Trend Analysis

CHAPTER – 1INTRODUCTION

&THEORETICAL BACKGROUND OF THE STUDY

INTRODUCTIONIndia is a vast country, so the sectors contributing to the country’s 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

Source: “Report on trend and progress of banking in India 2008–09”, RBI website, www.rbi.org.in, accessed on January 12, 2010.

Fig. 1Thus, 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 year’s 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.

SHIFT

OBJECTIVES OF THE RESEARCHMain 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 PROCEDURESimple Random Sampling procedure is carried out among clients of Indiabulls Securities Limited and other traders apart from the company.DATA CAPTURE INSTRUMENTSQuestionnaire acted as the primary instrument for capturing the primary data.DATA COLLECTION METHODSA 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 ANALYSISData analysis is done with the help of primary data extracted throughquestionnaires via MS Excel.

THEORETICAL BACKGROUND OF THE STUDYFUNDAMENTAL ANALYSISThe 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 AnalysisThe 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. India’s 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 AnalysisA basic problem while comparing a firm’s performance over time is that the firm’s 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 statementCommon-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 statementCommon-size statements analysis is incomplete without analyzing the Income Statement of any company. It’s 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 statementA Cash Flow Statement (CFS), along with Balance Sheet and IncomeStatement, are the three most common financial statements used to judge acompany’s performance and overall health. The same accounting data is used in preparing all their statements, but each takes a company’s

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 enterprise’s 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 activitiesIt indicates cash that was generated over the year or the financial period from the company’s 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 activitiesThis 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 activitiesThis 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 ANALYSISRatio 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 maker’s 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 investor’s 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 ANALYSISTechnical Analysis is a study of the stock market considering factors related to the supply and demand of stocks. Technical Analysis doesn’t 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 stock’s 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 AnalysisTechnical 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 over’s 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 stock’s 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 stock’s 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 CrossoverThe 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 con-fined to stock traders; options traders, most notably implied volatil-ity traders, often sell options when Bollinger Bands are historically far apart or buy options when the Bollinger Bands are historically close to-

gether, 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 recom-mendation 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 indic-ator.

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)

Signal–line crossover

Signal–line 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 ap-proaching a crossover. Though it may show a difference, the changing size of the difference can indicate the acceleration of a trend. A narrowing his-togram suggests a crossover may be approaching, and a widening histo-gram 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 dif-ference between the fast and slow EMAs. A move from positive to negat-ive is bearish and from negative to positive, bullish. Zero crossovers provide evidence of a change in the direction of a trend but less confirma-tion of its momentum than a signal line crossover.

Timing

The MACD is only as useful as the context in which it is applied. An ana-lyst 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 up-wards.

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 inten-ded 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 pos-itive 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 out-looks. More extreme high and low levels—80 and 20, or 90 and 10—occur less frequently but indicate stronger momentum.

The Relative Strength Index was developed by J. Welles Wilder and pub-lished 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 di-vergence 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 resist-ance 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 determ-ine 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 re-versals 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 down-trend 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 – 2LITERATURE 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 within-group 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 2004-2008, 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 – 3COMPANY PROFILE

INDUSTRY PROFILE ~ BROKERAGE FIRMS IN INDIAThe 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 India’s 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 STRUCTUREIndiabulls 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 LimitedIndiabulls 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

IndiabullsGroupIndiabulls Securities Limited is India’s 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 OFFEREDEquities 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 StructureSales force in Indiabulls Securities Limited is divided into two groups, i.e.Online & Offline.

Customer Care DepartmentIt 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 – 4DATA ANALYSIS

&INTERPRETATION OF DATA

FUNDAMENTAL ANALYSISBefore stepping into the analysis of all factors together let individuallyunderstand the factors that have an impact on the area of this research. 1. ECONOMIC ANALYSISGross 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.comFig. 4.1.0

Inflation RateIn 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 RateInterest 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 rateGDP, 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. 4.1.3The 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 july’11, leads to a fall in GDP at the same interest level of 7%. Again a further rise in inflation after jan’12 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 ANALYSISIndia 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.

Banks 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 SectorThe 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 ANALYSISCommon-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) (in % of total )

STATE BANK OF

INDIABANK OF BARODA

ICICI BANK

AXIS BANK

STATE BANK OF

INDIABANK OF BARODA

ICICI BANK

AXIS BANK

Capital and Liabilities:    

Equity Share Capital 671.04 412.38 1,152.77 413.2 0.05 0.09 0.24 0.14

Share Application Money 0 0 2.39 0 0 0 0 0

Preference Share Capital 0 0 0 0 0 0 0 0

Reserves 83,280.16 27,064.47 59,250.09 22,395.34 6.23 6.05 12.50 7.84

Deposits 1,043,647.36 384,871.11 255,499.96 220,104.30 78.14 86.03 53.94 77.05

Borrowings made by bank 127,005.57 23,573.05 140,164.91 34,071.67 9.50 5.26 29.59 11.92Other Liabilities & Provisions 80,915.09 11,400.46 17,576.98 8,643.27 6.05 2.54 3.71 3.02

Total Liabilities 1,335,519.22 447,321.47 473,647.10 285,627.78 100.00% 100.00% 100.00% 100.00%

Assets        

Cash & balance with RBI 54,075.94 21,651.46 20,461.29 10,702.92 4.04 4.84 4.31 3.74Balance with Banks, Money at Call 43,087.23 42,517.08 15,768.02 3,230.99 3.22 9.50 3.32 1.13

Advances 867,578.89 287,377.29 253,727.66 169,759.54 64.96 64.24 53.56 59.43

Investments 312,197.61 83,209.40 159,560.04 93,192.09 23.37 18.60 33.68 32.62

Gross Block 14,792.33 4,921.59 9,424.39 3,583.67 1.10 1.10 1.98 1.25

Accumulated Depreciation 9,658.46 2,580.09 4,809.70 1,395.12 0.72 0.57 1.01 0.48

Net Block 5,133.87 2,341.50 4,614.69 2,188.55 0.38 0.52 0.97 0.76

Capital Work In Progress 332.68 0 0 70.77 0.02 0 0 0.02

Other Assets 53,113.02 10,224.73 19,515.39 6,482.93 3.97 2.28 4.12 2.26

Total Assets 1,335,519.24 447,321.46 473,647.09 285,627.79 100.00% 100.00% 100.00% 100.00%

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 bank’s 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 AnalysisSome 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 (in crores)

State bank of India Bank Of Baroda 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  0 1,583.04 1,280.03 1,143.03

Net depreciation 0 0 0 0 0 0 0 0

Total taxation 6,689.71 6,776.02 1,408.64 1,018.84 1,609.33 2,338.17 1,747.17 2,045.63

Extra ordinary item 0 0 0 0 0 0 0 0

Net profit / loss 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 0 0 0 0 0 0 0 0

Reserve written back 0 0 0 0 0 0 0 0

Equity capital 635 671.04 392.81 412.38 1,152.77 1,151.82 410.55 413.2

Equity Dividend Rate (%) 0 0 0 0 0 0 0 0Agg. Non-Promotor Shares (in Lacs) 2577.92 2577.92 1682.67 1878.44 11527.14 11517.72 2200.56 2234.65

Agg. Non-Promotor Holding(%) 40.6 38.42 42.97 45.69 100 100 53.6 54.08

GovernmentShare 59.41 59.41 53.81 53.81 0 0 0 0

CapitalAdequacyRatio 11.98 13.86 14.52 14.67 19.54 18.52 12.65 13.66

EPS (in Rs.) 130.15 174.46 107.98 121.42 44.72 56.08 82.54 102.67

Comparative income statement

State bank of India Bank Of Baroda ICICI Bank Axis Bank31-03-2011

31-03-2012

% change

31-03-2011

31-03-2012

% change

31-03-2011

31-03-2012

% change

31-03-2011

31-03-2012

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

Employee Expenses 15.28 17.97 2.69 15.56 14.08 -1.48 6.34 7.49 1.15 9.21 10.79

Other Expenses 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

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 0 0 0 0 0 0 0 0 0 0 0

Total taxation 7.93 6.7 -1.23 7.39 7.06 -0.33 4.37 5.14 0.77 8.95 11.49

Extra ordinary item 0 0 0 0.63 0.49 -0.14 0 0 0 0 0

Net profit / loss 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 0 0 0 0 0 0 0 0 0 0 0

Reserve written back 0 0 0 0 0 0 0 0 0 0 0

Equity capital 1 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 -0.45 0.6 0 -0.6 0.35 0 -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 0 0 0 0 0

CapitalAdequacyRatio 0.02 0.02 0 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

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 year’s data. Axis’s 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 it’s 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 year’s EPS to sales.

Cash flow statement Analysis

State bank of India Bank Of Baroda ICICI Bank Axis Bank

31-03-11 31-03-12% change 31-03-11 31-03-12

% change 31-03-11 31-03-12

% change 31-03-11 31-03-12

% change

Net Profit Before Tax 14180.6 13926 1.79 3342.9 4238.1 26.78 5117 5345.32 4.46 2785.2 3851.36 38.28Net Cash From Op-erating Activities 29479.7 1805 106.12 1125.5 11252 899.8 14188 1869.21 113.17 10552 28.87 99.73Net Cash (used in)/from

1651.93 1761.5 6.63 238.93 335.01 40.21 3857.9 6150.73 59.43 9742 5122.98 47.41Investing Activities

Net Cash (used in)/from Financing Activities 5097.38 3359.7 165 901.29 462.51 48.68 1625.4 1382.62 14.93 1692.3 5304.07 213.42Net (decrease)/in-crease In Cash and Cash Equival-ents 32925.2 6926.2 121.04 1787.8 11380 536.52 8074.6 8907.13 210.31 2512.7 189.54 92.46Opening Cash & Cash Equivalents 71478.6 103110 44 22299 24087 8.02 38041 29966.6 21.23 12504 15016.9 20.09Closing Cash & Cash Equivalents 104404 96184 7.87 24087 35467 47.24 29967 38873.7 29.72 15017 15206.4 1.26

CASH FLOW STATEMENT ANALYSIS1. Cash flow from Operating ActivitiesIn 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, it’s 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 ActivitiesNet 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 year’s 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 ActivitiesOnly 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 Baroda’s net CF from financing activities declined by 14.93%, 165.91% and 48.68%.

RATIO ANALYSIS

Ratio Analysis

State bank of India Bank Of Baroda ICICI Bank Axis Bank2010-2011

2011-2012

2010-2011

2011-2012

2010-2011

2011-2012

2010-2011

2011-2012

Profitability Ratio

Return on Networth (%) 15.74 13.89 17.35 20.24 7.58 7.79 17.77 15.67

Return on Long Term Funds (%) 100.35 95.02 103.7 99.27 56.72 44.72 97.35 66.34

Net Profit Margin (%) 12.03 10.54 12.86 15.37 9.74 12.17 13.31

Managerial Efficiency Ratio

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

Assets Turnover Ratio (%) 7.2 7.26 4.2 4.48 5.14 4.6 7.78

Interest Expended/Interest Earned (%) 67.28 66.66 66.05 64.43 73.09 68.44 65.98

Balance Sheet Ratio

Capital Adequacy Ratio (%) 14.25 13.39 14.05 14.36 15.53 19.41 13.69

Debt Ratio

Total Debt to Owners Fund 12.81 12.19 14.99 15.96 4.42 3.91 11.49

Coverage Ratio

Interest Cover (times) 1.36 1.33 1.37 1.43 1.25 1.33 1.43

Liquidity Ratio

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 19.19

RATIO ANALYSISProfitability RatioProfitability 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 year’s 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 company’s 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 year’s 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 RatioEfficiency 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 year’s 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 year’s 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 year’s 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 RatioCapital 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 RatioTotal 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 RatioLiquidity ratios are used to judge a firm’s 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 year’s 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 ANALYSISInterpretation of Indicatorsa) Moving Average CrossoverAccording to this research, a comparison is made between 100day and200day moving average of bank scrip and data collected is from 1st

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 1st 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 dec’16 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. 4.2.5The 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 it’s 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, it’s still in the rising trend as it is above the moving average and headed towards the upper envelope. Thus, it’s 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 12th 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. It’s 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) MACDAXIS 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. 4.2.15The 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 19th 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:

Source: Primary data collect through questionnaireFig. 5.1The 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 collected through questionnaireFig. 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 questionnaireFig. 5.3Figure 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 questionnaireFig. 5.4Different 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 questionnaireFig. 5.5When 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 questionnaireFig. 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 collection through questionnaireFig. 5.7In 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 India’s 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.

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.

BIBLIOGRAPHYBOOKS & 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.comwww.investopedia.comwww.icharts.in

www.moneycontrol.comwww.tradingeconomics.com www.money.rediff.com

APPENDIXRATIOS USED FOR ANALYSING BANKSConsidering 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 ÷ Shareholder’s Equityb) Total debt to Owner’s Fund – It measures how the company is leveraging its debt against the capital employed by its owners. Total debt to owner’s 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 liabilitiesDebt to Equity Ratio = Total Debt/Liability ÷ Owner’s Equity or Networthc) Capital Adequacy Ratio – It is a measure of a bank’s 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 assetsd) 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 paidk) 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 company’s current obligations.Current Ratio = Current assets ÷ Current Liabilityl) 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, it’s 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.