Risk Return Ananlysis Of Icici Bank.docx

TITLE:

A COMPARATIVE STUDY ON RISK AND RETURN MANAGEMENT WITH ICICI V/s HDFC REFERENCE TO BANKING INDUSTRY HYDERABAD

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Table of Contents Chapter I Introduction………………………… 1 - 6 Chapter II Industry Profile………………........... 7 - 19 Chapter III Review of Literature………………. 20 - 33 Chapter IV Data Analysis and Interpretation…. 34 – 50 Chapter V Findings, Suggestions & Conclusion…51 - 55

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CHAPTER- I  Introduction  Need of the Study  Objectives of the study  Scope of the study  Research Methodology  Limitations

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INTRODUCTION

The Risks/Return relationship is the basic concept not only in the financial management, but it relates to every aspect of life. If decisions made should result in the benefit maximization, it is necessary that the individuals or the institutions should consider the affect on the future return or the benefit as well as on risk or cost. Return means an amount that an investor actually earned on investment made for a certain period. It includes interest, dividend and capital gains while risk represents the uncertainty with respect to specific task. In financial terms risk is the chances or probabilities that certain investment may or may not deliver the required returns The risk and return together says that the potential return rises with a rise in the amount of risk. It is important for an investor to decide the balance between desire lowest possible risk and highest possible return.

Investment Risks: Investment risk in general sense talks about earning of a lesser return as compared to the return that is actually expected to receive. There are 2 types of investments risks: 1. Stand- Alone Risk and 2. Portfolio Risk

1. Stand-Alone risk: This risk is associated with a single asset which means that the risk will cease to exist if that particular asset is not held. The impact of standalone risk can be mitigated by diversifying the portfolio. Stand-alone risk = Market risk + Firm specific risk Market chance is a segment of the security’s remaining solitary hazard that can’t be disposed of through broadening and it is estimated by beta. Firm hazard is a bit of a security’s remain solitary hazard that can be disposed of through appropriate 2. Portfolio risk: This is the risk involved in a certain combination of assets in a portfolio which fails to deliver the overall objective of the portfolio. Risk can be minimized but cannot be eliminated, whether the portfolio is balanced or not. A balanced portfolio reduces risk while a non-balanced portfolio increases risk.

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NEED OF THE STUDY

In the finance field, it is a known fact that the money or finance is limited and the investors try to maximize the returns by investing such money or finance. But when the return is higher, the risk is also higher. Return and risk go together and they have a tradeoff. The art of investment is to see that return is maximized with minimum risk. In the above discussion we concentrated on the word “investment” and to invest we need to analyze securities. Merging of different securities with specific risks and returns attributes will constitute the portfolio of the investor.

OBJECTIVES OF THE STUDY

1. To study the risk and management in Banking Industry. 2, To study the fluctuations in share prices of ICICI 3, To study the risk involved in the securities of ICICI 4, To analyze and examine Comparative study of risk and returns of ICICI Securities v/s HDFC Securities. 5. To study the systematic risk involved in the securities. 6. To offer suggestions to the investors to make betterment in the investment Decisions..

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SCOPE OF THE STUDY

The study covers all the information related to the investor risk-return relationship of securities. It is confined to five years data of ICICI securities.It also includes the calculation of individual standard deviations which helps in allocating the funds available for investment based on risky portfolios.

RESEARCH METHODOLOGY The data used in this project is of secondary nature. The information is gathered from auxiliary sources, for example Company dairies, daily papers, books and so forth, the examination utilized as a part of this task has been finished utilizing specific specialized apparatuses. In Equity market, risk is analyzed and trading decisions are taken on basis of technical analysis. It is collection of share prices of selected companies for a period of five years.

STATISTICAL TOOLS 1. Standard Deviation 2. Covariance 3. Beta values 4. Averages. 5. Correlation between Sensex

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LIMITATIONS /ASSUMPTIONs 

This study has been conducted purely to understand Risk-return characteristics for investors.

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The study is restricted to only two selected Banks.

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Very few and randomly selected scripts/companies are analyzed from BSE listings.

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The study is limited to banking companies only.

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CHAPTER: - II  Industry Profile  Company Profile

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INDIAN FINANCIAL MARKET

Indian financial market consists of money market and capital market. Money market is mainly for the short-term needs and capital market for long term needs.

CAPTAL MARKET AND ITS STRUCTURE Capital market is a financial market, which provides and facilitates an orderly exchange of long term needs. The capital market in India is classified into •

Primary market

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Secondary market

The primary market deals with new issue of long term securities. Whereas the secondary market deals with buying and selling of old, second hand, existing securities, which are already listed in official trading list of recognized stock exchange Players of ‘New Issue Market’ are mainly, among them the most important are: •

Merchant banker’s

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Registrars

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Collecting and coordinating bankers

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Underwriters and broker

Players of secondary market are: •

Issuers of securities like companies

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Intermediaries like brokers, and sub-brokers etc.

ABOUT NSE: The National Stock Exchange (NSE) is India's leading stock exchange which is spread over various cities and towns in the country. It was setup by driving establishments to get an advanced, completely robotized screen based exchanging frame work with national reach. This Exchange has resulted in transparency, speed & efficiency, safety and market integrity. It has set up offices that fill in as a model for the securities business as far as frameworks, practices and strategies.

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NSE has assumed a vital part in changing the Indian securities show case as far as micro structure advertise practices and exchanging volumes. The market in present days uses state of art information technology to provide efficiency and transparency in terms of trading, clearing and settlement mechanism, and has seen several innovations in items and administrations, for example, demutualization of stock trade administration, screen based exchanging, pressure of settlement cycles, dematerialization and electronic exchange of securities, securities loaning and acquiring, professionalization of exchanging individuals, adjusted hazard administration frameworks, rise of clearing companies to expect counterparty dangers, market of obligation and subsidiary instruments and escalated utilization of data innovation.

The NSE has started in the report of the High Powered Study group on establishment of New Stock Exchanges, which recommended headway of the National stock exchange by monetary organizations (FI’s) to give access to financial specialists from the whole way across the nation on an equivalent balance. In light of the suggestions, NSE was advanced by driving financial institutions at the command of the Government of India and was consolidated in November 1992 at an expense paying organization not at all like other Stock trades in the nation.

On its recognition as a stock exchange under the Securities Contracts (Regulation) Act, 1956 in April 1993, NSE commenced operations in the Wholesale Debt Market (WDM) segment in June 1994. The Capital Market (Equities) segment commenced operations in November 1994 and operations in Derivatives segment commenced in June 2000.

MISSION OF NSE NSE's mission is setting the agenda for change in the securities markets in India.

OBJECTIVES OF NSE The NSE was set-up with the main objectives of: •

Establishing a nation-wide trading facility for equities, debt instruments and hybrids,

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Ensuring equal access to investors all over the country through an appropriate communication network, 10

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Providing a fair, efficient and transparent securities market to investors using electronic trading systems,

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Enabling shorter settlement cycles and book entry settlements systems, and

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Meeting the current international standards of securities markets.

The models set by NSE as far as market practices and innovations has moved toward becoming industry benchmarks and is being imitated by other market members. NSE is in excess of a minor market facilitator. It’s that power which is directing the business towards new skylines and more prominent openings. Logo The logo of the NSE symbolizes a solitary across the nation securities exchanging office guaranteeing equivalent and reasonable access to financial specialists, exchanging individuals and backers everywhere throughout the nation. The initials of the Exchange viz., N, S and E have been carved on the logo and are particularly unmistakable. The logo symbolizes utilization of best in class data innovation and satellite network to achieve the change inside the securities business. The logo symbolizes vibrancy and unleashing of creative energy to constantly bring about change through innovation.

CORPORATE STRUCTURE NSE is one of the principal de-metalized stock trades in the nation, where the possession and administration of the exchange is totally separated from the privilege to exchange on it. In spite of the fact that the catalyst for its foundation originated from approach creators in the nation, it has been setup as an organization, possessed by the main institutional financial specialist in the nation. From the very beginning, NSE has embraced the type of a demutualised trade – the proprietorship, administration and exchanging is in the hands of three distinct arrangements of individuals. NSE is possessed by an arrangement of driving money related organizations, banks, insurance agencies and other monetary middle people and is overseen in experts, who don’t specifically or by implication exchange on the exchange. This has totally dispensed with any irreconcilable circumstance and made a difference. 11

NSE in forcefully seeking after arrangements and practices inside an open intrigue system.

The NSE demonstrates in any case, does not block, but rather in truth obliges association, support and commitment of exchanging individuals in an assortment of ways. Its board includes senior officials from promoter foundations, famous experts in the fields of law, financial aspects, bookkeeping, back, tax assessment, and so on open delegates, candidates of SEBI and one full time official of the Exchange.

While the board managers expansive strategy issues, choices identifying with advertise activities are designated by the board to different panels constituted by it. Such committees include representatives from trading members, professionals, the public and the management. The everyday administration of the exchange is designated to the managing Director who is bolstered by a group of expert staff.

COMMITTEES The Exchange has constituted different boards of trustees to prompt it in zones, for example, great rehearses, settlement methodology, hazard regulation frameworks and so on. These panels are kept an eye on by industry experts, exchanging individuals, Exchange staff as likewise delegates from the market controller. •

Executive Committee

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Committee On Trade Related Issues (COTI)

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Advisory Committee - Listing of Securities

Executive Committee: Objective: To manage the day-to-day operations of the Exchange Composition.

Committee on Trade Related Issues (COTI): Objective: To provide guidance on trade related issues which crop up during the dayto-day functioning of the Exchange Composition.

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BOMBAY STOCK EXCHANGE

Bombay Stock Exchange Limited is the oldest stock exchange in Asia with a rich heritage. Popularly known as "BSE", it was established as "The Native Share & Stock Brokers Association" in 1875. It is the first stock exchange in the country to obtain permanent recognition in 1956 from the Government of India under the Securities Contracts (Regulation) Act, 1956.The Exchange's pivotal and pre-eminent role in the development of the Indian capital market is widely recognized and its index, SENSEX, is tracked worldwide. Earlier an Association of Persons (AOP), the Exchange is now a demutualised and corporatized entity incorporated under the provisions of the Companies Act, 1956, pursuant to the BSE (Corporatization and Demutualization) Scheme, 2005 notified by the Securities and Exchange Board of India (SEBI).

With demutualization, the trading rights and ownership rights have been de-linked effectively addressing concerns regarding perceived and real conflicts of interest. The Exchange is professionally managed under the overall direction of the Board of Directors. The Board comprises eminent professionals, representatives of Trading Members and the Managing Director of the Exchange. The Board is inclusive and is designed to benefit from the participation of market intermediaries.

In terms of organization structure, the Board formulates larger policy issues and exercises over-all control. The committees constituted by the Board are broad-based. The day-to-day operations of the Exchange are managed by the Managing Director and a management team of professionals. The Exchange has a nation-wide reach with a presence in 417 cities and towns of India. The systems and processes of the Exchange are designed to safeguard market integrity and enhance transparency in operations. During the year 2004-2005, the trading volumes on the Exchange showed robust growth.

The Exchange provides an efficient and transparent market for trading in equity, debt 13

instruments and derivatives. The BSE's On Line Trading System (BOLT) is a proprietary system of the Exchange and is BS 7799-2-2002 certified. The surveillance and clearing & settlement functions of the Exchange are ISO 9001:2000 certified. The oldest exchange in Asia and the first exchange in the country to be granted permanent recognition under the Securities Contract Regulation Act, 1956, Bombay Stock Exchange Limited (BSE) have had an interesting rise to prominence over the past 150 years. While the BSE is now synonymous with Dalal Street, it wasn’t always so. In fact the first venues of the earliest stock broker meetings in the 1850s were amidst rather natural environs - under banyan trees - in front of the Town Hall, where Horniman Circle is now situated. A decade later, the brokers moved their venue to another set of foliage, this time under banyan trees at the junction of Meadows Street and Mahatma Gandhi Road. As the number of brokers increased, they had to shift from place to place, and wherever they went, through sheer habit, they overflowed in to the streets. At last, in 1874, found a permanent place, and one that they could, quite literally, call their own. The new place was, aptly, called Dalal Street. The journey of BSE is as eventful and interesting as the history of India’s securities markets. India’s biggest bourse, in terms of listed companies and market capitalization, BSE has played a pioneering role in the Indian Securities Market - one of the oldest in the world. Much before actual legislations were enacted, BSE had formulated comprehensive set of Rules and Regulations for the Indian Capital Markets. It also laid down best practices adopted by the Indian Capital Markets after India gained its Independence.

BSE-SENSEX, first compiled in 1986 is a "Market Capitalization-Weighted" index of 30 component stocks representing a sample of large, well-established and financially sound companies. The base year of BSE-SENSEX is 1978-79. The index is widely reported in both domestic and international markets through print as well as electronic media. BSE-SENSEX is not only scientifically designed but also based on globally accepted construction and review methodology. The "Market Capitalization-Weighted" methodology is a widely followed index construction methodology on which majority of global equity benchmarks are based. 14

The growth of equity markets in India has been phenomenal in the decade gone by. Right from early nineties the stock market witnessed heightened activity in terms of various bull and bear runs. More recently, the bourses in India witnessed a similar frenzy in the 'TMT' sectors. The BSE-SENSEX captured all these happenings in the most judicial manner. One can identify the booms and bust of the Indian equity market through BSE-SENSEX.

The launch of BSE-SENSEX in 1986 was later followed up in January 1989 by introduction of BSE National Index (Base: 1983-84 = 150). It comprised of 150 stocks listed at five major stock exchanges in India at Mumbai, Calcutta, Delhi, Ahmedabad and Madras. The BSE National Index was renamed as BSE-150 Index from October 16, 1996 and since then it is calculated taking into consideration only the prices of stocks listed at BSE.

With a view to provide a better representation of the increased number of companies listed, increased market capitalization and the new industry groups, the Exchange constructed and launched on 27th May, 1994, two new index series viz., the 'BSE-200' and the 'DOLLEX-200' indices. Since then, BSE has come a long way in attuning itself to the varied needs of investors and market participants. In order to fulfill the need of the market participants for still broader, segment-specific and sector-specific indices, the Exchange has continuously been increasing the range of its indices.

The Exchange also disseminates the Price-Earnings Ratio, the Price to Book Value Ratio and the Dividend Yield Percentage on day-to-day basis of all its major indices.

The values of all BSE indices (except the Dollar version of indices) are updated every 17 seconds during the market hours and displayed through the BOLT system, BSE website and news wire agencies.

All BSE-Indices are reviewed periodically by the "Index Committee" of the Exchange. The committee frames the broad policy guidelines for the development and 15

maintenance of all BSE indices. The Index Cell of the Exchange carries out the day to day maintenance of all indices and conducts research on development of new indices. LISTING OF SECURITIES

Listing means admission of the securities to dealings on a recognized stock exchange. The securities may be of any public limited company, Central or State Government, quasi-governmental and other financial institutions/corporations, municipalities, etc.

The objectives of listing are mainly to: •

Provide liquidity to securities;

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Mobilize savings for economic development;

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Protect interest of investors by ensuring full disclosures.

The Exchange has a separate Listing Department to grant approval for listing of securities of companies in accordance with the provisions of the Securities Contracts (Regulation) Act, 1956, Securities Contracts (Regulation) Rules, 1957, Companies Act, 1956, Guidelines issued by SEBI and Rules, Bye-laws and Regulations of the Exchange. A company intending to have its securities listed on the Exchange has to comply with the listing requirements prescribed by the Exchange. Some of the requirements are as under:         

Minimum Listing Requirements for new companies Minimum Requirements for companies delisted by this Exchange seeking relisting of this Exchange Permission to use the name of the Exchange in an Issuer Company's prospectus Submission of Letter of Application Allotment of Securities Trading Permission Requirement of 1% Security Payment of Listing Fees Compliance with Listing Agreement

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COMPANY PROFILE ICICI Bank, stands for Industrial Credit and Investment Corporation of India, it is an Indian multinational banking and financial services company headquartered in Mumbai, Maharashtra, India, with its registered office in Vadodara. In 2017, it is the third largest bank in India in terms of assets and fourth in term of market capitalisation. It offers a wide range of banking products and financial services for corporate and retail customers through a variety of delivery channels and specialised subsidiaries in the areas of investment banking, life, non-life insurance, venture capital and asset management. The bank has a vast network of 4,850 branches and 14,404 ATMs in India, and has a presence in 19 countries including India. The bank has subsidiaries in the United Kingdom and Canada; branches in United States, Singapore, Bahrain, Hong Kong, Sri Lanka, Qatar, Oman, Dubai International Finance Centre, China and South Africa; and representative offices in United Arab Emirates, Bangladesh, Malaysia and Indonesia. The company's UK subsidiary has also established branches in Belgium and Germany. ICICI's shareholding in ICICI Bank was reduced to 46 percent, through a public offering of shares in India in 1998, followed by an equity offering in the form of American Depositary Receipts on the NYSE in 2000. ICICI Bank acquired the Bank of Madura Limited in an all-stock deal in 2001 and sold additional stakes to institutional investors during 2001-02. 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 became the first Indian company and the first bank or financial institution from non-Japan Asia to be listed on the NYSE. In 2000, ICICI Bank became the first Indian bank to list on the New York Stock Exchange with its five million American depository shares issue generating a demand book 13 times the offer size. 17

In October 2001, the Boards of Directors of ICICI and ICICI Bank approved the merger of ICICI and two of its wholly owned retail finance subsidiaries, ICICI Personal Financial Services Limited and ICICI Capital Services Limited, with ICICI Bank. The merger was approved by shareholders of ICICI and ICICI Bank in January 2002, by the High Court of Gujarat at Ahmedabad in March 2002 and by the High Court of Judicature at Mumbai and the Reserve Bank of India in April 2002. In 2008, following the 2008 financial crisis, customers rushed to ICICI ATMs and branches in some locations due to rumours of adverse financial position of ICICI Bank. The Reserve Bank of India issued a clarification on the financial strength of ICICI Bank to dispel the rumours Some of the services provided by ICICI are listed below: iMobile SmartKeys To make mobile payments easier, ICICI Bank has launched a payment service using a smartphone keyboard named ‘iMobile SmartKeys’. Users will be able to make quick and secure payments on any mobile application, including chat, messenger, email, games or search browser, without having to exit their current application on their smartphone. This reduces the time taken by customers having to switch tabs or applications within their smartphone to access the bank’s application ‘iMobile’. ICICI Merchant Services ICICI Merchant Services represents an alliance formed in 2009 between ICICI Bank, India’s largest private sector bank, and First Data, a global leader in electronic commerce and payment services. First Data is the majority stakeholder in the alliance with ICICI Bank holding 19%. Extra home loans ‘ICICI Bank Extra Home Loans’ are 'mortgage-guarantee' backed loans for retail customers who aspire to purchase their first homes in the affordable housing segment

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List of Subsidiaries of ICICI: Domestic           

ICICI Prudential Life Insurance Company Limited ICICI Lombard General Insurance Company Limited ICICI Prudential Asset Management Company Limited ICICI Prudential Trust Limited ICICI Securities Limited ICICI Securities Primary Dealership Limited ICICI Venture Funds Management Company Limited ICICI Home Finance Company Limited ICICI Investment Management Company Limited ICICI Trusteeship Services Limited ICICI Prudential Pension Funds Management Company Limited

International        

ICICI Bank USA ICICI Bank UK PLC ICICI Bank Canada ICICI Bank Germany ICICI Bank Eurasia Limited Liability Company ICICI Securities Holdings Inc. ICICI Securities Inc. ICICI International Limited

Significant Awards Received: 

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‘Best Retail Bank in India’ at the Asian Banker International Excellence in Retail Financial Services Awards 2016. ICICI Bank has won this award three years in a row. Gold awards in the ‘Bank’ and ‘Credit card issuing Bank’ segments under Finance category in the Reader’s Digest Trusted Brand 2016 Survey. First in The Brand Trust Report, India Study 2016 by Trust Research Advisory under the ‘Banking Financial Services and Insurance’ category. Winner at the ‘Global Safety Awards 2016’ organised by the Energy and Environment Foundation. This award is sponsored by Ministry of Petroleum & Natural Gas and Ministry of Coal, Government of India.

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Key People and Board of Directors: Managing Director and CEO Ms. Chanda Kochar Independent Directors Mr. M.K.Sharma Mr. Uday Chitale Mr. Dileep Choksi Ms .Neelam Dhawan Mr. M.D.Mallya Mr. Radhakrishnan Nair Mr V.K. Sharma

Executive Directors Mr. N.S.Kannan Ms. Vishakha Mulye Mr Vijay Chandok Mr Anup Bagchi

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CHAPTER-III  Review of Literature

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1. Kaushik Mukerjee (2006) in his paper CRM (Customer Relationship Management) in Banking-Focus on ICICI Bank's drives had centered around CRM in Banking and its applications in ICICI Bank. The CRM in ICICI is being used for targeting customers, sales, consistent interface with customers, etc. ICICI Bank has managed to focus better on customers by undertaking a serious approach that has enabled it to manage its operations effectively. It included better targeting of customers; higher share of wallet; more effective channel strategies; database marketing, etc. The bank is able to evaluate customer usage pattern through CRM data warehouse. New products are developed through extensive customer profiling. Through CRM, ICICI is able to manage its data centrally.

2. A.M. Rawani and M.P. Gupta (2002), made an attempt to explore empirically the difference in the role of IS in the banking industry, i.e., between public sector, private sector, and foreign sector banks operating in India. This paper uses a strategic grid to determine the role played by IS in banks. The study carried was focused on role of Information Systems in banks from the perspective of technical persons in development and maintenance of IS, i.e. strategic or supportive. The study indicated that IS played a supportive role in public sector banks and a strategic role in private and foreign sector banks. The study also indicated that the future impact of IS does not vary significantly with the banking groups.

3. Shyam Ramadhyani (2006) in his paper titled "Review of Banks working in an electronic Information Systems Environment" concentrated on Audit related issues of IS in bank. It was underlined that the utilization of PCs changes the preparing, stockpiling, recovery and correspondence of budgetary data and may influence the bookkeeping and inward control frameworks utilized by a bank. The potential for human mistakes in the advancement, upkeep and execution of PC Information Systems might be more noteworthy than in manual frameworks, because of level of subtle elements innate in these exercises. Through review surveys, an exhaustive look and comprehension of IS in bank can be seen. The review of IS would give us general comprehension of IS in bank, overseeing 22

authentication of users, access control, data security, data integrity, auditlogs, testing, accounting entries, data migration, network and RDBMS security, business continuity and disaster recovery plans, hacking, identification of transaction for substantative checking, utilization of reports created by framework and documentation.

4 K.S. Rajashekara (2004), discussed affect investigation of IT on keeping money. The issue of doing legitimate effect examination is because of trouble of estimating yield precisely when the nature of administration is changing because of such factors as accommodation, speed, and lower hazard. Through IT, banks foresee decrease in working expenses through such efficiencies as the streamlining back office handling and end of blunder inclined manual contribution of information. Inferable from IT, bank can offer new items and administrations. Banks can create and actualize refined hazard, data administration framework and methods with all the more great information stockpiling and investigation advancements. IT has emphatically influenced the partners of bank like administration, representatives, and clients.

5 Vasant Godse (2005) in paper titled "Innovation: An Impact Analysis" discussed part of Information Technology in saving money. Banks confronted the huge errand of resituating their innovation framework towards such intuitive choice help and data gathering instruments, very different from exchange preparing and last bookkeeping. The effect of innovation could be on association with data innovation suppliers, hierarchical perspectives, financier client relationship, control and supervisory angles, new ideas and procedures, which help in additionally increasing upper hand.

6 Donald A. Marchand, William J. Kettinger, John D. Rollins (2000), worried upon the compelling use of data for business execution. It was focused on that IT enhanced business execution just if joined with capable data administration and the correct practices and qualities. The exploration was connected on banks. Banks were assessed on three expansive scales i.e. IT Practices (counting IT rehearses for Operational help, IT forBusiness-process bolster, IT for Innovation bolster, IT for Managerial help); Information Management Practices (Sensing data, Collecting data, Organizing data, Processing data, Maintaining

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data); Information practices and qualities (Information Integrity, Formality, control, sharing, straightforwardness, proactiveness). Organizations that consolidated a peopledriven, as opposed to only techno-driven, perspective of data utilize and that are great at all three data abilities would enhance their business execution.

7 Harmeen K. Soch and H.S.Sandhu (2003) emphasized that impact of IT on banking was so radical that it would be a key determinant of success or failure in the industry, a key determinant of whether banks as a recognizable grouping continue to exist, and a key determinant of the differentiation between competitors in financial services. Mere possession of sophisticated IT would not guarantee success in future. The ability to apply IT effectively, i.e. to increase profits by reducing costs or adding value, will be the key. Banks that choose to use IT strategically would be long term beneficiaries of the Information revolution.

8 Helmut E. Zsifkovits (1996), titled "Achievement factors for administration emotionally supportive networks execution" was to depict the purposes behind the low level of Information Technology acknowledgment and talk about various parts of Management Support Systems (MSS). This study emphasized on decision process with special reference to group decisions. Critical Success Factors (CSF), Key Indicator Management (KIM) and One-Page Management (OPM) were discussed as methods to establish Yard sticks for measuring a company’s performance and provided a framework for data structures in MSS. The study was focused on finding reasons for low level of IT acceptance in Management Support Systems in an organization, rather than on evaluation of IS after implementation. 9 V. Nanda Mohan & V. Ajayakumar (2005) in their paper titled “Managerial Effectiveness through IT”, had developed a new model for the IT enabling process. The main stages of the model were design of Information architecture, development of transaction systems, internal integration & development of management information systems, design of inter organizational databases and business scope redesign. The software development in second stage was in accordance with the design completed in the first stage and was in anticipation of the requirements of the third and fourth stages. This study proposed a specific order for the events related to IT-enabled activities 24

10 R.Jagannathan (2003), cautioned Indian companies from investing in Information Technology in a hasty manner. It discussed about the common pit falls companies faced in implementing technology solutions. It emphasized that the use of technology for strategic advantage was possible if top management commitment was there. The investment in IT should emerge from a business need. IT solutions should be applied after change management, by managing expectations of employees. The intangible benefits and intangible costs should also be taken care of, besides ROI and Payback periods. Decisions to invest in IT should be taken jointly by business unit heads and the IT department. Companies should target those vendors who have the domain knowledge and experience in executing them.

THEORITCAL FRAMEWORK RISK ANALYSIS

Risk in investment is because of the hindrances to make perfect or accurate forecasts. Risk in investment is means the variability that is likely to occur in future cash flows from an investment. The greater variability indicates greater risk of these cash flows.

Variance or standard deviation means the deviation about expected cash flows of each possible cash flow and is known as the absolute measure of risk while co-efficient of variation is a relative measure of risk.

Risk adjusted discount rate [Present value i.e. PV of future inflows with discount rate]

However in practice, sensitivity analysis and conservative forecast techniques being simpler and easier to handle, are used for risk analysis. Sensitivity analysis [a variation of break even analysis] allows estimating the impact of change in the behavior of critical variables on the investment cash flows. Conservative forecasts include using short payback or higher discount rates for discounting cash flows. Types of risks: 25

Investment Risks: Investment risk in general sense talks about earning of a lesser return as compared to the return that is actually expected to receive. There are 2 types of investments risks: Stand-alone risk: This risk is associated with a single asset, meaning that the risk will cease to exist if that particular asset is not held. The effect of stand-alone risk can be mitigated by diversifying the portfolio. Stand-alone risk = Market risk + Firm specific risk Where, Market risk is a portion of the security's stand-alone risk that cannot be eliminated trough diversification and it is measured by beta Firm risk is a portion of a security's stand-alone risk that can be eliminated through proper diversification

Portfolio risk

This is the risk involved in a certain combination of assets in a portfolio which fails to deliver the overall objective of the portfolio. Risk can be minimized but cannot be eliminated, whether the portfolio is balanced or not. A balanced portfolio reduces risk while a non-balanced portfolio increases risk.

Sources of risks: Inflation Business cycle Interest rates Management Business risk

Types of Risk

Unfortunately, the concept of risk is not a simple concept in finance. There are many different types of risk identified and some types are relatively more or relatively less important in different situations and applications. In some of the models of economic 26

or financial processes, some of the risks or all risk may be entirely eliminated. For the practitioner operating in the real world, however, risk can never be entirely eliminated. It is ever-present and must be identified and dealt with.

Below is the chart showing different categories of Risks and its sub categories

Systematic risk 1. Interest Rate Risk The uncertainty associated with the effects of changes in market interest rates. There are two types of interest rate risk identified; price risk and reinvestment rate risk. The price risk is sometimes referred to as maturity risk since the greater the maturity of an investment, the greater the change in price for a given change in interest rates. Both types of interest rate risks are important in investments, corporate financial planning, and banking.

Price Risk: The risk associated with potential changes in the price of an asset caused by the changes in interest rate levels and rates of return in the economy. This risk occurs because of the changes in interest rates affecting changes in discount rates which in turn affect the present value of future cash flows. The relationship is an inverse relationship. If interest rates (and discount rates) rise, prices fall. The reverse is also true.

Since interest rates directly affect discount rates and present values of future cash flows represent underlying economic value, we have the following relationships.

Reinvestment Rate Risk: The uncertainty associated with the impact that changing interest rates have on available rates of return when reinvesting cash flows received from an earlier investment. It is a direct or positive relationship.

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2. Market risk This is the risk that the value of a portfolio, either an investment portfolio or a trading portfolio, will decrease due to the change in market risk factors. The four standard market risk factors are stock prices, interest rates, foreign exchange rates, and commodity prices:

Equity risk is the risk that stock prices in general (not related to a particular company or industry) or the implied volatility will change.

Interest rate risk is the risk that interest rates or the implied volatility will change.

Currency risk is the risk that foreign exchange rates or the implied volatility will change, which affects, for example, the value of an asset held in that currency.

Commodity risk is the risk that commodity prices (e.g. corn, copper, crude oil) or implied volatility will change.

3. Inflation Risk (Purchasing Power Risk) Inflation risk is the loss of purchasing power due to the effects of inflation. When inflation is present, the currency loses its value due to the rising price level in the economy. The higher the inflation rate, the faster the money loses its value.

Unsystematic risk 1. Business risk The uncertainty associated with a business firm's operating environment and reflected in the variability of earnings before interest and taxes (EBIT). Since this earnings measure has not had financing expenses removed, it reflects the risk associated with business operations rather than methods of debt financing. This risk is often discussed in General Business Management courses.

2. Financial risk The uncertainty brought about by the choice of a firm’s financing methods and reflected in the variability of earnings before taxes (EBT), a measure of earnings that 28

has been adjusted for and is influenced by the cost of debt financing. This risk is often discussed within the context of the Capital Structure topics.

Total Risk While there are many different types of specific risk, we said earlier that in the most general sense, risk is the possibility of experiencing an outcome that is different from what is expected. If we focus on this definition of risk, we can define what is referred to as total risk. In financial terms, this total risk reflects the variability of returns from some type of financial investment.

Measures of Total Risk The standard deviation is often referred to as a "measure of total risk" because it captures the variation of possible outcomes about the expected value (or mean). In financial asset pricing theory the Capital Asset Pricing Model (CAPM) separates this "total risk" into two different types of risk (systematic risk and unsystematic risk). Another related measure of total risk is the "coefficient of variation" which is calculated as the standard deviation divided by the expected value. It is often referred to as a scaled measure of total risk or a relative measure of total risk. The following notes will discuss these concepts in more detail.

Measurement of risks Statistical measures that are historical predictors of investment risk and volatility and major components in modern portfolio theory (MPT). MPT is a standard financial and academic methodology for assessing the performance of a stock or a stock fund compared to its benchmark index. There are five principal risk measures: Alpha: Measures risk relative to the market or benchmark index Beta: Measures volatility or systemic risk compared to the market or the benchmark index R-Squared: Measures the percentage of an investment's movement that are attributable to movements in its benchmark index Standard Deviation: Measures how much return on an investment is deviating from the expected normal or average returns 29

Sharpe Ratio: An indicator of whether an investment's return is due to smart investing decisions or a result of excess risk.

Each risk measure is unique in how it measures risk. When comparing two or more potential investments, an investor should always compare the same risk measures to each different potential investment to get a relative performance.

Definition of 'Beta' A measure of the volatility, or systematic risk of a security or a portfolio in comparison to the market as a whole. Beta is used in the capital asset pricing model (CAPM), a model that calculates the expected return of an asset based on its beta and expected market returns. Also known as "beta coefficient". Beta is calculated using regression analysis, and you can think of beta as the tendency of a security's returns to respond to swings in the market. A beta of 1 indicates that the security's price will move with the market. If beta is less than 1 means that the security will be less volatile than the market. A beta of greater than 1 indicates that the security's price will be more volatile than the market. For example, if a stock's beta is 1.2, it's theoretically 20% more volatile than the market.

Many utilities stocks have a beta of less than 1. Conversely, most high-tech Nasdaqbased stocks have a beta of greater than 1, offering the possibility of a higher rate of return, but also posing more risk.

Definition of 'Alpha' 1.

A measure of performance on a risk-adjusted basis. Alpha takes the volatility

(price risk) of a mutual fund and compares its risk-adjusted performance to a benchmark index. The excess return of the fund relative to the return of the benchmark index is a fund's alpha.

2.

The abnormal rate of return on a security or portfolio in excess of what would

be predicted by an equilibrium model like the capital asset pricing model (CAPM).

30

3.

Alpha is one of five technical risk ratios; the others are beta, standard deviation,

R-squared, and the Sharpe ratio. These are all statistical measurements used in modern portfolio theory (MPT). All of these indicators are intended to help investors determine the risk-reward profile of a mutual fund. Simply stated, alpha is often considered to represent the value that a portfolio manager adds to or subtracts from a fund's return.

A positive alpha of 1.0 means the fund has outperformed its benchmark index by 1%.

Correspondingly,

a

similar

negative

alpha

would

indicate

an

underperformance of 1%.

4.

If a CAPM analysis estimates that a portfolio should earn 15% based on the

risk of the portfolio but the portfolio actually earns 17%, the portfolio's alpha would be 5%. This 5% is the excess return over what was predicted in the CAPM model.

Definition of 'Standard Deviation' 1.

A measure of the dispersion of a set of data from its mean. The more spread

apart the data, the higher the deviation. Standard deviation is calculated as the square root of variance.

2.

In finance, standard deviation is applied to the annual rate of return of an

investment to measure the investment's volatility. Standard deviation is also known as historical volatility and is used by investors as a gauge for the amount of expected volatility.

Standard deviation is a statistical measurement that sheds light on historical volatility. For example, a volatile stock will have a high standard deviation while the deviation of a stable blue chip stock will be lower. A large dispersion tells us how much the return on the fund is deviating from the expected normal returns.

Definition of 'R-Squared' A statistical measure that represents the percentage of a fund or security's movements that can be explained by movements in a benchmark index. For fixed-income securities, the benchmark is the T-bill. For equities, the benchmark is the S&P 500. 31

R-squared values range from 0 to 150. An R-squared of 150 means that all movements of a security are completely explained by movements in the index. A high R-squared (between 85 and 150) indicates the fund's performance patterns have been in line with the index. A fund with a low R-squared (70 or less) doesn't act much like the index.

A higher R-squared value will indicate a more useful beta figure. For example, if a fund has an R-squared value of close to 150 but has a beta below 1, it is most likely offering higher risk-adjusted returns. A low R-squared means you should ignore the beta.

When most people think of investments they think of stocks or mutual funds. An investment is more than this. An investment requires one to set aside an amount today with the expectation of receiving a larger sum in the future.

Return Analysis An investment is the current commitment of funds done in the expectation of earning greater amount in future. Returns are subject to uncertainty or variance Longer the period of investment, greater will be the returns sought. An investor will also like to ensure that the returns are greater than the rate of inflation.

An investor will look forward to getting compensated by way of an expected return based on 3 factors Risk involved Duration of investment [Time value of money] Expected price levels [Inflation] The basic rate or time value of money is the real risk free rate [RRFR] which is free of any risk premium and inflation. This rate generally remains stable; but in the long run there could be gradual changes in the RRFR depending upon factors such as consumption trends, economic growth and openness of the economy.

If we include the component of inflation into the RRFR without the risk premium, such a return will be known as nominal risk free rate [NRFR]

32

NRFR = ( 1 + RRFR ) * ( 1 + expected rate of inflation ) - 1

Third component is the risk premium that represents all kinds of uncertainties and is calculated as follows Expected return = NRFR + Risk premium.

Any investor who lays aside money today expects to get more in return later. How much is more? Well, the best way to calculate this is to look at your rate of return. In its simplest form, you would take the ending value of your investment, divide it by your initial investment, take the n root of it (where n= the number of years you held the investment), and minus one. Confused? Well, let's give an example.

If I invested $150 for three years and after this period it was worth $170, my rate of return would be [170/150^ (1/3)]-1=16.47%. Don't worry we'll look at this concept more when we study present and future values.

Now that you have your rate of return you may be asking, "How much is enough?" Well, looking at past market history, equities on average returned 15% annually, small caps 17%, bonds 5%, and t-bills around 3-4%. We will ignore all this for now and state the required return more formally.

Firstly, investors should be compensated for the real interest rate and inflation (note: the real rate plus inflation=nominal rate). This nominal rate is the rate of return on US Government bonds. Investors expect at least this when they buy a stock. The reason? A stock has risk and government bonds don't. If stock does not outperform bonds then investors will prefer the bonds. The second component of required return is inflation which is already incorporated into our nominal rate.

Lastly we have a premium for risk. Since investors do not know for sure if their investment will make them money, they want to be compensated for this additional risk with additional return.

Return on security (single asset) consists of two parts: 33

Return = dividend + capital gain rate R = D1 + (P1 – P0) P0 WHERE R = RATE OF RETURN IN YEAR 1 D1 = DIVIDEND PER SHARE IN YEAR 1 P0 = PRICE OF SHARE IN THE BEGINNING OF THE YEAR P1 = PRICE OF SHARE IN THE END OF THE YEAR

Average rate of return R = 1 [ R1+R2+……+Rn] n R =1ΣRtnt=1 Where, R = average rate of return. Rt = Realised rates of return in periods 1,2, …..t n = total no. of periods

Expected rate of return: It is the weighted average of all possible returns multiplied by their respective probabilities. E(R) = R1P1 + R2P2 + ………+ RnPn E(R) = ΣRiPii Where, Ri is the outcome i, Pi is the probability of occurrence of i. n= No of periods

Risk and return Trade off: Investors make investment with the objective of earning some tangible benefit. This benefit in financial terminology is termed as return and is a reward for taking a specified amount of risk.

Risk is defined as the possibility of the actual return being different from the expected return on an investment over the period of investment. Low risk leads to low returns. For instance, incase of government securities, while the rate of return is low, the risk of defaulting is also low. High risks lead to higher potential returns, but may also lead to 34

higher losses. Long-term returns on stocks are much higher than the returns on Government securities, but the risk of losing money is also higher.

Rate of return on an investment cal be calculated using the following formula-Return = (Amount received - Amount invested) / Amount invested He risk and return trade off says that the potential rises with an increase in risk. An investor must decide a balance between the desire for the lowest possible risk and highest possible return.

Risk-Return Relationship By now you should understand that even with the most conservative investments you face some element of risk. However, not investing your money is also risky. For example, putting your money under the mattress invites the risk of theft and the loss in purchasing power if prices of goods and services rise in the economy. When you recognize the different levels of risk for each type of investment asset, you can better manage the total risk in your investment portfolio.

A direct correlation exists between risk and return and is illustrated in Figure. The greater the risk, the greater is the potential return. However, investing in securities with the greatest return and, therefore, the greatest risk can lead to financial ruin if everything does not go according to plan.

Risk and Return

35

Understanding the risks pertaining to the different investments is of little consequence unless you’re aware of your attitude toward risk. How much risk you can tolerate depends on many factors, such as the type of person you are, your investment objectives, the dollar amount of your total assets, the size of your portfolio, and the time horizon for your investments.

How nervous are you about your investments? Will you check the prices of your stocks daily? Can you sleep at night if your stocks decline in price below their acquisition prices? Will you call your broker every time a stock falls by a point or two? If so, you do not tolerate risk well, and your portfolio should be geared toward conservative investments that generate income through capital preservation. The percentage of your portfolio allocated to stocks may be low to zero depending on your comfort zone. If you are not bothered when your stocks decline in price because with a long holding period you can wait out the decline, your portfolio of investments can be designed with a higher percentage of stocks. Figure 2 illustrates the continuum of risk tolerance.

A wide range of returns is associated with each type of security. For example, the many types of common stocks, such as blue-chip stocks, growth stocks, income stocks, and speculative stocks, react differently. Income stocks generally are lower risk and offer returns mainly in the form of dividends, whereas growth stocks are riskier and usually offer higher returns in the form of capital gains. Similarly, a broad range of risks and returns can be found for the different types of bonds. You should be aware of this broad range of risks and returns for the different types of securities so that you can find an acceptable level of risk for yourself.

Continuum of Risk Tolerance

36

Hypothesis Statements: A. Risk and Return of an investment are inversely related. B. Risk and Return of an investment are not inversely related.

37

CHAPTER - IV  DATA ANALYSIS AND INTERPRETATION Comparison between our bank (ICICI) with its competitor HDFC

38

ICICI Bank Balance Sheet SOURCES OF FUNDS :

Capital Reserves Total Equity Share Warrants

Mar 2018

Mar 2017

Mar 2016

Mar 2015

Mar 2014

Mar 2013

( ).Cr 1,285.81

( ).Cr 1,165.11

( ).Cr 1,163.17

( ).Cr 1,159.66

( ).Cr 1,155.04

( ).Cr 1,153.64

1,03,867.56

98,779.71

88,565.72

79,262.26

72,051.71

65,547.84

-

-

-

-

-

-

5.57

6.26

6.70

7.44

6.57

4.48

Deposits

5,60,975.21

4,90,039.06

4,48,528.09

4,47,495.38

4,08,586.32

3,61,305.08

Borrowings

1,82,858.62

1,47,556.15

1,47,704.99

86,484.70

78,086.40

76,650.04

Equity Application Money

33,666.89

37,612.55

37,887.43

34,374.72

36,996.27

32,601.85

8,82,659.66

7,75,158.84

7,23,856.10

6,48,784.16

5,96,882.31

5,37,262.93

Cash & Balances with RBI

33,102.38

31,702.40

27,106.09

25,652.91

21,821.82

19,052.73

Balances with Banks & money at Call

51,067.00

44,010.66

32,762.65

16,651.71

19,707.77

22,364.79

Investments

2,02,994.18

1,61,506.55

1,60,411.80

1,58,129.22

1,77,021.82

1,71,393.60

Advances

Other Liabilities & Provisions TOTAL LIABILITIES APPLICATION OF FUNDS :

5,12,395.29

4,64,232.08

4,35,263.94

3,87,522.07

3,38,702.65

2,90,249.44

Fixed Assets

7,903.51

7,805.21

7,576.92

4,725.52

4,678.14

4,647.06

Other Assets

75,197.29

65,901.94

60,734.70

56,102.73

34,950.11

29,555.32

Mis Expenditure not written off TOTAL ASSETS Contingent Liability Bills for collection

-

-

-

-

-

-

8,82,659.65

7,75,158.84

7,23,856.10

6,48,784.16

5,96,882.31

5,37,262.94

12,89,244.00

10,30,993.71

9,00,798.78

8,51,977.61

7,81,430.44

7,89,989.31

28,588.36

22,623.19

21,654.73

16,212.97

13,534.91

12,394.53

39

Balance Sheet of HDFC Bank Mar '18

Mar '17

Mar '16

Mar '15

Mar '14

12 mths

12 mths

12 mths

12 mths

12 mths

Total Share Capital

519.02

512.51

505.64

501.3

479.81

Equity Share Capital

519.02

512.51

505.64

501.3

479.81

Reserves

1,05,775.98

88,949.84

72,172.13

61,508.12

42,998.82

Net Worth

1,06,295.00

89,462.35

72,677.77

62,009.42

43,478.63

Deposits

7,88,770.64 6,43,639.66 5,46,424.19 4,50,795.64 3,67,337.48

Borrowings

1,23,104.97

Total Debt

9,11,875.61 7,17,668.53 5,99,442.66 4,96,009.20 4,06,776.47

SOURCES OF FUNDS : Capital and Liabilities:

Other Liabilities & Provisions Total Liabilities

45,763.72

74,028.87 56,709.32

53,018.47 36,725.13

45,213.56 32,484.46

39,438.99 41,344.40

10,63,934.33 8,63,840.20 7,08,845.56 5,90,503.08 4,91,599.50 Mar '18

Mar '17

Mar '16

Mar '15

Mar '14

12 mths

12 mths

12 mths

12 mths

12 mths

1,04,670.47

37,896.88

30,058.31

27,510.45

25,345.63

18,244.61

11,055.22

8,860.53

8,821.00

14,238.01

Assets Cash & Balances with RBI Balance with Banks, Money at Call Advances

6,58,333.09 5,54,568.20 4,64,593.96 3,65,495.03 3,03,000.27

Investments

2,42,200.24 2,14,463.34 1,63,885.77 1,66,459.95 1,20,951.07

Gross Block

3,607.20

3,626.74

3,343.16

3,121.73

2,939.92

Net Block

3,607.20

3,626.74

3,343.16

3,121.73

2,939.92

36,878.70

42,229.82

38,103.84

19,094.91

25,124.60

Other Assets Total Assets

10,63,934.31 8,63,840.20 7,08,845.57 5,90,503.07 4,91,599.50

40

HDFC: Analysis of Return

Rate of Return =

Share price in the closing – Share price at the opening

Share price in the opening

Year

Opening

Closing value

value (P0)

(P1)

(P1(P1-P0)

P0)/P0*150

2012-13

186

286.99

150.99

54.30

2013-14

264

189

-75

-28.41

2014-15

202.4

381.28

178.88

88.38

2015-16

387.8

467.57

79.77

20.57

2016-17

469.22

515.7

41.48

8.84

Total return

163.68

Average return =163.68/5 =28.74 600 500

515.7 469.22

467.57

400

387.8

381.28

300

286.99

200

186

150

150.99 54.30

0 1

opening value (P0)

264 202.4 178.88

189

closing value (P1) (P1-P0)

88.38

(P1-P0)/P0*150

79.77 41.48 8.84

20.57 2 -28.41

3

4

41

5

-75 -150 -200

Interpretation: The average returns of HDFC are 28.74 wherein the maximum returns are in third year i.e., 2014 -15.

ICICI: Analysis of Return Opening value Closing value (P1(P0) (P1) (P1-P0) P0)/P0*150 823 835.2 17.2 1.48 799.95 337.85 -462.1 -57.77 360 960.05 600.05 176.68 952 1612.25 175.25 17.31 1615 856.05 -253.95 -22.88 153.83

Year 2012-13 2013-14 2014-15 2015-16 2016-17 Total return

Average return =153.83/5 = 20.77

1700 1612.25 1615 1500

960.05

952

835.2

856.05

23

800

799.95

600

600.05 opening value (P0)

360

400

closing value (P1)

337.85

200

176.68 2.2

0

2

3

4

-22.88 5

-200 -400

153.

17.31

-57.77

1.48

1

(P1-P0)

175.25 6 -253.95

-462.1

-600

42

(P1-P0)/P0*150

Interpretation: The average returns of ICICI are 20.77 wherein the maximum returns are in the third year i.e. 2014-15. Investment in HDFC is more profitable to the investor as the average returns are comparatively more than the average returns of ICICI. Thus, an investor who is only concerned about the returns in long run should invest in HDFC securities.

RISK ANALYSIS Standard Deviation This is the most commonly used measure of risk in fiancé. Its square also is widely used to find out the risk associated with a security. Computation of Variance =

∑N RI −R 2 I 1

N

Standard Deviation =

σ

or d2

− 1

2

HDFC: Analysis of risk: Square Avg return(R Year

Return (R )

)

deviations(R-R) Deviations(R-R)

d2

2012-13

54.3

28.74

25.564

653.52

2013-14

-28.41

28.74

-57.166

3265.67

2014-15

88.38

28.74

59.644

3557.41

2015-16

20.57

28.74

-8.176

66.68

2016-17

8.84

28.74

-19.896

395.85

Total

163.68

7939.17

43

Variance = 1/n-1 (∑d2) = 1/5-1 (7939.17) = 1984.78 Standard deviation=√variance =√1984.78 = 44.55

ICICI: Analysis of Risk: Square deviations(R-R) Year

Return (R )

Avg Return (R ) Deviations(R-R) d2

2012-13

1.48

20.77

-19.286

371.95

2013-14

-57.77

20.77

-78.536

6177.90

2014-15

176.68

20.77

165.916

21790.90

2015-16

17.31

20.77

-4.456

19.86

2016-17

-22.88

20.77

-43.646

1904.97

Total

153.83

29755.58

Variance = 1/n-1 (∑d2) = 1/5-1 (29755.58) = 7438.89 Risk=Standard deviation=√variance =√7438.89 =86.25 Interpretation: Risk associated with the investment in long run is less for the HDFC securities when compared to ICICI. Thus, when an investor is only considering risk factor, it is advisable to invest in HDFC securities.

44

45

AVERAGE RETURN OF BOTH COMPANIES:

S.No

COMPANY

AVERAGE RETURN

STANDARD DEVIATION

1

HDFC

28.74

44.55

2

ICICI

20.77

86.25

Standard deviation 150

90

86.25

Shares price

80 70 60 50 44.55

40

Standard deviation

30 20 15 0

HDFC

ICICI

Interpretation: From the above table and graph it can be understood by considering both risk and return factors that the returns are more and risk is less for HDFC securities.

46

CALCULATION OF COVARIANCES COVARIANCE = COV. AB = (∑[RA-RA] [RB-RB]) / N WHERE: RA = Return on A RB = Return on B RA = Expected return on A RB = Expected return on B N = Number of securities COVARIANCE OF BANK SECURITIES PORTFOLIO: CovA,B = ∑(riA-rA) (riB-rB) / n-1 HDFC & ICICI Years

DEVIATIONS OF

DEVIATIONS OF

COMBINED

HDFC (RA-RA)

ICICI (RB-RB)

DEVIATIONS

2012-13

25.564

-19.286

-493.027

2013-14

-57.166

-78.536

4488.018

2014-15

59.644

165.916

8702.895

2015-16

-8.176

-4.456

36.3877

2016-17

-19.896

-43.646

868.3813 15602.65

TOTAL COVARIANCE (COVAB) = 15602.65/5 = 2720.531

47

COEFFICIENT CORRELATION Coefficient of Correlation Coefficient of Correlation is a statistical technique, which measures the degree or extent to which two or more variables fluctuate with reference to one another. Correlation analysis helps in determining the degree of relationship between two variables but correlation does not always imply cause and effect relationship The Coefficient of Correlation is essentially the covariance taken not as an absolute value but relative to the standard deviations of the individual securities. It indicates, in effect, how much X and Y vary together as a proportion of their combined individual variations, measured by SD of X multiplied by SD of Y

48

BETA VALUES SENSEX: Years

Price

Returns (R

Average

)

returns ( R (In %)

( R- R)

(R – R)2

-

-

)

2012-2013

17371.29

-

2013-2014

9568.16

-41.555 15.145

-51.6504

2667.761

2014-2015

17590.17

83.841 15.145

73.74606

5438.481

2015-2016

19290.18

9.665 15.145

-0.43045

0.185291

2016-2017

17058.61

-16.568 15.145

-21.6634

469.304

Total

-

40.383

Standard Deviation = √ Variance Variance

= 1/ (n-1) (R-R) = 1/ (4-1) (8575.731) = 1/3(8575.731) = 2858.57

Standard Deviation = √2858.57 = 53.465

49

8575.731

Correlation between Sensex and HDFC:

Date

Deviations of sensex

Deviations of

Combined

Dsensex = (R-R)

HDFC

Deviations

DHDFC = (R-R)

DsensexDHDFC

2012-2013

-

-

-

2013-2014

-51.650

-57.166

2951.59

2014-2015

73.746

59.644

4398.50

2015-2016

-0.430

-8.176

3.5163

2016-2017

-21.663

-19.896

431.00 7784.61

Total

Correlation between Sensex and ICICI:

Date

2012-2013

Deviations of sensex

Deviations of

Combined

Dsensex = (R-R)

ICICI

Deviations

DICICI = (R-R)

DsensexDICICI

-

-

-

2013-2014

-51.650

-78.536

4056.384

2014-2015

73.746

165.916

15760.57

2015-2016

-0.430

-4.456

1.91

2016-2017

-21.663

-43.646

945.50 17764.38

Total

50

Calculation of Beta Values: β = COV AB /σ m2 Where COVAB = 1/ n-1 (D1D2) σ m2 = Variance sensex 1. HDFC:β = COV sensex, HDFC /Variance sensex COV sensex, HDFC = 1/ 4-1 (7784.61) = 2594.87

Variance sensex = 2858.57 β = 2594.87/ 2858.57 β = 0.912 2. ICICI:β = COV sensex, ICICI /Variance sensex COV sensex, ICICI = 1/ 4-1 (17764.38) = 5254.793

Variance sensex = 2858.57 β = 5254.793/ 2858.57 β = 1.83

51

Calculated Beta Values: COMPANY NAME

BETA VALUE

HDFC

0.912

ICICI

1.838

CONCEPT OF BETA: It is a measure of movement of share price with the movement of market. Beta is positive, if share price moves in the direction of the movement of market. Beta is negative, if share price moves opposite to the direction of market.

Table Depicting All Calculated Values:

ICICI

HDFC

Average returns

20.77

28.74

Standard deviation

86.25

44.55

Covariance

2720.531

2720.531

Beta

1.838

0.912

52

HDFC Bank

Opening and closing values 600

515.7 467.57

Shares price

500 381.28

400 300 200

286.99 186

469.22

387.8

264 189

202.4

opening

closing

150 0 2012-13

2013-14

2014-15 Years

53

2015-16

2016-17

Interpretation: From the above table by considering the opening and closing values it can be clearly stated that almost in 4 years the share value is increasing whereas only in 2013-14 share price has reduced.

Profit/Loss: Profit/loss 200

178.88

170

Shares Price

150.99 79.77

150

41.48

50

Profit/loss

0 1

2

3

4

5

-50 -75

-150

Years

Interpretation: From the above graph it can be clearly stated that investor has enjoyed more profits in 2014-15 and bears loss in 2013-14 as the opening and closing share values fluctuate.

Maximum Profit:

Shares Price

Maximum profit 200 180 170 160 170 150 80 60 40 20 0

184.83

179

165.8 68.28 51

1

2

Maximum profit

3

4

5

Years

Interpretation: From the above graph it can be stated that with the fluctuations in the opening value and highest share price, 2014-15 is the most profitable year for the investor. 54

Maximum Loss:

Maximum loss 20 4

-3.9

0 2012-13

2013-14

2014-15

2015-16 2016-17

Shares price

-20 -40

-30.8 Maximum loss

-60 -80

-68.77

-150 -170

-159.2

Years

Interpretation: From the above graph by considering the difference between opening value and lowest share price, it can be stated that in 2013-14 there was huge loss to investors.

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ICICI bank

Opening and Closing values 1700

1612.25 1615

1500 823

Shares price

960.05

835.2

952 856.05

799.95

800

600 400

opening value 337.85 360

closing value

200 0 2012-13 2013-14 2014-15 2015-16 2016-17 Years

Interpretation: From the above graph by considering the opening and closing values it can be clearly stated that in the year 2012-13 there was a slight change in the market share value and in 2013-14 the share value decreased to Rs.462.1 whereas in 2014-15 it again increased by Rs.600.05. In 2015-16 it increased by Rs.175.25 and again fell down by Rs.253.95 in 2016-17. If the investor is ready to bear more risk then, 2014-15 is favorable year with high returns.

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Profit/Loss

Profit/loss 800 600.05 600

Shares Price

400 175.25

200 17.2

Profit/loss

0 2012-13

2013-14

2014-15

2015-16

2016-17

-200 -253.95

-400 -462.1

-600

Years

Interpretation: From the above graph it can be clearly stated that investor can enjoy more profits in 2014-15 and bear high loss in 2013-14 as the opening and closing share values fluctuate.

Maximum Profit

Maximum profit 700

642

613.5

Shares Price

600 500 400

325

300 200

Maximum profit 170.95

150

27.9

0 2012-13 2013-142014-152015-162016-17 Years

Interpretation: From the above graph it can be stated that with the fluctuations in the opening value and highest share price, 2012-13 is the most profitable year for the investor.

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CHAPTER – V FINDINGS, SUGGESTIONS & CONCLUSION

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FINDINGS:

As far as the returns of the selected banks is concerned, HDFC is comparatively performing well in isolation where as ICICI is performing low.

As far as the Standard deviation of the selected companies is concerned, ICICI is very high where as HDFC is giving less risk. This means that higher the risk, the higher the returns.

The covariance of the ICICI and HDFC is 2720.531. The systematic risk (Beta) of HDFC is 0.912. The systematic risk (Beta) of ICICI is 1.838.

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SUGGESTIONS:

The investor should consider the securities with maximum returns and minimum risk. Thus, it is advisable to invest in HDFC securities since it is resulting in more profits with lesser amount of Risk.

Investors should hold securities which give high returns with less risk.

As an investor, see that there is a negative correlation among the securities.

Do not relay completely on technical analysis.

Investors should give importance to fundamental analysis of securities.

Industrial policy also has a major role in facilitating the growth of the economy.

Holding two or more securities reduce the unsystematic risk.

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Conclusion In the Investing world risk refers to the Chance that an investment’s actual return will differ from the expected return. The most effective way to manage investing risk is through diversification. Although diversification won’t ensures gains or guarantee against losses, it does provide the potential to improve returns based on target level of risk. Finding the right balance between Risk and Return helps ensure to achieve financial goals while still being able to get a GOOD NIGHT’S Sleep..

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Bibliography Information was directly obtained from the interaction with the different personnel by visiting the different ICICI bank premises. However further data has been obtained from the following sources such as 1. Financial statements 2. www. Icicibank.com 3. Annual report of ICICI bank 4. Wikipedia 5. Ali Ataullah (2004). Monetary advancement and bank productivity a relative examination of India and Pakistan. Connected Economics

6. Avinandan Mukherjee (2002). Performance benchmarking and strategic homogeneity of Indian banks. International Journal of Bank Marketing.

7. Barathi Kamath. G (2007). The intellectual capital performance of the Indian banking sector.Journal of Intellectual Capital

8. Chiang Kao (2004). Predicting bank performance with financial forecasts: A case of Taiwan commercial banks.

9. Chien‐Ta Ho (2004). Performance measurement of Taiwan's commercial banks. International Journal of Productivity and Performance Management.

10. Ihsan Isik (2003). Money related deregulation and aggregate factor profitability change: An observational investigation of Turkish business banks. Diary of Banking and Finance

11. Milind Sathye (2003). Efficiency of banks in a developing economy: The case of India. European Journal of Operational Research 62

12. Prashanta Kumar Banerjee (2003). Performance Evaluation of Indian Factoring Business: A Study of SBI Factors and Commercial Services Limited, and Canbank Factors Limited. The Journal of Business Perspective

13. Rasoul Rezvanian (2002). An examination of cost structure and creation execution of business banks in Singapore. Diary of Banking and Finance

14. Shanmugam, K. R. (2004). Effectiveness of Indian business banks amid the change time frame. Connected Financial Economics

15. Sumit K. Majumdar, Pradeep Chhibber (1999). Capital structure and execution: Evidence from a change economy on a part of corporate administration.

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