Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

RISK AND RETURN ANALYSIS OF EQUITY SHARES IN BANKING

21,886 views

Published on

The Risk and return analysis is important to equity shares investors in the share
market. The need of equity shares at the time of preliminary stage of company or
bank to raising fund for establish company and starting a business. The equity share
holder is an actual owner of company or bank.

Published in: Education
  • Login to see the comments

RISK AND RETURN ANALYSIS OF EQUITY SHARES IN BANKING

  1. 1. 1 RISK AND RETURN ANALYSIS OF EQUITY SHARES IN BANKING Project Report Submitted to University of Pune In Partial Fulfillment of Requirement For the Award of Degree of MASTER OF BUSINESS ADMINISTRATION By Gaurav Sasaogi Under the guidance of Mrs. Prof. Shakti Prasad Tiwari Sikkim Manipal University 2013-2015
  2. 2. 2 CERTIFICATE This is to certify that Mr. Gaurav Sasaogi student of SET Academy, Sasaram has completed his field work report at T.sec pvt ltd on the topic of ―Risk and Return Analysis of equity shares in Banking‖ and has submitted the field work report in partial fulfillment of MASTER OF BUSSINESS ADMINISTRATION of the university of Pune for the academic year 2013-2015. He has worked under our guidance and direction. The said report is based on bonafide information. Project guide name Director Date:- Date:- Place:- SASARAM Place:- SASARAM
  3. 3. 3 DECLARATION I hereby declare that the project titled ―RISK AND RETURN ANALYSIS OF EQUITY SHARES IN THE BANKING‖ is an original piece of research work carried out by me under the guidance and supervision of PROF. S.P.Tiwari The information has been collected from genuine & authentic sources. The work has been submitted in partial fulfillment of the requirement of MASTER OF BUSSINESS ADMINISTRATION to Pune University. Place: Signature: Date: Gaurav Saraogi
  4. 4. 4 ACKNOWLEDGEMENT I take immense pleasure in completing this project and submitting the final project report. This project has provided me a platform to acquire a deep understanding of one of the analysis of equity share performance; I am deeply indebted to my institute - SET Academy, Sasaram. To provide me an opportunity to undergo my project, which give me through insight and experience of the corporate culture that will act as stepping stone in my career. . I express my sincere thanks to my project guide Mr. Vaibhav Kulkarni (branch manager , t.sec Pvt. Ltd.) for guiding me through my project, as well as for being my motivator and mentor throughout the project period at t.sec. He helped me with all the resources and information required for the project and provided me with the practical industrial experience, which will be of immense help for me in my future. I am also thankful to our director Mr. A.K.Singh and my project gaide prof. Mr. S.P.Tiwari (Faculty Of SET Academy.) for helping me to complete the project. I am grateful to my parents and friends for their consistent guidance, support and encouragement throughout my work. Last but not the least, I express my gratitude towards all those people who directly or indirectly helped me to complete this project.
  5. 5. 5 Executive Summary The project of risk and return analysis of equity shares in banking has been carried out at thirani securities pvt ltd. The objectives behind that evaluate investment in equity shares of banking sector Banks are selected which is top in NSE. The NSE is a national stock exchange of India located at Mumbai. There are main three indices In national stock exchange that is major indices – S &P CNX nifty, CNX nifty junior and nifty midcap 50. Another is sectoral indices -bank nifty, CNX auto, CNX commodities, and CNX metal like that 25 indices in the NSE. In all these indices select one index that is bank nifty. There are twelve banks in the NSE bank nifty. The main aim of this project is evaluate the risk and return using the technique of standard deviation, beta, correlation, co-variance, net asset value, rate of return, arithmetic mean, and geometric mean return. In this project shows that rate of equity shares of particular bank. The main function of this project is to analyze risk of equity shares compare to return for evaluate the performance of equity shares fund which make investment decision in future regarding shares , funds for individual and corporate . In this project also helpful to equity shares investors as well as help to measure character line of shares related to market portfolio , evaluate the efficiency of management and shares performance through the different model which is use to give rank and star to equity shares of particular bank .
  6. 6. 6 Table of Contents SR. No. TITLE PAGE NO. 1 INTRODUCTION 2 OBJECTIVE OF THE PROJECT 3 COMPANY PROFILE 4 RESEARCH DESIGN & METHODOLOGY 5 THEORTICAL BACKGROUND Concept of equity share and their types Introduction of NSE, nifty 50 bank nifty Measurement technique of risk and return 6 DATA ANALYSIS AND INTERPRITATION Data collection data Analysis 7 CONCLUSION s 8 Limitation future scope 9 SUGGESTIONS 10 Bibliography 11 Annexure
  7. 7. 7 CHAPTER-1 INTRODUCTION
  8. 8. 8 The Risk and return analysis is important to equity shares investors in the share market. The need of equity shares at the time of preliminary stage of company or bank to raising fund for establish company and starting a business. The equity share holder is an actual owner of company or bank. The risk and return analysis is main function of this project. The meaning risk and return as follows: Risk - risk refers to the possibility that the actual outcome of an investment will differ from expected outcome. More specifically, most investors are concerned about the actual outcome being less than the expected outcome. There are many sources of risk i.e. business risk, market risk, interest rate of risk. Return – return is representing the reward for undertaking investment. The returns of an investment consist of two components as under:- 1) Current return 2) Capital return. In this project risk and return calculated using various techniques. The return is calculate using net asset value, rate return, dividend, geographical mean and risk is calculate using co-variance, geometric mean, beta, standard deviation, correlation(using statistical methods).The rate of equity shares has not fixed. The rate of equity shares of particular company or bank is change at every time. The equity share holder either can earn profit or can take risk. This situation is not fixed and hence, here need of risk and return analysis project. In this project selected one sector that is banking (BANK NIFTY) from National Stock Exchange of India (NSE). NSE is the third ranked in the world located at Mumbai. Bank nifty is a one type of indices of national stock exchange. There are more than twenty indices in the national stock exchange. The rate equity shares of top twelve banks has been consider and calculated in bank nifty. Top twelve banks are as under: ICICI Bank, Yes Bank, Bank of India, Bank of Baroda, Union Bank, Punjab National Bank, Kotak Mahindra Bank, State Bank of India, HDFC Bank, Axis Bank, Canara Bank, Induslnd Bank.
  9. 9. 9 CHAPTER-2 Objective of the Project
  10. 10. 10 Saving money is not enough. Each of us also need to invest one‘s savings intelligently in order to have enough money available for funding the higher education of one‘s children, for buying a house, or for one‘s own golden years. But the rapidly growing number of investment avenues often led to confusion. Objectives of the study are to provide information to individual as well as corporate investors regarding their risk, and choosing the best investment options to match their goals and attitude to risk. The Risk and return analysis of equity shares project is helpful to equity shares holders or investors. Equity share holder is a actual owner of the bank or company. The main aim of this project is give perfect suggestion to equity share holders.  Objective of this project is analysis the risk and return of equity shares.  To find out net asset value, rate of return, dividend which is given to equity shareholders.  To compare price of equity shares between two banks in respect of their risk & return.  Analyze the performance of equity shares in banking sector.  To find out weight of various banks in banking sector.  To discover the fundamental analysis tool to estimate the true value of equity share. This value of equity share will be compared to market portfolio, as it is overvalue or undervalue.  Give suggestion to equity shareholders In banking sector which security held and how many money should be allocate to each.
  11. 11. 11 Chapter – 4 RESEARCH DESIGN & METHODOLOGY
  12. 12. 12 Research: Research is a careful investigation or inquiry specially through search for new fact in any branch of knowledge. Once can also define research as a scientific and systematic search for pertinent information on a specific topic. Research methodology: Research methodology is a collective term for the structured process of conducting research. There are many different methodology used in various type of research and the term is usually considered to include research design, data gathering and data analysis. Defining Problem In the current economic scenario interest rates are falling and fluctuation in the Capital market has put investors in confusion. One finds it difficult to take decision on investment. This is primarily, because of investments are risky in nature and investors have to consider various factors before investing in investment avenues. These factors include risk, return, volatility of shares and liquidity. Research Design Project is totally based on descriptive and diagnostic research. It is prepared on structured, way to find out problem under such descriptive/diagnostic research. I have gone through secondary data for technical analysis, calculative study of risk and return equity shares in banking sector.
  13. 13. 13 Sample design:  Universe: universe is the first step of sample design. I have selected bank nifty for analysis of risk and return.  Method of sampling: there are 8 method of sample design. But I have selected deliberate sampling method because the meaning of deliberate sample is select particular unit and I have selected banking sector in National Stock Exchange of India.  Sampling frame: sampling frame is also known as ‗source list‘ from which sample is to be drown. It contains of all items of a universe but here, only one universe i.e. bank nifty.  Sample size: top twelve banks in National Stock Exchange (bank nifty) are selected to analysis the risk and return analysis of equity shares. These top twelve banks are as follows:  ICICI BANK  KOTAK MAHINDRA BANK  STATE BANK OF INDIA  PANJAB NATIONAL BANK  BANK OF INDIA  HDFC BANK  UNION BANK  YES BANK  INDUSLAND BANK  CANRA BANK  AXIS BANK  BANK OF BARODA Types of data: There are two types of data these are follows 1. Primary Data: Primary data can collect through observation or through direct communication with respondents in one form or through personnel interview.
  14. 14. 14 2. Secondary Data: The secondary data related to market portfolio collected through the value research, and NSE website. The secondary data has collected from reference books, company website & various financial websites and newspaper and magazines. Measurement techniques: The Performance of risk and return of equity shares in banking sector (bank nifty) has been evaluated by using the Following techniques:  Rate of Return ,  Risk  Return on market portfolio.  variance  Beta Following techniques is measure by data analysis method in Microsoft excel. First historical data put up in excel sheet then calculate return on daily basis and select data analysis method from data menu. In data analysis method select descriptive statistics.  Standard deviation  Sharpe ratio  Kurtosis  Skewness
  15. 15. 15 Chapter no – 5 Theoretical Background
  16. 16. 16 Concept of equity shares: Shares that carry no preferential or special right in respect of annual dividend and in the repayment of capital at the time of liquidation of the company are called equity shares. These shares carry no preferential rights; therefore, these are also known as common stock or ordinary shares. Dividend on such shares is payable only when there are profit after the payment of preferences dividend. But, the rate of dividend of these shares is not fixed. Board of directors, depending upon the dividend policy as well as the availability of profit after dividend on preference shares, declare dividend. No dividend will be paid on these shares, if there are no profits or insufficient profit in a particular year. The value of these shares in stock exchange fluctuates on the basis of rate of dividend declared. Similarly, these shares are redeemed only after the redemption of preference shares at the time of liquidation of the company. Equity share holders enjoy full voting rights in all market of the company. They have right to elect directors and participate in the management and control of the company. They also share residual profits. Types of equity shares: An equity share, commonly referred to as ordinary share also represents the form of fractional ownership in which a shareholder, as a fractional owner, undertakes the maximum entrepreneurial risk associated with a business venture. The holders of such shares are members of the company and have voting rights. A company may issue such shares with differential rights as to voting, payment of dividend, etc. The various kinds of equity shares are as follows – • Rights Issue/ Rights Shares: The issue of new securities to existing shareholders at a ratio to those already held.
  17. 17. 17 • Bonus Shares: Shares issued by the companies to their shareholders free of cost by capitalization of accumulated reserves from the profits earned in the earlier years. • Preferred Stock/ Preference shares: Owners of these kind of shares are entitled to a fixed dividend or dividend calculated at a fixed rate to be paid regularly before dividend can be paid in respect of equity share. They also enjoy priority over the equity shareholders in payment of surplus. But in the event of liquidation, their claims rank below the claims of the company‘s creditors, bondholders / debenture holders. • Cumulative Preference Shares: A type of preference shares on which dividend accumulates if remains unpaid. All arrears of preference dividend have to be paid out before paying dividend on equity shares. • Cumulative Convertible Preference Shares: A type of preference shares where the dividend payable on the same accumulates, if not paid. After a specified date, these shares will be converted into equity capital of the company. • Participating Preference Share: The right of certain preference shareholders to participate in profits after a specified fixed dividend contracted for is paid. Participation right is linked with the quantum of dividend paid on the equity shares over and above a particular specified level. Government securities (G-Secs): These are sovereign (credit risk-free) coupon bearing instruments which are issued by the Reserve Bank of India on behalf of Government of India, in lieu of the Central Government's market borrowing program. These securities have a fixed coupon that is paid on specific dates on half-yearly basis. These securities are available in wide range of maturity dates, from short dated (less than one year) to long date (up to twenty years). Debentures: Bonds issued by a company bearing a fixed rate of interest usually payable half yearly on specific dates and principal amount repayable on particular date on redemption of the debentures. Debentures are normally secured/ charged against the asset of the company in favor of debenture holders.
  18. 18. 18 Introduction of NSE and nifty 50 The national stock exchange is a stock exchange located at Mumbai, India. It is the 16th largest stock exchange in world by market capitalization and largest in India by daily turnover and number of trades, for both equities and derivates trading. NSE is mutually owned by a set of leading financial institution, banks, insurance companies and other financial intermediates in India. History of NSE: Capital market reforms in India and the launch of the Securities and Exchange Board of India (SEBI) accelerated the incorporation of the second Indian stock exchange called the National Stock Exchange (NSE) in 1992. After a few years of operations, the NSE has become the largest stock exchange in India. Three segments of the NSE trading platform were established one after another. The Wholesale Debt Market (WDM) commenced operations in June 1994 and the Capital Market (CM) segment was opened at the end of 1994. Finally, the Futures and Options segment began operating in 2000. Today the NSE takes the 14th position in the top 40 futures exchanges in the world. In 1996, the National Stock Exchange of India launched S&P CNX Nifty and CNX Junior Indices that make up 100 most liquid stocks in India. CNX Nifty is a diversified index of 50 stocks from 25 different economy sectors. The Indices are owned and managed by India Index Services and Products Ltd (IISL) that has a consulting and licensing agreement with Standard & Poor's. In 1998, the National Stock Exchange of India launched its web-site and was the first exchange in India that started trading stock on the Internet in 2000. The NSE has also proved its leadership in the Indian financial market by gaining many awards such as 'Best IT Usage Award' by Computer Society in India (in 1996 and 1997) and CHIP Web Award by CHIP magazine (1999).
  19. 19. 19 NSE Markets: Currently, NSE has the following major segments of the capital market:  Equity  Futures and options  Retail debt market  Wholesale debt market  Currency futures  Mutual fund  Stocks lending and borrowing NSE Certifications: NSE also conducts online examination and awards certification, under its programmers of NSE's Certification in Financial Markets (NCFM). Currently, certifications are available in 32 modules, covering different sectors of financial and capital markets, both at beginner and advanced levels. The list of the various modules can be found at the following official site of NSE India. Branches of the NSE are located throughout India. NSE, in collaboration with reputed colleges and institutes in India, has been offering a short-term course called NSE Certified Capital Market Professional (NCCMP) since August 2009, in the campuses of the respective colleges/ institutes. Introduction of NSE Nifty 50: NIFTY is an Index computed from performance of top stocks from different sectors listed on NSE (National stock exchange). NIFTY consists of 50 companies from 24 different sectors. NIFTY stands for National Stock Exchange‘s fifty. The companies which form index of NIFTY may vary from time to time based on many factors considered by NSE. NIFTY is for NSE similarly SENSEX is for BSE The S&P CNX Nifty (Nifty 50 or simply Nifty) is a composite of the top 50 stocks listed on the National Stock Exchange (NSE), representing 24 different sectors of the economy. It is a simplified tool that helps investors and ordinary people alike, to understand what is happening in the stock market and by extension, the economy.
  20. 20. 20 Bank nifty and calculation of bank nifty: Bank nifty is the bank index traded in the f & o segment of NSE. It comprises of most liquid banking stock listing on NSE. This is index provides investors and market intermediaries with a benchmark that captures the capital market performance of Indian bank. The index has 12 stocks from the banking sector which trade on the NSE. Bank nifty is the one type of index that is called to CNX BANK INDEX. The base year of bank nifty is 01 Jan 2000. The base value of bank nifty is 1000. There are twelve numbers of scripts that is Bank of india , bank of baroda, state bank of india, union bank, kot ak Mahindra bank, Punjab national bank, indusland bank, canara bank, hdfc bank, icici bank , axis bank and yes bank . Calculation frequency of bank nifty is six seconds and calculated by India Index Services & Products Ltd. (IISL). Calculation of methodology: The index is a free float market capitalization weighted index with base year of Jan 1, 2000, Indexed to a base value of 1000. Formula for BANK NIFTY BANK NIFTY = (Sum of free flow market cap of 12 major stocks of NSE) X Index value in 2000/market cap value in 2000. Market Capitalization and free float market capital is needed to calculation of bank nifty. Market capitalization: Market capitalization is the total worth of all outstanding (issued) shares of a company. It represents the total worth of a company. Market capitalization= No of shares outstanding x market price of share Free Float Market
  21. 21. 21 Free float market capital: Capitalization Free float concept is an index construction methodology which makes use of free float shares in the market. Free float market capitalization is the total worth of all shares of a company which are available for trading in the open market. These shares are called free float shares and are available for trading by anyone. Example: Company ‗X‘ issues 1000 shares, Out of which 200 shares held by government, 500shares by directors of the company and remaining 300 shares are available in the open market for trading. Market price of share is 10 Rs. Here; Total Shares = 1000 Shares Held by Government= 200 Shares Held by Directors = 500 Shares available in the Open Market= 300 Market price of share = 10 Here, total market capitalization of the company is 1000 X 10 = 10000 and Free float market capitalization of the company is 300 X 10 = 3000. According to the rules of NSE any shares which do not fall under the following categories are considered as free float (open market) shares.  Government holding shares as promoters  Holdings by Directors/ Founders  Holdings through the FDI route  Stakes held by private corporate bodies or individuals  Any cross holdings i.e. equity held by associate or group companies.  Equity held by employee welfare trust. Calculation of the free float factors periodically, every listed company has to submit holdings information i.e. who all are holding the shares of the company, to the exchange. Based on this free float factor for each company is calculated.
  22. 22. 22 Free float factor = No of shares available for trading in the open market / Total No of outstanding shares of the company Free float factor of each company has to be rounded off to the higher multiple of 5 and company is considered among one of the free float range. Free Float ranges To calculate NSE bank nifty: BANK NIFTY = (Sum of free flow market cap of 12 major stocks of NSE) X Index value in 2000/market cap value in 2000. For Example: suppose NSE index (BANK NIFTY) consist of only two stocks such as ‗X‘ and ‗Y‘ Company ‗X‘ has 1000 outstanding shares out of which only 500 are available for trading in open market. Market price of share is Rs.100. Company ‗Y‘ has 2000 outstanding shares out of which 1000 shares are held by promoters and remaining 1000 are free float shares (open market shares). Market price of share is Rs.50. Calculation of market capitalization: Stock Issued stock Market price Market cap. X 1000 100 100000 Y 2000 50 100000 Calculation of free float market capitalization: Stock Open market stock Market price Market cap. X 500 100 50000 Y 100 50 50000 Here; Sum of free float market cap of company X and company Y is 50000+50000 = 100000.Assume market cap during 1978-79 is 25000. Now Apply formula; 100000*100/25000 = 400.
  23. 23. 23 Concept of Risk and Return of equity shares: Introduction to Risk and Return Analysis of equity share –Two sides of the Investment Coin People have many motives for investing. Some people investing in order to gain a sense of power or prestige. Often the control of corporate empires is a driving motive. For most investors, However, their interest in investments is largely pecuniary- to earn to return on their money. However, selecting stocks exclusively on the basis of maximization of return is not enough. The fact that most investors do not place available funds into the one, two, or even three stocks promising the greatest return suggest that other factor must be considered besides return in the selection process. Investors not only like return, they dislike risk. Their holding of an assortment of securities attest to that fact. To say that investors like return and dislike risk is, however, simplistic. To facilitate our job of analyzing securities and portfolios within a return- risk context, we must begin with a clear understanding of risk and return. In the current economic scenario dividend (earning) rates are falling and fluctuation in the capital market has put investors in confusion. One finds it difficult to take decision on investment. This is primarily, because of investments are risky in nature and investors have to consider various factors before investing in investment avenues. These factors include risk, return, volatility of shares and liquidity. The main objective of comparing investment in different equity share prices is to analyze the performance of equity share by using risk, return as a parameter. Historical data were taken for calculating risk, return. Analysis has done on percentage method for comparing equity share prices. Financial markets are often hard to understand. Stock prices are highly volatile and difficult to predict, requiring that market participants and researchers devote significant Resources to understanding the behavior of expected returns relative to the risk of stock Market investment.
  24. 24. 24 RETURN: Return is primary motivating force that drives investment. It represents the reward for undertaking investment. Since the game of investing is about returns (after allowing for risk), measurement of realized (historical) returns (ex post facto) is necessary to access how well the investment manager has done. In addition, historical returns are often used as a important input in estimating future (prospective) returns. The amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested. The future is uncertain. Investors do not know with certainty whether the economy will be growing rapidly or be in recession. Investors do not know what rate of return their investments will yield. Therefore, they base their decisions on their expectations concerning the future. The expected rate of return on a stock represents the mean of a probability distribution of possible future returns on the stock. The objective of any investor is to maximize expected returns from his investments, subject to various constraints, primary risk. Return is the motivating force, inspiring the investor in the form of rewards, for undertaking the investment. The importance of return of any investment decision can be traced to the following factor: 1. It enables investors to compare alternative investments in terms of what they have to offer the investor. 2. Measurement of historical returns enables the investors to access how well they have done. 3. Measurement of historical returns also helps in estimation of future returns.
  25. 25. 25 Type of return: There are two types return .these are follows 1. Realized return 2. Expected return 1. Realized Return: This is ex-post (after the return) or return that was or could have been earned. For example - A deposit of 1000 in a bank on Jan 1, at stated annual interest rate of 10%will be worth .1100 exactly a year later. The historical or realized return in this case is 10%. 2. Expected Return: This is return from an asset that investors anticipate or expect to earn over future some period. The expected return is subject to uncertainty, or risk, and may or may not occur. The investors compensates for the uncertainty in returns and the timing of those returns by requiring an expected return that is sufficiently high to offset the risk or uncertainty. Types of Return Expected Return 1. Realized Return
  26. 26. 26 Component of return: There are two components of return. These are followings: 1. Yield/ current 2. Capital Gain 1. Yield/ current: Periodic cash flow (income) such as dividend or interest which is generated by the investment in various instruments. Current return is measured as the periodic income in relation to the beginning price of the investment. 2. Capital Gain: Capital gain means earn income from particular asset-Like equity stock. It is simply measured as price appreciation or depreciation divided by beginning price of the particular security. The capital return can be positive or zero or negative. The periodic (the period may be one month, one week) rate of return on equity shares prices is calculated as follow. priceBeginning IncomeCurrent ldReturn/YieCurrent  0 01 P PP PriceBeginning PriceBeginning-PriceEnding YieldGain/LossCapitalReturn/Capital    Component of return Current / yield return Capital return
  27. 27. 27 Risk: The dictionary meaning of risk is the possibility of loss or injury, the degree or probability of such loss. Risk is the composed of the demand that bring in variations in return of income. The main forces contributing to risk are price and interest. ―RISK‖ as uncertainties resulting in adverse outcome, adverse in relation to planned objective or expansions. Uncertainties associated with risk element impact the net cash flow or any business or investment. Under the impact of uncertainties, variation in net cash flow takes place. This could be favorable s well as unfavorable. The possible is the unfavorable impact is the ―RISK‖ of the business. Definition of Risk – Risk is, “the variability of return around the expected average is thus a quantitative description of risk”. –FISCHER AND JORDON COUSES OF RISK: 1. Wrong decision 2. Wrong timing 3. Nature of instruments 4. Creditworthiness of issuer 5. Maturity period or length of investment 6. Amount of investment 7. Method of investment 8. Terms of leading 9. Nature of industry 10. National and international factor
  28. 28. 28 Classification of Risk: Following are the two broad type risks: 1. Systematic Risk 2. Unsystematic Risk Explanation of above risks as follows: I. Systematic risk: The risk inherent to the entire market or entire market segment Also known as "un- diversifiable risk" or "market risk." Systematic risk is also referred as uncontrollable risk. Systematic is non diversifiable and is associated with the securities market as well as economic, sociological, political and legal considerations of the prices of all securities. RISK 1. Systematic Risk 2. Unsystematic Risk Market Risk Interest Rate Risk Purchasing power Risk Business Risk Financial Risk Internal Risk External Risk
  29. 29. 29 Interest rates, recession and wars all represent sources of systematic risk because they affect the entire market and cannot be avoided through diversification. Whereas this type of risk affects a broad range of securities, unsystematic risk affects a very specific group of securities or an individual security. Systematic risk can be mitigated only by being hedged. Even a portfolio of well-diversified assets cannot escape all risk. There are three type of systematic risk: 1. Market Risk: 2. Interest rate risk 3. Purchasing power risk 1. Market risk: Market risk as that portion of total variability of return caused by the alternating forces of bull and bear markets. When the security index moves upward haltingly for a significant period of time, it is known as bull market, the index moves from a down level to the peak. Bear market is just is a reverse to the bull market, the index decline haltingly from the peak to a market low point called through for a significant period of time. During the bull and bear market more than 80% of the security prices rise or fall along with the stock market indices. 2. Interest rate risk: Interest rate risk is the variation in the single period rates of return caused by the fluctuation in the market interest rate. Most commonly interest rate risk affects the price of bounds, debentures and stocks. The fluctuations in the interest rates are caused by the changes in the government monetary policy and the changes that occur in the interest rates of treasury bills and the government bonds. The bonds issued by the government and quasi government are considered to be risk free. If higher interest rates are offered, investors would like to switch his investments from private sector bounds to public sector bounds.
  30. 30. 30 3. Purchasing power risk: Variations in the returns are caused also by the loss of purchasing power of currency. Inflation is the reason behind the loss of purchasing power. The level of inflation proceeds faster than the increase in capital value. Purchasing power risk is the probable loss in purchasing power of the return to be received. The rise in price penalizes the returns to the investor, and every potential rise in price is a risk to the investor. II. Unsystematic Risk: There are two type unsystematic risks as follows: 1. Business risk 2. Financial risk 1. Business risk: Definition: Risk associated with the unique circumstances of a particular company, as they might affect the price of that company's securities. The possibility that a company will have lower than anticipated profits, or that it will experience a loss rather than a profit. Business risk is influenced by numerous factors, including sales volume, per-unit price, input costs, competition, and overall economic climate and government regulations. A company with a higher business risk should choose a capital structure that has a lower debt ratio to ensure that it can meet its financial obligations at all times. Business risk can be divided can be divided into external business risk and internal business risk. 1. Internal business risk : Internal business risk associated with the operational efficiency of the firm. The operational efficiency differs from company to company.
  31. 31. 31 2. External business risk: External risk is the result of operating conditions imposed in the firm by circumstances beyond its control. The external environments in which it operates exert some pressure on the firm. 2. Financial risk: Financial risk is the amount of chance that is present with any type of financial investment. Typically, the goal is to secure investments that appear to have a low amount of risk since these are more likely to earn a return. Both individual and corporate investors access the degree of risk present before executing an order to buy shares on any investment market. Shareholders usually investigate the degree of financial risk present in any investment deal by exploring both the current and past performance of the stock option. The shareholder will also consider any changes in the current financial climate that could either cause the option to increase dramatically in value or cause the option to drop. Knowing this detail will help the investor determine how owning the option will affect his or her overall financial stability. Corporations also engage in the process of assessing financial risk. In terms of property purchases, there is attention given to the ability to build up equity in the acquisitions, or how to make the most of equity financing strategies. The company will also want to maintain an adequate cash flow, so that even if the acquisition does not appreciate as quickly as projected, the finances of the business remain stable. Financial risk can be divided into: 1. Credit risk: The possibility that a bond issuer will default, by failing to repay principal and interest in a timely manner. Bonds issued by the federal government, for the most part, are immune from default (if the government needs money it can just print more). Bonds issued by corporations are more likely to be defaulted on, since companies often go bankrupt. Municipalities occasionally default as well, although it is much less common. also called default risk. The risk of loss of principal or loss of a
  32. 32. 32 financial reward stemming from a borrower's failure to repay a loan or otherwise meet a contractual obligation. Credit risk arises whenever a borrower is expecting to use future cash flows to pay a current debt. 2. Currency risk: Currency Risk, sometimes referred to as exchange rate risk, is the possibility that currency depreciation will negatively affect the value of one's assets, investments, and their related interest and dividend payment streams, especially those securities denominated in foreign currency. Foreign exchange risk (also known as exchange rate risk or currency risk) is a financial risk posed by an exposure to unanticipated changes in the exchange rate between two currencies. Investors and multinational businesses exporting or importing goods and services or making foreign investments throughout the global economy are faced with an exchange rate risk which can have severe financial consequences if not managed appropriately 3. Country risk: Country risk arises from an adverse change in the financial conditions of a country in which a business operates. There are three type of country risk: 1. Political risk 2. Regulatory risk 3. Economic risk 4. Liquidity risk: The risk is that arises from the difficulty of selling an asset. An investment may sometimes need to be sold quickly. Unfortunately, an insufficient secondary market may prevent the liquidation or limit the funds that can be generated from the asset. Some assets are highly liquid and have low liquidity risk (such as stock of a publicly traded company), while other assets are highly illiquid and have high liquidity risk (such as a house).
  33. 33. 33 Liquidity risk arises from situations in which a party interested in trading an asset cannot do it because nobody in the market wants to trade for that asset. Liquidity risk becomes particularly important to parties who are about to hold or currently hold an asset, since it affects their ability to trade. Techniques of Measuring Return and Risk  Calculation of return In the present study for the estimation of return on assets, the method of continuous compounding has been used. The continuous compounding returns are also known as log returns of an asset for time period ‗t‘ ,defined to be the natural logarithms of its gross return (1 + Rt): In the present study, the actual daily logs returns have been used to predict the daily variance using excel. The daily standard deviation is based on the average of the daily SD of the 36 months (April-2009 march 2012). Then this daily standard deviation has been converted into monthly standard deviation by multiplying the square root of the actual number of trading day. The SD so calculated has been used to calculate risk and further the margins required for the equity portfolio during the April-2009 March 2012 share prices. Hence, in the present study, the daily data for actual trading days have been used to measure volatility and days when the exchange is closed have been ignored. However, the standard deviation for the various portfolios used in the present study is based on the monthly log returns of the portfolio in question.
  34. 34. 34 Risk Adjusted Portfolio Performance: Sharpe Ratio William Sharpe (1966) Sharpe‘s ratio to measure excess return per unit of risk undertaken has been used to measure the performance of equity e based portfolio on bank Nifty. The measure is the ratio of the risk premium of the portfolio, divided by the standard deviation of the portfolio‘s return: "The excess return of a portfolio over the risk free rate divides, by the total risk of the portfolio." p fp rr     rp = rate of return of the portfolio, rf = risk free rate of return over the same interval We are going to use Sharpe ratio for our study purpose and we are going to use 8% rate of interest as risk free rate (though it is highest rate for relative 36 month period). For return of three years: The periodic (the period may be one month, one week) rate of return On equity shares prices is calculated as follow. Dividend Paid (If any) + [price (Ending)-price (Beginning)] Rate of Return= Price (Beginning) R = D + (PE- PB) PB R= Rate of Return D= Dividend received during the period PE=Ending price PB=Beginning price  Variance Co-variance(VCV)Variance Co-variance (VCV) approach assumes that returns of the portfolio are particular distributed such as following a normal distribution, and should be applied for a portfolio which is linear.
  35. 35. 35 Skewness: indicator used in distribution analysis as a sign of asymmetry and deviation from normal distribution Interpretation: Skewness> 0 - Right skewed distribution - most values are concentrated on left of the mean, with extreme values to the right. Skewness< 0 - Left skewed distribution - most values are concentrated on the right of the mean, with extreme values to the left. Skewness = 0 - mean = median, the distribution is symmetrical around the mean. Kurtosis - indicator used in distribution analysis as a sign of flattening or "peakedness" of a distribution. Interpretation: Kurtosis > 3 - Leptokurtic distribution, sharper than a normal distribution, with values concentrated around the mean and thicker tails. This means high probability for extreme values. Kurtosis < 3 - Platykurtic distribution, flatter than a normal distribution with a wider peak. The probability for extreme values is less than for a normal distribution, and the values are wider spread around the mean. Kurtosis = 3 - Mesokurtic distribution - normal distribution for example. Standard deviation The most commonly used measure of risk in finance is variance or its square root the standard deviation. The variance and standard of historical return series are defined as follows
  36. 36. 36 Coefficient of variation it is a measure of risk per unit of expected return. The actual dispersion/variation as determined by standard deviation is called absolute dispersion. The coefficient of variation (cv) is computed by dividing the standard deviation of return, r,for an asset by its expected value, Ṝ. Symbolically, CV= r ÷ R Beta The risk of a well diversified portfolio, as we have seen, it represented by it market risk of the securities included in the portfolio. The market risk of a security reflects it sensitivity to market movement. Such sensitivity of market risk is called as beta (β). As mentioned earlier, the beta for market portfolio is equal to ‗1‘ by definition. Beta =1, it indicates that volatility of return on security is same as the market or index; beta more than one indicates that the security has more unavoidable risk or is more volatile than market as a whole, and beta less than one indicates that the security has less systematic risk or is less volatile than market. A measure of risk commonly advocated is beta. . It should be in range of 0.85 to 1.05. Where, where ra measures the rate of return of the asset, rp measures the rate of return of the portfolio, and cov (ra,rp) is the covariance between the rates of return.
  37. 37. 37 Chapter no. 6- Data Analysis and Interpretation
  38. 38. 38 6.1 Data collection & analysis Risk and return analysis and collected data of those banks which is top twelve in NSE bank nifty. These are follows: 1. Data Collection and risk & return analysis of ICICI BANK Information about ICICI bank ICICI Bank was established in 1994 by the Industrial Credit and Investment Corporation of India, an Indian financial institution, as a wholly owned subsidiary. The bank was initially known as the Industrial Credit and Investment Corporation of India Bank, before it changed its name to the abbreviated ICICI Bank. The parent company was later merged into ICICI Bank. The ICICI bank has issued 1152671363 shares of Rs 10 face value. Free float market capital is Rs. 96014.13 cr. The weight age of ICICI bank is 16.44 in overall banking sector. The total Rs. 37 dividend has given from ICICI bank to his shareholders in past three years. Finding The ICICI BANK is second largest bank on the basis of ROE i.e. 18.7. ICICI bank has allotted 12900 equity shares each under the employee stock option scheme 2000. The share holding pattern of this bank is as govt. holding 0.8 shares (0%), domestic institution(bank + FI + MF +UTI) 319.13 shares (27.7%), foreign holding 722.96(62.7%) shares, Non promoter corporate holding 40.71 (3.5%) shares, public & others (individual + HUF+ Clearing members) 69.99 (6.2%)shares. PE Ratio of this bank is March 2010 – (27.10), march 2011 – (25.90), march 2012-(16.38) and EPS in March 2010- (34.6), march 2011- (43.0), march 2012- (54.2). EPS is increased in March 2012 than other two years.
  39. 39. 39 Return calculated using simple method Factor Amount ,number –% Holding period Return (in three years) 165.407% Beta (Risk) 1.419395261 Covariance 0.743655492 % Of annual return 47.5053027 Return calculated using data analysis method in Microsoft excel Daily Mean return 0.001155985 Standard Deviation 0.026443073 Kurtosis 8.037322622 Skewness 1.160282382 Minimum -0.09967545 Maximum 0.230381068 Confidence Level (95.0%) 0.001901906 0 500 1000 1500 01-Apr-09 1 APRIL 2010 01-Apr-11 31-Mar-12 Shares price Shares price
  40. 40. 40 State Bank of India Information about State Bank of India: State Bank of India (SBI) is the largest banking and financial services company in India by revenue, assets and market capitalization. It is a state-owned corporation with its headquarters in Mumbai, Maharashtra The bank traces its ancestry to British India, through the Imperial Bank of India, to the founding in 1806 of the Bank of Calcutta, making it the oldest commercial bank in the Indian Subcontinent. Bank of Madras merged into the other two presidencies banks—Bank of Calcutta and Bank of Bombay—to form the Imperial Bank of India, which in turn became the State Bank of India in Jul 1, 1955 The SBI bank has issued 671044838 shares of Rs 10 face value. Free float market capital is Rs. 127552.20 cr. The weight age of this bank is 24.89 in overall banking sector. The total Rs. 79 dividend has given from SBI bank to his shareholders in past three years. The share holding pattern of SBI bank is as promoter holding 61.6% shares, govt. holding 0.18% shares, domestic institution(bank + FI + MF +UTI) 17.3% shares, foreign holding 11.2% shares, Non promoter corporate holding (3.7%) shares, public & others (individual + HUF+ Clearing members) 6.2% shares. PE Ratio of SBI bank is March 2010 – (14.78), march 2011 – (21.92), march 2012-(12.32) and EPS in March 2010- (140.7), march 2011- (126.3), march 2012- (170.1). EPS is increased in March 2012 than other two years. Return calculated by using simple method Factor Amount , %, number % annual rate return 33.83800158 Beta (Risk) 0.80629166 Holding period Return (in three years ) 101.897 Covariance 0.422435693
  41. 41. 41 Return calculated by data analysis method in Microsoft excel Factor Amount, number, % Daily Mean return -0.086287404 Standard Deviation 0.023572721 Kurtosis 7.501835526 Skewness 0.907030496 Maximum 0.200266464 Minimum -0.086287404 Confidence Level (95.0%) 0.001694316 CANARA BANK Ammembal Subba Rao Pai, a philanthropist, established the Canara Hindu Permanent Fund in Mangalore, India, on 1 July 1906. The bank changed its name to Canara Bank Limited in 1910 when it incorporated. The CANARA bank has issued 443000000 shares of Rs 10 face value. Free float market capital is Rs. 18014.60 cr. The weight age of CANARA bank is 3.16 in overall banking sector. The total Rs. 21 dividend has given from CANARA bank to his shareholders in past three years. 0 500 1000 1500 2000 2500 3000 01.04.2009 01.04.2010 01.04.0211 31.03.2012 price of shares price of shares
  42. 42. 42 Finding The share holding pattern of CANARA bank is as promoter holding 67.7% shares, govt. holding 0.0% shares, domestic institution(bank + FI + MF +UTI) 11.1% shares, foreign holding 14.8% shares, Non promoter corporate holding 1.5% shares, public & others (individual + HUF+ Clearing members) 4.9% shares. PE Ratio of CANARA bank is March 2010 – (5.70), march 2011 – (7.03), march 2012-(6.55) and EPS in March 2010- (72.0), march 2011- (89.1), march 2012- (72.3). EPS is increased in March 2011 than other two years. Using simple method Factor Amount ,number –% Beta (Risk) 1.214566594 Covariance 0.63630801 Holding period Return (in three years ) 204.03 Co variance 0.636340801 Return calculated by data analysis method in Microsoft excel Factor Amount ,number % Daily mean return 0.001739369 Standard Deviation 0.024827825 Kurtosis 2.558943912 Skewness 0.410765424 Minimum -0.100981502 Maximum 0.151733159 Confidence Level (95.0%) 0.001784528 0 500 1000 price of shares price of…
  43. 43. 43 AXIS BANK: Axis Bank Limited is an Indian financial services firm that had begun operations in 1994, after the Government of India allowed new private banks to be established. The AXIS bank has issued 414368048 shares of Rs 10 face value. Free float market capital is Rs. 46160.60 cr. The weight age of AXIS bank is 7.21 in overall banking sector. The total Rs. 27 dividend has given from AXIS bank to his shareholders in past three years. Finding The share holding pattern of AXIS bank is as promoter holding 37.3 % shares, govt. holding 0.0% shares, domestic institution(bank + FI + MF +UTI) 3.9% shares, foreign holding 36.1% shares, Non promoter corporate holding 1.3% shares, public & others (individual + HUF+ Clearing members) 11.5% shares. PE Ratio of AIXS bank is March 2010 – (19.47), march 2011 – (17.50), march 2012-(11.46) and EPS in March 2010- (60.1), march 2011- (80.2), march 2012- (100). EPS is increased in March 2012 than other two years. Axis bank allotted new 77228 equity shares of 10 each under ESOP scheme of the bank. Data find by using method Factor Amount ,number –% Holding period return 180.33 Beta (Risk) -0.806189418 Covariance -0.422382126 annual return % 51.96747562 Data find by using data analysis method in Microsoft excels. Factor Amount ,number –% Daily Mean return 0.001675387 Standard Deviation 0.025562792 Kurtosis 3.393054172 Skewness 0.641581123
  44. 44. 44 Minimum -0.090399038 Maximum 0.180109157 Confidence Level (95.0%) 0.001837355  Punjab national bank: PNB was founded in the year 1895 at Lahore (presently in Pakistan) as an off-shoot of the Swadeshi Movement. Among the inspired founders were Sardar Dayal Singh Majithia, Lala HarKishen Lal, Lala Lalchand, Shri Kali Prosanna Roy, Shri E.C. Jessawala, Shri Prabhu Dayal, Bakshi Jaishi Ram, Lala Dholan Dass. The K.R. KAMATH is the chairman of PNB. Headquarter of PNB is in the New Delhi, India. The PNB total revenue of is Rs. 36428 Cr ,total Asset is Rs. 373786 Cr, net income 4884 Cr and more than 56928 employee has working in axis bank. The PNB bank has issued 339178683 shares of Rs 10 face value. Free float market capital is Rs25836.94 cr.. The weight age of PNB bank is 4.50 in overall banking sector. The total Rs. 64 dividend has given from PNB bank to his shareholders in past three years. 0 500 1000 1500 01.04.2009 01.04.2010 01.04.2012 31.03.2012 price of shares price of shares
  45. 45. 45 Finding The share holding pattern of PNB bank is as promoter holding 56.1 % shares, govt. holding 0.0% shares, domestic institution(bank + FI + MF +UTI) 21% shares, foreign holding 17.3% shares, Non promoter corporate holding 1.6% shares, public & others (individual + HUF+ Clearing members) 4.1% shares. PE Ratio of PNB bank is March 2010 – (8.43), march 2011 – (8.95), march 2012-(6.59) and EPS in March 2010- (120.2), march 2011- (136.4), march 2012- (140.4). Data find by using method Factor Amount ,number –% Holding period return 1.43746 Beta (Risk) 1.27889643 annualized return % 38.65212856 Covariance 0.670044757 Data find by using data analysis method in Microsoft excels. Factor Amount ,number –% Daily Mean return 0.001308046 Standard Deviation 0.020179573 Maximum 0.144410613 Minimum -0.097964255 Kurtosis 4.461002241 Skewness 0.19910171 Confidence Level (95.0%) 0.001837355 0 1 2 3 4 5 PRICE OF SHARES PRICE OF SHARES
  46. 46. 46  Union Bank: Union Bank of India (UBI) was registered on 11 November 1919 as a limited company in Mumbai and was inaugurated by Mahatma Gandhi. At the time of India's Independence in 1947, UBI still only had four branches - three in Mumbai and one in Saurashtra, all concentrated in key trade centers. After Independence UBI accelerated its growth and by the time the government nationalized it in 1969, it had grown to 240 branches in 28 states. The D.SARKAR is the chairman of UBI. Headquarter of UBI is in the Mumbai, India.The UBI total revenue of is Rs. 21144 Cr, net income 1787 Cr and more than 27746 employee has working in axis bank. The weight age of UBI bank is 1.97 in overall banking sector. The total Rs. 18.50 dividend has given from UBI bank to his shareholders in past three years. . The UBI bank has issued 550549035 shares of Rs 10 face value. Free float market capital is Rs. 10972.44 cr. Finding The share holding pattern of UBI bank is as promoter holding 54.4% shares, govt. holding 0.0% shares, domestic institution(bank + FI + MF +UTI) 19.6% shares, foreign holding 9.5% shares, Non promoter corporate holding 7.8% shares, public & others (individual + HUF+ Clearing members) 8.8% shares. PE Ratio of UBI bank is March 2010 – (7.30), march 2011 – (9.07), march 2012-(7.59) and EPS in March 2010- (40.1), march 2011- (38.3), march 2012- (30.9). By using simple method Factor Amount ,number –% Holding period return 72.699 Covariance 0.309187404 Beta (Risk 0.590137693 % annual return 25.70128008 By using data analysis in Microsoft excel
  47. 47. 47 Factor Amount ,number –% Daily mean return 0.000915371 Standard Deviation 0.023881869 Kurtosis 3.036543972 Skewness 0.212987217 Minimum -0.114381131 Maximum 0.145678306 Confidence Level(95.0%) 0.001716537  BANK OF INDIA Bank of India was founded on September 7, 1906 by a group of eminent businessmen from Mumbai. In July 1969 Bank of India was nationalized along with 13 other banks. The weight age of BOI bank is 1.97 in overall banking sector. The total Rs. 19 dividend has given from BOI to his shareholders in past three years. The BOI bank has issued 573780370 shares of Rs 10 face value. Free float market capital is Rs. 19301.97 cr. 0 100 200 300 400 price 0f shares price 0f shares
  48. 48. 48 Finding The share holding pattern of BOI bank is as promoter holding 62.7% shares, govt. holding 0.0% shares, domestic institution(bank + FI + MF +UTI) 16.1% shares, foreign holding 15.4% shares, Non promoter corporate holding 0.5% shares, public & others (individual + HUF+ Clearing members) 5.3% shares. PE Ratio of BOI bank is March 2010 – (10.66), march 2011 – (10.78), march 2012-(7.94) and EPS in March 2010- (32), march 2011- (44.4), march 2012- (45.5). By using simple method : Factor Amount ,number –% Holding period return 73.24 Covariance 0.252283445 Beta (Risk 0.481526634 % annual return 28.79060666 By using data analysis method in Microsoft excel: Factor Amount ,number –% Daily mean return 0.001012583 Standard Deviation 0.026318768 Kurtosis 3.838497318 Skewness 0.33896296 Minimum -0.123544552 Maximum 0.175197249 Confidence Level(95.0%) 0.001891692 0 200 400 600 price 0f shares price 0f shares
  49. 49. 49  KOTAK MAHINDRA BANK Kotak Mahindra Bank is an Indian financial service firm established in 1985. It was previously known as Kotak Mahindra Finance Limited, a non-banking financial company. In February 2003, Kotak Mahindra Finance Ltd, the group's flagship company was given the license to carry on banking business by the Reserve Bank of India (RBI). Mr. Uday Kotak is Executive Vice Chairman & Managing Director of Kotak Mahindra Bank Ltd. The Bank has its registered office at Nariman Bhavan, Nariman Point, Mumbai. The Kotak Mahindra Bank total revenue of is Rs. 10963 Cr, net income 1569 Cr.The weight age of KMB bank is 7.27 in overall banking sector. The total Rs. 2.2 dividend has given from KMB bank to his shareholders in past three years. The KMB bank has issued 741318752 shares of Rs 10 face value. Free float market capital is Rs. 41977.17 cr. Finding The share holding pattern of KMB bank is as promoter holding 45.2% shares, govt. holding 0.0% shares, domestic institution(bank + FI + MF +UTI) 4.5% shares, foreign holding 34.3% shares, Non promoter corporate holding 3.7% shares, public & others (individual + HUF+ Clearing members) 512.7% shares. PE Ratio of BOI bank is March 2010 – (46.29), march 2011 – (41.38), march 2012-(37.28) and EPS in March 2010- (16.2), march 2011- (11), march 2012- (14.6). By using simple method: Factor Amount ,number –% Holding period Return 82.73 Covariance 0.596548881 Beta (Risk 1.127164786 % annual return 40.54102406 By using data analysis method in Microsoft excel:
  50. 50. 50 Factor Amount ,number –% Daily main return 0.001362244 Standard Deviation 0.031263489 Kurtosis 73.45010046 Skewness -4.182872239 Minimum -0.474092066 Maximum 0.191384251 Confidence Level (95.0%) 0.009729918  YES BANK Yes Bank is a private bank in India established in Dec 24, 1944. It was founded by Ashok Kapur and Rana Kapoor. India's No. 1 New Private Sector Bank in the Financial Express-E&Y Best Banks Survey 2010, India's Fastest Growing Bank of the Year at the Bloomberg UTV Financial Leadership Awards 2011. YES Bank has become the first Indian Bank, and the third one globally in the banking industry to receive certification for its 'Complaints Management System by the British Standard's Institution (BSI) as on August 25, 2010. Mr. Ranna Kapur is a chairman of yes bank and headquarters in Mumbai, India. Yes bank Deposits is Rs. 150000 Cr, advances Rs. 100000 and more than 750 branches. The weight age of YES bank is 2.01 in overall banking sector. The total Rs. 4 dividend has given from YES bank to his shareholders in past three years. The YES bank has issued 353859174 shares of Rs 10 face value. Free float market capital is Rs. 11944.52 cr. 0 200 400 600 800 price 0f shares price 0f shares
  51. 51. 51 Finding The share holding pattern of YES bank is as promoter holding 26.1% shares, govt. holding 0.0% shares, domestic institution(bank + FI + MF +UTI) 14.2% shares, foreign holding 43.2% shares, Non promoter corporate holding 1.5% shares, public & others (individual + HUF+ Clearing members) 14.7% shares. PE Ratio of YES bank is March 2010 – (18.45), march 2011 – (15.09), march 2012-(13.59) and EPS in March 2010- (13.8), march 2011- (20.5), march 2012- (27). By using simple method: Factor Amount ,number –% Holding period return 621.58 Covariance 1.525439863 Beta (Risk 2.911566091 % annual return 115.5779277 By using data analysis method in Microsoft excel: Factor Amount ,number –% Daily main return 0.003077334 Standard Deviation 0.029973022 Kurtosis 6.616008567 Skewness 1.126800731 Minimum -0.084575026 Maximum 0.252488214 Confidence Level (95.0%) 0.002154345  INDUSLAND BANK0 100 200 300 400 price 0f shares price 0f shares
  52. 52. 52 IndusInd Bank Limited is a Mumbai based India new generation bank established in 1994. The bank offers commercial, transactional and electronic banking products and services. Indusind Bank was incorporated in April 1994 by Dr. Manmohan Singh the then Union Finance Minister. HINDUJA GROUP is a owner of INDUSLAND bank and headquarters in Mumbai, India. The INDUSLAND bank total revenue of is Rs. 3260.47 Cr, net income 1569 Cr.The weight age of INDUS bank is 2.01 in overall banking sector. The total Rs. 5 dividend has given from INDUS bank to his shareholders in past three years. The INDUS bank has issued 468697800 shares of Rs 10 face value. Free float market capital is Rs. 14843.66cr. Finding The share holding pattern of INDUS bank is as promoter holding 19.4% shares, govt. holding 0.0% shares, domestic institution(bank + FI + MF +UTI) 8.7% shares, foreign holding 49.4% shares, Non promoter corporate holding 13.5% shares, public & others (individual + HUF+ Clearing members) 9.1% shares. PE Ratio of INDUS bank is March 2010 – (20.74), march 2011 – (21.85), march 2012-(19.10) and EPS in March 2010- (8.2), march 2011- (12.1), march 2012- (16.8). By using simple method: Factor Amount ,number –% Holding period return 1042.1 Covariance 1.90074466892 Beta (Risk 3.627904537 % annual return 148.6815976 By using data analysis method in Microsoft excel: Factor Amount ,number –%
  53. 53. 53 Daily main return 0.00365066 Standard Deviation 0.029370401 Kurtosis 2.745755477 Skewness 0.687598483 Minimum -0.117439812 Maximum 0.173076923 Confidence Level(95.0%) 0.002111031  BANK OF BARODA The Maharajah of Baroda, Sir Sayajirao Gaekwad III, Peshwa of the Maratha Empire, founded the bank on 20 July 1908 in the princely state of Baroda, in Gujarat. The bank, along with 13 other major commercial banks of India, was nationalised on 19 July 1969, by the government of India. The tagline of Bank of Baroda is "India's International Bank". M.D.MALLYA is a chairman and of MD of BOB and headquarters in VARODARA, India. The BOB total revenue of Rs. 29673 Cr, net income 5006 Cr and total asset 355826 Cr. The weight age of BOB bank is 2.014.93 in overall banking sector. The total Rs. 40.5 dividend has given from BOB bank to his shareholders in past three years. The INDUS bank has issued 411123383 shares of Rs 10 face value. Free float market capital is Rs. 28661.23cr. Finding 0 100 200 300 400 price 0f shares price 0f shares
  54. 54. 54 The share holding pattern of BOB bank is as promoter holding 54.3% shares, govt. holding 0.0% shares, domestic institution(bank + FI + MF +UTI) 19.7% shares, foreign holding 14.3% shares, Non promoter corporate holding 6.6% shares, public & others (individual + HUF+ Clearing members) 5.0% shares. PE Ratio of BOB bank is March 2010 – (7.87), march 2011 – (9.15), march 2012-(6.69) and EPS in March 2010- (81.2), march 2011- (105.3), march 2012- (118.7). By using simple method: Factor Amount ,number –% Holding period return 25.98 Covariance 0.604022505 Beta (Risk 0.316461993 % annual return -5.794854586 By using data analysis method in Microsoft excel: Factor Amount ,number –% Daily main return -0.000238753 Standard Deviation 0.021945114 Kurtosis -1.003351644 Skewness 0.081854023 Minimum -0.038107128 Maximum 0.034834601 Confidence Level (95.0%) 0.009729918  HDFC BANK 0 200 400 600 800 1000 price 0f shares price 0f shares
  55. 55. 55 HDFC Bank was incorporated in 1994 by Housing Development Finance Corporation Limited (HDFC), India's largest housing finance company. It was among the first companies to receive an 'in principle' approval from the Reserve Bank of India (RBI) to set up a bank in the private sector. ADITYA PURI is and of MD of HDFC and headquarters in Mumbai, Maharashtra, India. The weight age of HDFC 21.64 bank is in overall banking sector. The total Rs. 38.5 dividend has given from HDFC bank to his shareholders in past three years. The HDFC bank has issued 2353772335 shares of Rs 10 face value. Free float market capital is Rs. 125879.74cr. Finding The share holding pattern of HDFC bank is as promoter holding 23.1% shares, govt. holding 0.0% shares, domestic institution(bank + FI + MF +UTI) 10.7% shares, foreign holding 49% shares, Non promoter corporate holding 8.6% shares, public & others (individual + HUF+ Clearing members) 8.7% shares. PE Ratio of HDFC bank is March 2010 – (30.95), march 2011 – (28.67), march 2012-(24.39) and EPS in March 2010- (62.4), march 2011- (81.7), march 2012- (21.3). By using simple method: Factor Amount ,number –% Holding period return 44.16% Covariance 0.582270412 Beta (Risk 1.111363894 % annual return 9.318692349
  56. 56. 56 By using data analysis method in Microsoft excel: Factor Amount ,number –% Daily main return 0.000356452 Standard Deviation 0.034173073 Kurtosis 403.4449193 Skewness -17.0413256 Minimum -0.799202286 Maximum 0.163002658 Confidence Level (95.0%) 0.002456229 0 500 1000 1500 2000 2500 price 0f shares price 0f shares
  57. 57. 57 Analysis On the basis of Sharpe ratio, the INDUSLND Bank investment is better investment than other all banks in bank nifty because, Sharpe ratio is indicate that, the asset with the higher Sharpe ratio gives more return for the same risk. Investors are often advised to pick investments with high Sharpe ratios. Hence, here in last three years INDUSLND bank has given more return than other banks i.e. 11.75%. If share price of INDUSLND bank is low still INDUSLND bank has given better return than other banks. In starting of financial year 2009 share price of INDUS bank is 28.6 and in ending 2012 share price is 321.65. That means Investment in INDUS bank is better. On the basis of holding period return of INDUS bank is higher i.e.1042.10%. The beta (systematic risk) is 3.6379 higher than other banks. The beta is indicating that High-beta stocks are supposed to be riskier but provide a potential for higher returns; low-beta stocks pose less risk but also lower returns. In last three year maximum daily return is 0.0348 and minimum daily return -0.03811. Risk and return of INDUS bank is high than other banks in last three years. Because INDUS bank has given more return in last three years. If return is high then risk automatically high. Second best bank is yes bank because yes bank holding period return is 621.78%. And Sharpe ratio is 9.60%. The beta of yes bank is 1.2790. So yes bank is second biggest risky but yes bank is better for investment because yes bank has given second rank high return.
  58. 58. 58
  59. 59. 59
  60. 60. 60 Chapter no: 8 Limitation / Future scope
  61. 61. 61 Scope of the study The project primarily deals with equity shares; the study is limited to compare different banks equity shares in respect of their risk, & return. The study covers only twelve banks which are listed in bank nifty. The analysis is strictly based on unit price and benchmark information. In this project has studied (analysis) risk and return analysis of equity shares only twelve banks. This project is helpful to banking sector equity share investors in banking sector. Limitations of the study  The time period of project is limited only two months. In that period project can not done successfully.  The study of project is limited only twelve banks which is listed in bank nifty. Those national banks are not considered which is not listed in bank nifty. I.e. bank of Maharashtra, UCO Bank, FEDERAL Bank.  Risk of equity shares are calculated only using beta and standard deviation technique.  The studies of this project depend upon only three years historical data.
  62. 62. 62 Chapter no: 10 Bibliography
  63. 63. 63 Books Dealer capital market module (advance) – NSE Website www.nseindia.com www.moneycontrol.com www.indiainfoline.com www.rediffmail/money.com

×