EQUITY ANALYSIS OF BANKING SECTOR

Guided by : Dr. Vinckle G Singh

Submitted by : Shaurya JainRoll No: 9729Class : MBE-2nd Sem

Goswami Ganesh Dutta S D College

INTRODUCTION

A major purpose of investment is to get a return or income on the funds invested. The most important characteristic of financial assets is the size and variability of their future returns, which depends on the risk associated with the assets. Hence risk-return analysis has significance in predicting future returns of the assets.

This project mainly focuses on equity analysis of selected banks. The risk, return and beta (market risk) of the stocks are calculated for a period of one year, using statistical techniques, which helps in predicting future returns of the assets and assists in better decision making.

OBJECTIVES

To understand the concepts in equity analysis To study the price movements of stocks of 5

banks namely, ICICI Bank Ltd, HDFC Bank Ltd, State Bank Of India, Axis Bank Limited and Punjab National Bank

To find out systematic risk of the securitiesTo suggest best security to investors.

RESEARCH METHODOLGY Analytical Research: Research Design was based on analytical research, on the other hand, the

researcher has to use facts or information already available, and analyze these to make these to make a critical evaluation of the material.

  Sources of Data: The type of research adopted is descriptive in nature. For the preparation

of this report, relevant data has been collected from secondary source i.e., Daily prices of scripts from Newspapers, Business Magazines, Internet and Text Book.

  Data Collection: Data required for the purpose of the study have been collected from the

Websites of the banks concerned.

Graphs representing date wise returns are plotted for each bank stock and conclusions are drawn from these graphs.

Data Analysis: The data required so collected have been analyzed by using MS- EXCEL. In the process of analysis – Average rate of return, Standard deviation, Covariance and beta values have been collected.

Banking Sector in IndiaIndia has been engaged in banking sector reforms aimed at

increasing the profitability and efficiency of the 27 public-sector banks that controlled about 90% of all deposits, assets and credit. There has been radical and perceptible transformation in the operational environment of the banking sector.

The information technology (IT) revolution is entirely changing the way banking business is done and has considerably widened the range of products and services as well as the demands and expectations of customers.

Banking system remains the focal point in the financial set-up of country and more so in the context of a developing country like India.

The banking sector is dominated by scheduled commercial banks (SCBs). According to a report by ICRA limited, a rating agency, the public sector banks hold over 75 percent of total assets of the banking industry, with the private and foreign banks holding 18.2% and 6.5% respectively.

In banking sector a minimum stipulated Capital Adequacy Ratio (CAR) was introduced to strengthen the ability of banks to absorb losses and the ratio has subsequently been raised from 8% to 9% (1997) to 13.88% March 2014.

Bank credit has increased sharply from 30% of GDP at end march 2000 to 77.15 % at end march 2013. Less than 59% of Indian household has a bank account.

DATA ANALYSIS

AXIS BANKDate Opening Closing Return

June 2014 366.96 384.28 4.611

July 2014 385 391.85 1.763

August 2014 389 397.30 2.111

September 2014 399 377.80 -5.458

October 2014 377 438.75 15.139

November 2014 441 485 9.50

December 2014 483 502.05 3.867

January 2015 502 588.70 15.898

February 2015 588.70 613.40 4.109

March 2015 627 560.40 -11.217

April 2015 557.80 567.85 1.785

May 2015 571 585.25 2.464

Jun-14Jul-1

4

Aug-14

Sep-14

Oct-14

Nov-14

Dec-14

Jan-15

Feb-15

Mar-15

Apr-15

May-15

-15

-10

-5

0

5

10

15

20

Axis Bank Return

Return

Covariance Variance β=Covariance/Variance

4.55796 7.250233 0.62

Calculation of Systematic Risk -:

HDFC BANKDate Opening Closing Return

June 2014 795 821.35 3.260

July 2014 825.20 833.65 1.018

August 2014 829 842.95 7.427

September 2014 846 871.50 2.969

October 2014 868.25 912.20 4.936

November 2014 912 954.40 4.543

December 2014 957.15 952 -0.539

January 2015 952 1076 12.228

February 2015 1068 1067.85 0.014

March 2015 1082 1022 -5.703

April 2015 1026 989.20 -3.652

May 2015 995 1051.10 5.483

Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15May-15

-10

-5

0

5

10

15HDFC Bank Return

return

Covariance Variance β=Covariance/Variance

3.24123 7.25023 0.44

Calculation of Systematic Risk -:

ICICI BANKDate Opening Closing Return

June 2014 282.20 283.69 0.314

July 2014 284.42 294.60 3.516

August 2014 292.20 311.31 6.332

September 2014 310.60 287.05 -7.880

October 2014 288.07 325.09 12.075

November 2014 325.60 350.92 7.485

December 2014 352.22 353 0.221

January 2015 355.45 361.15 1.450

February 2015 361 345.55 4.373

March 2015 351 315.30 -10.715

April 2015 315 331.25 5.029

May 2015 332 317.30 -4.527

Jun-14Jul-1

4

Aug-14

Sep-14

Oct-14

Nov-14

Dec-14

Jan-15

Feb-15

Mar-15

Apr-15

May-15

-15

-10

-5

0

5

10

15ICICI Bank Return

return

Covariance Variance β=Covariance/Variance

3.68109 7.25023 0.50

Calculation of Systematic Risk -:

PNBDate Opening Closing Return

June 2014 190 198.46 4.355

July 2014 198.46 191.25 -3.689

August 2014 189 189.20 0.105

September 2014 190 177.46 -6.825

October 2014 177.42 186.14 4.797

November 2014 186.40 215.96 14.693

December 2014 214 219.10 2.355

January 2015 219 189.90 -14.233

February 2015 193.70 165.55 -15.671

March 2015 167.50 144.40 -14.812

April 2015 144 159.65 10.307

May 2015 163 153.40 -6.068

Jun-14Jul-1

4

Aug-14

Sep-14

Oct-14

Nov-14

Dec-14

Jan-15

Feb-15

Mar-15

Apr-15

May-15

-20

-15

-10

-5

0

5

10

15

20PNB Return

return

Covariance Variance β=Covariance/Variance

-1.68105 7.25023 -0.23

Calculation of Systematic Risk -:

SBIDate Opening Closing Return

June 2014 254.73 268.59 5.296

July 2014 269.83 243.98 -10.062

August 2014 241.59 246.05 1.829

September 2014 247.50 244.24 -1.321

October 2014 244.50 270.17 9.975

November 2014 270.50 321.45 17.214

December 2014 323 311.85 -3.512

January 2015 312 310 -0.643

February 2015 309.95 301.60 -2.730

March 2015 304 267 -12.959

April 2015 266.90 270.05 1.173

May 2015 274 278.15 1.503

Jun-14Jul-1

4

Aug-14

Sep-14

Oct-14

Nov-14

Dec-14

Jan-15

Feb-15

Mar-15

Apr-15

May-15

-15

-10

-5

0

5

10

15

20SBI Return

return

Calculation of Systematic Risk -:

Covariance Variance β=Covariance/Variance

3.494847 7.250233 0.48

FINDINGS

Based on Beta: The beta of Axis Bank, HDFC Bank, ICICI Bank, SBI were

found to be 0.62, 0.44, 0.50 and 0.48 respectively. Since these values are lesser than the beta of market value which is 1, these stocks are at low risk and may yield low returns.

Based on Total Returns: The average returns for Axis bank were highest, while the

average returns for the other four stocks were considerably less.

SUGGESTIONS

BANKS RETURNS

AXIS BANK 45.84%

HDFC BANK 27.74%

ICICI BANK 11.49%

PUNJAB NATIONAL BANK -21%

STATE BANK OF INDIA 8.78%In the above table we can see that AXIS Bank gives maximum returns therefore investors are advised to invest in Axis Bank.

Total Return of Banks under study for the period 1 June to31 May are as follow:

BIBLIOGRAPHY

Reference books: Security Analysis and Portfolio Management by Shashi k

Gupta Investment Analysis and Portfolio Management by NSE

Websites: http://www.nseindia.com http://www.bseindia.com http://www.moneycontrol.com http://www.investopedia.com http://www.google.com