Angel Broking Zubin

A

PROJECT REPORT

ON

“FUNDAMENTAL ANALYSIS OF BANKING STOCKS”

AT

ANGEL BROKING LTD., PUNE

SUBMITTED BY ZUBIN PAREKH

UNDER THE GUIDANCE OF PROF. RATIKANTA RAY

INDIAN INSTITUTE OF MANAGEMENT TRAINING

EL-39/5, MIDC, BHOSARI, NEAR INDRAYANI NAGRAR PUNE-411026 2008-10

ACKNOWLEDGEMENT I am thankful to ‘Angel Broking ltd’ Pune, for giving me an opportunity to do my internship in their esteemed organization. I am thankful to Mr. Mudassar Maner Assistant unit manager, for providing help in order to carry out the project. I take this opportunity to express my deep sense of gratitude to my project guide Mr. Ratikanta Ray, course coordinator Mrs. Vanita Kaur and academic Director Mr. S. N. Tiwari. Thank you

Zubin Firoz Parekh

DECLARATION

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I Zubin Parekh, hereby declare that all the Information furnished in this project report titled ’FUNDAMENTAL ANALYSIS OF BANKING STOCKS’ carried out at ‘ANGEL BROKING LTD’ is my original work containing authentic facts and figures.

This piece of work is only submitted to Indian Institute of Management Training, in partial fulfillment of PGDBM Course.

DATE: PLACE: PUNE

Zub in Firoz Parekh

PREFACE The project “FUNDAMENTAL ANALYSIS OF BANKING STOCKS” being carried out for ANGEL BROKING LTD, For analyzing investment opportunities available in banking stocks listed on stock exchange for long term prospect to the investors.

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As with the most analysis, the goal of the fundamental analysis is to derive a forecast and profit from the future price movements of stock price.

At company level, the fundamental analysis involves examination of the financial data, management, business concept and competition. At the industry level, there might be an examination of the supply and demand forces for the product offered. For the national economy, the fundamental analysis might focus on economic data to assess the present and future growth of the economy.

The fundamental analysis combines economic, industry and company analysis to derive a stock’s current fair value and forecast future value. If fair value is not equal to current stock price, the researcher believes that the stock is either over or under valued and the market price will gravitate towards fair value.

TABLE OF CONTENTS SR. NO.

CHAPTERS

PAGE NO.

1

Introduction 1.1 About the organization 1.2 About the topic 1.3 Aim of the study 4

6 13 14

1.4 Objective of the study 1.5 Scope of the study 2

3

4

5 6

15 16

Research Methodology

2.1 Method of data collection 2.2 Sample of study 2.3 Hypothesis 2.4 About Questionnaire 2.5 Data analysis Data analysis And Interpretation 3.1 Indian Economy 3.2 Banking Sector 3.3 Company Analysis Conclusions, Suggestion And Recommendation 4.1 Conclusions 4.2 Suggestion 4.3 Recommendation Bibliography Annexure Questionnaire

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19 20 21 22 23 31 39 47 65 66 67 69 72

1.1About The Organization Angel Broking's tryst with excellence in customer relations began in 1987. Today, Angel has emerged as one of the most respected Stock-Broking and Wealth Management Companies in India. With its unique retail-focused stock trading business model, Angel is committed to providing ‘Real Value for Money’ to all its clients. The Angel Group is a member of the Bombay Stock Exchange (BSE), National Stock Exchange (NSE) and the two leading Commodity Exchanges in the country: NCDEX & MCX. Angel is also registered as a Depository Participant with CDSL. It is the only 100% retail stock broking house offering a gamut of retail centric services like: ► E-broking, ► Investment Advisory, ► Wealth Management Services, ► Portfolio Management Services & ► Commodities The Angel Group of Companies was brought to life by Mr. Dinesh Thakkar. He ventured into stock trading with an intention to raise capital for his own independent enterprise. However, he recognised the opportunity offered by the stock market to serve individual investors. Thus India’s first retail-focused stock-broking house was established in 1987. Under his leadership, Angel became the first broking house to embrace new technology for faster, more effective and affordable services to retail investors. The Angel group is managed by a team of 5100+ direct employees. It has a nationwide network comprising 21 Regional centers, 175 branches, 3 PCG (Private Client Group), 6810+ registered sub brokers and business associates and 12720+ active trading terminals which cater to the requirements of 589700+ retail clients. Angel Broking has been awarded the prestigious ‘Major Volume Driver’ award consecutively for 5 years, from 2005 to 2009 from Bombay stock exchange of India .

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Central Support & Registered Office: G-1, Akurti Trade centre, Road No-7, MIDC, Marol, Andheri (E) Mumbai- 40093.

Corporate Office: 612, Acme Plaza, M.V.Road, Opp. Sangam Cinema, Andheri (E), Mumbai -4000059.

Regional Offices: (1) Ahmedabad (2) Bangaluru (3) Chennai (4) Hyderabad (5) Indore

(6) Lucknow (7) Jaipur (8) Kanpur (9) Kolkata (10) Surat

(11) Rajkot (12) Nashik (13) New Delhi (14) Pune (15) Visakhapatnam

Private Client Group Offices: (1) Ahmedabad (2) Surat (3) Mumbai

Sub-Broker Marketing Office: Acme Plaza, M.V.Road Andheri (E), Mumbai.

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Angel Group of Companies: Angel Broking Ltd. Member on the BSE and Depository Participant with CDSL Angel Capital & Debt Market Ltd. Membership on the NSE Cash and Futures & Options Segment Angel Commodities Broking Ltd. Member on the NCDEX & MCX Angel Securities Ltd. Member on the BSE

Angel’s Moto: To have complete harmony between quality-in process and continuous improvement to deliver exceptional service that will delight our Customers and Clients.

Angel’s Business Philosophy: ●Ethical practices & transparency in all our dealings ●Customers interest above our own ●Always deliver what we promise ●Effective cost management

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Angel’s CRM Policy: Customer is king “A Customer is the most Important Visitor on our premises. He is not dependent on us, but we are dependent on him. He is not an interruption in our work. He is the purpose of it. He is not an outsider in our business. He is part of it. We are not doing him a favour by serving him. He is doing us a favour by giving us an opportunity to do so.” - Mahatma Gandhi

Angel’s Quality Assurance Policy: We are committed to providing world-class products and services which exceed the expectations of our customers, achieved by teamwork and a process of continuous improvement.

Angel’s Online Trading Software: Angel Broking has four unique Products to suit Individual needs

Angel Investor

Angel Trade

Angel Diet

Angel Anywhere

Browser based Static rates refresh

Browser based Streaming quotes

Application based Streaming quotes

Application based Streaming quotes

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that works behind most of the firewalls 4 exchanges on single screen Suitable for Investors For people who invest infrequently with a long term perspective and who do not need to check the rates constantly

4 exchanges on single screen Suitable for Investors & Traders For frequent investors & traders who wants to access markets from different terminals

4 exchanges on single screen Suitable for Traders

BSE & NSE on single screen Suitable for Traders

For day traders with high volumes & frequent trading

For traders with high volume and frequent trading, who are inclined towards trading based on charts & technical tools

Key People:

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Mr. Dinesh Thakkar Founder Chairman & Managing Director. He is among the first generation stock broker who is credited for conceptualizing and then subsequently promoting Angel Group in 1987. He was attracted towards the stock market due to its prospects of fast growth. He proved his skill and abilities through efficient trading of stocks by using advanced and innovative tools of technical analysis. He started his operation as a sub broker from a small office at Dalal Street with a client base of just around 25 clients and total staff strength of 3 employees. With his 100% focus on the retail clientele coupled with his expertise in investment advisory services, he has scaled much greater heights as is evident from its nationwide presence today. Today team Angel has over 5100+ direct employees. It has a nationwide network comprising 21 Regional centers, 175 branches, 3 PCG (Private Client Group), 6810+ registered sub brokers and business associates and 12720+ active trading terminals which cater to the requirements of 589700+ retail clients.

Mr. Lalit Thakkar Director- Research. Mr. Lalit Thakkar is the motivating force behind Angel’s highly acclaimed Research team. He’s been a part of the senior management team since the Angel Group’s inception. His technical and fundamental outlook has provided impetus to Angel’s market research team. Research-based & personalized advisory services are Angel’s forte, and Mr. Lalit Thakkar has undoubtedly been the brain behind it.

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1.2About The Topic The topic “FUNDAMENTAL ANALYSIS OF BANKING STOCKS LISTED ON INDIAN STOCK EXCHANGE” involves analyzing banks financial statements and health, its management and competitive advantages, and its competitors and markets. Fundamental analysis is performed on historical and present data, but with the goal of making financial forecasts. The objective of the analysis is to determine what stock to buy and at what price. Fundamental analysis maintains that markets may misprice a security in the short run but that the "correct" price will eventually be reached. Profits can be made by trading the mispriced security and then waiting for the market to recognize its "mistake" and reprice the security. Investors may use fundamental analysis within different portfolio management styles. 1) Buy and hold investors believe that latching onto good businesses allows the investor's

2)

3) 4)

5)

asset to grow with the business. Fundamental analysis lets them find 'good' companies, so they lower their risk and probability of wipe-out. Investor may use fundamental analysis to correctly value 'good' and 'bad' companies. Even 'bad' companies' stock goes up and down, creating opportunities for profits. Investor may also consider the economic cycle in determining whether conditions are 'right' to buy fundamentally suitable companies. Value investors restrict their attention to under-valued companies, believing that 'it's hard to fall out of a ditch'. The value comes from fundamental analysis. Investor may use fundamental analysis to determine future growth rates for buying high priced growth stocks.

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Investors can use either a top-down or bottom-up approach. 1)The top-down investor starts his analysis with global economics, including both international and national economic indicators, such as GDP growth rates, inflation, interest rates, exchange rates, productivity, and energy prices. He or she narrows his search down to industry analysis of total sales, price levels, the effects of competing products, foreign competition, and entry or exit from the industry. Only then does he narrow his search to the best business in that area i.e. the company analysis. 2) The bottom-up investor starts with specific businesses, regardless of their industry.

1.3 Aim of the study The aim of study of the Researcher is to research the “FUNDAMENTAL ANALYSIS OF BANKING STOCKS” at ‘ANGEL BROKING LTD’.

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1.4 Objective of the study 1) To know the current trend of Stock Market in India. 2) To study the performance of Banking Sector in India. 3) To obtain the knowledge about how to select the companies for investment by doing fundamental analysis. 4) To analyze the performance of Bank through examination of the financial data, management, business concept and competition. 5) To study the awareness of investors/traders about the banking stocks listed on Indian Stock exchange. 6) To understand about risk, return, volatility and liquidity attributes of different stocks of banks listed on stock exchange. 7) To understand and analyze the quality of assets, net interest margin (NIM), non performing assets (NPAs) and capital adequacy ratio (CAR) of the different banks listed on Stock exchange. 8) To predict the future trend of Indian stock Markets.

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1.5 Scope of the study 1) The Fundamental Analysis of Banking stocks are useful to researcher in order to analyze

the banking industry in India. It is useful in order to analyze banks financial statements and health, its management and competitive advantages, and its competitors and markets. 2) This report will help Angel Broking in order to provide the advice/tips regarding investments to their clients. 3) The study will help the fund managers of mutual fund companies in order to make investments in banking stocks for maximizing their schemes return. 4) The study will help the individual investors to make investments in banking stocks.

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What is research methodology? Research methodology comprises defining and redefining the problem, formulating hypothesis or suggestion solution, collecting, organizing and evaluating the data, making deduction and reaching to conclusions and determines whether the formulated hypothesis is right or wrong. The search for knowledge through objective and systematic method of finding solution to a problem is research. The systematic approach concerning generalization and the formulation of a theory is also research. As such the term research refers to the systematic method consisting of enunciating the problem, formulating a hypothesis, collecting the facts or data , analyzing, the facts and reaching certain conclusions either in the form of solutions towards the concerned problem or in certain generalizations for some theoretical formulation.

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2.1 Method of data collection The task of data collection begins after a research problem has been defined and research design plan chalked out. While deciding about the method of data collection to be used for the study, the researcher has kept in mind two types of data viz., primary and secondary. The primary data are those which are collected afresh and for the first time, and thus happen to be original in character. The secondary data, on the other hand, are those which have already been collected by someone else and which have already been passed through the statistical process.

Collection of Primary Data 1) Observation Method.

2) Questionnaires for investors. 3) Telephonic Interviews. 4) Live trading in the stock Market.

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Collection of Secondary Data 1) Websites like moneycontrol, angelbroking, etc 2) Magazines related to stock market like Dalal street, money life etc. 3) Various book related to stock market like Dalal Street investment journal’s ‘Stock market book’. 4) Book related to Securities analysis and portfolio management.

2.2 Sample of study The sample size of 50 was taken by the researcher, which included the investors, traders, research analyst and the employees of ‘Angel Broking’.

Type

No. of people

Investor Trader Research Analyst Employee of Angel Broking

40 04 01 05

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2.3 Hypothesis Hypothesis simply means a mere assumption or some supposition to be proved or disproved. But for the researcher hypothesis is a formal question that he intends to resolve. Thus a hypothesis may be defined as a proposition or a set forth as an explanation for the occurrence of some specified group of phenomena either asserted merely as a provisional conjecture to guide some investigation or accepted as highly probable in the light of established facts. Quite often a research hypothesis is a predictive statement, capable of being tested by scientific methods, that relates an independent variable to some dependent variable.

2.4 About Questionnaire 19

Collection of data through Questionnaire method is quite popular. In this method a questionnaire is sent to the persons or samples concerned with a request to answer the question and return the questionnaire. A questionnaire consists of a number of questions printed or typed in a definite order on a form or set of forms. The researcher with the help of his internal guide prepared a questionnaire having 20 statements. The type of questionnaire prepared was ‘close-ended’ and the answers were either ‘Yes’ or ‘No’ or ‘multiple choice’ type. The questions asked were easy to understand and in a proper sequence.

2.5 Data analysis The Data after collection has to be processed and analyzed in accordance with the outline laid down for the purpose drawn while developing the research plan. After analyzing the data, the researcher accomplished the task of drawing inferences followed by report writing. It is only through interpretation that the researcher can expose relations and process that underlie his findings. The researcher selected the stratified sampling method for the collecting the data for the observation. The sample was limited to 20 due to the time constraint. 20

RESEARCH STUDY OF INVESTOR. 1) Where do you invest your money? 50 people who replied to this question. Investment types

No. of respondents

Percentage

Stock market

10

20

Bank F.D

15

30

Mutual funds

20

40

Real estate

5

10

Total

50

100

Table. 1

No. of respondents

10%

20% Stock market Bank F.D Mutual

fund Real estates

40% 30%

Graph 1 Interpretation: From the above table & pie chart, it represent that only 20% of the respondent invest in Stock market & 40% in Mutual Funds,10% in Real estate and Bank F.D 30%.The chances of risk and 21

losses are maximum in the Stock Market & Mutual Funds. Even the returns are more in Stock Market, Mutual Funds and Real Estates but due to safety people prefer Bank F.D. 2) How will you decide a company for investment? Selection of company for investment

No. of Respondents

Percentage

Own Decision

5

10

Broker Advice

20

40

Speculation

10

20

Research Reports

15

30

50

100

Table 2 No. of Respondents

15%

20%

Own Decision Broker Advice Speculation Research Reports

25%

40%

Graph 2 Interpretation: From the above table & pie chart it represents that 40% of people take Advice of Broker for investment in stocks, and 20% of people invest on the basis of speculation, and 30% on basis of Research Reports by Technical analyst and 10% invest on their own decision. But many experts feel that if people invest money in stock market by Research Report then chances of profit is high and losses are minimum because Research Report give good suggestion and already they have calculated risk in stocks so it will be beneficial while investment. If investment on the basis of speculation the chances of losses are high and profits minimum. If the 22

investor do not have, knowledge of stock market so they should ask to the Broker who will advice in better way because these people have good knowledge about the markets. 3) What kind of trading you do?

Types of Trading

No. of Respondent

Percentage

Intra day

22

44

Short term

11

22

Medium Trading

5

10

Long term Trading

12

24

50

100

Table 3 No. of Respondent

24% 44%

Intra day Short term Medium Trading Long term Trading

10% 22%

Graph 3 Interpretation: From the above Graph & Pie chart it represent that 44% people do intraday trading in which the profit and risk both are high but many research suggest that it is always better to investment money in long term than short term or medium term or intraday. If we invest money on long-term basis then returns are good & the risk is minimum. Therefore, it is always good invest money for long-term basis.

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4) What are the factors you consider while selecting of company? Factor consider for selection of company

No. of Respondents

Percentage

Fundamental Analysis

22

44

Technical Analysis

15

30

Both

5

10

Speculation

8

16

50

100

Table 4

No. of Respondents

16% 44%

Fundamental Analysis Technical Analysis Both speculation

10% 30%

Graph 4

Interpretation: From the above Graph & Pie chart it represent that 44% of people take the help of fundamental research and 30% of people take the help of technical analysis by which the risk can be calculated and profit can be maximize. However, even that 16% of people invest on the basis of speculation, which is risky. 10%

people invest money by both (i.e.

fundamental and technical call) by which prediction can be good. 24

5) Where will you most prefer to invest your money? Most prefer companies

No. of Respondents

Percentage

Large cap

25

50

Mid cap

15

30

Small cap

10

20

50

100

Table 5

No. of Respondents

28% Large cap Mid cap Small cap

52% 20%

Graph 5 Interpretation: From the above Graph & table, we can say that 50% percent of people like to invest money in Blue Chips companies because the volumes of trading and good results are more. Therefore, the profit is more. Mid cap and small, give minimum profit than blue chips or large cap. 6) Which sector you prefer the most for investments?

Like to invest in sectors I.T

No. of Respondent

Percentage

25

50

25

Banking

15

30

Others

10

20

50

100

Table 6

No. of Respondent

20%

I.T Banking 50%

30%

Others

Graph 6 Interpretation: From the above Graph & chart, we can say that 50% of people prefer I.T. Sector for investment because of the strong fundamentals and it have large market capitalization than others. After that, 30% of people prefer banking sector it has large market capitalization and after that, 20% people like to invest other companies.

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3.1 Indian Economy Indian Economy has covered a long ground since it was liberalized in 1991.In 2006, India was universally rated as the rapidly rising economic power in Asia, second only to China. Both India and China have now become not only powerful engines of growth in Asia but also drivers for the 27

world economic expansion. The economy of India is the twelfth largest in the world by market exchange rates and the fourth largest in the world by GDP measured on purchasing power parity (PPP) basis. India had prominently established itself as the world's second-fastest growing major economy. Agriculture is the predominant occupation in India, accounting for about 60% of employment. The service sector makes up a further 28% and industrial sector around 12%. For output, the agricultural sector accounts for 17% of GDP; the service and industrial sectors make up 54% and 29% respectively. Major agricultural products include rice, wheat, oilseed, cotton, jute, tea, sugarcane, potatoes, cattle, water buffalo, sheep, goats, poultry and fish. Major industries include textiles, chemicals, food processing, steel, transportation equipment, cement, mining, petroleum, machinery and software design.

The following factors are taken in order to analyze Indian economy 1. Economic growth 2. Inflation 3. Interest rate 4. Foreign exchange reserve 5. Foreign direct investments (FDI) 6. Foreign Institutional investors (FII) 7. Fiscal deficit 8. Political stability 9. Domestic saving rate 10. Foreign Exchange rates 11. Index of Industrial production 12. Balance of payment 13. Foreign Trade

1.Economic growth Economic growth decelerated in 2008-09 to 6.7 per cent. This represented a decline of 2.1 per cent from the average growth rate of 8.8 per cent in the previous five years (200304 to 2007-08). The five years of high growth has raised the expectations of the people. Few remember that during the preceding five-year period from 1998-99 to 2002-03 average growth was only 5.4 per cent, while the highest growth rate achieved during the period was 6.7 per cent (in 1998-99). Per capita GDP growth, a proxy for per capita 28

income, which broadly reflects the improvement in the income of the average person, grew by an estimated 4.6 per cent in 2008-09. Though this represents a substantial slowdown from the average growth of 7.3 per cent per annum during the previous five years, it is still significantly higher than the average 3.3 per cent per annum income growth during 1998-99 to 2002-03. The overall growth of GDP at factor cost at constant prices in 2008-09, as per revised estimates released by the Central Statistical Organization (CSO) (May 29, 2009) was 6.7 per cent. This is lower than the 7 per cent projection in the Mid-Year Review 2008-09 (Economic Division, Department of Economic Affairs (DEA), December 2008) and the advance estimate of 7.1 per cent, released subsequently by CSO in February 2009. With the CSO drastically reducing their estimate of GDP from agriculture (based on third advance estimates), and given that the DEA’s 7 per cent estimate assumed normal agricultural growth, it would have had to be adjusted for any shortfall. The growth of GDP at factor cost (at constant 1999-2000 prices) at 6.7 per cent in 2008-09 nevertheless represents a deceleration from high growth of 9.0 per cent and 9.7 per cent in 2007-08 and 2006-07 respectively.

2.Inflation A noteworthy development during the year was a sharp rise in Wholesale Price Index (WPI) inflation followed by an equally sharp fall, with the WPI inflation falling to unprecedented level of close to zero per cent by March 2009. This was driven largely by the rapid rise and equally rapid fall in global commodity prices during January 2008 to March 2009. Global food prices also went through a similar cycle, but have not declined to the same extent. Though domestic food prices are partially delinked from global prices, these global developments affected domestic prices to some extent. Domestic food price inflation, as measured by the WPI food sub-index, though declining, remains much higher than overall inflation. The inflation for the week ended 20th June 2009 was at ‐ 1.3%.

3.Interest rate The policy stance of the Reserve Bank of India (RBI) in the first half of the year was oriented towards controlling monetary expansion, in view of the apparent link between monetary expansion and inflationary expectations partly due to the perceived liquidity overhang. In the first six months of 2008-09, year-on-year growth of broad money was lower than the growth of reserve money, The Government also took various fiscal and administrative measures during the first half of 2008-09 to rein in inflation. The RBI responded to the emergent situation by facilitating monetary expansion

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through decreases in the CRR, repo and reverse repo rates, and the statutory liquidity ratio (SLR). The repo rate was reduced by 400 basis points in five tranches from 9.0 in August 2008 to 5.0 per cent beginning March 5, 2009. The reverse-repo rate was lowered by 250 basis points in three tranches from 6.0 (as was prevalent in November 2008) to 3.5 per cent from March 5, 2009. The reverse-repo and repo rates were again reduced by 25 basis points each with effect from April 21, 2009. SLR was lowered by 100 basis points from 25 per cent of net demand and time liabilities (NDTL) to 24 per cent with effect from the fortnight beginning November 8, 2008. The CRR was lowered by 400 basis points in four tranches from 9.0 to 5.0 per cent with effect from January 17, 2009. The average PLR was 12.5 per cent in April 2008, it increased to 13.9 per cent in September 2008 and thereafter declined to 12.0 per cent in March 2009.

4. Foreign exchange rate The surge in the supply of foreign currency in the domestic market led inevitably to a rise in the price of the rupee. The rupee gradually appreciated from Rs. 46.54 per US dollar in August 2006 to Rs. 39.37 in January 2008, a movement that had begun to affect profitability and competitiveness of the export sector. The global financial crisis however reversed the rupee appreciation and after the end of positive shock around January 2008, rupee began a slow decline. A major factor, which affected the emerging economies almost simultaneously, was the unwinding of stock positions by the FIIs to replenish cash balances abroad. The decline in rupee became more pronounced after the fall of Lehman Brothers in September 2008, requiring RBI intervention to reduce volatility. It is pertinent to note that a substantial part of the movement in the rupee-US dollar rate during this period has been a reflection of the movement of the dollar against a basket of currencies. The rupee stabilized after October 2008, with some volatility. With signs of recovery and return of FII flows after March 2009, rupee has again been strengthening against US dollar. For the year as a whole, the nominal value of the rupee declined from Rs. 40.36 per US dollar in March 2008 to Rs. 51.23 per US dollar in March 2009, reflecting a 21.2 per cent depreciation during the fiscal 2008-09. The exchange rate was Rs. 51.20 per US dollar in March 2009. The annual average exchange rate during 2008-09 worked out to Rs. 45.99 per US dollar compared to Rs. 40.26 per US dollar in 2007-08.

5.Foreign direct investments (FDI) During 2008-09, the total FDI equity inflows stood at Rs. 1,22,919 crore (US$ 27,309 million) against Rs. 98,664 crore (US$ 24,579 million) during 2007-08 signifying a growth of 25 per cent in terms of rupee and 11 per cent in terms of US dollar. The distribution of FDI within the industrial sector between mining, manufacturing, electricity and construction.

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Sectors attracting highest FDI flows (Rs. crore) Sector

2007-08

2008-09

Change (per cent) in 2008-09

Services Housing & real estate Telecommunications Construction Computer software & hardware Automobiles Power

26589.3 8749.3 5102.6 6 989.3 5623.3 2697.0 3877.5

28410.7 12621.2 11726.9 8791.9 7328.5 5211.7 4381.8

6.9 44.3 129.8 25.8 30.3 93.2 13.0

Metallurgical industries Information & broadcasting Chemicals (except fertilizers) Grand total all FDI equity flows

4686.0 1290.3 917.6 98664

4156.7 3492.4 3427.1 122919

-11.3 170.7 273.5 24.6

6.Foreign Institutional investors (FII) Portfolio investment includes foreign institutional investors (FIIs) investment, issue of global depository receipts (GDRs)/American depository receipts (ADRs) and offshore funds. Net portfolio inflows into India was US$ 7.0 billion in 2006-07 and US$ 29.4 billion in 200708. Portfolio investment by FIIs however witnessed large net outflows of US$ 12.4 billion during April-December 2008 (as against net inflows of US$ 24.5 billion in April-December 2007) due to large scale sale of equities by FIIs in the Indian stock market. As per data available for the full year 2008-09, FII outflows amounted to US$ 15 billion vis-à-vis net inflow of US$ 20.3 billion during the year 2007-08. The FII flows have exhibited significant volatility as measured by the ratio of net inflows to total inflows during 2003-04 to 2008-09. It remained in the range of 6.4 per cent to 40.2 per cent. During April-December 2008, net inflows turned negative while the total inflows were sizeable at US$ 109.9 billion.

6.Fiscal deficit From a macroeconomic perspective, low levels of budget deficits and public debt are generally considered as key ingredients for economic growth, reducing poverty and improving social outcomes. This owes to the stabilization models attributing resourceexpenditure imbalances as the trigger for economic problems of many emerging/developing economies. The fiscal reforms initiated in 1990s as a part of economic liberalization reflected this view point. Fiscal consolidation began in the early 1990s with fiscal deficit declining from 6.6 per cent of GDP in 1990-91 to 4.1 per cent of GDP in 1996-97; however it faltered and started deteriorating in 1997- 98 and reached a level of 6.2 per cent of GDP in 2001-02. It was 31

against this background, that operationalization of the Fiscal Responsibility and Budget Management Act of 2003 (FRBMA) assumed urgency leading to the notification of the Rules under the Act in July, 2004. In the post-FRBMA period, progress in fiscal consolidation was more or less close to the targets envisaged there under. With the release of provisional actual data on expenditure for the Union Government for 2008-09 and the revised estimates of GDP at market prices for 2008-09, the fiscal deficit to GDP ratio for 2008- 09 works out to 6.2 per cent, while the revenue and primary deficit are estimated to be 4.6 per cent and 2.6 per cent respectively. Consequently, the fiscal measures taken together provided a fiscal stimulus of about 3.5 per cent of GDP. Further, below the line items can also be said to have contributed a stimulus of about 1.3 per cent of GDP, even though these merely offset the effect of the increase in the prices of oil and fertilizer imports on domestic income and demand. The revenue and expenditure sides in the Interim Budget 2009-10, which was presented on February 16, 2009, were conditioned by the foregoing developments. Fiscal deficit for 2009-10 was estimated to go up to 5.5 per cent of GDP, thus providing a continuing stimulus, relative to 2008-09, of 2.8 per cent of GDP.

8. Domestic saving rate A notable feature of the growth of the Indian economy from 2002-03 has been the rising trend in the gross domestic capital formation (GDCF). Gross capital formation (GCF), which was 25.2 per cent of the GDP in 2002-03, increased to 39.1 per cent in 2007-08. Much of this increase is attributable to a rise in the rate of investment by the corporate sector. The rise in the rate of investment has been on account of various factors, the most important being the transformation in the investment climate, coupled with an optimistic outlook for the growth prospects for the Indian economy. The growth in capital formation in recent years has been amply supported by a rise in the savings rate. The gross domestic savings as a percentage of GDP at current market prices stood at 37.7 per cent in 2007-08 as compared to 29.8 per cent in 2003-04. Private sector savings dominated Rs. 17,097 in 2007-08. While there has been an increase in levels of per capita income and consumption, there has been a perceptible slowdown in their growth rate (Figure 1.1). The growth in per capita GDP decelerated from 8.1 per cent in 2006- 07 to 4.6 per cent in 2008-09, while the per capita consumption growth declined from 6.9 per cent in 2007-08 to 1.4 per cent in 2008-09.

9.Foreign exchange reserve Foreign exchange reserves are an important component of the balance of payments and an essential element in the analysis of an economy's external position. The level of India's foreign exchange reserves comprising foreign currency assets (FCA), gold, SDRs and reserve tranche position (RTP) in the IMF, which had touched a low of US$ 5.8 billion at end-March 1991, peaked at US$ 314.6 billion at end-May 2008. The reserves declined thereafter to US$ 247.7 32

billion at the end of November 2008 and were at US$ 252.0 billion at the end of March 2009. Fallout of the global crisis and strengthening of the US dollar vis-à-vis other international currencies has been responsible for the decline. The foreign exchange reserves stood at US$ 252 billion at end-March 2009.

10.

Index of Industrial production

Though the growth of the industrial sector started to slowdown in the first half of 2007-08, the overall growth during the year remained as high as 8.5 per cent. The industrial sector witnessed a sharp slowdown during 2008-09 as a consequence of successive shocks, the most important being the knock-on effects of the global financial crisis. The pace of slowdown accelerated in the second half of 2008-09 with the sudden worsening of the international financial situation and the global economic outlook. The year 2008-09 thus closed with the industrial growth at only 2.4 per cent as per the Index of Industrial Production (IIP). 11. Balance

of payment

The overall balance of payments (BoP) situation remained resilient in 2008-09 despite signs of strain in the capital and current accounts, due to the global crisis. During the first three quarters of 2008-09 (April-December 2008), the current account deficit (CAD) was US$ 36.5 billion (4.1 per cent of GDP) as against US$ 15.5 billion (1.8 per cent of GDP)for the corresponding period of 2007-08. The capital account balance declined significantly to US$ 16.09 billion (1.8 per cent of GDP) as compared to US$ 82.68 billion (9.8 per cent of GDP) during the corresponding period in 2007-08. A positive development was higher private transfers and software earnings and increase in nonresident deposit flows and foreign direct investment vis-à-vis the corresponding period last year. Higher FDI flows in 2008-09 were also a reflection of the confidence of foreign investors in the growth prospects of the Indian economy. Together with lower crude oil prices and decline in imports, the overall impact on the balance of payments was somewhat muted. This is reflected in reserve decline of only US$ 20.4 billion on BoP basis (excluding valuation change) during 2008-09 (April-December 2008). The total foreign currency assets (FCA) had declined from US$ 299.2 billion on 31.3.2008 to US$ 241.4 billion on 31.3.2009, reflecting a fall of US$ 57.8 billion. However, more than two-thirds of the decline in FCA was due to a valuation change i.e. appreciation of US dollar against the international currencies in which reserves is maintained. The foreign exchange reserves stood at US$ 252 billion at end-March 2009.

12.

Foreign Trade

The adverse effect of the global financial crisis was also felt on the export sector, first, on account of the drying up of international financing and trade credit, followed by a fall in global demand. During 2008-09, the growth in exports was robust till August 2008. However, in September 2008, export growth evinced a sharp dip and turned negative in October 2008 and remained negative till the end of the financial year. The continued decline in export growth was due to the recessionary trends in the developed markets where the demand had plummeted. For the year as a whole, the growth in merchandise exports during 2008-09 was 3.6 per cent in US 33

dollar terms and 16.9 per cent in rupee terms (compared to 28.9 per cent and 14.7 per cent respectively in 2007-08). The large difference in growth in terms of the US dollar and in terms of the rupee was on account of the depreciation of rupee vis-à-vis US dollar during the year. During the period (April-February) in 2008-09, the main drivers of exports growth were engineering goods and chemicals and related products. Petroleum products and textile exports witnessed a positive but low growth. However, handicrafts, primary products and gems and jewellery exports registered negative growth. The negative impact on the growth of India’s exports becomes more evident from the fact that merchandise exports to the United States, which was the largest market, declined by 1.6 per cent during 2008-09 (April-February). On the other hand, merchandise exports to Asia (including ASEAN) grew by 6.9 per cent and to Europe by 10.2 per cent during this period. India’s merchandise exports to South Asian countries also declined by 5.2 per cent. Import growth began to decline from October 2008 (with one month lag from the decline in export growth) and was negative over the period January to March 2009. For the year as a whole i.e. 2008-09, the overall import growth was subdued at 14.4 per cent in US dollar terms and 29 per cent in rupee terms. Growth in POL and non-POL imports was 16.9 per cent and 13.2 per cent respectively (in US dollar terms). During 2008-09 (April-February) fertilizers and edible oils registered high import growth to meet domestic demand. The growth in the imports of POL was high in the first half of the year due to the unusually high prices but moderated in the second half of the year. The trade deficit increased from US$ 88.5 billion (as per customs data) in 200708 to US$ 119.1 billion in 2008-09. The impact of global recession was relatively less on India’s services exports till December 2008, though the growth rate of services export moderated to 16.3 per cent during AprilDecember 2008-09. A negative growth in insurance and a sharp fall in the growth of travel services was registered during this period. Software services grew at 26 per cent, while financial services registered a robust growth of 45.7 per cent despite the global financial crisis and fall in growth rate in world financial services exports. Business services growth was, however at a lower rate of 3.9 per cent.

34

3.2 Banking Sector Banking in India has its origin as early as the Vedic period. It is believed that the transition from money lending to banking must have occurred before Manu, the great Hindu jurist, who has devoted a section of his work to deposits and advances and laid down the rules relating to rates of interest. During the Mogul period, the indigenous bankers played a very important role in lending money and financing foreign trade and commerce. During the days of the East India Company, it was the turn of the agency houses to carry on the banking business. The General Bank of India was the first joint stock Bank to be established in the year 1786. The others which followed were the Bank of Hindustan and the Bengal Bank. The bank of Hindustan is reported to have continued till 1906 while the other two failed in the meantime. In the first half of the 19th century the East India Company established three banks; the Bank of Bengal in 1809, the Bank of Bombay in 1840 and the Bank of Madras in 1843. These three banks also known as Presidency Banks; were independent units and functioned well. These three banks were amalgamated in 1920 and a new bank, the Imperial Bank of India was established on 27th January 1921. With the passing of The State bank of India act in 1955 the undertaking of the Imperial Bank of India was taken over by the newly constituted State Bank of India. The Reserve Bank which is the central bank was created in 1935 by passing Reserve Bank of India act 1934. In the wake of the Swadeshi Movement, a number of banks with Indian management were established in the country mainly, Punjab National Bank Ltd., Bank of India 35

Ltd., Canara Bank Ltd., Indian Bank Ltd., The Bank of Baroda ltd., The Central Bank of India Ltd. On July 19,1969,14 major banks of the country were nationalized and on 15th April 1980 six more commercial privet sector banks were also taken over by the Government. Today the commercial banking system in India may be distinguished into

Public sector banks a. State Bank of India and its associate banks called the State bank Group b. 20 nationalized banks c. Region Rural Banks mainly sponsored by Public sector Banks

Private Sector Banks a. b. c. d. e.

Old generation private Banks New Generation Banks Foreign Banks in India Scheduled Co-operative Banks Non-scheduled Banks

Co-operative Sector

a. State co-operative Banks b. Central co-operative Banks c. Primary Agriculture Credit Societies d. Land Development Banks e. Urban co-operative Banks. f. Primary Agriculture Development Banks g. Primary Land Development Banks h. State Land Development Banks.

Development Banks a. Industrial Finance Corporation of India (IFCI) b. Industrial Development Bank of India (IDBi) c. Industrial Credit and Investment Corporation of India (ICICI) d. Small Industries Development Bank of India (SIDBI) e. SCICI Ltd. f. National Bank for Agriculture and Rural Development (NABARD) g. Export Import Bank of India h. National housing Bank. Currently, overall, banking in India is considered as fairly mature in terms of supply, product range and reach-even though reach in rural India still remains a challenge for the private sector and foreign banks. Even in the terms of quality of assets and capital adequacy, Indian banks are considered to have clean, strong and transparent balance sheet as compared to other banks in comparable economies.

36

The public sector banks hold over 75% of total assets of the banking industry, with the private and foreign banks holding 18.2% and 6.5% respectively. The total deposits increased 32.6 times between 1971 to 1991 compared to 7 times between 1951 to 1971. Despite an increase of rural branches, from 1,860 or 22% of the total number of branches in 1969 to 32,270 or 48%, only 32,270 out of 5 lakh (500,000) villages are covered by a scheduled bank. Currently India has 88 scheduled commercial bank (SCBs), 27 public sector banks (that is with the Government of India holding a stake), 30 private banks and 40 foreign banks. They have combined network of 53,000 branches and 17,000 ATMs.

37

Major Reform in Banking Sector 38

Some of the major reform initiatives in the last decade that have changed the Face of the Indian banking and financial sector are ● Interest rate deregulation, Interest rates on deposits and lending have been deregulated with banks enjoying greater freedom to determine their rates. ● Adoption of prudential norms in terms of capital adequacy, asset classification, income recognition, provisioning, exposure limits, investment fluctuation reserve, etc. ● Reduction in reserve requirements (SLR and CRR), thus releasing more lendable resources which banks can deploy profitably. ● Government equity in banks has been reduced and strong banks have been allowed to access the capital market for raising additional capital. ● Banks now enjoy greater operational freedom in terms of opening and swapping of branches, and banks with a good track record of profitability have greater flexibility in the recruitment. ● New private sector banks have been set up and foreign banks permitted to expand their operations in India including through subsidiaries. Banks have also been allowed to set up Offshore Banking Units in Special Economic Zones. ● New areas have been opened up for bank financing: insurance, credit cards, Infrastructure financing, leasing, gold banking, besides of course investment banking, asset management, factoring, depository services etc. ● New instruments have been introduced for greater flexibility and better risk management: e.g. interest rate swaps, forward rate agreements, cross currency forward contracts, forward cover to hedge inflows under foreign direct investment, liquidity adjustment facility for meeting day-today liquidity mismatch. ● Universal Banking has been introduced. With banks permitted to diversify into long-term finance and DFIs into working capital, guidelines have been put in place for the Evolution of universal banks in an orderly fashion. ● Adoption of global standards. Prudential norms for capital adequacy, asset classification, income recognition and provisioning are now close to global standards. RBI has introduced Risk Based Supervision of banks (against the traditional transaction based approach). Best international practices in accounting systems, corporate governance, payment and settlement systems, etc. are being adopted. ● The limit for foreign direct investment in private banks has been increased from 49% to 74% and the 10% cap on voting rights has been removed. In addition, the limit for Foreign institutional investment in private banks is 49%. 39

● RBI guidelines have been issued for putting in place risk management systems in banks. Risk Management Committees in banks address credit risk, market risk and operational risk. Banks have specialized committees to measure and monitor various risks and have been upgrading their risk management skills and systems.

Bank Credit Bank credit to productive sectors of the economy has a critical role in sustaining the growth process. While the spread of banking network is a continuous process, the effectiveness of the banking network also depends on the expansion in the scale of operations and the deepening of the credit facilities. The total assets of the scheduled commercial banks (SCBs) have increased from a level of Rs. 3.46 million on March 31, 2007 to Rs. 4.33 million on March 31, 2008. All categories, namely, public sector banks, old private sector banks, new private sector banks and foreign banks have increased their asset base. The first six months of the financial year 2008-09 witnessed inflationary pressures in the Indian economy with RBI continuing to address monetary expansion through revisions in policy rates. The second half of 2008-09 was however a period when the RBI initially took steps to ease the liquidity crunch in the money market in September /October 2008, followed up with steps to facilitate continued credit flows to the productive sectors of the economy. Reduction in policy rates were also announced to enhance the liquidity in the system and for reducing the cost of credit to business and industry. During 2008-09 (March 27, 2009 over March 28, 2008), there was a moderation in the credit growth of SCBs to 17.3 per cent from a level of 22.3 percent in the corresponding period of the previous year. In terms of absolute values also, the slowdown was noticeable, in as much as the expansion in bank credit during 2007-08 was of the order of Rs. 4,30,724 crore which decelerated to Rs. 4,08,099 crore in 2008-09. Non-food credit growth as at end-March 2009 grew by 17.5 per cent as compared to 23.0 per cent growth as at end-March 2008.

Credit-Deposit (C-D RATIO) The behavior of the credit-deposit (C-D) ratio also reflected the changes in the monetary sector; C-D ratio which was at 73.9 as of March 31, 2007, marginally declined to 73.8 as of March 31, 2008. In 2008-09, it peaked to 75.2 as of October 10, 2008, but declined thereafter. It stood at 72.3 as of March 27, 2009.

40

Statutory liquidity ratio (SLR) Investment by SCBs in statutory liquidity ratio (SLR) securities as per cent of their net demand and time liabilities (NDTL) continued to be higher than the stipulated level. As compared to the level of 27.8 per cent at end-March 2008, it increased to a level of 28.1 per cent at end-March 2009. As per information from RBI, after adjusting for Liquidity Adjustment Facility (LAF) collateral securities on an outstanding basis, the scheduled commercial banks’ holding of SLR securities amounted to 26.7 per cent of NDTL, at end-March 2009, which was higher than the prescribed 24.0 per cent level.

Investment-deposit ratio The investment-deposit ratio at 34.02 as of March 31, 2006 decreased to 30.3 as of March 31, 2007 and marginally increased to 30.4 on March 31, 2008. During 2008-09, the investmentdeposit ratio peaked to 31.8 on February 13, 2009 and declined thereafter to 30.4 as of March 27, 2009.

Spread Interest rate income or spread defined as the difference between interest income and interest expenses of SCBs as a proportion of total assets could serve as a measure of the cost of financial intermediation. High interest rate spreads could be indicative of the level of efficiency of the financial intermediation and also a relatively less competitive Market. Net interest income or spread was 23 basis points lower at 2.35 per cent during 2007-08 compared to 2.58 per cent in 2006-07. Highest spread during 2007-08 at 3.79 per cent was observed in respect of foreign banks followed by old private banks (2.43 per cent), new private banks (2.40 per cent) and public sector banks (2.15 per cent)

Non-performing assets (NPAs) The gross non-performing assets of SCBs, as proportion of total assets declined to 1.3 per cent during 2007-08 compared to 1.5 per cent during 2006-07. While this decline reflected an improvement, in terms of quantum of funds, the situation depicted a different picture. During 2006-07 the amount recovered and written off (Rs. 26,243 crore) was more than the fresh addition (Rs. 26,211 crore) of NPAs. In contrast, during 2007-08 the amount recovered and written off (Rs. 28,090 crore) was significantly less than the fresh addition (Rs. 34,420 crore) of NPAs. Gross NPAs of SCBs, which had declined by Rs. 611 crore in 2006-07, increased by Rs. 5,949 crore in 2007-08. During 2007-08 a total of 1,86,535 cases for NPA recoveries were referred to the Lok Adalat for an amount of Rs. 2,142 crore of which 8.2 per cent was recovered. A total of 83,942 cases for NPA recoveries were referred under the SARFESI Act for an amount of Rs. 41

7,263 crore of which 61 per cent was recovered. A total of only 3,728 cases for NPA recoveries were referred to the Debt Recovery Tribunals for an amount of Rs. 5,819 crore of which 51.9 per cent was recovered

Capital adequacy ratio To prepare banks for the implementation of BASEL-II norms, a three-track approach has been adopted with regard to capital adequacy rules. On the first track, commercial banks are required to maintain capital for both credit and market risks as per BASEL-I framework; on the second track, the cooperative banks are required to maintain capital for credit risk as per BASEL-I framework and through surrogates for market risk; and the RRBs, on the third track, have to maintain minimum capital which may not be on par with BASEL-I norms. With the introduction of stiffer prudential norms by the RBI for maintaining quality of credit necessitated due to the rapid increase in credit expansion by SCBs in the system, risk-weighted assets of SCBs at the end-March 2008 increased to Rs. 31,28,093 crore from Rs. 24,12,236 crore at end- March 2007. Concomitantly, capital funds of SCBs kept pace with the risk-weighted assets and increased to Rs. 4,06,835 crore at end-March 2008 from the level of Rs. 2,96,191 crore at end-March 2007. The capital to risk-weighted assets ratio (CRAR) during 2007-08 increased from 12.3 per cent as of end-March 2007 to 13.0 per cent as of end- March 2008. CRAR for foreign and new private sector banks was at 13.1 per cent and 14.4 per cent respectively as of end-March 2008 compared to 12.4 per cent and 12.0 per cent respectively as of end- March 2007.

Technology Banks incur large amounts of expenditure on computerization, automation and development of communication network. The cumulative expenditure during September 1999 to March 2008 was Rs. 15,016 crore. These help in changing the image and outlook of banking sector significantly by improving the processes and procedures, rapid product development through alternative delivery channels, reduction in the transaction costs and eventually leading to higher productivity. The technology is also being leveraged to expand the banking outreach particularly to rural areas. The number of branches providing “core banking solutions” (CBS) rose rapidly to 67.0 per cent as of end-March 2008 from 44.4 per cent at end-March 2007. The number of automated teller machines (ATMs) at the end-March 2008 was 34,789 compared to 27,088 at end-March 2007.

42

3.3 Company Analysis For company analysis the researcher has taken three companies, One Bank from public sector and two Banks from private sector. These Banks have sizeable share of the Indian Banking Industry.

43

3.3.1 Punjab National Bank Ltd (PNB). Indust Finance - Banks –Public ry Sector CMP: RS 640 Rs 750 Market Cap (Rs cr): 20,151 Rs 10 Dividend: value: Rs 416

BSE Code: 532461 NSE Code: PNBEQ Target Price: Face value: Book

Fifty Two Week High Low stock price Exchange Name

High (Rs.)

High Date

Low (Rs.)

Low Date

NSE

725.00

19/05/2009

286.00

06/03/2009

BSE

717.00

19/05/2009

286.20

06/03/2009

Company Background

Punjab National Bank (PNB), was registered on May 19, 1894 under the Indian Companies Act with its office in Anarkali Bazaar Lahore. The Bank is the second largest government-owned commercial bank in India with about 4,500 branches across 764 cities. It serves over 37 million customers. The bank has been ranked 248th biggest bank in the world by Bankers Almanac, London. The bank's total assets for financial year 2007 were about US$60 billion. PNB has a banking subsidiary in the UK, as well as branches in Hong Kong and Kabul, and representative offices in Almaty, Shanghai, and Dubai. PNB commenced its operations in Lahore. PNB has the distinction of being the first Indian bank to have been started solely with Indian capital that has survived to the present. (The first entirely Indian bank, the Oudh Commercial Bank, was established in 1881 in Faizabad, but failed in 1958.) PNB's founders included several leaders of the Swadeshi movement such as Dyal Singh Majithia and Lala HarKishen Lal, Lala Lalchand, Shri Kali Prosanna Roy, Shri E.C. Jessawala, Shri Prabhu Dayal, Bakshi Jaishi Ram, and Lala Dholan Dass. Lala Lajpat Rai was actively associated with the management of the Bank in its early years

44

Key Officials Name Gautam P Khandelwal M L Bagga

Designation Director Director

Income statement.

45

Balance Sheet for the last 5 years. (Rs in Cr.) Mar ' 09

Mar ' 08

Mar ' 07

Mar ' 06

Mar ' 05

315.30 0.00 0.00 12,824.59

315.30 0.00 0.00 10,467.35

315.30 0.00 0.00 9,826.31

315.30 0.00 0.00 8,758.68

315.30 0.00 0.00 7,533.50

209,760.50 4,374.36 18,130.13 245,404.88

166,457.23 5,446.56 14,798.23 197,484.67

139,859.67 1,948.86 10,178.51 162,128.65

119,684.92 6,687.18 9,518.93 144,965.01

103,166.89 2,718.29 12,194.80 125,928.78

CAPITAL & LIABILITIES Owners' Fund Equity Share Capital Share Application Money Preference Share Capital Reserves & Surplus Loan Funds Deposits Borrowings made by the bank Other Liabilities & Provisions Total

46

ASSETS Cash & Balances with RBI

17,058.25

15,258.15

12,372.03

23,394.56

9,460.20

4,354.89

3,572.57

3,273.49

1,397.14

1,628.83

63,385.18

53,991.71

45,189.84

41,055.31

50,672.83

154,702.99

119,501.57

96,596.52

74,627.37

60,412.75

Fixed Assets Gross Block Less: Revaluation Reserve Less: Accumulated Depreciation Net Block Capital Work-in-progress

3,930.36 1,513.74 1,533.25 883.37 0.00

3,699.64 1,535.70 1,384.12 779.83 0.00

2,247.74 293.85 1,237.92 715.98 0.00

2,106.92 302.38 1,076.69 727.84 0.00

1,875.65 312.49 910.42 652.74 0.00

Other Assets

5,020.20

4,380.84

3,980.80

3,762.79

3,101.44

0.00 245,404.88

0.00 197,484.67

0.00 162,128.66

0.00 144,965.01

0.00 125,928.79

111,212.07 0.00 0.00

104,055.87 0.00 0.00

74,700.48 0.00 0.00

58,739.31 0.00 0.00

47,047.19 0.00 0.00

Money at call and Short Notice Investments Advances

Miscellaneous Expenses not written off Total Note Contingent liabilities Book Value of Unquoted Investment Market Value of Quoted Investment

Key Ratios Y/E March (Rs cr) NII

FY2008

FY2009

FY2010E

FY2011E

5,534

7,01

8,326

9,608

% chg

0.4

27.0

18.4

15.4

Net Profit

2049

3091

3394

3800

% chg

33.0

50.9

9.8

12.0

NIM (%)

3.2

3.3

3.2

3.1

EPS(RS)

65

98

107.6

120.5

P/E Ratio(x)

9.8

6.5

5.9

5.3

P/BV

1.9

1.5

1.3

1.1

RoA(%)

1.1

1.4

1.2

1.2

RoNW

19.6

25.8

23.4

21.9

47

Valuation & Recommendation PNB is amongst the more profitable and competitive PSBs, with relatively Strong Earnings growth and RoE prospects.The positive outlook on the Bank due its superior CASA ratio and high core income component in Earnings. We believe the bank’s core competitiveness in retail deposits is underpinned by the relatively high Concentration of its business in rural areas, especially in North India, that are relatively Underpenetrated by other banks and we have a positive outlook on its aggressive Medium-term growth thrust in these areas. At CMP, the stock is trading at 5.3x FY2011E EPS of Rs120.5 and 1.1x FY2011E Adjusted Book Value of Rs597.4. maintain a BUY on the stock, with a revised 12-month Target Price of Rs750, implying an upside of 17%.

3.3.2 ICICI Bank Ltd. Indus : Finance - Banks - Private try Sector

BSE Code: 532174 NSE Code: ICICIBANKEQ

CMP: Rs 450 750 Market Cap (Rs cr): 48,149 Rs 10 Dividend: Rs 11 Book value: Rs 445

Target Price: Rs Face value:

Fifty Two Week High Low stock price Exchange Name

High (Rs.)

High Date

Low (Rs.)

Low Date

NSE

800.00

19/05/2009

252.30

06/03/2009

BSE

797.00

19/05/2009

252.75

06/03/2009

Company Background

ICICI Bank is India's second-largest bank with total assets of Rs. 3,793.01 billion (US$ 75 billion) at March 31, 2009 and profit after tax Rs. 37.58 billion for the year ended March 31, 2009. The Bank has a network of 1,463 branches and about 4,721 ATMs in India and presence in 18 countries. ICICI Bank offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and through its specialized subsidiaries and affiliates in the areas of investment banking, life and non-life insurance, venture capital and asset management. The Bank currently has subsidiaries in the United Kingdom, Russia and Canada, branches in United States, Singapore, Bahrain, Hong Kong, Sri Lanka, Qatar and Dubai International Finance Centre and representative offices in United Arab Emirates, China, South Africa, Bangladesh, Thailand, Malaysia and Indonesia. Our UK subsidiary has established branches in Belgium and Germany. 48

ICICI Bank was originally promoted in 1994 by ICICI Limited, an Indian financial institution, and was its wholly-owned subsidiary. ICICI's shareholding in ICICI Bank was reduced to 46% through a public offering of shares in India in fiscal 1998, an equity offering in the form of ADRs listed on the NYSE in fiscal 2000, ICICI Bank's acquisition of Bank of Madura Limited in an all-stock amalgamation in fiscal 2001, and secondary market sales by ICICI to institutional investors in fiscal 2001 and fiscal 2002. ICICI was formed in 1955 at the initiative of the World Bank, the Government of India and representatives of Indian industry. The principal objective was to create a development financial institution for providing medium-term and long-term project financing to Indian businesses. In the 1990s, ICICI transformed its business from a development financial institution offering only project finance to a diversified financial services group offering a wide variety of products and services, both directly and through a number of subsidiaries and affiliates like ICICI Bank. In 1999, ICICI become the first Indian company and the first bank or financial institution from non-Japan Asia to be listed on the NYSE.

Key People Name K V Kamath Chanda D Kochhar Sandeep Batra

Designation Non Executive Chairman Managing Director & CEO Group Compl. Officer & Co. Secretary

Income statement. 49

Balance Sheet for the last 5 years. (Rs in Cr.) Mar ' 09

Mar ' 08

Mar ' 07

Mar ' 06

Mar ' 05

1,113.29 0.00 350.00 48,419.73

1,112.68 0.00 350.00 45,357.53

899.34 0.00 350.00 23,413.92

889.83 0.00 350.00 21,316.16

736.75 0.02 350.00 11,813.20

CAPITAL & LIABILITIES Owners' Fund Equity Share Capital Share Application Money Preference Share Capital Reserves & Surplus

50

Loan Funds Deposits Borrowings made by the bank Other Liabilities & Provisions Total

218,347.82 67,323.69 43,746.43 379,300.96

244,431.05 65,648.43 42,895.38 399,795.07

230,510.19 51,256.03 38,228.64 344,658.12

165,083.17 38,521.91 25,227.88 251,388.95

99,818.78 33,544.50 21,396.16 167,659.41

ASSETS Cash & Balances with RBI

17,536.33

29,377.53

18,706.88

8,934.37

6,344.90

Money at call and Short Notice

12,430.23

8,663.60

18,414.45

8,105.85

6,585.07

Investments

103,058.31

111,454.34

91,257.84

71,547.39

50,487.35

Advances

208,090.41

215,060.94

188,614.01

143,029.89

88,991.76

7,443.71 0.00 3,642.09 3,801.62 0.00

7,036.00 0.00 2,927.11 4,108.90 0.00

6,298.56 0.00 2,375.14 3,923.42 189.66

5,968.57 0.00 1,987.85 3,980.71 147.94

5,525.65 0.00 1,487.61 4,038.04 96.30

34,384.06

31,129.77

23,551.85

15,642.79

11,115.99

0.00 379,300.96

0.00 399,795.08

0.00 344,658.11

0.00 251,388.94

0.00 167,659.41

840,670.63 0.00 0.00

401,114.91 0.00 0.00

199,771.41 0.00 0.00

134,920.99 0.00 0.00

107,311.46 0.00 0.00

Fixed Assets Gross Block Less: Revaluation Reserve Less: Accumulated Depreciation Net Block Capital Work-in-progress Other Assets Miscellaneous Expenses not written off Total Note Contingent liabilities Book Value of Unquoted Investment Market Value of Quoted Investment

Key Ratios Y/E March (Rs cr) NII

FY2008

FY2009

FY2010E

FY2011E

8,202

9,264

10,235

11,824

% chg

23.6

13.0

10.5

15.5

Net Profit

4,158

3,758

4,065

4,856

% chg

33.7

(9.6)

8.2

19.4

NIM (%)

2.4

2.6

2.6

2.9

EPS(RS)

37.4

33.8

36.5

43.6

P/E Ratio(x)

11.6

12.9

11.9

10.0

P/BV

1.0

1.0

1.0

0.9

RoA(%)

1.1

1.0

1.0

1.1

RoNW

11.7

7.9

8.2

9.3

51

Valuation & Recommendation At the CMP, the Bank’s Core Banking business (after adjusting Rs213 per share towards the value of the subsidiaries) is trading at 0.7x FY2010E ABV of Rs331. Including subsidiaries, the stock is trading at 1.0x FY2010E ABV of Rs434.3. The Bank’s Balance Sheet transformation, changed business strategy and strong franchise and leadership (Top 3 position) in not just Banking, but largely all its major Financial Services businesses represent substantial value, though it is likely to take a longer period to be unlocked. The Bank has a sound strategy in place that is being executed decisively and effectively. Centered around maintaining strong capital adequacy in the current environment, while building the necessary base for strong CASA mobilization going forward through branch expansion without diluting the current focus on stringent cost control measures, we believe that the strategy provides a margin of safety in the current environment and should result in an improved Balance Sheet mix and Profitability over the next two years, in time to capitalize on a revival in overall GDP growth. Having a total of955 branches at the end of 3QFY2008, the Bank has added almost 500 branches since then and an additional 580 additions are planned in the coming year. The Bank’s Capital Adequacy is also amongst the highest at 15.5%, with a substantial 11.8% Tier 1 capital. The Bank’s substantial branch expansion and large Capital Adequacy, especially on Tier 1 are a precursor to market share gains that will contribute to substantial Core business growth, though with a lag effect until the macro-environment starts improving again i.e. potentially 18-24 months hence. Meanwhile, the Bank has largely exited all its businesses outside its core competency including small-ticket personal loans in the Domestic Segment and most non-India related exposures in its International business (80% business of overseas subsidiaries and 90%in case of overseas branches is India-related), focusing again on replacing wholesale funds with retail deposits in the international subsidiaries as well. In the short term, while Asset quality deterioration remains a key concern, increased focus on Treasury as a profit centre as well as continued focus on cost controls should provide some support to the Bank’s P/L account. Maintain a Buy on the stock, with a Target Price of Rs750, Implying an upside of 60%.

52

3.3.3 HDFC Bank Ltd. Indus : Finance - Banks - Private try Sector

BSE Code : 500180 NSE Code:HDFCBANKEQ

CMP: Rs1095 Price: Rs 1500 Market Cap (Rs cr): 46,473 value: Rs 10 Dividend: Rs 10 Book value: Rs 344

Target Face

Fifty Two Week High Low stock price Exchange Name

High (Rs.)

High Date

Low (Rs.)

Low Date

NSE

1584.00

17/06/2009

774.00

06/03/2009

BSE

1580.00

17/06/2009

774.00

06/03/2009

Company Background

The Housing Development Finance Corporation Limited (HDFC) was amongst the first to receive an 'in principle' approval from the Reserve Bank of India (RBI) to set up a bank in the private sector, as part of the RBI's liberalization of the Indian Banking Industry in 1994. The bank was incorporated in August 1994 in the name of 'HDFC Bank Limited', with its registered office in Mumbai, India. HDFC Bank commenced operations as a Scheduled Commercial Bank in January 1995 Mr. Jagdish Capoor took over as the bank's Chairman in July 2001. Prior to this, Mr. Capoor was a Deputy Governor of the Reserve Bank of India.The Managing Director, Mr. Aditya Puri, has been a professional banker for over 25 years, and before joining HDFC Bank in 1994 was heading Citibank's operations in Malaysia.The Bank's Board of Directors is composed of eminent individuals with a wealth of experience in public policy, administration, industry and commercial banking. Senior executives representing HDFC are also on the Board. Senior banking professionals with substantial experience in India and abroad head various businesses and functions and report to the Managing Director. Given the professional expertise of the management team and the overall focus on recruiting and retaining the best talent in the industry, the bank believes that its people are a significant competitive strength.

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Key People Name Jagdish Capoor Aditya Puri Sanjay Dongre

Designation Chairman Managing Director Exe. Vice President (Legal) & Co. Secretary

Income statement.

54

Balance Sheet for the last 5 years.

55

(Rs in Cr.) Mar ' 09

Mar ' 08

Mar ' 07

Mar ' 06

Mar ' 05

425.38 400.92 0.00 14,226.43

354.43 0.00 0.00 11,142.80

319.39 0.00 0.00 6,113.76

313.14 0.07 0.00 4,986.39

309.88 0.43 0.00 4,209.97

142,811.58 2,685.84 22,720.62 183,270.77

100,768.60 4,478.86 16,431.91 133,176.60

68,297.94 2,815.39 13,689.13 91,235.61

55,796.82 4,560.48 7,849.49 73,506.39

36,354.25 5,290.01 5,264.46 51,429.00

13,527.21

12,553.18

5,182.48

3,306.61

2,650.13

3,979.41

2,225.16

3,971.40

3,612.39

1,823.87

Investments

58,817.55

49,393.54

30,564.80

28,393.96

19,349.81

Advances

98,883.05

63,426.90

46,944.78

35,061.26

25,566.30

Fixed Assets Gross Block Less: Revaluation Reserve Less: Accumulated Depreciation Net Block Capital Work-in-progress

3,956.63 0.00 2,249.90 1,706.73 0.00

2,386.99 0.00 1,211.86 1,175.13 0.00

1,917.56 0.00 950.89 966.67 0.00

1,589.47 0.00 734.39 855.08 0.00

1,290.51 0.00 582.19 708.32 0.00

Other Assets

6,356.83

4,402.69

3,605.48

2,277.09

1,330.57

0.00 183,270.78

0.00 133,176.60

0.00 91,235.61

0.00 73,506.39

0.00 51,429.00

414,533.93 0.00 0.00

599,928.79 0.00 0.00

209,338.61 0.00 0.00

144,137.86 0.00 0.00

89,928.65 0.00 0.00

CAPITAL & LIABILITIES Owners' Fund Equity Share Capital Share Application Money Preference Share Capital Reserves & Surplus Loan Funds Deposits Borrowings made by the bank Other Liabilities & Provisions Total ASSETS Cash & Balances with RBI Money at call and Short Notice

Miscellaneous Expenses not written off Total Note Contingent liabilities Book Value of Unquoted Investment Market Value of Quoted Investment

Key Ratios Y/E March (Rs cr) NII

FY2008

FY2009

FY2010E

FY2011E

5,228

7,421

9,284

11,592

% chg

40.9

42.0

25.1

24.9

Net Profit

1,590

2,245

2,916

3,514

% chg

39.3

41.2

29.9

20.5

NIM (%)

4.9

4.9

4.6

4.5

EPS(RS)

44.9

52.8

64.6

77.8

P/E Ratio(x)

30.4

25.8

21.1

17.5

56

P/BV

4.2

4.0

3.1

2.7

RoA(%)

1.4

1.4

1.4

1.3

RoNW

17.7

17.2

16.6

16.1

Valuation & Recommendation HDFC Bank is among the most competitive banks in the Indian Banking Sector and is poised to maintain its profitable growth over the long term. The Bank’s competitive advantages, driving gains in CASA market share and traction in multiple Fee Revenue streams, can support up to 5% higher core sustainable RoEs vis-à-vis Sectoral averages over the long term, creating a material margin of safety in our Target valuation multiples. At the CMP, the stock is trading at 17.3x FY2010E EPS of Rs63 and 2.5x FY2010E ABV of Rs445.Maintain a Buy on the stock, with a Target Price of Rs1500, implying an upside of 38%.

57

4.1 Conclusion 1) The current trend of Stock Market in India is fluctuating. 2) The performance of Banking Sector in India is better than Banks in other countries. 3) Only fundamental analysis is not useful for selecting the companies for investment

sometimes, technical analysis is also used. 4) The financial data, management, business concept and competition of the banks are

stronger in India than other countries. 5) The investors/traders are aware about the banking stocks listed on Indian Stock exchange. 6) The risk, return, volatility and liquidity attributes of different banks listed on stock

exchange are satisfactory. 7) The quality of assets, net interest margin (NIM), non performing assets (NPAs) and

capital adequacy ratio (CAR) of the different banks listed on Stock exchange are satisfactory. 8) The future of Indian stock Markets is bright.

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4.2 Suggestions

1) The investors should study the current trend of Stock Market in India before investing. 2) The Investor has to see the company prospect and details about the company in which they are going to invest. They should not totally depend on brokers because there can be chances of speculation. 3) While investing in banking stocks the investors should check the quality of assets, net interest margin (NIM), non performing assets (NPAs) and capital adequacy ratio (CAR) of the banks. 4) For the long term period banking sector is good option for the investors. 5) Finally before investing into stock market investor has to study various concepts and he has to be updated with new trends and news in the market. 6) Investor should not to invest in one sector at a time he has to diversify his portfolio by investing in various sectors.

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4.3 Recommendation This particular study has been prepared under certain limitation. Some of the limitations in this study are:

•

This study does not take into consideration current and past price of the share while determining future share price.

•

This study majorly focused on the future growth and prospects of the company, which depends on the performance of the company in future.

•

Sample size that is taken is restricted to a Pune city only amounting to 50 only due to time and constraints.

Therefore, it is recommended to focus on the above limitation and take into account for the further study.

1) How to do Fundamental Analysis? Dalal Street Investment Journal’s STOCK MARKET BOOK, by Ramdeo Media Ltd, pg no 101-134. 2) Banking, MANORAMA YEARBOOK 2008, BY Malayalam Manorama Press, pg no 614616. 3) Bank On Growth, Dalal Street Investment Journal, Vol. XXIV. No. 06, pg no 66-72. 60

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5. Bibliography Books Donald E. Fischer and Ronald J. Jordan, Security Analysis and Portfolio Management, Sixth Edition, Pearson Education. C.R. Kothari, Research Methodology Methods and Techniques, Second Edition, New Age International Publishers. Sunil Damania, Dalal Street Investment Journal’s STOCK MARKET BOOK, Ramdeo Media Ltd.

Journals Vol. XXIV. No. 06, Dalal Street Investment Journal, March 2009.

Websites Visited www.angelbroking.com www.bseindia.com www.hdfcbank.com 62

www.icicibank.com www.indiabugdet.nic.in www.moneycontrol.com www.nseindia.com www.pnbindia.com www.smcglobal.com www.wikipedia.com

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Questionnaire for soliciting information for the purpose of Project Report Carried out at ‘Angel Broking Ltd’ I) Personal Detail: Name: Address: Age: _____ Gender:

Male

□ 64

□

Female

Contact no: E-mail: Qualifications:

Non Matric

□

SSC/HSC

□ Graduate Graduate

□

Post

□

Occupation:

II)

Investment:: 1. Where do you invest your savings?

□ Bank Fixed deposits □ Gold/Silver □ Real Estate □ Stock Market □ Mutual fund 2. Do you invest in stock market?

□ Yes □ No 3. How long have you been investing in stocks?

□New

□1 to 5 years 65

□5 to 10 years

□More than 10

years

4. How frequently do you track your stocks?

□Many times a day

□Weekly

□Once in a day

□Monthly

5. What is your current portfolio size?

□Below 5 lacs

□ 5-15 lacs

□15-25 lacs

□ 25-50 lacs

□50 lacs & above 6. What kind of research interests you the most?

□Investment strategy and investment idea □Short term trading calls □Daily market view and day trading calls 7. What is your source of stock market information?

□TV channels □News paper □Friends/Relative 66

□Broker □Others (specify) ___________________ 8. Which stocks do you most prefer to invest?

□Large Cap □Mid Cap □Small Cap □All of the above 9. How do you trade?

□Offline □Online 10.

What kinds of trading you do?

□Intraday □Short term □Long term 11.

What is your market preference?

□Speculator

□Occasional investment

□Regular investor

□Trader 67

12.

What is your stock preference?

□High risk return □Bluechip □Stocks valued less than RS.10 □Stocks recommended by Angel research □Stocks recommended by other research houses 13. In which segment you trade the most?

□Cash □Futures & Options □All of the above 14. Which analysis do you consider while selecting a stock?

□Fundamental analysis □Technical analysis □Both 15. Are you aware of fundamental analysis?

□Yes □No 16. Which approach you take while doing fundamental analysis?

□Top-down approach 68

□Bottom-up approach 17. Are you aware about ‘Angel Broking’?

□Yes □ No 18. Are you associated with ‘Angel Broking’?

□Angel’s client □Employee □Sub-broker 19. Do you take Angel’s research while taking decision on buy/sell?

□Yes □No 20. Do you intend to invest in stock market with?

□Own funds □Borrowed funds

69