendable resources for the

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priority and the government sectors. The restrictive regulatory norms led to the credit

rationing for the private sector and the interest rate controls led to the unproductive use of

credit and low levels of investment and growth. The resultant financial repression led to

decline in productivity and efficiency and erosion of profitability of the banking sector in

general.

This was when the need to develop a sound commercial banking system was felt. This

was worked out mainly with the help of the recommendations of the Committee on the

Financial System (Chairman: Shri M. Narasimham), 1991. The resultant financial sector

reforms called for interest rate flexibility for banks, reduction in reserve requirements,

and a number of structural measures. Interest rates have thus been steadily deregulated in

the past few years with banks being free to fix their Prime Lending Rates (PLRs) and

deposit rates for most banking products. Credit market reforms included introduction of

new instruments of credit, changes in the credit delivery system and integration of

functional roles of diverse players, such as, banks, financial institutions and nonbanking

financial companies (Nbfcs). Domestic Private Sector Banks were allowed to be set up,

PSBs were allowed to access the markets to shore up their Cars. Implications Of Some

Recent Policy Measures The allowing of PSBs to shed manpower and dilution of equity

are moves that will lend greater autonomy to the industry. In order to lend more depth to

the capital markets the RBI had in November 2000 also changed the capital market

exposure norms from 5 percent of banks incremental deposits of the previous year to 5

percent of the banks total domestic credit in the previous year. But this move did not

have the desired effect, as in, while most banks kept away almost completely from the

capital markets, a few private sector banks went overboard and exceeded limits and

indulged in dubious stock market deals. The chances of seeing banks making a comeback

to the stock markets are therefore quite unlikely in the near future. The move to increase

Foreign Direct Investment FDI limits to 49 percent from 20 percent during the first

quarter of this fiscal came as a welcome announcement to foreign players wanting to get

afoot hold in the Indian Markets by investing in willing Indian partners who are starved

of net worth to meet CAR norms. Ceiling for FII investment in companies was also

increased from 24.0 percent to 49.0 percent and have been included within the ambit of

FDI investment. The abolishment of interest tax of 2.0 percent in budget 2001-02 will

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help banks pass on the benefit to the borrowers on new loans leading to reduced costs and

easier lending rates. Banks will also benefit on the existing loans wherever the interest

tax cost element has already been built into the terms of the loan. The reduction of

interest rates on various small savings schemes from 11percent to 9.5 percent in Budget

2001-02 was a much awaited move for the banking industry and in keeping with the

reducing interest rate scenario; however the small investor is not very happy with the

move. Some of the not so good measures however like reducing the limit for tax deducted

at source (TDS) on interest income from deposits to Rs 2,500 from the earlier level of Rs

10,000, in Budget 2001-02, had met with disapproval from the banking fraternity who

feared that the move would prove counterproductive and lead to increased fragmentation

of deposits, increased volumes and transaction costs. The limit was thankfully partially

restored to Rs 5000 at the time of passing the Finance Bill in the Parliament. April 2001-

Credit Policy Implications The rationalization of export credit norms in will bestow

greater operational flexibility on banks, and also reduce the borrowing costs for

exporters. Thus this move could trigger exports growth in the future. Banks can also hope

to earn increased revenue with the interest paid by RBI on CRR

Banking Outlook for 2011

Technology has played a key role in the Indian banking sector. As per the FY10 RBI

release, around 90% of the public sector branches have been updated with core banking

software, while around 97.8% of the public sector banks branches have been fully

computerized. The trend of transactions too can be seen to have shifted from paper based

to electronic based. In FY10, the share of electronic transactions to total transactions

The next leg of growth is expected to be driven by mobile banking technology. This

would also be in corroboration with the RBIs thrust on financial inclusion. There werearound 525.9 million mobile connections in India as of Nov 10, compared with around

69,160 branches and 60,153 ATMs. Mobile technology is expected to widen the reach of

the banking network on one side along with providing for ease of transactions on the

other. Corroborated with the business correspondent model and UID, the same is

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expected to making banking services accessible to very small habitations by utilizing

mobile technology where setting up a branch is unfeasible.

The Indian banking sector has witnessed consolidation over the past couple of years. As

per RBI data there have around 25 mergers in the banking sector in the last two decades.

Some of the key mergers which have taken place in the last couple of years have been

Global Trust Bank with Oriental Bank of Commerce, Bank of Punjab with Centurion

Bank, further Lord Krishna Bank with Centurion Bank of Punjab and then eventually

with HDFC Bank, The Sangli Bank with ICICI Bank and the latest one being Bank of

Rajasthan Having a minimum capital of more than Rs. 10 billion is one of the options

that RBI is contemplating as the minimum capital requirement to obtain a new bank

license. Given that around eight domestic banks still have a net worth lower than Rs.10

billion, in FY10, there is further scope for consolidation. Also, this would help banks in

meeting capital adequacy requirements and financing large transactions and investments

made by the Indian corporate sector.

Banking industry outlook and expectations for 2011

Iris 27th December 2010

The Indian banking sector has been an integral part of the overall economy growing with

and supporting the growth of other sectors. The sector has withstood the global financial

turmoil with little disruption and continued to grow at a healthy pace. Banking Industry

Outlook and Expectations for 2011 from Dun & Bradstreet are as follows:

Regulatory thrust on financial inclusion to widen the reach of the banking sector:

The RBI has been actively encouraging financial inclusion. There are around 72,315

villages, with a population of over 2000 (as per the 2001 census), that are yet unbanked

and which need to be brought under the banking net. Only around 40% of the Indian

population is currently connected to the banking system. The RBI has issued a directive

to public sector banks to ensure that all these villages with population above 2000 be

brought under the formal banking net by 2012 resulting in an addition of around 145

million customers into the banking network.

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In the process, around 50.6 million no frill accounts have been activated with an

outstanding balance of Rs. 53.9 billion as on FY10 and around 93.7 million Kisan Credit

Cards have been issued so far with credit amounting to Rs 4277 billion.

Mobile technology to drive the next leg of the banking sector growth;

would also support financial inclusion:

Technology has played a key role in the Indian banking sector. As per the FY10 RBI

release, around 90% of the public sector branches have been updated with core banking

software, while around 97.8% of the public sector banks branches have been fully

computerized. The trend of transactions too can be seen to have shifted from paper based

to electronic based. In FY10, the share of electronic transactions to total transactions

stood at around 89% in value terms and around 40% in volume terms.

The next leg of growth is expected to be driven by mobile banking technology. This

would also be in corroboration with the RBIs thrust on financial inclusion. There were

around 525.9 million mobile connections in India as of Nova, compared with around

69,160 branches and 60,153 ATMs. Mobile technology is expected to widen the reach of

the banking network on one side along with providing for ease of transactions on the

other. Corroborated with the business correspondent model and UID, the same is

expected to making banking services accessible to very small habitations by utilizing

mobile technology where setting up a branch is unfeasible.

Consolidation the way forward for the banking sectors; would help banks finance

larger transactions:

The Indian banking sector has witnessed consolidation over the past couple of years. As

per RBI data there have around 25 mergers in the banking sector in the last two decades.

Some of the key mergers which have taken place in the last couple of years have been

Global Trust Bank with Oriental Bank of Commerce, Bank of Punjab with Centurion

Bank, further Lord Krishna Bank with Centurion Bank of Punjab and then eventuallywith HDFC Bank, The Sangli Bank with ICICI Bank and the latest one being Bank of

Rajasthan with ICICI Bank.

Having a minimum capital of more than Rs. 10 billion is one of the options that RBI is

contemplating as the minimum capital requirement to obtain a new bank license. Given

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that around eight domestic banks still have a net worth lower than Rs.10 billion, in FY10,

there is further scope for consolidation. Also, this would help banks in meeting capital

adequacy requirements and financing large transactions and investments made by the

Indian corporate sector.

The banking sector business has grown at a CAGR of around 23% between FY05 to

FY10. On account of lower capital expenditure by the industry, coupled with the

apprehension of the banking sector to issue credit the sector witnessed a slightly modest

growth in FY10 y-o-y of around 16.7 %. However, the same has witnessed a pickup in

the current financial year, with a growth of around 20% y-o-y as of October 2010. With

the overall economy expected to grow at around 8.8% for FY11, and services and

industry expected to grow at a faster pace of around 10.3% and 9.5% respectively, bank

credit is expected to continue at a healthy pace.

Take-out financing is a method of providing finance for longer duration projects (say of

15 years) by banks by sanctioning medium term loans (say 5-7 years). It is an

understanding that the loan will be taken out of books of the financing bank within a pre-

fixed period, by another institution thus preventing any possible asset-liability mismatch

as most of the liabilities of the banks are in the form of deposits which have tenure of less

than 5 years. As per FY09 RBI data on maturity pattern of deposits, only around 7.4% of

the total deposit amounts for SCBs were for more than 5 year maturity. After taking out

the loans from the banks, the institution could off-load them to another bank or keep it.

Although the take out financing as a concept has witnessed teething issues, the revival of

the same is expected given the RBI allowing take out financing via ECBs.

The Indian Banking sector moved to the base rate system from July 2010 as against the

incumbent PLR (Prime Lending Rate) system. The base rate is calculated as the cost of

deposits and cost of keeping aside cash to meet CRR and SLR requirements. With no bank

allowed to lend below the base rate, the NBFCs and corporations with better ratings,

which until the introduction of the base rate could negotiate and borrow below PLR from

the banks, could now move to issuing commercial papers for their short term capital

requirements for tenures ranging from 15 days to 365 days. Since the interest rates on

commercial papers are linked to the yield on the one-year government bond, they would

turn out to be cheaper than banks loans for better rated companies. The banks can then

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invest in these commercial papers. The last few months` data for SCBs direct investments

in commercial papers support this fact. The direct investments of SCBs in commercial

papers rose from Rs 275 billion in July 2010 to Rs 438 billion in September 2010. In

terms of share too, investments in CPs rose from 1.7% of total investments to 2.5% of the

total investments in during this period. We expect this trend to continue and gain pace in

the coming year.

Indian Banking Sector Forecast to 2012

The banking industry in India seems to be unaffected from the global financial crises

which started from U.S in the last quarter of 2008. Despite the fallout and nationalization

of banks across developed economies, banks in India seems to be on the strong

fundamental base and seems to be well insulated from the financial turbulence emerging

from the western economies. The Indian banking industry is well placed as compare to

their banking industries western counterparts which are depending upon government

bailout The strong economic growth in the past, low defaulter ratio, absence of complex

financial products, regular intervention by central bank, proactive adjustment of monetary

policy and so called close banking culture has favored the banking industry in India in

recent Although there will no impact on the Indian banking system similar to that in westbut the banks in India will adopt for more of defensive approach in credit disbursal in

coming period. In order to safe guard their interest; banks will follow stringent norms for

credit. The report Indian Banking Sector Forecast to 2012 contains comprehensive

research and rational analysis on various segments, like assets size, income level and

number of cardholders, in the Indian banking industry. It also analyzes the current

performance and key market trends, and helps clients to understand various products The

forecast given in this report is not based on a complex economic model but is intended as

a rough guide to the direction in which the market is likely to move. The future projection

is done on the basis of the current market scenario, past trends, and rules and regulations

laid by the regulator and supervisor of the financial system, Reserve Bank of India (RBI).

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The banking industry in India seems to be unaffected from the global financial crises

which started from U.S in the last quarter of 2008. Despite the fallout and nationalization

of banks across developed economies, banks in India seems to be on the strong

fundamental base and seems to be well insulated from the financial turbulence emerging

from the western economies. The Indian banking industry is well placed as compare to

their banking industries western counterparts which are depending upon government

bailout strong economic growth in the past, low defaulter ratio, absence of complex

financial products, regular intervention by central bank, proactive adjustment of monetary

policy and so called close banking culture has favored the banking industry in India in

recent global financial turmoil

The strong economic growth in the past, low defaulter ratio, absence of complex financial

products, regular intervention by central bank, proactive adjustment of monetary policy

and so called close banking culture has favored the banking industry in India in recent

global financial turmoil.

Although there will no impact on the Indian banking system similar to that in west but the

banks in India will adopt for more of defensive approach in credit disbursal in coming

period. In order to safe guard their interest; banks will follow stringent norms for credit

disbursal. There will be more focus on analyzing borrower financial health rather than

capability.

The report "Indian Banking Sector Forecast to 2012" contains comprehensive research

and rational analysis on various segments, like assets size, income level and number of

cardholders, in the Indian banking industry. It also analyzes the current performance and

key market trends, and helps clients to understand various products available in the

market and their future scope.

The forecast given in this report is not based on a complex economic model but is

intended as a rough guide to the direction in which the market is likely to move. The

future projection is done on the basis of the current market scenario, past trends, and rules

and regulations laid by the regulator and supervisor of the financial system, Reserve Bank

of India (RBI).

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Although there will no impact on the Indian banking system similar to that in west but the

banks in India will adopt for more of defensive approach in credit disbursal in coming

period. In order to safe guard their interest; banks will follow stringent norms for credit

disbursal. There will be more focus on analyzing borrower financial health rather than

capability.

The report Indian Banking Sector Forecast to 2012 contains

comprehensive research and rational analysis on various segments, like

assets size, income level and number of cardholders, in the Indian banking industry.

Future projection is done on the basis of the current market scenario, past trends, and

rules and regulations laid by the regulator and supervisor of the financial system, Reserve

Bank of India (RBI).

2.1PROBLEM STATEMENT

The basic idea behind this project is to make to buy, to hold and or to sell

decisions of stocks. To make these decisions one should have sound information base

about the increasing trend towards complexity in investing decision calls for security

analysis.

Technical analysis is one of tools used to analysis stocks to make decisions (buy,

hold and sell), but technical analysis alone cannot prove to be device. So, it can be used as

a supplement to fundamental analysis.

Technical Analysis refers to the study of price actions in securities markets, primarily,

but not exclusively, through charts in order to forecast future prices.

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Technical Analysis determines worthiness of buying, selling or holding of securities.

Technical Analysis can be viewed as the act of providing inputs to the portfolio

management process.

In order to invest every investor would like to have sufficient information to decideregarding the following questions;

* What type of securities to buy?

* When should it be buy?

* When the securities to be sold?

* Whether to buy/hold or sell the securities?

2.2 OBJECTIVE OF THE STUDY

The objectives of the study are stated as under :-

1. To learn when to buy, sell and hold the securities.

2. To analyze the recent pattern of price movement and help investor to make

profits.

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3.To know the method of calculating the various technical indicators and to

interpret it.

4. To understand the repetitive trends which reappear in the course of time.

5. To analyze the pattern of price movement and its relation with volume traded,

determining the proper timing of investment.

2.3 SCOPE OF THE STUDY.

The study mainly focuses to know when to buy, hold and sell decision by using

the technical analysis. The scope of the study covers 4 banking sectors stocks. The

study covers a period of 1 year, starting from January 2008 to December

2008.

Help to determine the value of the stock

Analysis of the shares of companies.

Analysis of the shares of 4 companies listed in BSE and NSE

To learn the way of using charting techniques for buy/sell/hold decisions.

2.4 DESIGN:

The type of research design adopted here is both exploratory and decrypting. This

project seeks to describe Technical Analysis and the procedures adopted in conducting it

on one hand, and on the other, explore the potential avenues of investment through

Technical Analysis.

Any kind of investigation or research study requires a preliminary plan. The aim and

scope of study must be understood at the outset. One has to present to a clear idea of the

research procedure used in the study since the value of any systematic lies in its

methodology. Any enquiry would prove unsuccessfully, if it is not its methodology.

The level of research depends on proper sampling, collection of data by personal

interviews, classification of interpretation of data and at the end the formulation of

generalization and conclusion

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2.5Sampling Design:

The samples were chosen based on their past performance and future accepted growth.

The sample type is stratified and a convenient sample.

The companies are as follows;

1] HDFC

2] ICICI

3] IDBI

4] SBI

2.6DATA SOURCES:

PRIMARY DATA:

It includes data collected from the discussions with the concerned personal

in Financial Firms.

SECONDARY DATA:

The secondary data is that has been collected prior to the specific research project

by some one else for some other purpose. The secondary data used in this project is

primarily is collected through

Articles. Journals.

Text books.

Websites.

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The data collected are daily historical stock price for one year of the Bombay stock

exchange. The period tested was from January 1st , 2008 to December 31st 2008.

2.7 TOOLS AND INDICATORS:

Dow Theory

Japanese Candle Stick Charts

Moving Average

Moving Average Convergence and Divergence

Relative Strength Index Analysis

Rate of Change Indicator

2.8 RESEARCH METHODOLOGY

Descriptive research design is adopted to learn in detail the technical analysis to

predict the short term price movements and establish long term patterns. Quantitative

techniques are used to analyze the technical indicators. Sample size taken is four namely

HDFC, ICICI, IDBI and SBI and all four belongs to banking sector.

Secondary data is collected from Books, Journals, News Paper and Web Sites.

The data collected is then analyzed using the following methods :-

1. Moving Average Convergence Divergence.(MACD)

The closing prices are taken into consideration and the short term exponential

moving average and the long term exponential moving average are calculated

using the following formulae :-

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EMAS = EMASn-1 + ((2 / (n + 1)) * (Pn - EMASn-1))

EMAL = EMALn-1 + ((2 / (n + 1)) * (Pn - EMALn-1))

MACD = EMAS EMAL

The signal line is calculated by taking the exponential moving average of the

MACD.

2. Rate of Change Indicator (ROC).

To calculate the seven day rate of change, each days price which prevailed seven

days ago and then one is subtracted from this price ratio.

ROC = (Current price / Price 7 period ago) 1.

3. Relative Strength Index (RSI).

The RSI also considers the closing price and is calculated as follows:

RSI = 100 100/(1 + RS)

RS = Average Gain / Average Loss

Average Gain = Total of Gains during past 14 periods / 14

Average Loss = Total of Losses during past 14 periods / 14

4. Moving Average : 50 days of moving average is calculated and graph

is plotted against the time and price

5 Dow Theory: Bullish and Bearish markets are identified by analyzing

the line charts of the sample stocks and buying and selling opportunities

are interpreted.

6. Japanese Candlestick charts: The decisions are taken by analyzing the

candle stick charts of the sample stocks. White and black candles in the

graph helps to make the decisions.

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2.9Limitations of the study:

Some of the limitations of the study are;

1. Firstly, the subject analysis is a vast subject and so certain limitation in the

study.

2. The inexperience makes the study less precise than professional.

3. The tools used are limited.

4. The analysis is done on four Companies.

5. The time given for accomplishment of the project is also very less.

6. The conclusions made are based on my limited knowledge.

7. The study is too subjective and based on historical interpretations and

may not continue with the same trend.

3.INDUSTRY ANALYSIS

Banking in India originated in the last decades of the 18th century. The oldest bank in

existence in India is the State Bank of India, a government-owned bank that traces its

origins back to June 1806 and that is the largest commercial bank in the country. Central

banking is the responsibility of the Reserve Bank of India, which in 1935 formally took

over these responsibilities from the then Imperial Bank of India, relegating it to

commercial banking functions. After India's independence in 1947, the Reserve Bank

was nationalized and given broader powers. In 1969 the government nationalized the 14

largest commercial banks; the government nationalized the six next largest in 1980.

Currently, India has 88 scheduled commercial banks (SCBs) - 27 public sector banks

(that is with the Government of India holding a stake), 31 private banks (these do not

have government stake; they may be publicly listed and traded on stock exchanges) and

38 foreign banks. They have a combined network of over 53,000 branches and 17,000

ATMs. According to a report by ICRA Limited, a rating agency, the public sector banks

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hold over 75 percent of total assets of the banking industry, with the private and foreign

banks holding 18.2% and 6.5% respectively.

Bank of Hindustan, set up in 1870, was the earliest Indian Bank . Banking in India on

modern lines started with the establishment of three presidency banks under PresidencyBank's act 1876 i.e. Bank of Calcutta, Bank of Bombay and Bank of Madras. In 1921, all

presidency banks were amalgamated to form the Imperial Bank of India. Imperial bank

carried out limited central banking functions also prior to establishment of RBI. It

engaged in all types of commercial banking business except dealing in foreignexchange.

Reserve Bank of India Act was passed in 1934 & Reserve Bank of India (RBI) was

constituted as an apex bank without major government ownership. Banking Regulations

Act was passed in 1949. This regulation brought Reserve Bank of India under

government control .RBI was empowered in 1960, to force compulsory merger of weak

banks with the strong ones. The total number of banks was thus reduced from 566 in

1951 to 85 in 1969. In July 1969, government nationalized 14 banks having deposits of

Rs.50Crores & above. In 1980, government acquired 6 more banks with deposits of more

than Rs.200Crores. Nationalization of banks was to make them play the role of catalytic

agents for economic growth. Banking Segment in India functions under the umbrella of

Reserve Bank of India - the regulatory, central bank.

In the early 1990s, the then Narsimha Rao government embarked on a policy of

liberalization, licensing a small number of private banks. These came to be known as

New Generation tech-savvy banks, and included Global Trust Bank (the first of such new

generation banks to be set up), which later amalgamated with Oriental Bank of

Commerce, Axis Bank(earlier as UTI Bank), ICICI Bankand HDFC Bank. This move,

along with the rapid growth in the economy of India, revitalized the banking sector in

India, which has seen rapid growth with strong contribution from all the three sectors of

banks, namely, government banks, private banks and foreign banks.

The next stage for the Indian banking has been setup with the proposed relaxation in the

norms for Foreign Direct Investment, where all Foreign Investors in banks may be given

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voting rights which could exceed the present cap of 10%,at present it has gone up to 49%

with some restrictions.

The new policy shook the Banking sector in India completely. Bankers, till this time,

were used to the 4-6-4 method (Borrow at 4%;Lend at 6%;Go home at 4) of functioning.The new wave ushered in a modern outlook and tech-savvy methods of working for

traditional banks. All this led to the retail boom in India. People not just demanded more

from their banks but also received more.

Currently banking in India is generally fairly mature in terms of supply, product range

and reach-even though reach in rural India still remains a challenge for the private sector

and foreign banks. In terms of quality of assets and capital adequacy, Indian banks are

considered to have clean, strong and transparent balance sheets relative to other banks incomparable economies in its region. The Reserve Bank of India is an autonomous body,

with minimal pressure from the government. The stated policy of the Bank on the Indian

Rupee is to manage volatility but without any fixed exchange rate-and this has mostly

been true.

With the growth in the Indian economy expected to be strong for quite some time-

especially in its services sector-the demand for banking services, especially retail

banking, mortgages and investment services are expected to be strong. One may alsoexpect M&As, takeovers, and asset sales.

GROWTH OF INDIAN BANKING SECTOR

The Indian banking sector is growing at a fast pace along with the Indian economy. In

this age of globalization, foreigners are also making investments in India and so Indian

banks are planning global strategies. Thanks to liberalization, that the Indian banks have

been able to make a mark for themselves in the world map. The degree of leverage of

Indian banks has increased to 15.8% at the end of March 2007.The overall banking

industry's business has grown to US$ 1172 billion by the end of March 2007.

The commercial banks have made tremendous progress with respect to its profitability,

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capital adequacy, risk management etc. The private banks too are playing an important

role in the Indian banking industry. The private banks are growing at a rate of 35% per

annum. As a result the share of the private banks has increased to nearly 16%.

But still there is huge potential in the Indian banking sector. India has the second largest

financially excluded house holds (about 135 million) and it is expected that nearly 60

million house hold will be added in India's bankable pool by 2009. So it is quite clear that

the banking industry is going to grow very rapidly. Indian banks are also very advanced

in terms of technology and have vast network of branches. Nine Indian banks have made

their mark in the list of top 50 Asian Banks. The leaders are HDFC and ICICI bank.

4. OVERVIEW OF TECHNICAL ANALYSIS

Technical Analysis is the forecasting of future financial price movements based

on an examination of past price movements. Like weather forecasting, technical analysis

does not result in absolute predictions about the future. Instead, technical analysis can

help investors anticipate what is "likely" to happen to prices over time. Technical analysis

uses a wide variety of charts that show price over time. Technical analysis is applicable to

stocks, indices, commodities, futures or any tradable instrument where the price is

influenced by the forces of supply and demand. Price refers to any combination of the

open, high, low, or closes for a given security over a specific time frame. The time frame

can be based on intraday (1-minute, 5-minutes, 10-minutes, 15-minutes, 30-minutes or

hourly), daily, weekly or monthly price data and last a few hours or many years. In

addition, some technical analysts include volume or open interest figures with their study

of price action.

Technical Analysis is the forecasting of future financial price movements based

on an examination of past price movements. Like weather forecasting, technical analysis

does not result in absolute predictions about the future. Instead, technical analysis can

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help investors anticipate what is "likely" to happen to prices over time. Technical analysis

uses a wide variety of charts that show price over time.

Just as there are many investment styles on the fundamental side, there are also

many different types of technical traders. Some rely on chart patterns; others usetechnicalindicators and oscillators, and most use some combination of the two. In any

case, technical analysts' exclusive use of historical price and volume data is what

separates them from their fundamental counterparts.

Strengths of technical analysis

Focus on price

If the objective is to predict the future price, then it makes sense to focus on price

movements. Price movements usually precede fundamental developments. By focusing

on price action, technicians are automatically focusing on the future. The market is

thought of as a leading indicator and generally leads the economy by 6 to 9 months. To

keep pace with the market, it makes sense to look directly at the price movements.

Supply, Demand, and Price Action

Many technicians use the open, high, low and close when analyzing the price action of a

security. There is information to be gleaned from each bit of information. Separately,

these will not be able to tell much. However, taken together, the open, high, low and

close reflect forces of supply and demand.

Support Resistance

Simple chart analysis can help identify support and resistance levels. These are usually

marked by periods of congestion (trading range) where the prices move within a confined

range for an extended period, telling us that the forces of supply and demand are

deadlocked. When prices move out of the trading range, it signals that either supply or

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demand has started to get the upper hand. If prices move above the upper band of the

trading range, then demand is winning. If prices move below the lower band, then supply

is winning.

Pictorial Price History

Even if you are a tried and true fundamental analyst, a price chart can offer plenty of

valuable information. The price chart is an easy to read historical account of a security's

price movement over a period of time. Charts are much easier to read than a table of

numbers. Relative strength of a stock versus the overall market.

Assist with Entry Point

Technical analysis can help with timing a proper entry point. Some analysts use

fundamental analysis to decide what to buy and technical analysis to decide when to buy.

It is no secret that timing can play an important role in performance. Technical analysis

can help spot demand (support) and supply (resistance) levels as well as breakouts.

Simply waiting for a breakout above resistance or buying near support levels can improve

returns.

Weakness of technical analysis

Analyst Bias

Just as with fundamental analysis, technical analysis is subjective and our personal biases

can be reflected in the analysis. It is important to be aware of these biases when analyzing

a chart. If the analyst is a perpetual bull, then a bullish bias will overshadow the analysis.

On the other hand, if the analyst is a disgruntled eternal bear, then the analysis will

probably have a bearish tilt.

Open to Interpretation

Furthering the bias argument is the fact that technical analysis is open to interpretation.

Even though there are standards, many times two technicians will look at the same chart

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and paint two different scenarios or see different patterns. Both will be able to come up

with logical support and resistance levels as well as key breaks to justify their position.

Too Late

Technical analysis has been criticized for being too late. By the time the trend is

identified, a substantial portion of the move has already taken place. After such a large

move, the reward to risk ratio is not great.

Always Another Level

Even after a new trend has been identified, there is always another "important" level close

at hand. Technicians have been accused of sitting on the fence and never taking an

unqualified stance. Even if they are bullish, there is always some indicator or some level

that will qualify their opinion.

Trader's Remorse

Not all technical signals and patterns work. When you begin to study technical analysis,

you will come across an array of patterns and indicators with rules to match. For instance:

A sell signal is given when the neckline of a head and shoulders pattern is broken. Even

though this is a rule, it is not steadfast and can be subject to other factors such as volume

and momentum. In that same vein, what works for one particular stock may not work for

another.

4.1 TECHINICAL CHARTS, INDICATORS AND TOOLS

DOW THEORY

Dow theory was formulated from a series ofWall Street Journaleditorials authored by

Charles H. Dow from 1900 until the time of his death in 1902. These editorials reflected

Dows beliefs on how the stock market behaved and how the market could be used to

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measure the health of the business environment.Dow believed that the stock market as a

whole was a reliable measure of overall business conditions within the economy and that

by analyzing the overall market, one could accurately gauge those conditions and identify

the direction of major market trends and the likely direction of individual stocks.

Dow Theory tells about

1. The market has three movements

(1) The "main movement", primary movement or major trend may last from less than a year

to several years. It can be bullish or bearish. (2) The "medium swing", secondary reaction

or intermediate reaction may last from ten days to three months and generally retraces

from 33% to 66% of the primary price change since the previous medium swing or start

of the main movement. (3) The "short swing" or minor movement varies with opinionfrom hours to a month or more. The three movements may be simultaneous, for instance,

a daily minor movement in a bearish secondary reaction in a bullish primary movement.

1. Trends have three phases

Dow Theory asserts that major market trends are composed of three phases: an

accumulation phase, a public participation phase, and a distribution phase. The

accumulation phase (phase 1) is a period when investors "in the know" are actively

buying (selling) stock against the general opinion of the market. During this phase, the

stock price does not change much because these investors are in the minority absorbing

(releasing) stock that the market at large is supplying (demanding). Eventually, the

market catches on to these astute investors and a rapid price change occurs (phase 2).

This occurs when trend followers and other technically oriented investors participate.

This phase continues until rampant speculation occurs. At this point, the astute investors

begin to distribute their holdings to the market (phase 3).

2. The stock market discounts all news

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Stock prices quickly incorporate new information as soon as it becomes available. Once

news is released, stock prices will change to reflect this new information. On this point,

Dow Theory agrees with one of the premises of the efficient market hypothesis .

3. Trends are confirmed by volume

Dow believed that volume confirmed price trends. When prices move on low volume,

there could be many different explanations why. An overly aggressive seller could be

present for example. But when price movements are accompanied by high volume, Dow

believed this represented the "true" market view. If many participants are active in a

particular security, and the price moves significantly in one direction, Dow maintained

that this was the direction in which the market anticipated continued movement. To him,

it was a signal that a trend is developing.

JAPANESE CANDLESTICK CHARTS

Originating in Japan over 300 years ago, candlestick charts have become quite

popular in recent years. For a candlestick chart, the open, high, low and close are all

required. A daily candlestick is based on the open price, the intraday high and low, and

the close. A weekly candlestick is based on Monday's open, the weekly high-low range

and Friday's close.

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Many traders and investors believe that candlestick charts are easy to read,

especially the relationship between the open and the close. White (clear) candlesticks

form when the close is higher than the open and black (solid) candlesticks form when the

close is lower than the open. The white and black portion formed from the open and close

is called the body (white body or black body). The lines above and below are called

MOVING AVERAGE METHOD :

The moving average is a lagging indicator , or trend following formula , that

smoothes the volatile swings in a market. They are used to track the progress of a trend

and to signal when a trend has ended or reversed .

There are lots of ways of interpreting moving averages. The most basic is to treat

a change of direction in the moving average as a signal to buy or sell , so if the moving

average has been consistently rising and then it falls, that is a signal to sell .

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The Moving Average Technical Indicator shows the mean instrument price value

for a certain period of time. When one calculates the moving average, one averages out

the instrument price for this time period. As the price changes, its moving average either

increases, or decreases.

There are four different types of moving averages: Simple (also referred to as

Arithmetic), Exponential, Smoothed and Linear Weighted. Moving averages may be

calculated for any sequential data set, including opening and closing prices, highest and

lowest prices, trading volume or any other indicators. It is often the case when double

moving averages are used.

The only thing where moving averages of different types diverge considerably

from each other, is when weight coefficients, which are assigned to the latest data, aredifferent. In case we are talking of simple moving average, all prices of the time period in

question, are equal in value. Exponential and Linear Weighted Moving Averages attach

more value to the latest prices.

The most common way to interpreting the price moving average is to compare its

dynamics to the price action. When the instrument price rises above its moving average, a

buy signal appears, if the price falls below its moving average, what we have is a sell

signal.

This trading system, which is based on the moving average, is not designed to

provide entrance into the market right in its lowest point, and its exit right on the peak. It

allows to act according to the following trend: to buy soon after the prices reach the

bottom, and to sell soon after the prices have reached their peak.

The classical interpretation , used by most of the technical analysts , is to

compare the moving averages with the price of the underlying share and to plot them

both on the same graph. Before the share prices rise above the moving average, buy the

share , when it falls below the moving average , sell the share.

The formulae for the moving average is as follows:

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P1+P2+P3+P4+--------------Pn

n

Where,

P is the price for the days

n is the number of days

THE MOVING AVERAGE CONVERGENCE DIVERGENCE( MACD)

The Moving Average Convergence Divergence is a momentum indicator, that

was developed by Gerald Appel in the 1960s. The MACD compares two exponential

moving averages, and displays the difference between the moving averages as a single

line, with positive and negative values, above and below a zero line (an oscillator).

The MACD (MACD) is the difference between short term (EMAS) and long term

(EMAL) exponential moving averages, and is often used with a signal line that is an

exponential moving average of the MACD (EMAMACD).

EMAS = EMASn-1 + ((2 / (n + 1)) * (Pn - EMASn-1))

EMAL = EMALn-1 + ((2 / (n + 1)) * (Pn - EMALn-1))

MACD = EMAS EMAL

The most popular formula for the "standard" MACD is the difference between a

security's 26-day and 12-day Exponential Moving Averages (EMAs).One of the two

moving averages that make up MACD, the 12-day EMA is the faster and the 26-day

EMA is the slower. Closing prices are used to form the moving averages. Usually, a 9-

day EMA of MACD is plotted along side to act as a trigger line or signal line. A bullish

crossover occurs when MACD moves above its 9-day EMA, and a bearish crossover

occurs when MACD moves below its 9-day EMA.

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Moving Average Convergence/Divergence is the next trend-following dynamic

indicator. It indicates the correlation between two price moving averages.

The Moving Average Convergence/Divergence Technical Indicator is the

difference between a 26-period and 12-period Exponential Moving Average (EMA). Inorder to clearly show buy/sell opportunities, a so-called signal line (9-period indicators`

moving average) is plotted on the MACD chart.

The MACD proves most effective in wide-swinging trading markets. There are

three popular ways to use the Moving Average Convergence/Divergence: crossovers,

overbought/oversold conditions, and divergences.

Crossovers

The basic MACD trading rule is to sell when the MACD falls below its signal

line. Similarly, a buy signal occurs when the Moving Average Convergence/Divergence

rises above its signal line. It is also popular to buy/sell when the MACD goes

above/below zero.

Overbought/oversold conditions

The MACD is also useful as an overbought/oversold indicator. When the shorter

moving average pulls away dramatically from the longer moving average (i.e., the

MACD rises), it is likely that the security price is overextending and will soon return to

more realistic levels.

Divergence

An indication that an end to the current trend may be near occurs when the

MACD diverges from the security. A bullish divergence occurs when the Moving

Average Convergence/Divergence indicator is making new highs while prices fail toreach new highs. A bearish divergence occurs when the MACD is making new lows

while prices fail to reach new lows. Both of these divergences are most significant when

they occur at relatively overbought/oversold levels.

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Exponential moving average is calculated by

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EMA=(Current closing price-Previous EMA )X Factor +previous EMA

Factor= 2/(n+1)

MACD measures the difference between two Exponential Moving Averages

(EMAs). A positive MACD indicates that the 12-day EMA is trading above the 26-day

EMA. A negative MACD indicates that the 12-day EMA is trading below the 26-day

EMA. If MACD is positive and rising, then the gap between the 12-day EMA and the 26-

day EMA is widening. This indicates that the rate-of-change of the faster moving average

is higher than the rate-of-change for the slower moving average. Positive momentum is

increasing, indicating a bullish period for the price plot. If MACD is negative and

declining further, then the negative gap between the faster moving average and the

slower moving average is expanding. Downward momentum is accelerating, indicating abearish period of trading. MACD centerline crossovers occur when the faster moving

average crosses the slower moving average.

RATE OF CHANGE INDICATOR(ROC)

Rate of change indicator or the ROC measures the rate of change between the

current price and the price n number of days in the past. ROC helps to find out the

overbought and oversold region position in a scrip. It is also useful in identifying the

trend reversals. Closing prices are used to calculate the ROC. Daily closing prices are

used for the daily ROC.

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A technical indicator that measures the percentage change between the most recent price

and the price "n" periods in the past. It is calculated by using the following formula:

Price Ratio =

(Closing Price Today - Closing Price "n" Periods Ago) / Closing Price "n" Periods AgoROC = Price Ratio 1

ROC is classed as a price momentum indicator or a velocity indicator because it measures

the rate of change or the strength of momentum of change.

The main advantage of the ROC is the identification of overbought and oversold

region. The historic highs and lows of theROC should be identified at first to locate the

overbought and oversold region. If the scrips ROC reaches the historic value, the scrips is

in the overbought region and the fall in the value can be anticipated. Likewise if the

scrips ROC reaches the historic low value, the scrip is in the oversold region. A rise in

the scrips price can be anticipated . Investor can sell the scrip in the overbought region

and buy it in the oversold region. The below figure shows the overbought and the

oversold region .

ROC is classed as a price momentum indicator or a velocity indicator because it measures

the rate of change or the strength of momentum of change.

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The ROC values may be positive, negative or zero, the X Axis represents the

Time and the Y Axis represents the Values of the ROC. The ROC values oscillate across

the zero line. When the ROC line is above the zero line, the prices is rising and when it is

below the zero line, the prices falling.

Ideally one should buy a share that is over sold and sell a share that is overbought. In the ROC chart the over bought zone is above the zero line and the oversold

zone is below the zero line. Many analysts use the zero line for identifying buying and

selling opportunities. Upside crossing ( from below to above the zero line ) indicates a

buying opportunity while the downside crossing ( from above to below the zero line )

indicates the selling opportunity.

The ROC has to be used along with the price chart the buying and selling signals

indicated n\by the ROC should be confirmed by the price chart.

RELATIVE STRENGTH INDEX( RSI)

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The Relative Strength Index Technical Indicator (RSI) is a price-following

oscillator that ranges between 0 and 100. When Wilder introduced the Relative Strength

Index, he recommended using a 14-day RSI.. Since then, the 9-day and 25-day Relative

Strength Index indicators have also gained popularity.

A popular method of analyzing the RSI is to look for a divergence in which the

security is making a new high, but the RSI is failing to surpass its previous high. This

divergence is an indication of an impending reversal. When the Relative Strength Index

then turns down and falls below its most recent trough, it is said to have completed a

"failure swing". The failure swing is considered a confirmation of the impending reversal.

Ways to use Relative Strength Index for chart analysis:

Tops and Bottoms

The Relative Strength Index usually tops above 70 and bottoms below 30. It

usually forms these tops and bottoms before the underlying price chart;

Chart formations

The RSI often forms chart patterns such as head and shoulders or triangles that

may or may not be visible on the price chart;

Failure swing

This is where the Relative Strength Index surpasses a previous high (peak) or falls

Support and Resistance levels

The Relative Strength Index shows, sometimes more clearly than price them

selves, levels of support and resistance.

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Divergences

As discussed above, divergences occur when the price makes a new high (or low)

that is not confirmed by a new high (or low) in the Relative Strength Index. Prices

usually correct and move in the direction of the RSI.

The RSI compares the magnitude of a stock's recent gains to the magnitude of its recent

losses and turns that information into a number that ranges from 0 to 100. It takes a single

parameter, the number of time periods to use in the calculation.

RSI = 100 100/ (1 + RS)

RS = Average Gain / Average Loss

Average Gain = Total of Gains during past 14 periods / 14

Average Loss = Total of Losses during past 14 periods / 14

"Losses" are reported as positive values.

RSI ranges from 0 to 100. An asset is deemed to be overbought once the RSI

approaches the 70 level, meaning that it may be getting overvalued and is a good

candidate for a pullback. Likewise, if the RSI approaches 30, it is an indication that the

asset may be getting oversold and therefore likely to become undervalued. If the RSI

rises above 30 it is considered bullish for the underlying stock. Conversely, if the RSI

falls below 70, it is a bearish signal. Some traders identify the long-term trend and then

use extreme readings for entry points. If the long-term trend is bullish, then oversold

readings could mark potential entry points.

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The centerline for RSI is 50. Readings above and below can give the indicator a

bullish or bearish tilt. On the whole, a reading above 50 indicates that average gains are

higher than average losses and a reading below 50 indicates that losses are winning the

battle. Some traders look for a move above 50 to confirm bullish signals or a move below

50 to confirm bearish signals.

5. DATA ANALYSIS AND INTERPRETATIONS

5.1 HOUSING DEVELOPMENT FINANCE CORPORATION (HDFC)

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MONTHLY PRICES

MONTHS PRICES

JANUARY 1631.05

FEBRAUARY 1704.80

MARCH 1933.50

APRIL 1998.50

MAY 1897.65

JUNE 1919.00

JULY 2126.90

AUGUST 2134.25

SEPTEMBER 2489.35

OCTOBER 2279.90

NOVEMBER 2285.40

DECEMBER 2346.35

TECHNICAL TOOLS AND INDICATORS

5.1.1. DOW THEORY

Graph-5.1.1

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Bull markets are broad upward movements of the market that may last several years,

interrupted by secondary reactions. Bear markets are long declines interrupted by

secondary rallies. These movements are referred to as the primary trend.

.A major upward move is said to occur when the high point of each rally is higher thanthe high point of preeceeding rally and the low point of each decline is higher than the

low point of the preeceeding decline. Likewise , a major downward move is said to occur

when the high point of each rally is lower than the high point of the preeceeding rally and

the low point of each decline is lower than the low point of the preeceeding decline.

An upward primary trend represents a bull market , whereas a downward primary

trend represents a bear market. In above graph, fluctuations are observerd from month to

month. January, May and August representing bull market where other months showing

bearish market situations.

5.1.2.CANDLE STICK CHART

Top of Form

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Bottom of Form

Graph-5.1.2

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We can see number of white and blue candle sticks. Long white candlesticks show

strong buying pressure. Hence the volume is more in such a period where the Long white

candlesticks are seen. The longer the white candlestick is, the further the close is above

the open. This indicates that prices advanced significantly from open to close and buyers

were aggressive. We can see this trends in the month of January, May and

November. Long black candlesticks show strong selling pressure. Where as black candle

stick implies strong selling pressures, this indicates that prices declined significantly

from the open and sellers were aggressive. We can see this indications in the month

of June and October

5.1.3.MOVING AVERAGE(50 DAYS)

The Moving Average is calculated for 50 days. The formula for calculating the

Moving Average is followed:

Where P is the Closing Price and n is the number of days. The Moving Average

for HDFC is calculated as follows:

For 1st January the Moving Average is calculated by calculating the average of

past 50 days closing prices.

Exanple:For January 1st,

the average of prices taken from 22October and 1st

Januaryand the average price( Rs 1654) is calculated.

Likewise for all the days it is calculated by using the above method. After

calculating the Moving Average, the graph is plotted against the closing price and

moving average prices for interpretation.

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P1+P2+P3+P4+------------

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A change of direction in the moving average as a signal to buy or sell , so if the moving

average has been consistently rising and then it falls, that is a signal to sell .

The Moving Average Technical Indicator shows the mean instrument price value

for a certain period of time. When one calculates the moving average, one averages outthe instrument price for this time period. As the price changes, its moving average either

increases, or decreases.

The most common way to interpreting the price moving average is to compare its

dynamics to the price action. When the instrument price rises above its moving average, a

buy signal appears, if the price falls below its moving average, what we have is a sell

signal.

Graph-5.1.3

BUYING OPPORTUNITIES:

May and April showing the buying indictors because the stock price line rises

through moving average line and the graph of moving average is also flattering outin these months. March also showing buying indications because stock price line falls

below the moving average line which is rising.

SELLING OPPORTUNITIES

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July and December showing selling signals because stock price line falls through the

moving average line when the graph of the moving average line is flattering out.

June showing selling signals because the stock price line rises above the moving

average line which is falling. October and November showing selling signals because

stock price line, which is below the moving average line, rises but begins to fall again

before reaching the moving average line.

5.1.4.MOVING AVERAGE CONVERGENCE DIVERGENCE(MACD)

MACD is calculated by using the formula

MACD = EMAS EMAL

EMAS is the short tem exponential moving average with the period being 12 .

EMAL is the long term exponential moving average with period being 26. After

calculating the MACD, the graph is plotted against the price for interpretations.

The MACD compares two exponential moving averages, and displays the difference

between the moving averages as a single line, with positive and negative values, above

and below a zero line (an oscillator).

The basic MACD trading rule is to sell when the MACD falls below its signal line.

Similarly, a buy signal occurs when the Moving Average Convergence/Divergence rises

above its signal line. It is also popular to buy/sell when the MACD goes above/below

zero.

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Graph-5.1.4

BUYING OPPORTUNITES:

By the above graphs, buying opportunities can be identified when the MACD line crosses

the Zero line from below. In above graph these intersections happened twice. April,

May and September showing such indications and considered as buying opportunities

for investors.

SELLING OPPORTUNITIES:By the above graph, selling opportunities can be identified

when the MACD line crosses the Zero line from above. In above graph, April and

August showing such indications

5.1.5.RELATIVE STRENGTH INDEX ANALYSIS (R.S.I)

RSI is calculated as follows:

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Find the price change of the current day with reference to previous closing prices.

The positive values indicates the gain where as negative value indicates the loss.

Average Gains and Losses are calculated(i.e for 15th day the average of past 15

days prices are taken). After that Relative strength is calculated by using the

formula:

RELATIVE STRENGTH= AVERAGE GAIN/AVERAGE LOSS

After this Relative Strength Index is calculated using

RSI = 100 100/ ( 1 + RS)

Example: For HDFC, the closing price on 2nd January 2008 was Rs 1715.3 and on 1st

January was Rs 1729. The loss for 2nd January was 13.7. Like wise the loss and

gains are calculated for all the year and then Relative Strength Index is

calculated by using the above formula.

Graph-5.1.5

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