sharekhan sumit

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A Project on

Comparative Analysis of Growth of Equity

Sectors with respect to Indices

In Sharekhan

A report submitted to Delhi Business School,

New Delhi

As a part fulfillment of

M.B.A.+ Post Graduate Program(Industry Integrated)in

Entrepreneurship & Business.

Submitted to: Submitted

by:

Director Academics Name of

Student:Sumit Sharma

Delhi Business School Roll No

:DBS/0810/221

New Delhi Batch

:Winter 2008-10

Semester:1st

University:Panjab Technical University

Internal guide:

Faculty:Mr. Ravi Prakash

Delhi Business School,


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New Delhi

Delhi Business School

B-2/58,M.C.I.E.,Matura Road,New Delhi

Website:www.dbs.edu.in

Acknowledgement

I take this opportunity to express my deep

sense of gratitude to my superiors Mr Kapil

Lakhera and Mr. Mannu Kumar for their

guidance and other members of the

organization for extending their valuable

support and help in the preparation of this

project report.


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I am also thankful to my friends for

extending their co-operation in completion of

this project report.

Date:

Signature

Declaration


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I, Sumit Sharma, declare that this project

report entitled Comparative Analysis of

Growth of Equity Sectors with respect toIndices is an original piece of work done and

submitted by me towards partial fulfillment of

my Post Graduate Diploma in Business

Administration, under the guidance of Mr

Kapil Lakhera and Mr. Mannu Kumar.

Date:

Signature

CONTENTS


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1. CHAPTER - I INTRODUCTION

- Scope of the Study

- Objectives of the Study

- Literature Review

2. CHAPTER - II ORGANISATIONAL PROFILE

- Industry Profile

- Company Profile

3. CHAPTER III METHODOLOGY AND LIMITATION

- Sources of Data

- Tools and Techniques use

4. CHAPTER IV ANALYSIS OF DATA

5. CHAPTER V INTERPRETATIONS AND FINDINGS

6. CHAPTER VI RECOMENDATIONS

BIBLIOGRAPHY


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CHAPTER-1

INTRODUCTION

Introduction

About Indian Economy


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The government has rightly chosen more inclusive and faster growth

as the goal of eleventh five year plan. The Union Budget for the next

fiscal year is both forward looking and populist. But proactive policy

can make the latter giveaways quite manageable, if economic growth

momentum can be sustained into medium term and beyond. It has

made constant effort to propel growth through increased investment

and consumption expenditure in order to boost domestic demand by

providing an extra disposable income in the common mans hand that

wil prove conducive for propelling the economy at the expected 8.9%

levels. Increased private sector participation should provide a fillip. In

the current environment of stronger rupee precious metals is likely to

continue their rising streak. In line with the expectation, precious

metals like gold and silver have substantially risen.

The macroeconomic fundamentals of Indian economy continue to

inspire confidence. This is reflected in an average growth rate of 8.8

percent in the last three years. But the challenges for Indian growth

story have become more complex due to global uncertainties. The

drivers of economic growth continue to be Services and

Manufacturing which are estimated to grow at 10.7 percent and 9.7

percent respectively, though a few segments of manufacturing sector

pose a threat to the growth story.

In the backdrop of moderate slowdown in the industrial sector, the

finance minister delivered a growth oriented budget for 2008-09 by

providing a boost to Investment and Consumption expenditure. The

budget while providing an impetus to augment social infrastructure by

focusing on health and education, has also provided tax sops and

allocated resources to revive growth in the manufacturing sector which

has been hit by a slowdown.


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Industrial production has contracted in the last few months which has

been attributed to slowdown in capital goods and some segments of

consumer durables. But industrial production is expected to increase in

coming years due to fiscal stimulus provided by the finance minister to

individual tax payers and the corporate sector. In case of individual tax

payers the increase of threshold limit of exemption of personal income

tax has significantly increased the disposable income in the hands of

consumers that in turn would stimulate production.

The BSE Sensex rallied at the beginning of February 08, but failed to

maintain its momentum on global cues and increase in short term

capital gains tax announces in the budget. On a fiscal front, buoyantgrowth of government revenues made it possible to maintain fiscal

consolidation as mandated under the Fiscal Responsibility and Budget

Management (FRBM) Act.

Therefore it is of opinion that if the economy has to grow past 8.5% on

sustainable basis, the government has to carry out structural reforms

in the areas of insurance, retail, coal, mining, fertilizers and sugar as

envisaged in the Economic Survey. This involves raising foreign equityin insurance to 49 percent, allowing 100 percent FDI in the private-

rural agricultural banks, listing of all listed public sector enterprises

and phasing our control on sugar and fertilizers.

Inflation

The Reserve Bank of India has effectively contained the inflation

expectations in 2007 by managing the WPI inflation down from 6.6% in

Feb 2007 to around 4% in Dec 2007. This is attributed to the

moderation of prices of primary food articles and some manufactured

products.


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Today the inflation levels touch about approximately 8%. This increase

is basically driven by prices of food as well as manufactured products.

With this there is a increase of 6.28% in prices of primary articles,

5.64% in prices of fuel and 4.33% in prices of manufactured products.

On a week to week basis, rise has been triggered by increase in

prices of Food articles group which rose by 1.7% due to higher prices

of fish marine, mutton, fruits and vegetables etc.

Industry Production

Industrial production dropped sharply in the month of January 2008

owing to sluggish performance in the manufacturing sector. The

general index for the month of January 2008 showed a growth of only

5.3% compared to growth of 11.6% in January 2007. This was the third

successive month of low growth. In Dec 07, the industrial production

grew by 7.7%. The lower growth has been contributed by sluggishness

in the manufacturing and mining sector. Cumulatively, industrial

production showed a growth of 8.7% between April-January 2007-08,

with 9.2% growth for manufacturing, 4.6% for mining and 6.3% for

electricity. Lagged impact of interest rate increases and decrease in

global demand have been affecting industrial growth in the last few

months.

Growth in the manufacturing sector declined to 5.9% in Jan08 as

against 12.3% in Jan07, and growth in mining declined to 1.8% as

against 7.7% in Jan07. Electricity sector recorded a moderate growth

of 3.3% as against 8.3% in Jan07.

Increases in interest rates over the last two years is impacting the

consumer durable and capital goods sector as consumer durables

production, including washing machine and television sets, fell 3.1% in

January after increasing 5.3% a year earlier and output of capital goods


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increased by a meager 2.1% compared with 16.3% a year ago. Also

indices for machinery and equipment showed a sharp fall of 3.8% in

Jan 08 against 10.7% growth in Dec 07.

Rupee Outlook

Massive FII inflows and slumping US dollar in 2007 led to significant

appreciation of rupee. This led to curbing of inflows through external

commercial borrowing and participatory notes measures and has led to

stabilization of the rupee US $ movement. The outlook for the US

dollar is expected to be weak in an aggressive easing stance adopted

by the US Fed.

Fed easing cycle since September 2007 has led to Hold/Softening

stance across various Central Banks globally. Global uncertainties

triggered by increase chances of US recession and increasing

commodity prices have led to risk aversion among investors across the

globe which has impacted Indias equity and debt market. In the first

two months of 2008, net investment has been $2802mn in equity and

$1103mn in debt respectively against $1173mn in equity and $268mn

in debt respectively in the same period last year.

Trade Outlook

Indias merchandise exports showed a growth of 21.62% during the

first ten months of period of April January 2008 to US$ 124.19bn.

Exports showed a growth of 20.47% for Jan 08 to US$ 13.14bn

compared to US$ 10.90bn Jan 07. Exports have not performed well so

far due to 12% rupee appreciation that has affected the

competitiveness of the export focused industries.


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Labour intensive sectors like textiles, leather, handicrafts and marine

products have been hit the most in recent times.

Scope of Study

This analysis attempts to study the growth pattern of equity sectors,

such as Banking and Information Technology when compared to its

sectoral indices and the national index S&P CNX Nifty. The analysishereby done attempts to prepare a report on the behavior of share

prices of major companies Banking and Information Technology

Sectors, so that a investor can prepare and well diversified portfolio

and logically forecast about the behavior of the share market and

invest in a manner so as to make a lucrative deal and earn a maximum

possible capital gain from the market. Moreover the study also gives a

comparative analysis of the above stated sectors with their respectivesectoral index and the national index so that a investor wanting to

invest in these sectors can check the past performance and behavior

of major companies in these sectors and analyze their growth trends

before investing making a investment in the stock market.

Objective of Study

To study and analyze the growth trend of Banking and Information

Technology sector over the period of Aug 2002 to April 2008.


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To study the relationship between the national index S&P CNX Nifty,

Sectoral Index and the share prices of the major industries in this

sector.

To examine the major reasons of fluctuations in share prices in the

stock market.

Attempt to provide a direction to a investor to analyze and forecast

the stock market so as to make the best possible lucrative deal byinvesting in stocks.

Literature Review

By utilizing the secondary data available for the analysis, this report

attempts to analyze the growth trends of some equity sectors over the

period of Aug 2002 to April 2008, in order to provide with the past

information the growth trends of the share market in the past, thereby

giving a direction to forecast the future in a logical manner.


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CHAPTER-2

ORGANIZATIONPROFILE


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Industry Profile

The Indian financial sector is on a roll. Driven by a strong investor

interest and an expanding market, the Indian stock market rose to

record levels, with the popular sensex crossing 21,000 and Nifty

crossing the 6,000 mark for the first time.

The industry is also becoming more vibrant, with new types of products

and services being offered to meet the needs of the booming

economy. For example, in the derivatives market, the notional

principal amount outstanding has more than trebled between March

2005 and June 2007 to US$ 24.09 billion from US$ 6.836 billion.

The buoyancy in the economy is also estimated to lead to a four-fold

increase in India's investable wealth from US$ 250 billion in 2007 to

US$ 1 trillion. Simultaneously, according to a report by Celent, an

international consultancy firm, India's wealth management will rise to

an estimated 42 million by 2012 from about 13 million in 2007.


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Clearly, there is huge potential in this segment. Significantly, wealth

management revenues are expected to account for 32-37 per cent of

the total full-service financial institutions by 2012. The market is also

expected to undergo a structural transformation with organized

players increasing their market share.

Stock Markets

The year 2007 saw Indian stock markets scaling new peaks. It has

emerged as the third best performing market in the world with a dollar

return of 71.23 per cent. The popular Bombay Stock Exchange (BSE)

benchmark index, sensex, also posted its highest ever absolute gain of 6500 points in over two decades.

This performance of Indian stock markets has led to the total investor

wealth of Bombay Stock Exchange (BSE) surging to a record high of

over US$ 1.7 trillion, with an average increase of over US$ 10.18

million in every minute of trading during 2007. At the end of 2006, the

total market capitalisation stood at US$ 812 billion.

Simultaneously, the National Stock Exchange (NSE) has climbed to the

top spot in stock futures contracts and number-two slot in the index

futures segment in the world.

According to Ernst & Young, India was also the fifth largest market in

terms of number of IPOs and seventh largest in terms of the proceeds

for the year. Indian companies raised a whopping US$ 11.48 billion

through public issues in 2007, which is 83 per cent higher than US$

6.28 billion mobilized in 2006.

The robust performance of the Indian stock markets can also be seen

in the huge increase in the funds mobilised by the corporate India.


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During 2007-08, India Inc mobilised a whopping US$ 8.13 billion

through issue of shares on rights issue, which is almost an eight-fold

increase over US$ 926.32 million raised in 2006-07. In fact, the

mobilisation of the funds in 2007-08 was more than the combined

mobilisation of the preceding 12 years.

Simultaneously, a whopping US$ 13.07 billion has been raised through

by India Inc through public issues, according to data compiled by Prime

Database. This is almost twice that of US$ 6.25 billion mobilised in

2006-07 and the highest ever in the last six years. While initial public

offerings mobilised US$ 10.34 billion (about 79.14 per cent), follow-on

public issues mobilised US$ 2.53 billion.

The flurry of fund raising activity by the companies on the Indian stock

exchange is likely to continue in 2008-09. Already, 125 companies

have filed their draft offer documents (including rights and follow-on

issues) with the Securities and Exchange Board of India (SEBI), to

jointly raise around US$ 5.14 billion. These include: JSW Energy,

Jaiprakash Power Venture, Adani Power, Bharat Oman Refineries and

Future Ventures India among others.

Private Equity

The year 2007 was a watershed for private equity market, which has

emerged as the most preferred mode of fund mobilization for India Inc.

The capital mobilised through this route was higher than the funds

mobilized through IPOs, follow-on issues and qualified institutional

placements put together.

India, in fact, topped the Asia private equity chart for the first time in

2007 in terms of aggregate deal value. According to Grant Thornton, a

total of US$ 17.14 billion was mobilised through 386 deals by India Inc


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in 2007, compared to US$ 7.8 billion in 2006. Real estate,

infrastructure, banking and financial services were the dominant

sectors attracting about 55 per cent of the total private equity

investments.

The growth continues apace in 2008. During January-March 2008,

private equity firms invested about US$ 3.3 billion across 97 billion,

which was 22.22 per cent higher than the US$ 2.7 billion clocked in the

corresponding period last year.

A study by global consulting firm Boston Analytics, the average deal

size has increased from US$ 8.4 billion in 2003 to US$ 36.8 billion in

2007. And driven by the robust economic growth and attractive market

valuations, private equity investments are estimated to continue

strongly through 2010.

Structured Finance

India has emerged as the fastest growing market in the Asia-Pacific

region for structured finance, a process of arranging funds by banksand other entities through partly selling their loan books. It was also

the second largest market for domestic issuance in the structured

finance market.

Within this market, Asset Backed Securities (ABS) market has been the

dominant segment than Residentially Market Backed Securities

(RMBS). This market has been growing at a frenetic pace ever since

the RBI issued revised guidelines on securitisation in 2006.

For example, according to Moody's Investors service, domestic

structured finance transactions grew by a whopping 90 per cent during

the first half of 2007 to US$ 5.5 billion compared to US$ 2.9 billion in


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the corresponding period in 2006. While ABS accounted for 64 per cent

of the total issuances, securitisation of single corporate loans

accounted for 20 per cent.

Mutual Funds

India is also one of the fastest growing market for mutual funds

industry attracting a host of global players. The combination of

increasing number of fund houses (along with new schemes) and

increase in the number of people parking their savings in mutual funds

has resulted in total funds mobilisation increasing at a whopping

124.93 per cent during 2007-08 to stand at US$ 1.11 trillion as againstUS$ 485.13 billion in 2006-07.

The average assets under management (AUM) of the mutual fund

industry for March 2008 stood at US$ 134.76 billion as against US$

89.86 billion at the end of 2006, representing a year on year growth of

49.96 per cent.

With accelerating investor interest shown in mutual fund segment, thenumber of investor folios of the MFs increased to 43.7 million at the

end of March 2008, from 27.9 million at the end of January 2007 (a

growth rate of 54 per cent). Simultaneously, there has been an

increase in the number of distributors to 72,108 (excluding 107 banks)

till March 2008 from 54,000 in January 2007.

In the new fiscal year (200809), the growth momentum of the mutual

fund industry continues. Total fund mobilisation has increased by a

whopping 84.08 per cent to US$ 221.73 billion during AprilMay 2008,

compared to US$ 120.45 billion in AprilMay 2007. Consequently,

average AUM of the mutual fund industry has increased to US$ 140.04


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billion for May 2008, against US$ 90.1 billion in the corresponding

period in 2007.

Continuing the growth, the Indian mutual funds market is estimated to

grow at a CAGR of 18 per cent in the next five years, with the countrys

mutual funds assets expected to more than double to US$ 298.73

billion by 2012, according to a report by US-based financial services

research and consulting firm Cerulli Associates. Consequently, there

would be an entry of about 15 new fund houses, in addition to the 33

fund houses already in operation by the end of 2007.

Banking The burgeoning economy, surging foreign investment, financial sector

reforms and a favourable demographic profile has led to the Indian

banking industry emerging as one of the fastest growing in the world.

The industry's business grew at a CAGR of 20 per cent from US$

471.11 billion as of March 2002 to US$ 1175.61 billion by March 2007.

Significantly, the newly licensed private sector business has grown

almost twice (1.75 times) as that of banking industry as a whole,

leading to their share in total banking business increasing from 9 per

cent in 2001-02 to 16 per cent in 2006-07.

This boom in the banking industry has propelled nine Indian banks to

the list of top 50 Asian Banks, as per this year's Asian Banker 300

report. Similarly, seven Indian microfinance institutions find place in

Forbes list of World's Top 50 Microfinance Institutions.

Despite such impressive performance, the potential for further growth

is huge considering the fact that India has second largest financially

excluded households (about 135 million) in the world. In fact,


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according to Boston Consulting Group, India is the fastest growing

incremental revenue pool in the world.

Debt Market

While the Indian financial sector was dominated by the stellar

performance of the stock markets, the Indian debt market had its own

share of excitement. India Inc increased its collections through the

debt market by as much as 53.84 per cent to US$ 20 billion in 2007

from US$ 13 billion in 2006.

According to a report by Goldman Sachs, with insurance, mutual funds

and pension sector experiencing rapid growth, India's debt market is

estimated to grow four fold, from about US$ 400 billion (45 per cent of

GDP) in 2006 to about US$ 1.5 trillion (about 55 per cent of GDP) by

2016. Significantly, the non-government sector is expected to grow

from US$ 100 billion in 2006 to US$ 575 billion in 2016, increasing its

share in GDP from 10 per cent to 22 per cent.

Company Profile

Sharekhan is one of the leading retail brokerage of SSKI Group which

was running successfully since 1922 in the country. It is the retail

broking arm of the Mumbai-based SSKI Group, which has over eightdecades of experience in the stock broking business. Sharekhan offers

its customers a wide range of equity related services including trade

execution on BSE, NSE, Derivatives, depository services, online trading,

investment advice etc.


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The firms online trading and investment site - www.sharekhan.com -

was launched on Feb 8, 2000. The site gives access to superior content

and transaction facility to retail customers across the country. Known

for its jargon-free, investor friendly language and high quality research,

the site has a registered base of over one lakh customers. The number

of trading members currently stands at over 6 Lacs. While online

trading currently accounts for just over 2 per cent of the daily trading

in stocks in India, Sharekhan alone accounts for 32 per cent of the

volumes traded online.

The content-rich and research oriented portal has stood out among its

contemporaries because of its steadfast dedication to offering

customers best-of-breed technology and superior market information.

The objective has been to let customers make informed decisions and

to simplify the process of investing in stocks.

On April 17, 2002 Sharekhan launched Trade Tiger, a net-based

executable application that emulates the broker terminals along with

host of other information relevant to the Day Traders. This was for the

first time that a net-based trading station of this caliber was offered to

the traders. In the last six months SpeedTrade has become a de facto

standard for the Day Trading community over the net.

Sharekhans ground network includes over 588 centers in 148 cities in

India, of which 32 are fully-owned branches.

Sharekhan has always believed in investing in technology to build its

business. The company has used some of the best-known names in the

IT industry, like Sun Microsystems, Oracle, Microsoft, Cambridge

Technologies, Nexgenix, Vignette, Verisign Financial Technologies India

Ltd, Spider Software Pvt Ltd. to build its trading engine and content.

The Morakhiya family holds a majority stake in the company. HSBC,

Intel & Carlyle are the other investors.

With a legacy of more than 80 years in the stock markets, the SSKI


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group ventured into institutional broking and corporate finance 18

years ago. Presently SSKI is one of the leading players in institutional

broking and corporate finance activities. SSKI holds a sizeable portion

of the market in each of these segments. SSKIs institutional broking

arm accounts for 7% of the market for Foreign Institutional portfolio

investment and 5% of all Domestic Institutional portfolio investment in

the country. It has 60 institutional clients spread over India, Far East,

UK and US. Foreign Institutional Investors generate about 65% of the

organizations revenue, with a daily turnover of over US$ 2 million. The

Corporate Finance section has a list of very prestigious clients and has

many firsts to its credit, in terms of the size of deal, sector tapped

etc. The group has placed over US$ 1 billion in private equity deals.

Some of the clients include BPL Cellular Holding, Gujarat Pipavav,

Essar, Hutchison, Planetasia, and Shoppers Stop.

PRODUCTS OFFERED BY SHAREKHAN

1- BOLT for Online Trading.

2- NEAT for Online Trading.

3- Portfolio Management Services.

4- Online Trade in Commodities.

5- Mutual Fund Advisory.

6- Insurance.

REASONS TO CHOOSE SHAREKHAN LIMITED

Experience

SSKI has more than eight decades of trust and credibility in the Indian stock

market. In the Asia Money broker's poll held recently, SSKI won the 'India's

best broking house for 2004' award. Ever since it launched Sharekhan as its

retail broking division in February 2000, it has been providing institutional-

level research and broking services to individual investors.


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pulse of the market and provide timely investment advice to you in the form

of daily research emails, online chat, printed reports and SMS on your mobile

phone.

Benefits

Free Depository A/c

Secure Order by Voice Tool Dial-n-Trade.

Automated Portfolio to keep track of the value of your actual purchases.

24x7 Voice Tool access to your trading account.

Personalized Price and Account Alerts delivered instantly to your Cell

Phone & E-mail address.

Special Personal Inbox for order and trade confirmations.

On-line Customer Service via Web Chat.

Anytime Ordering.


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CHAPTER-3

RESEARCH

METHODOLOGY

Methodology

SOURCE OF DATA

The following analysis is completely based on Secondary Data

Tools and Techniques

1) Research Design: Descriptive Design


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2) Data Analysis: M.S. Excel with the help of Line Graphs, Moving Averages

and Correlation.

Data Processing and Analysis

For a complete analysis on equities, there are basically two parts in

which the total analysis is done.

Fundamental Analysis

Technical Analysis


Fundamental analysis attempts to find out the true value of the

securities so that the investors can decide to buy or not to buy the

securities at current market price. In order to find out the true value,

what is required is the forecast and analysis of the dividends and

earnings that can be expected from the firm. Therefore, the analysis of

determinants of the fair value of security is called the fundamental

analysis.

Dividends, earnings and the market price of a share are determined by

the performance of the company. The performance and success in

turn, depend upon broader industry, economic, political and social

factors. In fact the overall business environment in which a firm

operate, determines the affect and performance of the company.

Small investors can take a narrow approach to fundamental analysis.

They may start with the company to focus and analyze only the basic

information about the company. The earnings capacity of the company


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is estimated in the view of the market share, competitive position, new

product lines etc. Detailed financial analysis of the financial statements

may be made to find out the long term growth prospects of the

company and the expected earnings in future. This approach may be

known as bottom up approach.

However a broader framework for fundamental analysis is known as

top down approach. This approach attempts to study the economic

scenario, industry position and the company expectations and is also

known as Economic-Industry-Company Approach (EIC)

Economic Analysis

Economic analysis deals with the analysis of forces operating in the

overall economy. In the security analysis, the expected course of the

economy may be enquired into because overall economic conditions

and economic activities affect corporate profits and investors

expectations and thereby affect the security prices in the capital

market. Economic analysis has an important role to play in investmentdecisions. If the economic analysis shows a strong and vibrant

economic conditions, investors will but shares in expectation of earning

capital profits at a later stage. An expectation of sagging economic

condition can lead to lower corporate profits and the security price will

fall resulting from the selling pressure.

With reference to national economy, important variables to be looked

in are:

1. Inflation

2. Interest Rates

3. Fiscal Policy

4. Monetary Policy


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5. Business Cycle

Industry Analysis

In economic analysis the direction for the above change in capital

market may be identified, however it must be realized that different

companies respond differently in the capital market. Therefore industry

analysis requires an insight into (i) the key sectors and (ii) the relative

strength and weakness of a particular sector about the economic

activities.

Therefore the industries have been classified into different classes on

the basis of sectors, such as Banking and Information Technology.

It is already noted that not all industries are equally sensitive to the

economic conditions and the business cycles. Some industries are

virtually independent and some are highly sensitive to the business

cycle. Moreover in an industry analysis, number of key factors and

characteristics should be considered to identify the industries where

investments can be made. Such as:

1. The past performance of the industry.

2. The permanence of the product and technology of the industry.

3. Role of government in the industry.

4. Labour conditions.

5. Competitive conditions in the market.

6. Industry life cycle.

Company Analysis


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The third element to EIC approach to fundamental analysis is the

company analysis. The basic objective of the company analysis is to

identify specific companies or specific shares which are expected to

perform well in future. The company analysis presupposes that the

economic analysis and the industry analysis has already been made.

Therefore the basic objective of company analysis is to:

1. To find out the intrinsic value of the share.

2. To find out the expected earnings of the company.

The sources of information required for estimating the future earnings

of a firm is primarily available in the annual financial statements. Such

as:

1. Balance Sheet

2. Income Statement

3. Cash Flow Statement

4. Notes to Financial Statement

To analyze the companies earnings, in the annual reports, the

company usually provide financial information for the last several

years. This information is useful to analyze the

1. Profitability of the company

2. Liquidity of the company3. Solvency of the company

4. Activity level of the company


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The parameters on which a investor can judge and make its

investment decisions are:

Return on Equity (ROE) : The ROE examines profitability form the

perspective of the equity investors by relating profits available for

the equity shareholders with the book value of the equity

investments.

The ROE indicates as to how well the fund of the owner has been used

by the firm. It also examines whether the firm has been able to earn

satisfactory return for the owners or not.

Earnings Per Share (EPS) : The ROE measures the profitability in

terms of total funds and explains the return as a percentage of

funds. The profitability of the firm can also be measured in terms of

number of equity shares. Therefore EPS is derived by dividing PAT

by the number of equity shares.


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Price Earning Ratio (PE Ratio) : This is the ratio which

establishes a relationship between the EPS and the market price of

a share.

The

indicated the expectations of the equity investors about the earnings

of the firm. The investor expectations are reflected in the market price

of the share and therefore the PE ratio gives an idea of investors

perception of EPS. The PE ratio is one of the most widely used measure

of financial analysis in practice.

A high PE ratio may indicate that the share has low risk and therefore

the investors are content with low prospective return or the investors

expect high dividend growth and are ready to pay a higher price for

the share at present.

Technical Analysis

Technical analysis is based on the proposition that the securities price

and volume in past suggest their future price behavior. The technical

analysis believe that the demand and supply of securities are reflected

in their prices and volume and the past pattern of prices and volume

can be used to predict whether prices would be moving higher or

lower. Technical analysis is based on the concept that past information

of prices and volume can give an idea of what lies ahead. It

emphasizes that securities prices and changes therein can be forecast

by studying the market data. A trend in prices is believed to continueunless there is some definite information leading to change, and this

trend in prices can be used to predict the future.

Technical analysis can also be called the market analysis because it

uses the market record and market information to predict the volume


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and prices. It is based on the principle that let the market narrate

its own story. Technical analysis is a refection of the idea that the

capital markets move in trends.

It is already noted that in technical analysis, the basic motive is toidentify the price trend on the basis of historical data. The trend is then

used to forecast the future behavior. The price and volume data on

securities are basic raw material used by a technical analyst and the

charts and graphs are used as the basic tools to identify the trends in

prices.

Technical analysis can be used either for a specific share or for the

market in general. In case of a specific share the past data of that

security are used to show charts while in case of market, the

aggregate data on prices and volumes are used to prepare charts.

Dow Theory : The Dow Theory, named after its originator, Charter

Dow, is considered to be first theory of technical analysis. Dow theory

is based on the hypothesis that the stock market does not perform on

a random basis. Rather, it is guided by some specified trends. The

likely trend in future can be predicted by the following trends. Three

types of specific trends have been named in Dow Theory.


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a) Primary Trend : It is a long trend in price and may carry on even for

number of years. It takes the entire market up or down.

b) Secondary Trend : Secondary trend appear within the primary trend

and may last for few days or few weeks or few months. Secondary

trends show interruptions in primary trend and act as a restraining

force on the primary trend. The secondary trend tend to correct

deviations form the primary trend boundaries of price movements.c) Minor Trend : Minor trends refer to day to day trend or movements

in prices over few days. The minor trends, being of very short

duration, have little analytical value.

Bar Charts : This technique borrowed from the statistical theory, is

popular technique of showing the price variation and accompanied

volume on a particular day and then the comparative presentationover a period of one month or half year or so. In bar charts each days

price boundaries (high and low) and the related volume are shown. The

closing price on that day is shown on a horizontal tick on the high row


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bar. The volume of transaction is also shown as the vertical bars in the

lower position of the chart.

Bar charts are popular among technical analysts because these charts

have a lot of visual presentation and moreover easy to draw.

Support and Resistance Levels : These levels are determined on

the basis of past data and help determine the level below which or

above which the price may not fall or rise.


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Support levels is the price below which the market is unlikely to fall. On

the other hand, the resistance level is the one above which price level

is unlikely to rise. These two levels are determined with the reference

to recent history of prices and keep on changing from one value to

another.

Point and Figure Chart : The technical analysts attempt to identify

the future price behavior in terms of the past data for prices, timing

and the volume. However, there are some analysts who consider only

past prices and ignore the timing and volume. This is based on the

proposition that future price behavior can be predicted on the basis of

past prices only. The time dimension and volume are not useful.

Rather, significant price changes and reversals should be noted to

predict future price behavior. As the time dimension is ignored, the

preparation of point to figure chart is a bit different than the bar chart.


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Candlestick Chart : Candlestick chart can be considered as an

extension of bar chart. In addition to price data, the candlestick chart

also shows the trend in prices of the day. In candlestick chart, the price

data for a day is shown by a vertical box with a vertical line drawn

through the box. The top and bottom point of line passing through the

box represents the high low price respectively.


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Moving Averages : Moving average of share prices refers to the

average level of share prices calculated on a continuous basis. The

moving average helps in identifying the trend in prices as well as the

quantum of change i.e. it can help in detecting the degree as well as

the direction of change. It a smoothened presentation of the

movement in prices.


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When prices are rising, the moving average line will the below the Nifty

line. When the moving average line breaks through the Nifty line from

below, the prices are falling and it is a sell signal for the investors. If

the moving average breaks through the Nifty line from above, it is

taken as a buy signal as the prices are increasing.

Moving averages gives a visual presentation of the price behavior.

Limitations

In this analysis, for simplicity sake, only S&P CNX Nifty, one of the

two major indices among Sensex and Nifty has been taken for the

analysis.

Due to lack of share price data, the analysis could only be done

from the year 2002 till 2008.

Lack of sectoral index data, restricts this analysis only to two

sectors i.e. Banking and Information Technology.

For simplicity sake not all companies listed in the sectors chosen

has been taken. Only the major large cap companies of these

sectors have been considered for the analysis.


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CHAPTER-4

ANALYSIS OF DATA


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IT Sector

About IT Sector

The Indian information technology sector has been instrumental in

driving the nation's economy onto the rapid growth curve. According to

the Nasscom-Deloitte study, the IT/ITES industry's contribution to the

country's GDP has increased to a share of 5.2 per cent in 2007, as

against 1.2 per cent in 1998.

India's IT growth in the world is primarily dominated by IT software andservices such as Custom Application Development and Maintenance

(CADM), System Integration, IT Consulting, Application Management,

Infrastructure Management Services, Software testing, Service-

oriented architecture and Web services.

CNX IT Index

Information Technology (IT) industry has played a major role in the

Indian economy during the last few years. A number of large, profitable

Indian companies today belong to the IT sector and a great deal of

investment interest is now focused on the IT sector. In order to have a

good benchmark of the Indian IT sector, IISL has developed the CNX IT

sector index. CNX IT provides investors and market intermediaries with

an appropriate benchmark that captures the performance of the IT

segment of the market.

Companies in this index are those that have more than 50% of their

turnover from IT related activities like software development, hardware


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manufacture, vending, support and maintenance.

In order to have a good benchmark of the Indian IT sector, IISL has

developed the CNX IT sector index. CNX IT provides investors andmarket intermediaries with an appropriate benchmark that captures

the performance of the IT segment of the market. Companies in this

index have more than 50% of their turnover from IT related activities

like software development, hardware manufacture, vending, support

and maintenance.

The index is a market capitalization weighted index with its base

period being December 1995 and the base date and base value being

January 1, 1996 and 100 respectively.


Economy

Information technology has been a promising sector for India,generating revenues both for the domestic as well as the global

market. India's IT potential has attracted multinationals to grab a share

of the pie and cash in on the IT boom. India offers a market with very

high returns for multinationals flocking to invest in their India units.

Also, the increase in purchasing power and the rapid business

expansion of the small and medium enterprises (SMEs) holds promise

for global information technology (IT) giants who look at a 100 per centyear-on-year growth in their small and medium businesses (SMBs)

market in India.

India's domestic market has also become a force to reckon, with the

existing IT infrastructure evolving both in terms of technology and


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Revenues : 36 billion

CAGR (FY 2004-06) 30%

Contribution to GDP up from 2% in 2000 to 5% in 2006

Exports : 23.5 billion

CAGR (FY 2004-06) 35%

Has nearly doubled in last 5 years

Domestic Market - USD 13 billion

CAGR (FY 2004-06) - 22%

Buoyed by an economy growing at nearly 8% per annum over the

last 3 years

Exports contribute nearly 65 % of IT sector revenue


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From the above graph it is clearly visible that the exports has

increased manifold at a rate of 67.74% from the year 2004 till 2006.


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Indias IT industry structure is vibrant and competitive

Category No. of

player

s

Share of export

Revenue

Revenue

Performance

Tier I 3-4 45% of IT

Services

4-5% of BPO

> than USD 1 billion

Tier II 7-10 25% of IT

Services 4-5% of BPO

USD 100 million-USD 1 billion

Offshore

operations

of Global IT

majors

20-30 10-15% of IT

Services

10-15% of

BPO

USD 10 million-USD 500 million

Pure play

BPO

40-50 20% of BPO USD 10 million-USD 200 million

(Excl. leader - USD 500 million)

Captive BPO 150 50% of BPO USD 25 million-USD 150 million(top 10 units)

Emerging

players

>3000 10-15% of IT

Services

5% of BPO

< USD 100 million (IT)

< USD 10 million (BPO)

Rising FDI is an indicative of Indias advantage and global interest


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From the above graph we can see that the Foreign Direct Investment

has also increased a big deal from the year 2003 to 2005 by 677.78%.

Indias IT exports to touch US$ 60 billion by 2010


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Global IT-ITES spending to cross USD 1198 billion by 2010

The addressable market for offshore IT services and BPO industry is

estimated at be USD 150-180 billion and USD 120-150 billionrespectively.

With USD 13 billion, India has less than 10% of the current

addressable market.

India expected to be well on track to achieve USD 60 billion by

2010.

Company


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For my analysis to study the growth trend of IT sector, compared to its

Indices, I have chosen three major companies in the IT sector of India.

Those are TCS, Wipro and Infosys.

Tata Consultancy Services

Company Profile

Tata Consultancy Services (TCS) is one of the world's leading

information technology consulting, services, and business processoutsourcing organization with a presence in 34 countries across 6

continents. Their valued customers are Asian Development Bank,

British Airways, Citibank, Compaq, Ford Motor Company, General

Motors, Government of Sri Lanka, Hewlett Packard, HSBC, IBM, Nokia,

Nike, Singapore Airlines & Standard Chartered Bank etc. TCS Division

of Tata Sons Ltd was transferred to TCS with effect from 1st April 2004

for a consideration of Rs.2300 crores. Further during August2004 the

company made an Initial Public Offer from which it realized Rs.1935.88

crores. Subsequent to the IPO the company's paid-up share capital

increased to Rs.47.83 crores. TCS is not only the largest IT services

company in India, it also has everything which one would like to look

for. Comprehensive range of services, one of the best track records of

executing large end-to-end mission critical projects, long-term client

relationships, very extensive global footprint, strong Indian presence,

R&D capabilities, one of lowest employee attrition levels, strong brand

and of course strong management.


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Growth Trend of TCS since 2002

TCS

0.00

500.00

1000.00

1500.00

2000.00

A u g

0 2

J a n

0 3

J u n

0 3

N o v

0 3

A p r 0

4

S e p t

0 4

F e b

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l 0 5

D e c

0 5

M a y

0 6

O c t 0

6

M a r 0

7

A u g

0 7

J a n

0 8

Months

P r i c

Financials

Particulars FY

02

FY

03

FY

04

FY

05

FY 06 FY 07 FY

08E

Revenues (in

Crores)- - - 8027.5 11230.5 15471.9 18533.7

Revenue Growth

(%)- - - - 39.9 37.8 19.7

Net Profit- - -0.03 2377.2 3272.9 4300.9 5020.1

EPS- - 0.42 38.15 55.53 38.39 46.07


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EPS Growth (%)- - - 8983.3 45.6 -30.9 20.0

P/E Ratio- - 2123.3

9

38.04 23.18 27.07 N/A

Wipro

Company Profile

Wipro Limited, the successful company crossed six decade of years.

Wipro though started as a edible oil producer way back in 1945 under

the name Western India Vegetable Products, a private limited company

has transformed itself into leading player in Fast Moving Consumer

Goods and IT services & Products business. It was incorporated at

Karnataka by Mr. Azim H Premji who is promoter and chairman of the

company. Five of Wipro's manufacturing and development facilities

secured the Indian Standard Organization (ISO) 9001 certification

during 1994-95. Company provides the integrated business,

technology and process solution on a global delivery platform to

customers across Americas, Europe, Middle East and Asia Pacific, they

offer business value to clients through process excellence and service

delivery innovation such as Information Technology services, Product

Engineering services, Technology Infrastructure services, Business

Process Outsourcing services and consulting services. 23 subsidiaries

running under in Wipro. This company is listed in BSE , NSE andNewyork .In February 2001, Wipro became the first software

technology and services company in India to be certified for ISO 14001

certification for complying with the international standards for

Environmental Management System (EMS) in three major software


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development and technology centers in Bangalore and also achieved

ISO 9000 certification and they are ISO 14000 certificate holder also for

good citizenship. Wipro Technologies has won the 'Banker Technology

Award' for the year 2004 Instituted by the Financial Times in the 'Risk

Management Award' category.

Growth Trend of Wipro since 2002

WIPRO

0.00200.00400.00600.00800.00

1000.001200.001400.001600.001800.00

A u g

0 2

J a n

0 3

J u n

0 3

N o v

0 3

A p r 0

4

S e p t

0 4

F e b

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7

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Months

P r i c e


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Financials

Particulars FY

02

FY

03

FY

04

FY 05 FY 06 FY 07 FY

08E

Revenues (in

Millions)32301.3 41250.1 56446.0 78671.77 102827.6 142368.5

9

185354

Revenue Growth

(%)- 27.7 36.8 39.4 30.7 38.5 30.2

Net Profit8411.4 8476.6 9992.0 15832.7 26269.9 29129.9 32241

EPS6.05 6.10 7.19 11.29 14.24 20.17 22.16

EPS Growth (%)- 0.8 17.9 57.0 26.1 41.6 9.9

P/E Ratio233.62 193.40 107.18 46.35 37.72 24.11 N/A

Infosys

Company Profile

Infosys technologies limited, is a public limited and India's second

largest software exporter company incorporated in the year 1981 as

Infosys consultants private limited by Mr.N.R.Narayana Murthy at

karnataka, who is chairman and chief mentor of the company. It

became public limited company in the year 1992. It has received CMM-

5 status and it functioning collaborated with ANALOG DEVICES INC of

USA. Infosys is a groundbreaking company in the field of information

technology and it enjoys the privilege of being a debt free company.

It's only the company to be part of the major global index. Company


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offers the services of consulting, process re-engineering, modular

global sourcing and Business Process Outsourcing services. It has

developed finacle, a universal banking solution to large and medium

size banks across India and oversees. The company has entered in

marketing and technical alliance with FileNet, IBM, Intel, Microsoft,

Oracle and System Application Products. Infosys is listed in BSE, NSE

and NASDAQ. Infosys, the country's second-biggest IT/ITES services

companies, which was the first Indian company to be listed on the

NASDAQ at the year 1999. Infosys also forms a part of the NASDAQ-

100 index. Continuously the year 2001, 2002 and 2003 company wins

the National award for excellence in corporate governance conferred

by the Govt of India.

Growth Trend of Infosys since 2002

INFOSYS

0

1000

2000

3000

4000

5000

6000

A u g

0 2

D e c

0 2

A p r

0 3

A u g

0 3

D e c

0 3

A p r

0 4

A u g

0 4

D e c

0 4

A p r

0 5

A u g

0 5

D e c

0 5

A p r

0 6

A u g

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D e c

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A p r

0 7

A u g

0 7

D e c

0 7

A p r

0 8

Months

P r i c e


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Financials

Particulars FY

02

FY

03

FY

04


08E

Revenues (in

Millions)545.05 753.81 1062.59 1592.0 2152.0 3090.0 4176.0

Revenue Growth(%)

-

38.30 40.96 49.82 35.18 43.59 35.15

Net Profit164.47 194.87 270.29 419.0 555.0 850.0 1155.0

EPS0.31 0.37 0.51 0.76 0.99 1.5 2.02

EPS Growth (%)- 19.35 37.84 49.02 30.26 51.52 34.67

P/E Ratio30.2 25.9 25.4 26.3 25.8 27.5 27.7

Technical Analysis

Tata Consultancy Services


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Moving Averages : TCS

0.00

500.00

1000.00

1500.00

2000.00

A u g

0 2

M a r

0 3

O c

t 0 3

M a y

D e c

0 4

J u

l 0 5

F e

b 0 6

S e p

t

A p r

0 7

N o v

0 7

Months

P r i c e Price

Moving Averages

From the above graph we can see the 12 monthly moving average

and the Growth Trend line of TCS.

According to the moving average analysis TCS shows a highly positive

trend with more of a buy signal to the investor.

Aug 02 to Apr 04 : In this period the moving average analysis

shows a almost constant signal, without a major buy or sell ones. This is because in this period according to the diagram, the moving

average curve almost coincides with the price curve.

May 04 to Jun 06 : In this period since the moving average curve is

below the price curve, this gives a buy signal to the investors. In

this period, even though the market crashed, TCS continued its

upward trend. It also reached it all time high in Apr 06 to Rs

1900.10. Jul 06 to Apr 08 : In this period TCS showed a almost constant

trend, and the share prices rose up by mere 0.02% in this period.

There was a sharp decline in the share price in Jul 06 to Rs 920.01

from Rs 1706.08 in Jun 06, But as per moving average analysis this


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gives a sell signal to the investors, even though in this period the

share prices rose up to Rs 1262.25 in Jan 07.

Wipro

Moving Averages : Wipro

0.00200.00400.00600.00800.00

1000.001200.001400.001600.001800.00

A u g

0 2

M a r

0 3

O c

t 0 3

M a y

D e c

0 4

J u

l 0 5

F e

b 0 6

S e p

t

A p r

0 7

N o v

0 7

Months

P r i c e s

Price

Moving Average


and the Growth Trend line of Wipro.

According to the moving average analysis Wipro shows basically a

negative pattern but with both buy and sell positions for the

investor.

Nov 02 to Jul 03 : In this period the Wipro stocks showed a down

trend, and therefore a fall of 43.71%. In this period the stock also

fell drastically to Rs 766.10 in May 03. Therefore giving a signal to

sell off the shares of Wipro, because of such a drastic fall in theprices.

Aug 03 to May 04 : In this period the share prices of Wipro were on

a constant rise and showed a increase of 45.17%. Here the share


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also experienced a all time high in Dec 03 at Rs 1651.55. Therefore

in this period it was advisable to buy the shares of Wipro.

May 04 to Jul 05 : In this period the share prices fell drastically to

the extent of 51.34%. In this period basically the share experienced

a sharp fall in its prices in Jun 04 to Rs 515.51 from Rs 1476.20 in

May 04. Though after Jun 04, the share experienced a upward

trend. Therefore in this period it was advisable to the investors to

buy the shares of Wipro.

Aug 05 to Apr 08 : In this period of almost two and a half years, the

share prices of Wipro showed a more or less constant trend, with

slight variations. Over such a long period the share prices showed a

increase of about 37.42%, which can be said constant in such a long

period. Here the investor is advised to play with a mixed strategy of

buy and sell, so as to gain profit from Wipro stocks.

Infosys

Moving Averages : Infosys

0

1000

2000

3000

4000

5000

6000

A u g

0 2

F e

b 0 3

A u g

0 3

F e

b 0 4

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b 0 5

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0 5

F e

b 0 6

A u g

0 6

F e

b 0 7

A u g

0 7

F e

b 0 8

Months

P r i c e Price

Moving Average

It is often said that Dont buy now as the price is too high or Buy on

correction or Buy Low and Sell High, but the experts advocate the


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view of buying high and selling higher which to many people seems

like going against the conventional wisdom.


and the Growth Trend line of Infosys.

According to the moving average analysis Infosys shows a mixed

pattern of both buy and sell positions for the investor.

Feb 03 to Jun 03 : The share prices for Infosys fell slightly by

2.59%. This therefore gives a sell signal to the investors who

already own shares of Infosys bought before Feb 03.

Jul 03 to May 04 : In this period the share prices increased

drastically giving a rise of 44.24%. The share price even went its all

time high to Rs 5374.43. This therefore gives a buy signal to the

investors in this period, because in this period the share prices of

Infosys were on a rise.

May 04 to Apr 05 : In this period the share prices dipped down to a

very low limit i.e. to Rs 1511.41 in Jul 04. This period experienced a

drastic fall in share price of Infosys to the extent of 59.14%, thereby

giving the its investors a sell signal for the Infosys shares.

May 05 to May 06 : In this period of one year, the stock prices of

Infosys showed a increase of 32.67%. This therefore gives a buysignal to the investors, as the stock is performing well in the

market.

Jun 06 to Apr 08 : In this period of past one and a half year, the

share prices of Infosys showed a more or less constant return, with


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a slight increase of 13.54%. Therefore giving the investors a buy

signal for Infosys shares, in order to hold it for a longer period so as

to gain a high and profitable return.

Comparative Analysis


0.00

5000.00

10000.00

15000.00

20000.00

25000.00

A u g

0 2

F e

b 0 3

A u g

0 3

F e

b 0 4

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b 0 5

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b 0 7

A u g

0 7

F e

b 0 8

Months

P r i c e s a n

d I n d i c CNX IT

NIFTY

Infosys

Wipro

TCS

The above graph depicts the growth rate of NIFTY, CNX IT Index, andthe major three companies in this sector since Aug 2002 till Apr 2008.

Therefore by observation we come to know that in this period both

NIFTY and the CNX IT Index showed a upward trend, though Infosys

and Wipro, the major leaders in this sector showed a sharp decline in

Mar 04. The major reason which was observed for the decline in the


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major industries in this sector is due to the market crash which took

place in Mar 04. Moreover the decline which is being depicted by the

CNX IT Index curve is basically due to the revision of base value from

1000 to 100 w.e.f 28th May 2004.

2002-

2003

2003-

2004

2004-

2005

2005-

2006

2006-

2007

NIFTY 21.45 44.68 28.86 48.88 37.21

CNX IT

Index

-2.77 45.56 32.60 41.73 16.54

Wipro -16.33 -17.98 -41.04 -6.24 -0.52

Infosys -0.32 -20.07 -23.92 0.87 -22.31

TCS -7.73 309.34 126.58 4.46 -19.85

Inference

The correlation coefficient between NIFTY and CNX IT Index comes

out to be r (NIFTY,CNX IT Index) = 0.88. This shows that there is a very close

positive correlation between the S&P CNX NIFTY and CNX IT Index,as per depicted by the graph. Also from the yearly growth data we

can see that except for the year 2002-03, there is more or less a

consistent increase in the IT sector when compared to the NIFTY.

This shows that the IT sector on the whole was a growing sector

since 2002 to 2008.

The yearly growth data of Wipro depicts a consistent fall in theshare prices of Wipro. The fall in 2004-05 is very sharp i.e. about

41.04%. This may be basically due to the market crash which took

place in May 04.


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Infosys also depicts a more or less negative yearly trend, with a

huge fall in the year 2004-05, of about 23.92%. The reason for this

may also be the same, i.e. the market crash of May 04.

TCS shows a consistent rise in the share prices, with a huge jump of

even 309.34% in the year 2003-04.

Banking Sector

About Banking Sector

A burgeoning economy, financial sector reforms, rising foreign

investment, favorable regulatory climate and demographic profile has

led to India becoming one of the fastest growing banking market in the

world. The overall banking industry's business grew at a CAGR of about

20 per cent from US$ 469.4 billion as of March 2002, to US$ 1171.29

billion by March 2007.

The industry has been growing faster than the real economy, resulting

in the ratio of assets of commercial banks to GDP increasing to 92.5per cent at end-March 2007. The Indian banks have also been doing

exceptionally well in the financial sector with the price-to-book value

being second only to china, according to a report by Boston

Consultancy Group.


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CNX Bank Index

The Indian banking Industry has been undergoing major changes,reflecting a number of underlying developments. Advancement in

communication and information technology has facilitated growth in

internet-banking, ATM Network, Electronic transfer of funds and quick

dissemination of information. Structural reforms in the banking sector

have improved the health of the banking sector. The reforms recently

introduced include the enactment of the Securitization Act to step up

loan recoveries, establishment of asset reconstruction companies,initiatives on improving recoveries from Non-performing Assets (NPAs)

and change in the basis of income recognition has raised transparency

and efficiency in the banking system. Spurt in treasury income and

improvement in loan recoveries has helped Indian Banks to record

better profitability. In order to have a good benchmark of the Indian

banking sector, India Index Service and Product Limited (IISL) has

developed the CNX Bank Index.

CNX Bank Index is an index comprised of the most liquid and large

capitalised Indian Banking stocks. It about 79% provides investors and

market intermediaries with a benchmark that captures the capital

market performance of Indian Banks.The index will have 12 stocks

from the banking sector which trade on the National Stock Exchange.

The average total traded value for the last six months of CNX Bank

Index stocks is approximately 74% of the traded value of the banking

sector. CNX Bank Index stocks represent of the total market

capitalization of the banking sector as on March 31, 2005.


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The index is a market capitalization weighted index with base date of

January 01, 2000, indexed to a base value of 1000.


Economy

With the Indian economy moving on to a high growth trajectory,

consumption levels soaring and investment riding high, the Indian

banking sector is at a watershed. Further, as Indian companies

globalize and people of Indian origin increase their investment in India,

several Indian banks are pursuing global strategies,

Consequently, the degree of leverage enjoyed by the banking system,

as reflected in the equity multiplier (measured as total assets divided

by total equity), has increased from 15.2 per cent at end March 2006

to 15.8 per cent at the end of March 2007.

Indian banks are one of the most technologically advanced with vast

networks of branches empowered by strong banking systems, andtheir product and channel distribution capabilities are on par with

those of the leading banks in the world, says a survey by McKinsey. It

also reveals that IT effectiveness at the top Indian banks is world class.

With the economy in overdrive and buoyancy in consumption and

investment demand, nine Indian banks, led by HDFC Bank and ICICI

bank, have made it to the top 50 Asian Banks list in Asian Bankers 300

report. Simultaneously, State Bank of India has become the top loan

arranger in the Asia-Pacific region in 2007, according to UK based

Project Finance International (PFI). Also, India emerged as the top

provider of educational loans worth US$ 3.67 billion till September in

2007.


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While this growth has been very impressive, the potential banking

market waiting to be tapped in India is still fairly huge. Out of the 203

million Indian households, three-fourths, or 147 million, are in rural

areas and 89 million are farmer households. In this segment, 51.4 per

cent have no access to formal or informal sources of credit, while 73

per cent have no access to formal sources of credit.

In fact, according to a report by Boston Consultancy Group, India has

the second largest financially excluded households of about 135

million, which is next only to china. Also, about 60 million new

households are expected to be added to India's bankable pool between

2005 and 2009. With such a large untapped market, the Indian

banking industry is estimated to grow rapidly, faster than even china in

the long run.

Industry

India, the fastest growing banking market in the world.


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Growth of Banking Industry

469.4

1171.29

0

200

400

600

800

1000

1200

1400

2002 2007

Year

India has become one of the fastest growing banking market in the

world. The overall banking industry's business grew at a CAGR of about

20 per cent from US$ 469.4 billion as of March 2002, to US$ 1171.29

billion by March 2007.

Increasing bank deposits in the Indian Banking sector

Aggregate Bank Deposits

584.89714.15

865.55

0.00

200.00

400.00

600.00

800.00

1000.00

2006 2007 2008

Year


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Aggregate bank deposits of banks increased by US$ 129.26 billion

(22.1 per cent) at the end of March 2007 over the corresponding in

2006. It further increased by 21.2 per cent or by US$ 151.40 billion as

at end-March 2008 over the corresponding period in 2007. While

aggregate demand deposits increased by 19.2 per cent, aggregate

time deposits increased by 21.6 per cent in the same period, indicating

migration from small savings schemes of the Government.

Significantly, the asset quality of the banks has also improved over this

period. The gross non-performing assets (NPA) as a per cent of total

assets has declined from 4 per cent as of March 2002 to 1.46 per cent

as of March 2006. Simultaneously, the capital adequacy ratio of allSCBs has improved from 11.1 per cent as of March 2002 to 12.3 per

cent by March 2007.

Also, the banking sector has been doing exceedingly well on the

financial front. For example, in the quarter ended March 2008, while

the interest income of the 18 public sector banks and seven private

banks rose by 28.4 per cent, the net profit rose at much higher rate of

33.61 per cent.

Emergence and Growth of private sector


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Growth of Private Sector

41.63

186.71

0

50

100

150

200

2002 2007

Year

Banking operations had been opened to the private sector in 1990s.

The new private banks have been increasing its role in the Indian

banking industry. Against the industry average growth of about 20 per

cent in the past five years, the new private sector banks registered a

growth of about 35 per cent per annum, growing from US$ 41.63 billion

as of March 2002 to US$ 186.71 billion by March 2007.

Growth of Private Banks Market Share


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Growth of Private Banks Market Share

9.00%

14.00%

0.00%2.00%4.00%6.00%8.00%

10.00%

12.00%14.00%16.00%

2002 2007

Year

The new private banks market share has increased from about 9 per

cent in 2001-02 to 16 per cent as of March 2006-07. Foreign banks,

which totaled 29 in June 2007, have also been expanding at a rapid

pace. For example, India was the fastest growing market for Global

banking major HSBC in 2006-07, with a growth rate of 64 per cent.

Company

For my analysis to study the growth trend of Banking sector, compared

to its Indices, I have chosen three major companies in the Banking

sector of India. Those are SBI, ICICI and IDBI

State Bank of India

SBI, started as Imperial Bank then named State Bank of Indiacommenced its operations from the year 1955, is the largest

commercial bank in India in terms of profits, assets, deposits, branches

and employees. As of March 2008, the bank has had 21 subsidiaries

and 10,000 branches. SBI offers the services of banking and as well as


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Financials

Particulars FY

02

FY

03

FY 04 FY 05 FY 06 FY 07 FY

08E

Revenues (in

Crores)- - 30460.4 32428.0 35794.9 39491.0 48950.3

Revenue Growth

(%)- - - 6.5 10.4 10.3 24.3

Net Profit- - 16587.0 17885.0 19676.7 25257.8 33673.0

EPS- - 69.94 81.79 83.73 86.29 106.56

EPS Growth (%)- - - 16.9 2.4 3.1 23.5

P/E Ratio- - 7.38 9.72 11.87 21.00 N/A

Industrial Credit and Investment Corporation of India

ICICI Bank is a commercial bank promoted by ICICI Ltd, an Indian

Financial Institution. It was incorporated in Jan.'94 and received its

banking license from Reserve Bank of India in May.'94. It is the 2nd

largest bank in India. The bank has over 630 branches & extension

counters across India and over 2200 ATMs across the country. TheBank offers a wide spectrum of domestic and international banking

services to facilitate trade, investment banking ,Insurance, Venture

Captial, asset management, cross border business & treasury and

foreign exchange services besides providing a full range of deposit and

ancillary services for both individuals and corporates through various


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Revenues (in

Crores)- - 9002.3 9409.9 14306.1 22994.2 30788.34

Revenue Growth

(%)- - -

4.53 52.03 60.73 33.90

Net Profit- - 5852.5 5681.9 7710.9 14077.3 19729.5

EPS- - 26.56 27.22 28.55 34.48 37.37

EPS Growth (%)- - - 2.48 4.89 20.77 8.38

P/E Ratio- - 11.16 18.46 24.86 29.64 N/A

Industrial Development Bank of India

The concept of establishing IDBI BANK (IDBIBK) took place after RBI

issued guidelines for entry of new private sector banks in 1993.

Susequantly IDBI Bank was incorporated in 1994, With the main

promoter being Industrial Development Bank of India (IDBI) & Small

Industries Development Bank of India (SIDBI) the country's two premier

financial institution. The strategy and business plans of bank weremade in consultation with M/s KPMG Peat Marwick, world renowned

consultants. In March 1999 the Bank came out with its maiden public

issue of 4 crore equity shares of Rs. 10/- each at a premium of Rs. 8/-

per share aggregating Rs. 72 crores. The bank has maintained an

uninterrupted track record of profitability since inspection, with focus

on excellence of service, professional competence, state of art

technology, utilization of the group's synergy and backing of its

financially strong promoters, the bank is poised to become a front

ranking banking force in India. While liberalization and reforms have

thrown up a few challenges, it has also created opportunities for banks

to increase revenues by diversifying into Investment banking,

Insurance, Credit Cards, mortgage financing, depository services and


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more. The bank is offering retail loan products like home finance, loans

against shares, educational loans, car loans, etc. on very competitive

terms. It has also entered into and arrangement with Standard

Chartered Bank to offer a Co-branded Global Credit Card. The bank has

informed that about conversion of its entire operating technology

platform to 'Finacle', a core banking software provided by Infosys. The

bank has also implemented Kondore +a treasury Front Office software

from Reuters and ITMS-treasury back office software from Synergy

Login. The Bank has implemented Finacle core Banking Software from

Infosys Technologies Ltd. The bank had recommended a rights issue of

equity shares in the ratio of 1:2 at a price of Rs.22 per share including

a premium of Rs.12 per share.

Growth Trend of ICICI since 2002

IDBI

0.0020.0040.0060.0080.00

100.00120.00140.00160.00180.00

A u g

0 2

J a n

0 3

J u n

0 3

N o v 0

3

A p r 0

4

S e p t

0 4

F e b

0 5 J u

l 0 5

D e c

0 5

M a y 0

6

O c t 0

6

M a r 0

7

A u g

0 7

J a n

0 8

Months

P r i c e

Financials

Particulars FY

02

FY

03

FY

04


08E


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Revenues (in

Crores)- - 9,704.0

0 2,655.72 5,380.72 6,345.42 8,020.84

Revenue Growth

(%)- - -

-72.63 102.61 17.93 26.40

Net Profit- - 7,573.0

0 2,129.22 4,308.72 5,342.93 6,551.64

EPS- - 7.12 4.26 7.75 8.7 10.06

EPS Growth (%)- - -40.17 81.92 12.26 15.63 -40.17

P/E Ratio- - 10.55 21.48 9.57 14.36 N/A

Technical Analysis

State Bank of India


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Moving Average : SBI

0.00

500.00

1000.00

1500.00

2000.00

2500.00

A u g

0 2

M a r 0

3

O c t 0

3

M a y 0

4

D e c 0

4 J u

l 0 5

F e b

0 6

S e p t

0 6

A p r 0

7

N o v 0

7

Months

P r i c e Prices

Moving Average


and the Growth Trend line of SBI.

According to the moving average analysis SBI shows a highly positive


In our analysis form the year 2002 to 2007, the share price of SBI

showed a consistent upward trend and a massive increase of 559.13%.

Moreover by the moving average analysis, throughout the period of

our analysis, the share of SBI shows a buy position for the investor.

During this period it also has reached its all time high of Rs 2365.00 in

Dec 07.

Industrial Credit and Investment Corporation of

India


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Moving Average : ICICI

0.00200.00400.00600.00800.00

1000.001200.001400.00

A u g

0 2

M a r

0 3

O c

t 0 3

M a y

D e c

0 4

J u

l 0 5

F e

b 0 6

S e p

t

A p r

0 7

N o v

0 7

Months

P r i c e

PriceMoving Average


and the Growth Trend line of ICICI.

According to the moving average analysis ICICI shows a highly positive


In our analysis ICICI also shows a consistent upward trend, therefore abuy position for the investor. Though when compared to SBI, ICICI

shows more fluctuations, while the upward trend of SBI was quite

smooth.

ICICI also reached its all time high in this period at Rs 1265.00 in Oct

07.

Industrial Development Bank of India


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Moving Average : IDBI

0.0020.0040.0060.0080.00

100.00120.00

140.00160.00180.00

A u g

0 2

M a r

0 3

O c t

0 3

M a y

D e c

0 4

J u l 0 5

F e

b 0 6

S e p

t

A p r

0 7

N o v

0 7

Months

P r i c e Prices

Moving Average


and the Growth Trend line of IDBI.

According to the moving average analysis IDBI shows a mixed trend of

both buy and sell position to the investor.

From the above graph, we can observe that IDBI shows great

fluctuations in its share price.

Aug 02 to Sept 05 : In this period though with fluctuations, the

share price of IDBI was on a rise. In this period the share price of

IDBI increased by about 585.87%, which is a great increase in a

short span of about three years. The moving average analysis also

shows a consistent buy position for the investor during this period.

Oct 05 to Sept 06 : In this period the share price of IDBI showed aslight decline of about 3.12%. As the moving average curve lies

above the share price curve, it also indicates a sell position for the

investor. The share price in this period also dipped down to Rs 55.20


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in Jun 06 from Rs 117.97 in Sept 05, which is a very short span of

time.

Oct 06 to May 08 : Over this span of time the share price of IDBI

showed a slight increase of about 8.25% in about one and a half years. It also touched its all time high in this period to Rs 165.00 in

Dec 07. The moving average analysis here shows a buy position

for the investor.


The above graph depicts the growth rate of NIFTY, CNX Bank Index,

and the major three companies in this sector since Aug 2002 till Apr

2008. By observation, we can see that the Bank Nifty and Nifty showeda continuous upward trend. The major company in this sector, i.e.

ICICI, IDBI and SBI, also complies with Nifty and CNX Bank Nifty

showing a upward trend.


0.00

2000.00

4000.00

6000.00

8000.00

10000.00

12000.00

A u g

0 2

F e

b 0 3

A u g

0 3

F e

b 0 4

A u g

0 4

F e

b 0 5

A u g

0 5

F e

b 0 6

A u g

0 6

F e

b 0 7

A u g

0 7

F e

b 0 8

Months

P r i c e s a n

d I n d e

NIFTY

Bank Nifty

ICICI

IDBI

SBI


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Following are the points which have been observed while

doing this analysis

Though the IT sector showed a upward trend but with a very high

degree of fluctuations with CNX IT Index as high as 5625.53 points

in February 2007 from 2051.26 in June 2004. Though the IT sector

showed a upward trend.

The correlation between CNX IT Index and S&P CNX Nifty comes out

to be 0.88, which is indeed a very high degree of correlation.

This shows that the IT sector was on a upward trend with a

percentage increase of 410% in the observed period.

The banking sector also showed a consistent rise in the observedperiod with a maximum of 9906.63 points i.e. its all time high in

January 2008.


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The correlation between Bank Nifty and S&P CNX Nifty comes out to

be 0.98 in the observed period.

Therefore we can say that the banking sector showed a highly

positive trend in the observed period.

CHAPTER-6

RECOMMENDATIONS

AND SUGGESTIONS


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Following is the recommendations that I would like to

suggest after having done the above analysis

For a new investor who wants to invest his funds at minimum risk

for a long term period should in Banking sector in companies like

SBI or ICICI, because these companies show a consistent upward

trend in the observed period.

For existing investor who wants to capitalize his funds is also

suggested to prefer Banking sector as the correlation between S&P

CNX Nifty and Bank Nifty shows a positive correlation of 0.98.

For investor who prefers to trade for maximum return at high risk is

suggested to invest in IT Sector in companies like Infosys, whose

share price touched a maximum of 5374.43 in May 2004, and alsoshows high fluctuations in the observed period.

Therefore a individual is suggested to invest long term funds in

banking sector whereas short term investment should be done in IT

sector.

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