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Report submitted in partial fulfillment of the requirement for the award of the degree of
MASTER OF BUSINESS ADMINISTRATION OF ANNA UNIVERSITY Submitted by
Reg. No. 91005631030 Under Guidance of Mr.M.SIVA KUMAR M.B.A.,M.Phil., Lecturer
Department of Management Studies
P.S.N.A. COLLEGE OF ENGINEERING & TECHNOLOGY
DINDIGUL-624 622, TAMILNADU
JULY-2007 Department of management studies
P.S.N.A. College of engineering & technology
Dindigul-624 622, Tamilnadu.
This is certify that is a bonafide record of summer project By A.KARTHIGAINATHAN Reg.no.91005631030 Submitted in partial fulfillment of the requirement for the award of degree of the MASTER OF BUSINESS ADMINISTRATION OF ANNAUNIVERSITY, CHENNAI
Place: Dindigul Date :
HOD Department of management Studies
Signature of Faculty Guide:
I hereby certify that the project (BA1770) report submitted to the Anna University in partial fulfillment of the requirement for the award of the degree of Master of business administration is based on project undertaken by A.KARTHIGAINATHAN under my guidance.
Name of the Guide Mr.M.SIVA KUMAR MBA,M.Phil., Lecturer Department of Management Studies, P.S.N.A. College of Engineering & Technology, Dindigul-624 622, Tamilnadu. Place: Dindigul Date :
DECLARATION BY STUDENT
I A.KARTHIGAINATHAN the undersigned hereby declare that this summer project titled “A STUDY ON PERFORMANCE EVALUATION OF ICICI AND SBI USING FUNDAMENTAL AND TECHNICAL ANALYSIS” is submitted in partial fulfillment of the requirements for the award of Master of business administration, Anna University, Chennai.
Place: Dindigul Date :
My very special gratitude and heart felt thanks to our beloved Chairperson, for her blessings and best wishes to carry out my project work. I would like to express my deep gratitude to our Director and principle Dr.K.Thyagarajah who is responsible for moulding our thinking to complete this project. It is my great pleasure to express my sincere gratitude and thanks to my heads of the department Dr. M. Renganathan, for his valuable guidance and help. I am extremely thankful to my project guide Mr.M.Siva Kumar, MBA.,M.Phil., Department of management studies for imitating keen interest and giving valuable guidance at every stage of this project. I wish to express my sincere thanks to the company guide Mr.S.Anand, Investment Advisor, Kotak Securities, Madurai, who is my external guide for his kind support and guidance to complete my project. I wish to express my sincere thanks to Mr.Madhavan, Professor, Manonmaniam Sundharanar University, Thirunelveli, who is my external guide for his kind support and guidance to complete my project. I am also thankful to all the faculty members of the Department of management studies for their kind and valuable cooperation during the course of the project. I would also like to thank my parents, Friends and well wishers who encourage me to complete this project successfully.
Signature of the Candidate (A.KARTHIGAINATHAN)
11. 35. 39. 32. 22. 40.4 2.3.b 3. 27. 7. 17.7 2. 9.2 3.4 1.2 1.3.13.a 3.3.1 2.2 1.9 184.108.40.206 2.3.10 2. 20. 3.1. 31.3. 28.3. 1.2 3.3 2. 8. 34. 14.2 2.1 2.3 3.4 3.1 3. 6.3.1 1.2 2.6.No. 26. 23. 5. 10.3.1 1. 4. 1. 18.3 2.7 2.6. 38. 25.3 1. 1.11 2. 30.8 2. 24.6 2.13. 21. 13. 12.6 1. 37. 19. 29.1 2. 15. 2.3.1 3.2 3. 33. 16.12 2.5 1.5 No Chapter – 1 Introduction Company Profile Product Profile The Industry Growth Background Management Shareholding & Liquidity Key area of Operation Strategy & New Developments ICICI Profile 1 2 3 4 4 5 5 6 8 8 11 11 11 11 12 13 13 21 22 22 23 26 27 29 34 35 35 36 39 39 40 41 42 42 43 46 47 Chapter – 2 Scope of the study Objective of the study Period of the study Limitation of the study Methodology Fundamental analysis Economical analysis Industrial analysis Banking Industrial analysis Monitory Policy CRR Liquidity Management Indian Financial Sector SWOT analysis Budget 2007 -2008 overview Secure Banking Key Ratio Interpretation (SBI) Interpretation (ICICI) Chapter – 3 Technical analysis ICICI Bank Outlook SBIN Outlook Finding Suggestion ICICI Bank SBI Bank Conclusion Bibliography 6 . 36.6.5 2.
000 level for the first time it was yet another sign the India as a market for global liquidity had arrived. but a small number of large banks. There are plenty of changes occurs daily. Whether or not the sectors actually opens up in 2009. When. While we look at the sensex breach the 10. India is still cagey about foreign investments in banks. Evidently. Form the Investors point of view earning growth. the industry’s focus now is on scaling up both domestically and in markets abroad.Leeladhar.1 INTRODUCTION With the economy surging. What India need is not a large number of small banks. In this scenario. According to Reserve bank of India’s banking review of 2004 – 2005 there was a notable pick up in demand from industry for investments and a surge in exports. Most of researcher’s conclusion is. but growth through mergers and acquisition. Not Just through organic growth. V. 7 . widening the product and services port folio. price-earning multiplies and of course the performance of the economy matters. things are getting better in the Banking Industry.CHAPTER 1 1. and better using technology to make banking more accessible and efficient. banks should use that as an opportunity to get their growth strategies in place. As the RBI’s deputy Governor. We start co-relating the Gross Domestic product (GDP) growth of emerging markets are supposed to reflect the health of the economy where India emerges as a key player. said at Indian Banking Associations Jan 31 Seminar on “Indian Banks and the Global change” there is growing realization that the ability to cope with possible downside risks would depend among others on the soundness of the financial system and the strength of Individual participation”. India is arguably the best placed amongst the entire emerging market lot. Though a dramatic changes sweeping through the industry for some years now in the rise of India’s Public sector bank and private sector still it should fuel its grow to open up eyes towards open market.
5 % as on 31st March. 2006. to stock broking. is India's leading stock broking house with a market share of around 8. has been the largest in IPO distribution. From commercial banking.3. Kotak Securities Ltd. to investment banking. Dubai and Mauritius.1. the group has a net worth of over Rs.The various group companies include: Kotak Mahindra Capital Company Limited Kotak Mahindra Securities Limited Kotak Mahindra Inc Kotak Mahindra (International) Limited Global Investments Opportunities Fund Limited Kotak Mahindra (UK) Limited Kotak Securities Limited Kotak Mahindra Old Mutual Life Insurance Company Limited Kotak Mahindra Asset Management Company Limited Kotak Mahindra Trustee Company Limited Kotak Mahindra Investments Limited Kotak Forex Brokerage Limited Kotak Mahindra Private-Equity Trustee Limited Kotak Mahindra Prime Limited Kotak Securities Ltd. offering complete financial solutions that encompass every sphere of life. to life insurance.600 employees in its various businesses. As on December 31. 8 . With a presence in 282 cities in India and offices in New York. and the AUM across the group is around Rs. the group caters to the financial needs of individuals and corporates. catering to every segment of the industry.2 COMPANY PROFILE The Kotak Mahindra Group Kotak Mahindra is one of India's leading financial institutions. it services a customer base of over around 2. London.2 million.100 crore. The group specializes in offering top class financial services. 225 billion and employs over 9. to mutual funds.
1. The central bank.The portfolio Management Services provide top class service .7% stake followed by overseas investors including GDRs with 19.India's best Equity House Finance Asia Award (2005)-Best Broker In India Euromoney Award (2005)-Best Equities House In India Finance Asia Award (2006). providing dual benefit services wherein the investors can use the brokerage services of the company for executing the transactions and the depository services for settling them. Portfolio Management from Kotak Securities comes as an answer to those who would like to grow exponentially on the crest of the stock market . Kotaksecurities. the online division of Kotak Securities Limited offers Internet Broking services and also online IPO and Mutual Fund Investments.000 customers and a coverage of 231 Cities.Largest Distributor of IPO's Finance Asia Award (2004).The accolades that Kotak Securities has been graced with include: Prime Ranking Award (2003-04). RBIs stake in the bank is likely to be transferred to the Government of India (GOI). Kotak Securities Ltd is also a depository participant with National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL). 9 . Kotak Securities has 195 branches servicing more than 2.20. Sectoral research and Company Specific Equity Research combined with a strong and well networked sales force which helps deliver current and up to date market information and news.Best Provider of Portfolio Management: Equities The company has a full-fledged research division involved in Macro Economic studies. SBI is the largest commercial bank in India and accounts for approximately 18% of the total Indian banking business and the group account for 25% of the total Indian banking business.78% shareholding as on September 06.with the backing of an expert.3 PRODUCT PROFILE State Bank of India (SBI) has history of more than 200 years of existence.com.Best Broker In India Euromoney Award (2006) . catering to the high end of the market. Reserve Bank of India (RBI) is the largest shareholder in the bank with 59. Kotak Securities Limited manages assets over 2500 crores of Assets Under Management (AUM) .
57% as of Sep-end 2006 while net NPLs stood at 1. 1. 2. currentand saving account (CASA ) contribution in HIFY07 has declined to 43. The bank also has cushion to raise RS40bn in the form of hybrid.3.65% thereby. As on September 06.14bn.SBI has the largest distribution network in India spread across every nook and corner of India.19. which is below the industry average of around 68% • Total deposits of the bank grew at a CAGR of 94% over the last.63% (Tier –I of 8.800.832. On a sequential basis.061 branches which include 4.cantly increasing cost of funds and hensce margin contraction.3. 1. To augment its CAR to provide a stable platform for further growth.755 branches of its associated banks. Credit off take of the bank has been lower than the Indian banking industry during the past few years.8bn. The bank provides a full range of corporate.100bn as subordinate debt during the next few months. Contribution of low cost deposit to total deposit during the period too has moved up sharply from 36. Indian central bank namely Reserve Bank of India (RBI) is the 10 . In HIFY07.end 2006.06% of its NPLs as on Sep. registering a decline of 18. in existenxe for more than 200 years. The bank also has the largest network of 5.5bn. 4. Gross NPL of gross loans stood at 3.2% over the past years stood at Rs.624 ATMs. However. margins of the bank declined by 8bps to 3.6% in FY06. representing a growth fo 2. 182. the bank reported net interest income (NII) of Rs.4% during the period FY01 –FY06 and stood at Rs.32 • The capital adepuacy ratio of the bank stood at 12.89 %) at the end of HIFY07. commercial and retail banking services in India.67% during the same period. with low cost deposits registering an impressive GAGR of 15. The total asset size of the bank reported a CAGR of 9.74% over HIFY06 while the bank reported a net profit of Rs. The total credit book of the bank grew at a CAGR of 18.68bn at the end of September 2006.67% The bank has provided for 54.69 bn as of September 2006. the bank the plans to raise upto Rs.4% during the same period.3% in FY 01 to over 47. the bank has 14. ve years to reach Rs3.938.2 BACKGROUND State Bank of India is the largest and one of the oldest commercial bank in India. signi.74% and Tier –II of 3. Since the last 5 years the bank has showed continued growth in its core business.1 THE INDUSTRY GROWTH The industry growth during the same period was around 28% • The bank’s asset quality has improved over the past few years.
ces in 30 countries in all time zones. Of this.P.19% clerical staff and the remaining 25.3 MANAGEMENT The bank has 14 directors on the Board and is responsible for the management of the bank’s business. net interest margin (NIM) of the bank has gone up from as low as as2. Kolkata stock Exchange.major share holder of the bank with 59.3. SBI has the largest branch and ATM network of over 14. With this type of strong base.3%. The management’s thrust on growth of the bank in terms of network and size would also ensure encouraging prospects in time to come.3% during the last years. 45.Bhatt was Managing Director at State Bank of Travancore Mr. ciencly levels. 2006.646bn with the public holding (other than promoters) at 40.774 as on 31 st March. Chennai Stock Exchange and Ahmedaoad stockeExchange while its GDRs are listed on the London stock Exchange.32% 1. In recent past.cers. Mr.O.51% are of. Prior to this appointment. Mr. The bank is listed on the Bombay stock Exchange. and new heads for rural banking and for corporate development and new business banking have been appointed. the senior management of the bank has been broadened considerably. correspondent relationship with 520 International banks in 123 countries.3. 1. SBI group accounts for around 25% of the total business of the banking industry while it accounts for 35% of the total foreign exchange in India. SBI has acquired banks in Mauritius. During the same period. 29. The board in addition to monitoring corporate performance also carries out functions such as approving the business plan.4 SHAREHOLDING & LIQUIDITY Reserve Bank of India is the largest shareholder in the bank with 59.7% stake.9% in FY02 to 3. Net Interest Income of the bank has witnessed a CAGR of 13. The Positions of CFO and the head of treasury have been segregated.40% in FY06 and currently is at 3.7% stake followed by overseas investors including GDRs with 19.30% were sub-staff.T.78% stake as on September 06. Bhattacharya is the managing Director of the bank and known for hisvast experience in the banking industry. Indian financial 11 .000 branches (including subsidiaries) Apart form Indian network it also has a network of 73 overses of. The bank had total staff strength of 198. Recently.Bhatt is the Chairman of the bank. reviewing and approving the annual budgets and borrowing limits and axing exposure limits. Kenya and Indonesia.S. The bank is capitalized to the extend of Rs. SBI has displayed a continued performance in the last few years in scaling up its ef.
In the first half of FY2007. Mid Corporate Group b.643.3. Key Business Areas of the Bank a) Corporate Banking The corporate banking segment of the bank has total business of around Rs. National Banking The national banking group has 14 administrative circles encompassing a vast network of 9. 12 exchange bureaus.0% Which will further improve its CAR and Tier I ratio.3 mm shares outstanding and going by the actual trading volume. the remotest corners of the 12 . Now the government is rectifying the above error by transferring RBI’s holding to inself. as of January 12.93bn. International Banking. Corporate Banking. Scale with the bank clocking further gains.ict of interest.ces.1.institutions held 12. Shareholding Pattern of the Bank as on 30th September 2006 Source : SBI As of Sep 2006. the Stock’s liquidity seems to have decreased in the past two years. The daily share turnover during the year 2006 was 0.2007 bank’s market capitalization stood at Rs.5 KEY AREAS OF OPERATIONS The business operations of SBI can be broadly classed into the key income generating areas such as National Banking.39% witnessed in 2005.3% while Indian public held Just 8. to reach out to customers.ects con. SBI the 526. even it. Post this.7% to 51.22% down from 0. 1. 4 Sub-of.ces and 679 extension counters. SBI has created various Strategic Business Units (SBU) in order to streamline its operations. RBI is the monetary authority and having majority shareholding re. But the sentiment in the sock market improved in the first six months of the current. SBI will have afurther headroom to dilute the GOl’s stake from 59. & Treasury operations. 104 satellite of.2% of the stock. Project Finance c.6bn. a.177 branches. Leasing b. 93mm shares exchanged hasnds.
In addition to banking. through its various subsidiaries. During FY06. e. robust credit growth and liquidity constraints. International Banking SBI has a network of 73 overseas of. 25 foreign offices were successfully switched over to Finacle software. the Group. d. Associates & Subsidiaries The State Bank Group with a network of 14.country.2. provides a whole range of financial services which includes life Insurance.cex. SBI has installed ATMs at Male.1. In Indonesia. Muscat and Colombo Of. 809 are specialized branches. In recent years. The bank diversified it operations more actively into alternative revenue streams in order to offset the losses in.ces in 30 countries in all time zones and correspondent relationship with 520 international banks in 123 countries. In recent years.755 branches of its seven Associate Banks dominates the banking industry in India. In recent years. The reoganization seeks to enhance the efficiencies in use of manpower resources an increase maneuverability of banks operations in the markets both domestic as well as international. Out of the total branches.xed income portfolio.3. Mutual Funds. at Gaborone. This group consists of four business group which are enumerated below: b. the treasury operation of the bank has become more active amidst rising interest rate scenario. Credit card. The bank incorporated a company SBI Botswana Lte. Factoring. The bank is keen to implement core banking solution to its international branches also. Personal Banking SBU b. Small & Medium Enterprises b. SBI has installed ATMs at Male Muscat and Colombo of.ces. Treasury The bank manages an integrated treasury covering both domestic and foreign exchange markets.061 branches including 4. Agricultural Banking c. Security trading and primary dealership in the Money Market. SBI acquired 76% shareholding in Giro Commercial Bank Limited in Kenya and PT Indomonex Bank Ltd. Merchant Banking. Reorganisation of the treasury processes at domestic and global levels is also being undertaken to leverage on the operational synergy between business units and network. 13 .
7 ICICI BANK PROFILE ICICI Bank is India’s second-largest bank.2. ICICI Bank offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and through its specialized subsidiaries and affiliates in the areas of investment banking. Despite intense competition and pressure on spreads it has maintained and Improved its NIM. service delivery channels and human resource to efficiently serve bank customers across the globe The bank maintains its drive on the technology front to enhance customer service. SBI life SBI Capital Markets Limited (SBICAP) SBI DFHI LTD SBI Cards & Payments Services Pvt. f. which are paying more for deposits as a way of encouraging investors to save. Associates Banks e. The bank has maintained its record of profitability.3. life and non14 . As a part of its strategy to stay ahead of the competition.e. world-class banking organiztation. technology enabled customer-centric. Non – Banking Subsidiaries/ Joint Ventures i. and manage risk better. Major innovations and initiatives are in the arena of technology. banking products and processes. SBI had increased its benchmark lending rates by 50 basis points to 11.200 ATMs. It has a network of about 614 branches and extension counters and over 2.3. it has set in motion a series of steps to transform itself into a modern. iv.1. ii. After having computerized all its branches.6 STRATEGY AND NEW DEVELOPMENTS Though a publis sector bank. iii. while adjusting to the changing circumstances and interest rate environment.5 percent. increase productivity.Ltd. meeting best global practices and standards in bankings and service delivery. this lending rate increase is dure to the rising cost of funds for banks. it has been moving swiftly to implement real time on-line banking. (SBIFMPL)_ Human Resources 1. v. 1. (SBICSPL) SBI Funds Management (P) Ltd.
ICICI was formed in 1955 at the initiative of the World Bank. with free float market capitalization* of about Rs. South Africa and Bangladesh. venture capital and asset management. Sri Lanka and Dubai International Finance Centre and representative offices in the United States. ICICI’s shareholding in ICICI Bank was reduced to 46% through a public offering of shares in Indian fiscal 1998. the Government of India and representatives of Indian industry. Bahrain.life insurance. At June 5. ICICI Bank was originally promoted in 1994 by ICICI Limited. an Indian financial institution. amalgamation in fiscal 2001. both directly and through a number of subsidiaries an affiliates like ICICI Bank. After consideration of various corporate structuring alternatives in the context of the emerging competitive scenario in the Indian banking industry. and the move towards universal banking. and secondary market sales by ICICI to institutional investors in fiscal 2001 and fiscal 2002. ICICI Bank currently has subsidiaries in the United Kingdom. ICICI Bank’s equity shares are listed in India on the Bombay stock Exchange and the National Stock Exchange of India Limited and its American Depositary Receipts ((ADRs) are listed on the New York Stock Exchange (NYSE). In the 1990s. branches in Singapore. an equity offering in the form of ADRs listed on the NYSE in fiscal 2000. 480. ICICI become the first Indian company and the first bank or financial institution. ICICI Bank set up its international banking group in fiscal 2002 to cater to the cross border needs of clients and leverage on its domestic banking strengths to offer products internationally. the managements of ICII and ICICI Bank formed the view that the merger of ICICI with 15 .00 billion ranked third amongst all the companies listed on the Indian Stock exchanges. In 1999. ICICI Bank is the most valuable bank in India in terms of market capitalization. and was its wholly-owned subsidiary. Hong Kong. ICICI Bank has formulated a Code of Business Conduct and Ethics for its directors and employees. China. ICICI Bank’s acquisition of Bank of Madura Limited in all-stock. Our UK Subsidiary has established a branch in Belgium. Russia and Canada. The principal objective was to create a development financial institution for providing medium-term and long-term project financing to Indian businesses. ICICI transformed its business from a development financial institution offering only project finance to a diversified financial services group offering a wide variety of products and services. United Arab Emirates. from non-Japan Asia to be listed on the NYSE. ICICI Bank.
greater opportunities for earning fee-based income and the ability to participate in the payments system and provide transaction-banking services. a’ lowing stake holders to access information on ICICI Bank at their convenience. ICICI Bank disseminates information on its operation and initiatives on a regular basis. the Boards of Directors of ICICI and ICICI Bank approved the merger of ICICI Personal Financial Services Limited and ICICI Capital Services Limited. The merger would enhance value for ICICI shareholders through the merged entitty’s access to low-cost deposits. Consequent to the merger. entry into new business segments. ICICI Bank’s dedicated investor relations personal play a proactive role in disseminating information to both analysts and investors and respond to specific queries. strategic investments and cross holdings among public sector entities. and by the High Court of Judicature at Mumbai and the Reserve Bank of India in April 2002. particularly fee-based services. The ICICI Bank website serves as a key investor awareness facility.ICICI Bank would be the optimal strategic alternative for both entities. In October 2001. hither market share in various business segments. *Free float holding excludes all promoter holdings. both wholesale and retail. seamless access to ICICI’s strong corporate relationships built up over five decades. with ICICI Bank The merger was approved by shareholders of ICICI and ICICI Bank in January 2002. and would create the optimal legal structure for the ICICI group’s universal banking strategy. have been integrated in a single entity. and access to the vast talent pool of ICICI hand its subsidiaries. 16 . The merger would enhance value for ICICI Bank shareholders through a large capital base and scale of operations. the ICICI group’s financing and banking operations.
2 OBJECTIVES OF THE STUDY: PRIMERY OBJECTIVE • To analyse the various factors which influence the share price of SBI and ICICI bank SECONDREY OBJECTIVE • • • To analyze the market value of SBI and ICICI bank To offer suggestions and recommendations based on the findings. 17 .3 PERIOD OF THE STUDY: For the purpose of the study 5 years period starting from the financial year mar 2002 to march 2006 in considered. The approach to behavior of share price is based on long time view. There limitations do not undermine either the scope of the study on the analysis and inference. their relative growth and thereby decide on to buy or sell the particular slab. 2. To study the performance of ICICI and SBI 2. • • • Due to paucity of time important factors has been analysed and discussed. com no other efforts have been made to verify their correctness. This study will also help to identify the bank that is lagging behind in its performane.CHAPTER 2 2. The year 2005-2006 is chosen as a terminal year since only upto this period reliable time series data were available for the variables dealt in the study.4 LIMITATIONS OF THE STUDY: • This study is based on the secondary data collected form the kotak securities.1 SCOPE OF THE STUDY : The project entitled “A Study on the performance evaluation of SBI and ICICI based and fundamental and technical analysis” will enable from the investors point of view to refer the performance of the Banks. 2.
Operating expenses / total income (%) 6. Operating expenses / total funds (%) 11. Global research study is also adhered. website of stockcharts. Investment/deposit (%) 2. Interest expended / total funds (%) 8. Net interest income / total funds (%) 9.2.com. Net profit / total funds (%) 18 . Interest expended / interest earned (%) 4. Cash / deposit (%) 3. Non interest income / total funds (%) 10. The required information are also collected form respective bulletins of RBI. website of government of India.5 METHODOLOGY DATA COLLECTION Secondary data: All secondary data has been collected from the kotak securities. The key ratios considered of SBI and ICICI Bank considered includes 1. Ration analysis The ratio analysis expresses the relationship of the financial ratios in percentages which are collected form the Balance sheet and profit and loss account. Other income / total income (%) 5. Profit before provision / total funds (%) 12. Interest income / total funds (%) 7. Analysis Overlook: Fundamental analysis and technical analysis are taken into consideration.
When the level of economic activity is low.6 FUNDAMENTAL ANALYSIS INTRODUCTION Fundamental analysis is the study of economic factor industrial environment and the factor related to the company. and when the level of economic activity is high.Technical Analysis It is the process of identifying trend reversal at an earlier stage to formulate the buying and selling strategy. This chapter of fundamental analysis consists of Economic analysis Banking industry analysis Profile of SBI Profile of ICICI Ratio analysis of SBI Ratio analysis of ICICI Economic analysis with favorable GDP with savings. CPR. SLR. With the help of several indicators they analysis the relationship between price – volume and supply-demand for the overall market and the individual stock. stock price are low.6. stable prices. investment. trend reversals can be expected. 19 . the stock price are high reflecting the prosperous outlook for sales and profit of the firms. the number of shares traded is greater than before and on the downside the number of shares traded dwindles. If the economic growth rapidly. balance of payment. 2. If it is the other way round.1 ECONOMIC ANALYSIS The level of economy has an impact on investment in many ways. Volume is favorable on the upswing. and infrastructure facilities which provides a best environment for common stock investment Industrial analysis growth follow a pattern. Company analysis explains of the profile of SBI and ICICI bank and then deals with the ratio analysis of both the banks 2. and the flow of the industry. the industry can also be expected to show rapid growth and vice versa. This replicates the banking industry monitory policy.
However. there are some genuine concerns on the inflation front.Vigorous growth with strong macroeconomic fundamentals has characterized developments in the Indian economy in 2006-2007 so far.0% targeted by the tenth plan (2002-2003 to 20062007).262 crore in 2005-06 (QE) is largely attributable to the higher savings of non-departmental as well as departmental enterprises. 71. respectively. which as proportion of GDP. the share of industry and service improved to 26.5%. The savings rate for 2005-06. As much as 0. while the share of agriculture in GDP decline to 18.0% relative to 8. in 2006-2007. As a result. However.7 per cent in 2003-04. and made a negative contribution to the overall saving rate.7% in the two resent year. was positive for the third successive year in 2005-06. Services contributed as much as 68. the outlook is distinctly up beat.4 per cent in 2002-03 to 29.2% in2005-2006 and 2006-2007 shows a positive sign. The positive saving of Rs. a construction 20 . which had been negative until 2002-03. increased by 1. The overall macro economic fundamentals are robust. particularly in manufacturing boosted sentiments with in the country and abroad.0% and 9. The Indian economy has shown a sharp rise in the savings rate of the private corporate sector for tour years.3 percentage points increase in gross domestic savings rate between 2004-05 and 2005 – 06 has come from the household sector. The ratcheting up of growth observed in recent years in reflected in the eleventh five year target of an average annual growth of 9. and services maintained on the industrial segment. as per the quick estimates. With an up surge in investment. has been placed at 8. the surging pattern in agriculture continued with growth estimated at 6.4% and 55.7 percentage points.4 percent in 2005 – 06. The private corporate sector has financed a large part of its investment in the on-going long capex cycle from such retained earnings or savings.1 per cent. The higher growth trends. The rise in the savings rate in 2005-06 was due to private corporate and the household sector. a redeeming feature of recent years is that the savings of the public sector.0 percentage point and 0.7 percentage point of the 1.1 per cent in 2004-05 and 32.6% of the overall average growth in GDP in the last five years. Growth of 9. The entire residual contribution came from industry.1%. 31. SAVINGS AND INVESTMENT The gross domestic savings as a proportion of GDP shows an increasing trend with the saving ration rising from 26. particularly with tangible progress towards fiscal consolidation and a strong balance of payment position.0% and 2.
As the savings rate has gone up.9 per cent in 2006 to 68.0 per cent in 2004-05.3 per cent in 2002-03 to 39. with the rise in the rate of gross domestic savings between 2003. This may indicate a recent pick up in fresh investment for creating additional capacity through fixed capital formation.4 percent in 2003-04 to 10.0 per cent in 2004-05. beverages and tobacco came down from 43.boom with residential buildings financed from housing loans form banks and the progressive maturing of the domestic financial markets. on the other hand. rose from 15. 21 . Government final consumption expenditure GFCE). private final consumption expenditure (PFCE) at current prices as a proportion of GDP. The increase in savings rate is what is to be expected with higher growth rate of the economy and a declining dependency ratio.7 per cent in 2005-06. irrespective of the choice of constant or current prices as the weights.8 per cent in 2002-03 to 19.3 per cent to 10.5 per cent of GDP in 2005-2006.4 percent of GDP in 2004 – 05 . Progressive maturing of the domestic financial markets has provided shift in the household portfolio in the three years ending in 2005-06.1 per cent in 2004-05.5 per cent of GDP leading to a savings investment gap or a current account deficit of 0. with growing technological sophistication of the production processes in the economy in general and manufacturing in particular. This differential may reflect the greater increase in the prices of capital goods relative to the general price level. there was a step up in the rate of gross domestic capital formation (GDCF) or investment from 28 per cent of GDP to 31. more than recovered to 11. Financial savings.1 per cent in 2002-03 to 62. the share of food.7 per cent in 2005-06. While Housing loans from banks has tended to increase household savings in physical form and depress financial savings. with the proportion of population in the working age group of 15-64 years increasing steadily from 62.4 per cent in 2005-06. 60. The other major items of importance. In PFCE.2 per cent between 2003-04 and 2004-05. GDCF at constant prices base: 1999-200) as a proportion of GDP is consistently lower than the corresponding proportion at current prices. after declining from 11. PFCE as a proportion of GDP declined from 63. transport and communication. particularly in the private sector. the direction of change from year to year remains unaltered.04 and 2004-05.1 per cent in 2003-04.7 per cent in 2005-06. increased to 11. and further to 58. But. namely. This decline has also been accompanied by substantial changes in terms of the shares of different commodity groups. Physical savings as a proportion GDP has declined steadily from a high of 12.4 per cent in 2026. as a proportion of PFCE. the demographic dividend in the form of high savings rate is likely to continue.9 per cent in 2002-03 to 11. has shown a declining trend particularly from 2001-02. after declining from 11.
Wheat. PFCE Contributed more than one half of the growth every year until 2001-02. Low investment. poor agricultural performance.0Per cent. as the current year Has demonstrated. a distorted incentive system and low post-harvest value Addition continued to be a drag on the sector’s performance. growth of agriculture at only 2. Data on consumption and investment in the national accounts available until 2005-05 show that the 6. respectively. can complicate maintenance of price stability with Supply-side problems in essential commodities of day-to-day Consumption. edible oils. AGRICULTURE After an annual average of 3.1 per cent growth in GDP at current market prices in 2004-05 exceeded the corresponding contribution of private final consumption expenditure at 6. low seeds Replacement rate. an Condiments and spices have been the major contributors to the higher Inflation rate of primary articles.0 per cent. After falling below one half in 2002-03. with more Than half the population directly depending on this sector. Prices of primary commodities.6 per cent and 7. The recent spurt of activity in food processing and Integration of the supply chain from the farm gate to the consumer’s plate Has the potential of redressing some of the root causes such as low Investment.1 percentage point for the first time in recent years. have been on the rise In 2006-07 so for. poor quality seeds. investment continued to provided the lead during 2004-05 and 2005-6. is a Cause of concern. low Agricultural growth has serious implications for the ‘inclusiveness’ of Growth. Furthermore. respectively. The percentage point contribution of investment in the growth of GDP at current market prices of 13. the mineral Subgroup recorded the highest year-on-year inflation at 18.4 per 22 . it had again dominated GDP Growth in 2003-04.7 per Cent in 2006-07. mainly food.1 per cent in 2004-05 and 2005-06.0 per cent in the first five years of the New millennium starting 2001-02. With imports growing faster than exports.1 per cent and 14.GDP growth in India in the post-reform period was driven mostly by Private final consumption expenditure or PFCE growth. were 7. the external balance continued to have a negative contribution to GDP growth in recent years.2 per cent and non-food articles at 12. Within the primary group. on a base of 6. In terms of contribution to growth of GDP at current market prices.2 per cent. and little post-harvest processing. from the demand side. fruits and vegetables. imbalance in fertilizer use. pulses.0 per cent growth in the previous year. .8 percentage point contribution of investment to 13. Followed by food articles at 12. Food articles have a high weight of 15..06 . But this appears to have undergone a virtuous Transformation with investment rather than private consumption being he Main source of GDP growth in the latest two years of 2004-05 and 2005.
Food articles have a high weight of 15.98 per cent. With a firming up of international prices. and National Agricultural Cooperative Marketing Federation (NAFED) purchased urad and moong overseas. Starting with a rate of 3. On January 22. and condiments and spices have been the major contributors to the higher inflation rate of primary articles. Regulation of commodity futures markets was strengthened for wheat.7 per cent on February 3. Further. the mineral subgroup recorded the highest year-on-year inflation at 18. 2007 remained at 5 per cent.cent in the WPI Basket.2007. pluses. 2006. Government closely monitored prices every week and initiated Measures to enhance domestic availability of wheat. sugar and pulses. export was banned from June 22. prices of primary commodities. However. But such imports unproved domestic market discipline. first in August 2006 and later in January 2007.5 percentage points in a phased sequence.2 per cent to overall inflation of 6. imports were allowed at zero duty from June 8. further duty cuts were announced for Portland cement. export restrictions and Fiscal concessions. private trade as permitted to import wheat at zero duty from September 9. futures trading was banned in urad and tur from January 24. various metals and machinery items.50 Per quintal and announced well in advance of the sowing season to bring additional acreage under wheat. The minimum support price (MSP) of wheat raised by Rs. have been on the rise in 2006-07 so far.2 per cent to overall inflation of6. INFLATION with a shortfall in domestic production vis-à-vis domestic demand and hardening of international prices. State Trading Corporation. and exports were banned from February 9. Including manufactured products such as sugar and edibleoils. which meets more than a half of the domestic demand –supply shortfall in edible oils. Including manufactured products such as sugar and edible oils. tendered overseas for 55 lakh tonnes of wheat. fruits and vegetables.0 per cent. food articles contributed as much as 27. 2006. 2007. was reduced by 20-22. Food articles contributed as much as 27.7 per cent on February 3. 2007. Starting with a rate of 3. Wheat. edible oils. Within the primary group. In wheat. sugar and Edible oils by a combination of enhanced imports. tariff values of these oils for import duty assessment were frozen.. average inflation in the 2 weeks ending on February 3. Duty on palm group of oils. pulses.2 per cent and non-food articles at 12. the impact of duty-free import of wheat and pulses in rolling the domestic prices back was limited. 2007. In pulses.98 per cent.4 per cent in the WPI basket. and as a matter of abundant precaution.2 per cent. the in flation rate in 2006-07 has been on a general upward trend with intermittent decreases. 2007. the parastatal. the inflation rate in 2006-07 has been on a general 23 . followed by food articles at 12. mainly food.
2000-01. imports grew by 36. Balance of payment In the balance of payments. after remaining in surplus till 2003-04. 2006. respectively with effect from November 30. there was an unavoidable upward revision of retail selling prices of petro. 2007 remained at 5 per cent.7 billion. primarily because of high bullion prices leading to a decline in import balance. imports (in US dollar terms and customs basis) had grown by 33. 2006.upward trend with intermittent decreases. domestic prices of petrol (motor spirit) and high diesel were reduced by Rs. During 2006-07. growth of 23. FOREIGN IMPACT oil prices The international annual average price of the Indian basket of crude (about 60 per cent of Oman/Dubai and 40 per cent of Brent). The pass –through to consumers was restricted to just 12. 2006.7 per cent in the first nine months of the current year. Buovancy of exports was driven from major trading partners. exports gained momentum to grow by an estimated 36. respectively. While petroleum imports continued to grow rapidly. India’s exports crossed the US$100 billion mark. in 2005-06 and in the first half of 2006-07.products on June 6.3 per cent. To stop the hemorrhaging of public sector oil companies’ finances. Government and oil marketing companies. In 2005-06. However. During 205-06. reflecting in part the ongoing investment boom and the high international petroleum price. average inflation in the 52 weeks ending on February 3. India’s exports (in US dollar terms and customs basis) have been growing at a high rate of more than 20 per cent since 2002-03. Exports grew fast.2 billion and US$11. FDI and FII 24 . and 2004-05. on August 8. after a slow start.3 per cent in the first nine months to reach US$89. and resulted in reserve accretion. 2007 .5 billion.5 per cent in a three way burden sharing arrangement among consumers.8 per cent. In the first nine months of the current year. after remaining more or less stable in 2002-04 at around US$27. non-oil import growth decelerated to a moderate 18. 2 and Re. capital flows more than made up for the current account deficits of US$9. The current account deficit reflected the large and growing trade deficit in the last two years. A spurt in inflation like in the current year has been observed in the recent past in 1997-98. 2003-04.1.28 per barrel. With the softening of international petroleum prices. and again by the same amounts with effect from February 16.4 per cent. has turned negative since 2004-05. but imports grew even faster.
5 per cent of GDP on January 12. as a proportion of capital flows. Fill flows are reported to have turned positive again in the second half of the current year. Overall index 25 .picked up in 2004-05. These debt flows. on average. especially through private placements and Initial Public Offerings (IPOs). Reflecting the improved growth prospects of the economy was partly also a result of steady progress made on the infrastructure front. The composition of flows. 2007. 1. FII flows. 25.769 crore in calendar year 2006. The BSE sensex.000 points. the dominant variety of portfolio flows.Capital flows into India remained strong.950 crore in 2006. after remaining buoyant until 2005-06. as a proportion of total capital flows. technology and market access advantages through acquisitions overseas. were 25 per cent in 2004-05 and 18 per cent in 2005-06. however. grew by 30. India with a market capitalization of 91. THE CAPITAL MARKET Bullish sentiments in the domestic capital market is foreseen. Foreign investment.1 per cent to 79.454 crore in 2005 to Rs. The positive sentiments were manifest also in most indicators such as resource mobilized through the primary market. external assistance and external commercial borrowing (ECBs) –two major debt-creating flows. rallied from a low 8. 2002-05. there were large ‘other flows’ (delayed export receipts and others) accounting for a sizeable proportion of net capital flows.5 per cent to RS.04.4 per cent in 2005-06 followed by 98. with three-quarters of such flows in the form of equity.000 mark to the 1400 mark in only 26 trading from the fastest ever climb of 1. The rally from the 13. turned into net outflows in the first half of 2006-07. The upbeat mood of the capital markets. This was even after gross outflows under FDI with domestic corporate entities seeking a global presence to harness scale. The negative inflows in 2004 turned positive for the public sector mutual funds in 2005 and accelerated in 2006. 2006 to an all-time intra-day high of 14.4 per cent in April –September 2006. has remained in the range of 39. such as equity returns and price/earnings ratio also continued to be strong and supportive of growth. There was strong growth in foreign direct investment (FDI) flows (net). After being outflows in the previous two years. 161. The growth rate was 27. Net mobilization of resources by mutual funds increased by more than four-fold from Rs.3 per cent in the last four years ending in 2005-06. with about 6 IPOs every month. other indicators of market sentiments. stock-index of the Bombay Stock Exchange (BSE).929 on June 14. In the three-year period. 2007 the strength of the market micro-structure from large retail participation continued.724 on February 9. Aggregate mobilization. fluctuated from year to year. The sharp rise in mobilization by mutual funds was due to buoyant inflows under both income/debt-oriented schemes and growth/equity oriented schemes.
and does not adequately capture the signs of industrial resurgence. insurance. route. petroleum refinery products. after dipping to 5.2). The potential benefits expected from PPP are : cost-effectiveness. the additionally of resources that PPP would bring. and recovery of user charges. 2. Investment requirements for infrastructure during the Eleventh Five Year plan are estimated to be around US$ 320 billion. particularly mobile. registered a growth of 8.6 percent in 2003-2004 bounced back to 8. Based on the number of projects that have been approved or are under consideration.2 INDUSTRY ANALYSIS The lower contribution of industry to GDP growth relative to services in recent year is partly because of its lower share in GDP. crude oil. accelerated delivery. and fast addition to existing stock of telephone connections. the momentum has been maintained with a growth of 11. however. ‘trade. Among the three sub-sector of services. Services sector growth has continued to be broad-based.of six core industries – electricity. impressive progress in information technology (IT) and IT-enabled services.3 per cent. a growth declaration in cargo handled at major maritime ports (both exports and imports) and airports (exports). both rail and road traffic. Further. Growth in financial services (comprising banking. There was. higher productivity. The news of gas discoveries in the Krishna Godavari (KG) basin under New exploration and Licensing Policy (NELP) in recent months was an encouraging development in the country’s pursuit of reduced impot dependence in hydrocarbons.1 percent in 2006-2007. coal. INFRASTRUCTURE On the transport and communication front. railways maintained its nearly double-light growth in the first nine months of the current year. clear customer focus. hotels. played a key role in such growth.6. and cement. enhanced social service.9 percent in 2005-2006. along with the ‘value for money’ continues to remain critical.7 percent in 2004-05 and 10. it is estimated that a leveraging of nearly six times could be achieved through this 26 . transport and communication services’ has continued to boost the sector by growing at double-digit rates for the forth successive year (table 1. real estate and business services). While nearly 60 percent of these resources would come from the public sector and/or through public-private partnership (PPP).
released by CSO in their advance estimates. and after accelerating to over 9. improved to 88. from a low of 2. industry has never consistently grown at over 7.0% per year for more than three years in a row before 2004-2005. the growth impulses in the sector seem to have spread to manufacturing.1% and 7. as a proportion of the corresponding growth in services. revived to 7. gas and water supply. had it not been for a relatively disappointing performance of the other two sub-sector. which was78. The revival in gross domestic capital formation (GDCF) that commenced in 2002-2003 has been followed by a sharp rise in the rate of investment in the for four consecutive years. This sharp increase in the investment rate has sustained the industrial performance and reinforces the outlook for growth 2.6. touched 10.7% in 2001-2002. Within industry. The current growth phase shows a sharp rise in the rate of investment in the economy.5% in the next two years.9% on the average between 1991-1992 and 1999-2000. Investment reflect a high degree of business optimism. has been growing at double digit rates every month since march 2006.1%. Sustained accommodated by acceleration in deposit Growth of bank credit was Growth. and electricity. Banks’ SLR Investments.Growth on industrial sector. reflecting strong demand conditions. The growth of industry.7 % in the last seven years.4% in 2002-2003 and 2003-2004. broad many growth has remained above the Indicative trajectory . Since 1951-1952.5% in the quick estimates. manufacturing.0% in 2006-2007. respectively.3 BANKING INDUSTRY ANALYAIS Bank credit has continued to grow at a pace. Concomitantly. Industrial growth would have been even higher. Now stand upgraded to 31. have declined further from their end-March 2006 levels. accounting to the monthly index of industrial production (IIP) available until 2006. The earlier statement of GDCF for 2004-2005 of 30. as a proportion of their net demand and time liabilities (NDTL). with the solitary exception of the festive month of October. namely mining and quarrying. YoY. The Reserve Bank continued to modulate market liquidity with the help ofLAF repo and reverse repos and issuance of securities under the Market Stabilisation 27 .
8 CRR The Reserve Bank in its Mid-Term Review of Annual Policy Statement for the year 2006-07 (October 31.8 per cent in the corresponding period of 2005. On a fiscal year basis too. 2006 2. Furthermore. 2007 from 17. expectations of the Private corporate sector of higher increase in prices of both inputs and Outputs. Taking into account. 2006) noted. 2006 over Apirl1.7 MONETARY POLICY Broad money (M3) growth.9 per cent.0 per cent a year ago. accelerated to 20. The increase in the CRR is estimated to have absorbed banks’ resources to the extent of Rs. on December 8.4 per cent as on January 5. the Reserve Bank raised cash Reserve ratio (CRR) by 50 basis points in two phases with effect from the Fortnight beginning December 23. 2006 and January 6. Other development in the Domestic economy impacting upon the decision to increase the CRR Included growth in real GDP. 2006. 2005). the monetary policy stance and measures will need to be in a process of careful 28 . 2. Towards this objective.500 crore. inter alia. Expansion in the residency. decided to increase the CRR by 50 basis points in two stages – 25 basis points each effective the fortnights. sustained growth in credit offtake. beginning December 23. acceleration in inflation. these trends in monetary aggregates.Scheme (MSS). at 11. containing inflation expectations in the current environment and consolidating gains achieved so far in regard to stability would warrant appropriate. and Challenges emanating from capital flows and consequent impact on Increasing liquidity.06 (January 6. 2007 over March 31. M3 growth during 2006-07 so far (January 5. and additional absorption of liquidity under the MSS. Growth in liquidity aggregate L 1 was lower that that in NM3 on account Of decline in postal deposits. 13. that: “Furthermore. was higher than that of 8. 2006).0 per cent t end-march 2006 and 16. partly Reflecting lower recourse to call/term funding from financial institutions. year-on-year (Y-o-Y). immediate measures and willingness to take recourse to all possible measures in response to evolving circumstances promptly. inter alia does not directly reckon non-resident foreign currency deposits such as India Millennium Deposits (IMDs) and FCNR (B)-was lower than M3. The objective is to continue to maintain conditions of stability that contribute to sustaining the momentum of growth on an enduring basis. inter alia. reports of growing strains on domestic capacity utilization. the Reserve Bank.based new monetary aggregate (NM3) – which. 2007.
500 crore Of resources of banks would be absorbed. scheduled state co. an amount of about Rs. there were a Number of significant developments.8 per 29 . Decided to increase the cash reserve ratio (CRR) of the scheduled Commercial banks. the Reserve Bank.Operative banks and scheduled primary (urban) co-operative banking System by 50 basis points of their net demand and time liabilities NDTL ) In two stages-25 basis points each effective from fortnights beginning December 23. 2006 before moderating to 16. As per the RBI s Industrial Outlook survey.2006 to a peak of 19. These included: 1. acceleration in money supply (M3 ) growth and reserve money growth and absorption of additional liquidity under the market stabilization scheme(MSS) 3. However. both currency and time deposits Contributed to acceleration in growth in M3 year-year basis growth in Currency with the public increased from 15. In view of the above.4 per cent as on October 27.November 2006 will moderate inflation.1 per cent in the first half of 2006-07. There were reports of growing strains on domestic capacity Utilization. There were also reports that expansion of capacity is Underway but the realization could be constrained over the next two years. Amongst its major components. A seasonal decline in prices of food articles could moderate the inflation Pressures but the WPI inflation excluding food articles remains at Elevated levels. regional rural banks (RRBs). and will continue to be accommodated by net Capital flows.rebalancing and timely adjustment”. The External sector continues to be strong and current account deficit is likely To be close to the trend. 2006 and January 6. on December 8. 4. 2006. a majority of respondents from the private corporate sector expect higher increase in prices of both inputs and outputs. 2007.Real GDP growth at 9. Continued high growth in non-food bank. The reduction in prices of petrol and diesel in end. with inflation based on the various consumer price indices being higher than WPI. 13.4 per cent as on January 6. it is necessary to recognize the challenges Emanating from capital flows and consequent impact on increasing Liquidity. Subsequent to the announcement of the Mid-term Review. particularly on the domestic front. 2. As a result of the ncreases in CRR on liabilities to banking system. Increase in WPI inflation. but the overall impact on Inflation expectations requires to be monitored and moderated.2 per cent during July-September 2006 and 9.
75-6. On a fiscal Year basis. on the back of higher Accretion to time deposits. 2007) reflecting lower order of Procurement of food grains. This.50-7. Rates offered by private sector banks on deposits of similar maturity increased from a range of 5. growth in non-food credit decelerated marginally to 16. could be attributed to higher interest Rates on deposits as well as tax benefits. has exhibited some moderation in recent months.0 per cent a year ago. significantly higher than that in the previous year.9 per Cent as on January 5. the ncremental credit deposit ratio of SCBs. absorbed 5 per cent of incremental non-food credit. 30 . with unchanged interest Rates. y-o-y. About 34 per cent of incremental Non-food credit was absorbed by industry. 2007 from 16.5 per cent a year ago. Apart From bank credit. Acceleration in growth in October 2006 could be partly attributed to the early onset of festival Season currency demand during the current year.75 per cent in March 2006 to 6. 2007 from 15. On a y-o-y basis. growth in demand deposits (19.75-9. 12 per cent by ‘other Retail loans’. 2007 was of a lower order than a year ago (28. Disaggregated data available up to October 2006 show that credit Growth has been largely broad-based.7 per cent). 2007.75 per cent over the same period.75 per cent to 6. After remaining above/around 100 per cent for the most part since October 2004. In view of the Acceleration in deposits. the corporate sector continued to rely on non-bank. Commercial sector’s demand for bank credit has continued To remainstrong during 2006-07 so far. Loans to commercial real estate. As on January 5. apart from Acceleration in economic activity.the same rate as a year ago. Growth in time deposits of scheduled commercial banks accelerated to 22. 2007 from 7. however. 2007. non-food Credit of scheduled commercial banks (SCBs) registered a growth of 31. which increased by 84 per Cent. Interest rates on time deposits of 1-3 years maturity offered by public sector banks increased from a range of 5. as On January 5.cent as on January 5.75-8.1 per cent. 2007.9 per cent) During 2006-07 (up to January 5. On a year-on-year asis.2 Per cent as on January 5. Growth in time deposits also appears to have benefited from the Recently introduced tax benefits under section 80C for deposits with Maturity of five years and above. postal deposits have witnessed a significant decline since end march 2006.2 per cent a year ago.9 per cent (y-o-y) as on January 5.2 per cent) as on January 5. Growth in aggregate deposits accelerated to 21. the incremental redit-deposit ratio was around 93 per Cent (y-o-y) as compared with 108 per cent a year ago scheduled Commercial banks’ food credit has recorded a modest rise (5. y-o-y. Accertion to time deposits was.25 per cent in January 2007. Concomitantly.
2007). 17. 1.Sources of funds financing their requirement. 2007 from Rs. Funds raised through equity issuances in the primary market as well as higher internal reserves also enabled banks to fund strong credit demand.6 percent as against a decline of 0. growth in commercial banks’ NDLT accelerated to 20. commercial bank’s holdings of Government securities declined to 28. After remaining subdued during the second quarter. 23. In the fiscal year 2006-2007 (up to January 5. Excess SLR investments of SCBs fell to Rs. 2007. Reserve Money Reserve money expanded by 20.3 percent at the end o-March 2006 and 32.0 percent. 43. Adjusted for the first round effect of the hike in the CRR. y-o-y.222 crore in contrast to a decline of Rs. Resources raised thorough domestic equity issuances during the first nine months of 2006-2007 (Rs. 96. 2007 as compared with 14.019 crore) were 55 percent higher than that in the same period of 2005. 15. with net disbursement under ECBs increasing from Rs. On a y-o-y basis. Over the same period. With incremental investment in gilts not keeping pace with the high growth in NDLT. Finally. Mobilisation of resources through equity issuances abroad ADRs /DGRs ) during April-December 2006 (Rs.9 percent a year ago. as on January 19.580 crore a year ago. recouse to external commercial borrowings (ECBs) during the first half of 2006-2007 was almost double of that in the corresponding period of 2005-2006.3 percent a year ago. Profits after tax during the second quarter of 2006-2007 were higher than those in each of the five preceding quarters.407 crore as on January 5. internal sources of funds continued to provide large financing support to the domestic corporate sector during the first half of 2006-2007.029 crore a year ago. amounts raised from the primary market picked up during the third quarter of 2006-2007.6 percent of their NDLT as on January 5. 843 crore) were more than double of that in the corresponding period of 2005-2006.4 percent as on Janurary 29. 8.1 percent a year ago. reflecting the need to meet statutory requirements. Reserve money movements over the course of 31 .031 crore during April-September 2006. now withstanding some sluggishness in the third quarter.6 percent a year ago. commercial banks’ investments in gilts increased by 5.68. Mogbilisation theough issuances of commercial papers during April-December 2006 was more than three times of that a year ago. Profits after tax of select non-financial nongovernment companies during April-September 2006 were almost 40 percent higher than those in the first half of 2005-2006.551 crore during April-September 2005 to Rs.7 percent from 18. 34. 2007 fron 31. reserve money growth was 17. commercial bank’s investments in gifts witnessed a large expansion of Rs.
LAF and CRR. thus. The Reserve Bank’s net credit to the Centre. 2006. the Reserve Bank’s holdings of Government securities increased by Rs. which increased to Rs. in view of some build-up of Centre’s cash balances with the Reserve Bank during August 2006. This was mirrored in an increase in the LAF reverse repo balances. 10. turned tight from the second week of December 2006 largely due to payments for auctioned Central 32 .185 crore during the corresponding period of the previous year Mirroring the liquidity management operations through LAF.963 crore during the fiscal year 2006-2007 ( up to January 19. 80. 34. consistent with the objective of price and financial stability. particularly for productive purposes.615 crore during 2006-2007 (up to January 19. 2007) as compared with an increase of Rs. however. the Reserve Bank continued with its policy of active demand management of liquidity through OMO including MSS. Beginning mid September 2006. However.the year reflected the Reserve Bank’s market operations. 6. Liquidity management emerged to be more complex during the past year. liquidity conditions turned tight on account of advance tax outflows and festival season currency demand. Towards this end. however.255 crore as on December 6. 2006). unwinding of the Center’s surplus balances with the Reserve Bank’s purchase of foreign exchange from authorized dealers led to ample liquidity into the banking system. and using all the policy instruments as its disposal flexibly. liquidity conditi8ons. This was mirrored in balances under LAF reverse repos. largely reflecting variations in cash balances of the Governments and capital flows. 622 crore during the corresponding period of 2005 –206 2. Liquidity conditions eased during November 2006. Liquidity pressures eased by end-October 2006 following soje decline in Centre’s surplus cash balances.615 crore. partly reflecting market purchases of foreign exchange by the Reserve Bank. 50. During 2006-2007 so far Central Government deposits with te Reserve Bank have increased by Rs. with greater variation in market liquidity. 27. 3. 2007) as against an increase of Rs. However.435 crore in the corresponding period of 2005-2006. the absorption under LAF reverse repose witnessed some decline during the second quarter. 2007) as against an increase of Rs. The Reserve Bank’s foreign currency assets (net of revaluation) increased by Rs. 11.9 LIQUIDITY MANAGEMENT The Reserve Bank continued to ensure the appropriate liquidity is maintained in the system so that all legitimate requirements of credit are met. net injection of liquidity was witnessed only on two occasions (October 20 and October 23. The Reserve Bank injected liquidity through repo on eight occasions between mid September 2006 and end-October 2006. During the first quarter.166 crore during the fiscal year 2006-2007 (up to January 19. increased by Rs.
Establishment of special economic zone likely to promote further industrialization 3. 5. 2007. investments 7. Average daily net injection of liquidity by the Reserve Bank moderated to Rs. Rising corporate capex. loan growth as multiple of nominal GDP growth.2006 to Rs.Government securities. 2. respectively. 1.10 INIDAN FINANCIAL SECTOR SWOT ANALYSIS Strengths 1. 2006 to Rs. In view of the prevailing liquidity conditions. Years.e. 42. Stable industry dynamics 4. Prove management teams.682 crore as on December 29. educated work force.937 crore during October 2006 and November 2006. Rapid financial deepening. 2007. 2006 to Rs. 9. Stable / low NPL formation rates. advance tax outflows (with concomitant increase in the Centre’s surplus cash balances with the Reserve Bank from Rs.585 crore during December 22-29. the Reserve Bank injected liquidity into the system through repo operations from December 12. Rising consumer spending. of catch-up economics – low per capita income. 65. 2006 in contrast to the average daily absorption of Rs. 25. proven asses quality resilience in past downturns. and the increase in the CRR by 501 basis points in two phases. Average daily net injection of liquidity by the Reserve Bank increased from Rs. 73. 48.528 crore as on January 19. consumer credit business. Opportunities 1. 10. 716 crore as on December 15. if not decades. track record 3. 2.615 crore during December 13-21. 2006. 2007). M&A optimality. 10. Improving secular GDP growth prospectus 2. Well – established regulatory frame work 5. Net outstanding balance under LAF repos was Rs. i. 2006). 4. as liquidity pressures eased partly on account of reduction in the Centre’s balance with the Reserve Bank from Rs. 6.190 crore as on January 24. 814 crore during January 2007 (up to January 20. 33 .634 crore on December 22.262 crore and Rs. 5.
Key challenges 1. Tightening in global liquidity may trickle down to Inida 3.3% foreign exchange reserves at US$ 180 billion. Potentially hawkish RBI stant on inflation/monetary policy 4. in real terms. “Running on empty’ in terms of liquidity 2. during three year period.7% to 9. Interest rate outlook some headwind from policy rate hike but won. 5. Constraints on state.4% and investment rate at 33.1% and further to 11. year on year. budget deficit. average growth in agriculture during Tenth Plan estimated at 2.4%. by 29.5% in 2004-2005 to 9% in 2006-2007. increased by 7.2%. Inflation : Growth in bank credit.6% to 9.Key issues/swing factors 1. Policy risks: Moderating in inflation outlook. Liquidity : Deposit growth sustaining momentum and loan growth moderating to 25% from the current level of 30% 2. combained with accelerating private credit demands 2. average growth rate in the three ears of the UPA Government at 8.11 BUDGET 2007-2008 OVERVIEW BUDGET 2007-2008 Improvement in GDP growth rate from 7.t be a shock factor. Continued crowding out effect form Govt. potential rise in long bond yields.3% Income and Savings : per capita income in 2005-2006. acceleration in growth rate inmanufacturing from 8.3% and in services sector from 9. Our echonomist believes that the risk is less. branch cut constraints. Key risk factors 1. pressure on domestic pri8ces by global 34 . Potential for further tightening in the short term. Reduction in reserve requirements: key swing factor for liquidity and hence for sustaining growth momentum. 4. savings rate estimated at 32.8%.owned banks micro including HR.6% growth target for the Tenth Plan of 8% will be nearly achieved.6% expansion in money supply (M3) by 21. should earnings delivery disappoint expectations. 3. 2. Loan growth : Moderation needed more for maintaining industry dynamics.8% and further to 11. staff cut. potential for valuation pullback. MTM risk for banks 5. Ownership restrictions 3. Weakness.
about Rs.4% vis-à-vis 4. 16. 225. additional irrigation potential of 2.4% last year. spices. foundation and certified seeds. faster employment creation. 35 . 000 villages. Plantation Sector : Financial mechanisms for re-plantation and rejuvenation to be put in place for coffee. of this.400. 15.commodity prices. outlay to be increased from Rs. and offer the other producers a capital grant or concessional financing to double production of certified seeds within a period of three years. Government to fund the expansion of Indian Institute of Pulses Research.400 crore to be on water related schemes. 1.979 crore. Kanpur. growth of 4% in the agriculture sector.000 hectares to be created. a special plan being implemented over a period of three years in 31 especially distressed districts in four states involving a total amount of Rs.000 rural houses constructed with 914. average inflation in 2006-2007 estimated at between 5. rubber.2 and 5. reducing disparities across regions and ensuring access to basic physical infrastructure and health and education services to all. and supply constraints in some essential commodities – consequently. ELEVENTH FIVE YEAR PLAN Objectives : “Faster and more Inclusive Growth”. until December 2006 drinking water provided to 55.677 crore for 2% interest subvention for short-tem crop loans. growth rate of approximately 10% by the end of plan period.000 houses under construction. 12.198 kilometers of rural roads completed and 783. In 2006-2007. AGRICULTURE Farm credit : Target of Rs. Mission for Pulses : Integrated Oilseeds.054 villages provided with telephone against target of 20. oil palm.512 habitation.000 hectares to be created. Accelerated Irrigation Benefit Programme : 35 projects likely to be completed in 2006-2007 and additional irrigation potential of 900.000 crore for 2007-2008 with an addition of 50 lakh new farmers to the banking system. provision of Rs. 19. cashew and coconut. and balance to be covered by the end of the year. 12. special plan includes a scheme with proposed provision of Rs.758 villages covered so far under the Rajiv Gandhi Grameen Vidyutikaran Yojana. Pulses and Maize Development programme to be expanded with sharper focus on scaling up the production of breeder. 153 crore for induction of high yielding milch animals and related activities.
053 crore through internal and extra budgetary resources in 2007-2008. 2007. 500 crore.5 billion and outpaced portfolio investment of US$ 6.350 crore. Agriculture Technology Management Agency (ATMA) now in place in 262 districts to be extended to another 300 districts.7 percent in April-January. other initiatives include facilitating setting up of merchant power plants by private 36 Proposed allocation of Rs. INFRASTRUCTURE : Power : Seven more Ultra Mega Power Projects under process and at least two to be awarded by July.7.182 crore to resore 5.000 hectares. Fertiliser Subsidies : Based on study to be conducted. 3. Government to provide equity support of Rs. Rainfed Area Development Programme: Development Programme. Central Public Sector To invest Rs. 2.580 crore.000 crore including grant component to State Governments of Rs. 100 crore for the new Rainfed Area .763 water bodies having a command area of 400. an increase from Rs.8 billion. 230 crore. Agricultural Insurance : National Agricultural Insurance Scheme to be continued for Kharif and Rabi 2007-2008 with a provision of Rs. Water Resources Management : Restoring Water Bodies : World Bank loan agreement signed with TamilNadu for Rs.361 crore and loans of Rs. 16. a pilot programme to be implemented for delivering subsidy directly to farmer. 2. 100 crore to be made in 2007-2008 INVESTMENT : Gross domestic capital formation in 2005-2006 grew by 23. 50 crore to Rs. 2. a weather based crop insurance scheme to be started by Agricultural Insurance Corporation on a pilot basis as an alternative to NAIS allocation of Rs. agreement for Andhra Pradesh expected to be concluded in March 2007 to cover 3000 water bodies with a command area of 250.970 crore. 165. provision for ATMA to increase from Rs. Extension System : New programme to be drawn up that will replicate earlier Training and Visit (T&V) programme.000 hectares. 2006-2007. 11. foreign direct investment amounted to US $ 12.121 crore to Rs.
23 coal bed methane blocks awarded for exploration. echnology Upgradation Fund scheme to continue with provision of Rs. budgetary support for APDRP to increase from Rs.developers and private participation in transmission projects. 650 crore to Rs. 460 crore at end December 2006. 189 crore to Rs. fund to contribute upto 75% of preparatory expenditure in the form of interest free loan to be recovered from the successful bidder. 22. 241 crore to Rs 321 crore. 173. Public Private Partnership and Vialibility Gap Funding : Revolving fund with a corpus of Rs. INDUSTRY Petroleum and Naural Gas :162 production contracts awarded. allocation to increase from Rs. Accelerated Power Development and Reforms being restructured to cover all district headquarters and town with a population of more than 501. Handlooms : Additional 100-150 clusters to be taken up in 2007-2008. 135. Small & Medium Enterprises : Increase in outstanding credit from Rs. Textiles : Provision for Scheme for Integrated Textiles Parks to increase from Rs.667 crore. Rajiv Gandhi Grameen Vidyutikaran Yojana.581million tones and four lignite blocks with reserves of 755 million tones allotted to Government companies and approved end users. 9. Assam. Coal : 26 coal blocks with reserves of 8. Provision for National Highway Development Programme to increase from Rs. 100 crore to be set up to quicken project preparation.000.945 crore to Rs. road-cum rail bridge at Bogibee.50 crore. 10.000 crore made in exploration. National Highways . 800 crore. Coir Industry :Scheme for modernization and technology upgradation with special emphasis to major coir producing States announced with a proposed provision of Rs. 3.983 crore. over Brahmaputra. allocation for the sector to be enhanced from Rs. health insurance scheme to be extended to more weavers and also to be enlarge to include ancillary workers. 425 crore. 97.200 crore to Rs. investment of Rs. definition of specific end use to be enlarged to include underground coal gasification and coal liquefaction. 911 crore. to be taken up as an national project.000 crore to Rs. 37 . 3.
to be permitted to accept NRE/FCNR deposits. Financial Inclusion: A Financial Inclusion Fund to be established with NABARD for meeting cost of development and promotional interventions. limit of loan to be raised from Rs. Regional Rural Banks : To open at least one branch in 80 uncovered districts in 2007-2008 \. each fund to have an overall corpus of Rs. regulations to be put in place to allow creation of mortgage guarantee companies.000 to Rs. other three public sector insurance companies to offer a similar product to senior citizens. Micro Financial Sector (Development and Regulation) Bill and a comprehensive Bill to amen insurance laws to be introduced in Budget Session. Securitisation and Reconstruction of Financial Assets and Enforcement of Securitisation of Interest (SARFAESH) Act to be extended to loans advanced by RRBs. 6. 423 crore to Rs. 500 crore. 20. and those which have a negative net worth to be recapitalized.SERVICE SECTOR Foreign Trade : Merchandise exports expected to cross US $ 125 billion by the end of the current fiscal. FINANCIAL SECTOR Banking : Under Differential Rate of Interest scheme providing finance at a rate of 4% to weaker sections of the community engaged in gainful occupations.000 and limit of housing loan to be raised from Rs.500 to Rs. Housing Loans : National Housing Bank to introduce ‘reverse mortgage’ under which a senior citizen who is owner of a hose can avail of a monthly stream of income against mortgage of his/her house. idea of self 38 . Provision for tourist infrastructure to increase from Rs. RBI and NABARD. without repayment or servicing of the loan. 5. Capital Markets : PAN to be made sole identification number for all participants in securities market with an alpha-numeric prefix or suffix to distinguish a particular kind of account. a Financial Inclusion Technology Fund to be also established to meet costs of technology adoption. 520 crore.000 per beneficiary. 15. Insurance : Exclusive health insurance scheme for senior citizens offered by National Insurance Company. with initial funding to be contributed by Government. Tourism . while remaining the owner and occupying the house throughout his/her lifetime.
individuals to be permitted to invest in overseas securities through Indian mutual funds.Regulating Organisations (SRO) to be taken forward for different market participants under regulations to be made by SEBI. With the ICICI group having several companies under its umbrella. suggestions of Deepak Parekh Committee to be examined for establishment of two wholly owned overseas subsidiaries of IIFCL with objectives to (i) borrow funds form RBI and lend to Indian companies implementing infrastructure projects in India. and securities lending and borrowing to facilitate deliver. The Scalable and open systems based architecture. Another key challenge was managing transaction volumes. solely for capital expenditure outside India.5 times. short selling settled by delivery. the bank currently has the ability to process 0. or to co-finance their ECBs for such projects. mutual funds. Financial needed to seamlessly integrate with multiple applications such as credit cards. call center and data were housing systems. by institutions to be allowed. ICICI Limited. brokerage. Over the years. mutual funds to be permitted to launch and operate dedicated infrastructure funds. ICICI Bank. For instantance.27 million cheques per day and manage 7000 concurrent users. in 1997. With Financial. invest such funds in highly reated collateral securities and provide ‘credit wrap’ insurance to infrastructure projects in India for raising resources in international markets. first by acquiring Bank of Madura followed by a reverse merger of the bank with its parent organization. and (ii) borrow funds from the RBI. enabling mechanism to be put in place to permit Indian companies to unlock a part of their holdings in group companies for meeting their financing requirements by issue of Exchangable Bonds Innovative Financing for Infrastructure : Funds from National Small Savings Fund may also now be borrowed by India Infrastructure Finance Company Limited.000 transactions a day in 2000 to nearly 201 million by 2005 with an associated growth in peak volumes by 5. underwent a phase of organic and inorganic growth. the strategic partnership between ICICI Bank and Infosys that started in 1994 has grown stronger and the close collaboration has resulted in many innovations. SOLUTION OVERVIEW One of the biggest challenges for Financial was ensuring straight through processing (STP) of most of the financial transactions. it was the first bank in India to offer Internet Banking with Finacle’s e-banking 39 . enable Finance to successfully manage the resultant increase in transaction levels from 400.
On an average. cards.000 customers as month. which is among the highest in the world. • • ICICI Bank employs a range of security features for its Online Banking services. NOR from their consequent unauthorized use. thus increasing overall efficiency. The bank followed it up with offering several e-Commerce services like Bill Payments. the bank has been able to successfully move over 70 percent of routine banking transactions from the branch to the other delivery channels. Funds Transfers and Corporate Banking over the net. Do not share their User Ids.12 SECURE BANKING ICICI Secure online banking experience • • It strives provide a secure banking environment.solution and established itself as a leader in the Internet and eCommerce space. card numbers on PINs with anyone.13 KEY RATIOS RATIO ANALYSIS [SBI] The financial statements of the company reveal the needed information for the investor to make investment decision. The ratio analysis helps the investor to study the individual parameters like profitability. The Internet is a critical element of ICICI Bank’s award winning multichannel strategy that is one of the main engines of growth for the bank. 40 . This reduction in routine transactions through the branch has enable ICICI Bank to aggressively use its branch network as customer acquisition units. 2. Currently. provided the customers. Firewall (Virtual electronic fence that prevents unauthorized access to the ICICI Bank server) • • • Verisign Digital Certificate Two levels of passwords for executing Financial Transactions Secured Funds Transfer & Bill Payment. only 25 percent of all transactions take place through branches and 75 percent through other deliver channels. Between 2000 and 2004. passwords. 2. ICICI Bank adds 300. liquidity leverage and the value of the stock.
• • • Credit off take of the bank has been lower than the Indian banking industry. It is also note worthy that the bank has total staff strength of 1. Incomes from foreign exchange transactions are also recorded. 17. • Employee expenses.13.75 bn in the previous.774 41 .98. The increase in investment during Mar 2004 was at 18. 5. there has been a significant decline in profits from trading in investments to Rs. also grew.62% while increase in deposit was at 9.6% • SBI group is continuously losing their market share in deposits since the opening up of the banking sector to their private counterparts. During 2006.29% in 2004 to 57% in 2005.1 (A) INTERPRETATION SBI-RATIO ANALYSIS • Net interest incoming growth is due to Low cost deposits which helped the bank in containing its costs of funds. low cost deposit grew by 19. Other income includes the fees and commission income.9 bn compared to Rs. • During 2005-2006.3% on a year basis which helped contain the cost of funds. • The ratio of non-interest income is on the decline trend excepting the year 2004. The reduction in investment ratio was mainly due to deployment of funds under advances.. Not interest income’s key contributor is the other income. • The bank would sustain Net interest income ratio and can marginally improve on it because of its resource mobilization power and cost control measure. to the interest income ratio declined consistently from 63. because its growth was not adequate enough to work the increase in the total funds. • • Investment/deposit ratio was on the declining trend excepting the year Mar 2004. which always contributed substantial chunk of the total operating expenses.2. • Interest expenses. • Operating expenses by 6% over the previous years (Mar 2005) which shows a decline (69%).
39% to 6. 2. • Interest income/total funds have increased from 6. These commissions are expended and not amortized over the live of the loan. 2006 is primarily due to an Increase in the average Interest earning assets.13.as on 31st Mar 2006. • • A sizeable increase of operating expenses is being notices. 42 . natural retirement. on automobile loans and other retail loans are reported separately under “Not interest expense”. ICICI accounts for any loss arising on Securitization immediately at the time of sale and the profit/premium arising on account of securitization is amortized over the life of the asset. • New department growth in every branch by introducing new technologies with computerized improvement. which shows reduction in. • In Feb 2006. because of the stagnant net profit ratio.3%) from March 2005-March 2005March 2006.56% in the end. RONW is very much declined to an extent of (12. As of SBI launched VRS scheme. In accordance with RBI guidelines for Accounting for securitization of standard assets. This is due to the increase in allowances (626) in spite of prime leading rate increase by 225 basic points in the period of 2005-2006. • • High investment is made in core banking facilities New technology products coupled with quick turn around time (TAT) have enabled midcorporate group to increase its business substantially.2 (A) INTERPRETATION ICICI – RATIO ANALYSIS • Net Interest Income / Total funds has increased primarily reflecting an increase of the average volume of Interest learning assets. staff accounts nearly 5000 employees. benchmark rate for floating home loans has increased by 150 points in the same period. • All direct marketing agency expenses.
2354. the bank has made general provision of Rs. • The number of branches excluding foreign branch and OBVSL and extension counter increased to 614 at March 31.5% increase in other income. in accordance with this.3 billion in 2005 and an increase of 50 basic points in the six month period ended sep 30. primarily in retail banking and includes maintenance of ATMs. 2005.8% in the six month period ended sep 30.2% in average interest-bearing liabilities to Rs. • Total deposits increased consequence to the general increases in interest rates reflecting a tight systemic liquidity scenario and increase in deposit rates for retail and other customers in Fiscal 2006.3% from 1511. 3.72 (2006)] which includes the unrealized gain/loss on certain derivative transaction.41(2004) 27. • Operating expenses increases are primarily due to the increased volume of business.5% decline in house income. 43 . The lower capital gain is a result of the sharp fall in the equity markets in May 2006 and adverse conditions in the debt markets. in part by a 22. • With effect from the quarter ended Dec 31. • Provisions and contingencies (excluding provisions for tax) increases in primarily due to the significantly higher level of amortization of premium on government securities in fiscal 2006. exchange and brokerage and a 12. increase in transaction banking fee and fee income.40% compared to 0.33 (2005) 26. due to growth in retail banking fee income arising form retail assets like home loans and credit cards and retail liability product income like account servicing charges.7 billion in the six-months period ended sep 30. credit card related expenses. 2006 from 562 at March 31.25% applicable till September 30.2005. 2006. • The number of savings deposit and deposits from outside India has increased to a good extent. 2005 RBI increased the requirement of general provisioning on standard loans (excluding loans to agriculture sector and small and medicines enterprises) to 0. investments in government securities and lower level of writ backs in fiscal 2006. call centre expenses and technology expenses.39 billion in fiscal 2006. 2006.• Interest expenses has increase during 2005-2006 is primarily due to an increase of 55. 2006 from 5. • Other income decreased comparatively [25. • Cost of funds to 6. offset. • Non interest has increased and is stable during 2005-2006 due to increase in commission.
If the stock slips below this support level. The above targets are fixed based on leading Indicator Analysis and the trend following. ICICI BANK Outlook I would recommend a buy only above 830 on close basis.52% decreasing trend is foreseen. Indicator Analysis: 44 . • Employee expenses have been increased primarily due to the number of employees. increase in fee income increase in treasury income and of operating expenses.157) March 2005 to the extent 10.853) March 2006 to (1.a.1.99.1 TECHINICAL ANALYSIS OF ICICI AND SBIN 3.23% form 2. At present the stock trades in the Indecisive zone on intraday basis. But her profit per employee is being decreased (1.• Operating profit before provision and tax ratio increase of 2. Major support for the stock is at 800. we can see further levels of 730 – 630 – 597.115.09% (2005) is primarily due to increase in net interest income. CHAPTER 3 3. The continuation pattern negates immediate bearish momentum on the stock and it’s advisable to buy at declines. Short term investor can initiate a buy above 920 with a target of 995 – 1055. only if the price sustains above 920. The level of 920 is crucial since the short term Bullish trend will be confirmed.
4. it has considered secondary in Analysis.2 SBIN Outlook 45 .Moving Average (14 Day) is on positive note and RSI started moving towards North. Since Moving averages being a lagging indicator. The above chart is the weekly chart for ICICI BANK.
If that proves to be successful. The ratio of interest expences to total funds shows an increase in Value in ICICI Bank whereas in SBI interest expences shows a Rising mode 46 .24 % Over mar2005 _ mar 2006 Both the bank investment deposit ratio is on the declining trend Both the banks has shown better utilization of cash portfolio ICICI bank Interest expences to interest earned remains the same Over 2 Years whereas SBI shows reduction Other Income ratio remains fluctuation in both the banks Operating expences to total income shows a decresing trend in ICICI bank whereas it was on the rising side in SBI Interest income to total funds shows rising mode in ICICI whereas In SBI more or less it remains at the level. 3. FINDINGS • • • • • • • • • • ICICI and SBI credit deposit ratio is on the side though ICICI banks shows a little decreasing trend to the exten of 2.The weekly pattern suggest a short term bullishness on the stock with a price target of 1300. it is advisable to unwind all long positions at the right shoulder top (1330-1350) Indicator Analysis: Moving Average (14 Day) is on positive note and RSI started moving towards North. there could be greater chances of bounce back from 885.2. At current levels. This could become a complete head and shoulder pattern in coming months. Since Moving averages being a lagging indicator. it has considered secondary in Analysis. A close below 885 could drag the stock towards south to the target zone of 660. The current level is crucial for the stock to hold the support of 885.
Best play in a buoyant environment – Favorable macro. • ICICI is viewed as it is benefited from the procyclicality effect of The economic cycle as its borrowers in the legacy project financing Activity witnessed their debt servicing ability increasing considerably. Expectations is on the procyclical benefit To continue and hence profitability of legacy lending to be sustained At levels seen earlier.3. in our view. ICICI BANK: 1. It is believed that the profitability of this segment has improved as a Result of lower loan loss provisions and lower taxable rates of Income from this source. Short term investor can initiate a buy above 920 with a target of 995 – 1055.a. 3.3. • ICICI –as a player focused on maintaining and /or improving Market share in key business segments. buoyant Market – related revenues and a benign environment for asset quality.• • • The ratio of Non Interest income remains the same for ICICI for The past 2 Years whereas in SBI at shows a decline The stock witness some selling pressure in the coming days in ICICI Bank whereas the stock witnessed a huge selling pressure • From the top and bounced back from the major support of 800 • The continuation pattern negates immediate bearish momentum on the stock and it’s advisable to buy at declines.Will. SUGGESTIONS 3. 47 . benefit immensely form a positive operating Environment. particularly retail lending.
ICICB has an adverse mismatch profile between assets and Liabilities. as the back book gets Reprised at new lending rates upon maturity. 4. This to rise to 20% of ICICIB’s target Price over the next 12 months is expected with banking and life Insurance being the key drivers. High volatility in interest rates could adversely effect Profitability in the short term. but about Their respective operating metrics and growth conditions. 3. In line with consensus. but we recommend buy ICICIB for growth Reasons and not for the relative valuation appeal. 2.• Market related revenues is believed to contribute 14% .15% to ICICIB’s operating revenues and have boosted its preprovision RoAA. Pricing power in consumer financing segment profitability Against potential shocks. The life insurance business is Believed in creating wealth for its 48 . Market Has rewarded both strategies: ICICIB’s broad-based strategy allows capturing value across the Value chain in a customer segment. It is not so much about ICICIB versus HSFC or HDFCB. Negotiating higher subvention form manufacturers of cutting Distribution costs. however. like other large players in the private sector. • ICICIB enjoys a dominant market position across customer Categories in retail lending. This phenomenon to play out through FY1002E and FY2009E is expected. The strong market position and robust Demand for consumer financing vests significant pricing power With ICICIB is believed either by allowing a hike in lending rats. Buoyant environment to sustain the contribution from market -related revenues is expected and hence the operating profitability. Increasing contribution from strategic investments – Yet another driver • The value accruing from subsidiaries to be 17% of ICICIB’s Current market capitization. and ICICIB. • The life insurance business of ICICIB has been incurring losses On an accounting basis due to continued investment in expznding The sacle and scope of the business. the bank’s NIM will Likely show improvement. enjoys Favorable conditions arising from a restrictive regulatory/policy Environment towards new entrants and foreign banks and slow Pace of reforms for state-owned banks is believed. • • Strong pricing power and a balance sheet that is significantly Biased towards retail lending buffers ICICB’s profitability from Potential shocks in the bank’s funding cost.
limited upside to growth expectations in the medium term Believe SBI’s growth will remain volatile. for quite some time. particularly for deposits (2. The Expectoration is the core operating profits to rebound past Y2004 levels in FY2008 E. in research view. both in terms of loans and Deposits. • SBI’s size and potential to improve efficiency may sway Consensus opinion. Potential headwind to price performance from loss of market share and weaker RoAA • SBI’ has been losing market share. however. would be difficult to pursue a selective growth strategy unless It reconciles to a significant loss a market share over time. the deep value inherent makes the Investment case compelling . • The asset management and venture capital fund of ICICB makes A negligible contribution currently. The forecast says12% CAGR in net profit through FY2009E. significant volatility in net profit Growth is expected The estimates are below that of consensus for FY2009E and FY2009E by 10%. Although there is potential to Improve performance. it remains unrealized thus far. Non recurring revenues and costs masked this condition in FY2005 and FY2006. these businesses is Believed to hold significant upside potential as they achieve scale Economies. SBI has embarked on a Selective growth strategy. Lack of exceptional Income/cost elements and need to raise loan loss provisions from Very low levels will likely cause volatility in earnings growth Through FY2009E. Convinced Size and potential is convincing. • Challenges are compounded by weaker profitability.shareholders through market Share gains.3.b. 3. However. in our view. increasing penetration of life insurance and improving operating efficiency. 2.2%) • In a bid to protect its profitability. SBI 1. the extent of loss over the Past 18 months has been staggering. 49 . Consensus is overestimating revenues by Either assuming higher loan growth or NIM. on YoY basis. The latter is more Likely that the former. But given the bank’s spread and size. But .
Term catalysts. Excess liquidity provides upside only in the Short term is viewed. it will leave State-owned banks. Should this come to fruition. 50 . there are no catalysts to drive earnings Strongly is viewed. As long as the Constraints remain. Value inherent. but catalysts limited Investors will maintain a growth bias in the Indian market. there Changes tend to drain the productive resources rather than Eliminating redundancy is viewed. • • SBI is viewed as it will need flexibility in reorganizing its Distribution network and human resources. However. However. Reforms could be a trigger-assigning a low probability.. significantly disadvantages as We except to see consolidation within the private sector. Growth expectations for SBI are below that of consensus (21% CAGR through FY2009E versus consensus 15% CAGR) is Believed News flow about reduction of government holding in SBI to 15% And amendment to the SBI subsidiary act could be potential short. • The RBI has chalked out a roadmap for opening up the sector to Foreign banks in 2009. 3. the focus of the market will be on Earnings is believed. SBI would likely utilize the excess liquidity over The next 12 months. it will be at a disadvantage to peers in the Private sector is believed • There have a few incremental changes such as introduction of Voluntary retirement scheme for employees.Significant downward revision to consensus estimates for Operating revenues and profits over the past 12 months. 4. Consensus appears to be positive about excess liquidity that SBI Has reserve holding are significantly higher than minimum Required level. including SBIS.
The initial investment summary cover with a Buy rating to ICICI Bank and a sell rating to SBI based on strategic investment using the Analysis. CONCLUSION This study on investment decision is conducted by analyzing and Comparing ICICI Bank and SBI based on fundamental analysis and Technical Analysis.3. 51 . This indicates that.4. the key driver of stock performance of ICICI Bank shows an Increasing trend where as underperformance of SBIS hows a decreasing trend besides its high potential.
5. “Security Analysis and portfolio Management” Vikas Publishing House Pvt.3. ICFAI university Reports • • • Report on Kotak Securities research on the ICICI Bank and SBI Report on “Indian Economic Survey 2006-2007” Goldmen sachs Global Investment Reasearch Journal 52 . Ltd • Book of Readings. BIBLIOGRAPHY Books • Punithiavathy pandian. “Security Analysis”.
rbi.org.gov. The financial express Sanjoy Narayan “Indian’s Best Banks – KPMG Survey” Website: www.in www.• • Ernst and Young. “India’s Best Banks”.com 53 .com www.nseindia.in www.stockcharts.
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