EXECUTIVE SUMMARY

“TODAY’S MONEY IS NOT EQUAL TO TOMORROW’S MONEY”, this says that the money invested today does not have same value tomorrow, the time value of money affects to a great extent. So, one has to consider time value of money when going for investment especially in securities as equity shares etc. because the price fluctuations are very rapid. Every individual wants to save money and instead of keeping it idle he/she wants to invest it further for its appreciation i.e., for the returns earned from it in the future. There are many number of investment alternatives, it depends on the individual who wants to invest as which alternative he has to choose i.e., it depends on the rate of return or the amount of return and risk that the individual expect from the investment. Some individuals want high returns and ready to take high risk, few don’t want to take risk and they will be satisfied with the returns they get from the minimum risk. The individuals or the investors who are willing to take risk will go for equity investment, in which they can earn more returns and the other hand those who don’t want to take risk or who wants to minimize the risk will go for bank deposits, investments in mutual funds, debenture bonds, preference shares etc, where they can get a fixed amount who don’t take risk or avoid risk are called as risk aversers. Thus our study is mainly conducted to find out the risk and return that has been associated with the banking stocks of the BSE BankEx and also to know the relationship between Banks return and market returns. My intention of choosing the topic “Risk Return Analysis of BSE BankEx at Kotak Securities, Bangalore” is that, Banking sector is emerging sector now. India is now opening up its economy for banking investments and any country can start Banking in

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India. Thus keeping in mind I took up the study to know how risky the investment in Banking Sector is and the expected return that can get for the risk he has undertaken. Objective of the study is Risk and Returns analysis of BSE BankEx securities and to identify and analyze the correlation between Banks returns with BSE BankEx returns. Scope of the study is limited to only Public Sector Banks, its regards calculation of Returns, Standard Deviation, Beta, Alpha, Co variance and Correlation. The method of data collection is primarily the data and views regarding the Banking sector have been collected by interacting with the executives in the organization as well with the internal guide. Secondary data regarding prices and regarding company profile is collected through internet, news paper etc. Limitations of the study are a good number of explanatory variables must be taken into consideration in order to assess the share prices movement. But, due to time constraints detailed analysis of each bank were now made. Confidently of data, then the analysis carried out and suggestions offered are limited to the researcher’s ability to understand complex financial aspects. As far as findings are concerned Canara Bank leads in the aspects of Risk and Returns. There exists a positive correlation between Banks returns and BSE BankEx returns.

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GENERAL INTRODUCTION
INDUSTRY PROFILE Introduction to Capital Market Capital is an important factor of production, necessary for economic development. It is a market for raising funds for capital formation and investment, which is referred to as capital market. Investment comes from savings and the mobilization of savings is a major function of the capital market. Capital market is a wide term used to comprise all operations in the new issues and stock market. New issues made by the companies constitute the primary market, while trading in the existing securities relates to the secondary market. While we can only buy in the primary market, we can buy and sell securities in the secondary market. Capital market thus provides funds from public who are savers to investors. The surpluses of the household sector and foreign sector are used to meet the deficits of the Government and business sectors, who invest more than they save, or spend more than their income. Lending and borrowing of these surpluses and deficits and Bank credit and the credit from financial institutions are all channelized through the capital market. Banks commercial and co-operative as also all financial institutions intermediaries operating in the capital market. This facilitates the project financing and growth of the corporate sector on the one hand and there working in day-to-day operations on the other. Hence the capital market is the market for financial assets that have long or indefinite maturity. When a company wishes to raise capital by issuing securities or other entity intends to

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debenture trustee. bonds. consists of the stock exchanges which are self-regulatory bodies under the overall regulatory purview of the government/ SEBI. SEBI has proposed the trading in futures and options (Capital Market Derivatives). underwriters. etc. to oversee the functioning of the securities market and the operations of intermediaries like mutual funds and merchant bankers. The government has accorded powers to the Securities and Exchange Board of India (SEBI). Rights Issue: This is the method of raising further capital from existing shareholders by offering additional securities to them on a pre-emptive basis. Recently. debt instrument. where outstanding securities are traded.. is the most important mode of raising long-term funds. Accordingly. it goes to the primary securities for long-term funds. portfolio managers. bankers to an issue. The Secondary market in India. There are three ways in which a company may raise capital in the primary market: • • • Public Issue: This involves sale of securities to members of the public. sub-brokers. Private Placements: Is a way of selling securities privately to a small group of investors. the definition of securities under SCRA will have to be amended. The sub-markets are as follows: PG Department of Management Studies Atria Institute of Technology 4 . as an autonomous body. The structure has undergone vast changes in recent years. FII s (Foreign Institutional Investors) plantation companies schemes including rating agencies and also to prohibit insider trading. Structure of the market There are various sub-markets in the capital market in India. The primary market facilitates the formation of capital. stock brokers. New instruments and new institutions have emerged on the scene. registrars to an issue and share transfer agents.raise funds through units.

Mutual fund schemes and UTI schemes. 1956. whether against the companies or its own member brokers. of India under the Securities Contracts (Regulation) Act. bonds of public sector undertakings.1. It also strives to educate and enlighten the investors by making available necessary informative inputs. which was established in 1878. Market for Government securities. About BSE The stock exchange. 2. three Government nominees. etc. PG Department of Management Studies Atria Institute of Technology 5 . public financial institutions. The Exchange while providing an efficient market also upholds the interests of the investors and ensures redressal of their grievances. It has evolved over the years into its present status as the premier stock exchange in the country. Mumbai. even older than the Tokyo Stock Exchange. A Governing Body comprises nine of elected directors ( one third of them retire every year by rotation ). The first one is for raising funds directly from the public and secondary market is for trading and imparting liquidity to existing securities. 3. A Reserve Bank of India nominee and five public representatives is the apex body. an Executive Director. Market of Corporate securities – for new issues and old securities. It is the oldest one in Asia. which regulates the Exchange and decides its policies. Market for Debt instruments – debentures and bonds of private sector. 4. All these markets and submarkets have both Primary markets and Secondary markets. popularly known as “BSE” was established in 1875 as “The Native Share and Stock Brokers Association” . It is voluntary non-profit making Association o persons (AOP) and is currently engaged in the process of converting itself into demutualised and corporate entity. It is the first stock exchange in the country to have obtained permanent recognition in 1956 from the Govt. etc.

NSE has played a catalytic role in reforming the Indian securities market in terms of microstructure. safety and market integrity. and has witnessed several innovations in products & services viz. Vice-President and an honorary treasurer from among the elected directors. demutualization of stock exchange governance. professionalisation of trading members. The exchange has brought about unparalleled transparency. PG Department of Management Studies Atria Institute of Technology 6 .The Governing Board following the election of directors annually elects a President. About NSE The National Stock Exchange (NSE) is India’s leading Stock Exchange covering various cities and towns across the country. clearing and settlement mechanism. speed and efficiency. market practices and trading volumes.. fully automated screen-based trading system with national reach. NSE was set up by leading institutions to provide a modern. securities lending and borrowing. screen based trading. dematerialization and electronic transfer of securities. The Executive Director as the Chief Executive Officer is responsible for the day-to-day administration of the Exchange. The market today uses state-ofart information technology to provide an efficient and transparent trading. market of debt and derivative instruments and intensive use of information technology. fine-tuned risk management systems. emergence of clearing corporations to assume counterparty risks. compression of settlement cycles.

co-promoted by NSE Best IT Usage award by Computer Society of India Commencement of trading/settlement in dematerialized securities Dataquest award for Top IT User Launch of CNX Nifty Junior Regional clearing facility goes live Best IT Usage award by Computer Society of India Promotion of Joint venture.co.IT 7 PG Department of Management Studies Atria Institute of Technology .NSE Milestones November 1992 April 1993 May 1993 June 1994 November 1994 March 1995 April 1995 June 1995 October 1995 April 1996 April 1996 April 1996 June 1996 November 1996 November 1996 December 1996 December 1996 December 1996 February 1997 November 1997 May 1998 May 1998 July 1998 August 1998 April 1999 October 1999 Incorporation Recognition as a Stock exchange Formulation of business plan Wholesale Debt Market segment goes live Capital Market (Equities) segment goes live Establishment of Investor Grievance Cell Establishment of NSCCL.nse.in Launch of NSE’s Certification Programme in Financial Mkt CYBER CORPORATE OF THE YEAR 1998 launch of Automated Lending and Borrowing Mechanism CHIP Web Award by CHIP magazine Setting up of NSE. first depository in India. India Index Services & Products Limited (IISL) Launch of NSE’s Web-site: www. the first Clearing corporation Introduction of centralized insurance cover for all trading members Establishment of Investor Protection Fund Became largest stock exchange in the country Commencement of clearing and settlement by NSCCL Launch of S&P CNX Nifty Establishment of Settlement Guarantee Fund Setting up of National Securities Depository Limited.

2004 Record daily turnover (quantity) August 19.22 crores 1. 2004 Record value of CNX Nifty Junior Index February 23.493 lakhs 10. 2003* * Settlement Date DERIVATIVES (F&O) SEGMENT PG Department of Management Studies Atria Institute of Technology 2.IT Ltd. 2004* Securities Pay-in/Pay-out (Quantity) August 21.45. 2000 Record Pay-in/Pay-out (Rolling Settlement) Funds Pay-in/Pay-out February 05.65 5.355 25. 2004 Settlement Guarantee Fund March 31. 2001 Record market capitalisation January 08. 2004* Securities Pay-in/Pay-out (value) January 13.869 361 1550.09 crores 130.755 6.366. a joint venture between NSE.90 685. Commencement of WAP trading Commencement of trading in Index Options Commencement of trading in Options on Individual Securities Commencement of trading in Futures on Individual Securities Launch of NSE VaR for Government Securities Launch of Exchange Traded Funds (ETFs) NSE wins the Wharton-Infosys Business Transformation Award in the Organization-wide Transformation category Launch of NSE Government Securities Index Commencement of trading in Retail Debt Market Launch of Interest Rate Futures Launch of Futures & options in CNXIT Index CAPITAL MARKET (EQUITIES) SEGMENT Number of VSATs August 31. 2004 Number of cities covered August 31. 2004 Number of securities available for trading August 31.778 crores 2.09 crores 1470.42.52 crores 12. 2003 Record daily turnover (value) February 28.014.365. 2004 Record value of S&P CNX Nifty Index January 09.January 2000 February 2000 June 2000 September 2000 November 2000 December 2000 June 2001 July 2001 November 2001 December 2001 January 2002 May 2002 October 2002 January 2003 June 2003 August 2003 AT GLANCE: Launch of NSE Research Initiative Commencement of Internet Trading Commencement of Derivatives Trading (Index Futures) Launch of ‘Zero Coupon Yield Curve’ Launch of Broker by Dotex International. and i-flex Solutions Ltd.76 crores 1884.2004 Investor Protection Fund (CM and F&O) August 31.14 lakhs 8 . 2004 Record number of trades July 08.

34 crores August 31.No. 2004 January 28.57 crores Table showing Names of the Stock Exchanges in India Sl. 1 2 3 4 5 6 7 8 9 10 Name of the Stock Exchange NSE BSE CALCUTTA DELHI AHMEDABAD UTTAR PRADESH LUDIANA PUNE BANGALORE HYDERABAD Year of Establishment 1992 1875 1908 1947 1984 1982 1983 1982 1957 1943 Recognition date Nov-1992 31-08-1987 10-10-1957 09-10-1957 16-10-1957 03-06-1982 29-04-1983 02-09-1982 16-02-1963 02-09-1958 9 PG Department of Management Studies Atria Institute of Technology . of cities covered Settlement Guarantee Fund Record daily turnover (value) WHOLESALE DEBT SEGMENT Number of securities available for trading Record daily turnover (value) August 31.911.356. 2003 2. 2004 August 25.921. 2004 330 4. 2004 March 31.No.888 13.85 crores 21.

8301 crores in FY 02. These developments have impacted the performance of bank stocks significantly. Major policy actions that led to sharp fall in the interest rates enabled banks to post significant rise in operational profits. BSE considered it important to design an index exclusively for bank stocks. Features • BANKEX will track the performance of the leading banking sector stocks listed on the BSE BANKEX is based on the free float methodology of index construction The base date for BANKEX is 1st January 2002. 3749 crores taking their net profits to an all time high of Rs. Since bank stocks are emerging as a major segment in the equity markets.11 12 13 14 15 16 17 18 19 20 21 22 23 INTERCONNECTED SE COCHIN OTCEI MADRAS MADHYA PRADESH MAGADH VADODARA GAUHATI BHUVANESHVAR COIMBATORE JAIPUR MANGALORE SKSE 1999 1978 1989 1908 1930 1986 1990 1984 1989 1991 1984 1984 1989 1999 10-05-1979 Aug-1989 15-10-1975 04-12-1958 11-12-1986 05-11-1990 01-05-1984 05-06-1989 18-01-1991 09-11-1989 09-09-1985 10-07-1989 Introduction to BSE BankEx Indian banking is riding on a major recovery both in terms of strength and soundness since from 2002. 10 • • PG Department of Management Studies Atria Institute of Technology . For instance trading profits of the public sector banks shot up by Rs. Earlier BSE had launched its first free float index on TMT stocks now popularly known as the BSE TECk Index. India is making sizeable gains in expanding into consumer credit with tightening of credit administration procedures.

while the total market capitalization of BSE TECk index stocks has fallen from 105956 cr. PG Department of Management Studies Atria Institute of Technology 11 . During this period. 2003 • • Performance of the BANKEX: During the period between 1 Jan 2002 and 13 June 2003. to 55283 cr. to 75947 cr. to 80787 cr.38% as compared to 2.06% for BSE FMCG Index for the same period. BANKEX rose by 62 percent showing impressive gains among other major indices. 12 stocks which represent 90 percent of the total market capitalization of all banking sector stocks listed on BSE are included in the Index The Index will be disseminated on a real-time basis through BSE Online Trading (BOLT) terminals from 23rd June.24% for BSE TECk and 1. and that of FMCG Index stocks from 87637 cr. the total market capitalization of BANKEX stocks has increased from 22970 cr. The average daily volatility of BANKEX from its inception to date has been 1.• • The base value for BANKEX is 1000 points BSE has calculated the historical index values of BANKEX since 1 st January 2002.

01. Centurion Bank Ltd. Yes Bank Ltd.07. History of replacements in BANKEX Date 09. Kotak Mahindra Bank UCO Bank Indian Overseas Bank Jammu & Kashmir Bank Allahabad Bank Ltd.2007 09. and adds value to BSE’s ability in reflecting both the broad market and specific sector movements in the Indian Equity Markets.2006 08. Indusind Bank Ltd Karnataka Bank Limited Federal Bank Ltd.2005 03.01-2005 28.07. UCO Bank Indusind Bank Ltd Karnataka Bank Vijaya Bank Scrip selection criteria for BSE BankEx: PG Department of Management Studies Atria Institute of Technology 12 .BANKEX. is the new entrant in BSE’s current portfolio of 13 indices. 31.02-2004 Outgoing Scrips ING Vysya Bank Replaced by UTI Bank Ltd.11.2007 Corporation Bank Jammu & Kashmir Bank Ltd. Karnataka Bank Ltd.

Market Capitalisation: Scrips with a minimum of 90% market capitalisation coverage in each sector based on free-float final rank will form the index. A Company can be included in the index only if it falls within 88% coverage and an existing index constituent cannot be excluded unless it falls above 92% coverage.g. E. BANKEX Constituents BSE BankEx was launched with an objective of measuring the performance of banking sector stocks listed on the Bombay Stock Exchange. PG Department of Management Studies Atria Institute of Technology 13 .Eligible universe: Scrips classified under banking sector that are present constituents of BSE-500 index would form the eligible universe. Name: This column specifies the name of the company to which particular scrip is denoted. The table below provides the list of companies comprising BSE-PSU Index. BankEx constituents represent 90% of the total market capitalisation of the banking sector on BSE. Trading Frequency: Scrips should have a minimum of 90% trading frequency in preceding six months. Code: Each stock listed on BSE is denoted a unique keyword that can be used to get price and other stock related information. the above buffer criterion is applied only after the minimum 90% market coverage is satisfied. BankEx has a base date of 1st January 2002 and base value of 1000 points. Buffers A buffer of 2% both for inclusion and exclusion in the index is considered so that movements in and out of the index are minimized. However.

Adjusting Factor: Adjusting factor refers to the weightage of the constituent stocks in a particular index. Federal Bank Ltd.0321 PG Department of Management Studies Atria Institute of Technology 14 .80 1.6646 nd 2 11377.94 0.50 0.35 0. Factor 0.00 0.50 Calculation of Total and Average BSE BankEx Returns Weeks Open Close Price change Returns 1st 10870. Vijaya Bank Adj. No.88 11377. ICICI Bank Ltd.2656 4th 10738.59 -596. As on October 04.90 108. HDFC Bank Ltd.40 1.88 -5.70 1. Stocks having a higher weightage are likely to have a stronger impact on index movement as compared to stocks having a lower weightage.45 0. 2006 Sl.76 6.30 0.35 647.45 0.47 10738.50 0. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Code 532480 532418 532134 532149 532483 532273 500469 500180 532174 532388 532652 500247 500315 532461 500112 532477 532215 532401 Name Allahabad bank Ltd Andhra Bank Bank of Baroda Bank Of India Canara Bank Centurion Bank Ltd. Indian Overseas Bank Karnataka Bank Limited Kotak Mahindra Bank Ltd.45 0.45 0. Oriental Bank of Commerce Punjab National Bank State Bank of India Union Bank of India UTI Bank Ltd.75 0.96 507.00 0.08 4.50 0.45 0.00 0.59 11386.96 11486.9575 3rd 11335.

However.5546 2.2591 Introduction on Banking Sector: Banking in one form or another.. there were certain sections of the public who were not prepared to invest their money on the share of joint stock companies.06 11905. a large number of such financial institutions called joint stock banks were set up. was in existence even in ancient times.84 518. with the increase in the size of industrial and business units. modern banking (i. naturally. After the industrial revolution. But they were willing to part with their surplus money. Accordingly.06 12215.e. it they were assured of the repayment of their money with some interest there on. Still. This form of organization encouraged people with small means to become shareholders of big industrial and business enterprises. Joint Stock Banking) is of recent origin.35 11905. there arose the need for the formation of financial institution that could collect the surplus funds of the people on terms acceptable to them and make them available to the needy for productive purposes. joint stock banks or modern banks are of recent development. The writing of Manu (the maker of Old Hindu Law) and Kautilya (the minister of Chandragupta Maurya) and the teaching of Christ contained references to banking Existence of banking activities in Babylonia much before Christ.5555 2.6100 13.5th 6th 11386. So. joint stock company form of business organization came into existence.71 310.78 Total Average 4. So. PG Department of Management Studies Atria Institute of Technology 15 .

Lacking any social purpose they often channel funds to business units in which the management has its interest and thus contribute in a big way to growth of monopolies and concentration of economic and political power. Moreover. “it would be difficult to undertaken credit planning unless the linked control of industry and banks in the same hands is snapped by nationalization of banks”. the decision to branch out into the business of offering an electronic trading platform in stocks of listed companies for a fee is but a logical extension of its desire to deepen the relationship with its customers.Nationalization of Banks: In a free enterprise economy. This was hailed as historic event by the people of the country. Viewed thus. 1969 – fourteen commercial banks with deposits worth Rs. the government took a bold decision to bring under its direct control a substantial segment of the banking system. On July 19. turned out to be transitory. 1967. commercial banks operate like any other business and are mainly concerned with the maximization of their private gains. however. 50 crore or more were nationalized. clearly stated that. The government however. The Hazari committee in its report on ‘Industrial Planning and Licensing Policy’ submitted to the planning commission in September 14. Expectations of the government that the social control would remove objectionable banking practices of the past and would give a new sense of purpose to the banks for future were believed. GLOBAL TREND Indian banking industry too has fallen in line with the global trend and has made a beginning with small forays into such areas as selling mutual fund units or insurance policies. Having realized that nothing short of nationalization would solve the mainly. The social control phase. the fabric of customer loyalty is beginning to get frayed at the edges in a world of increasing customer choice and changing cultural ethos that looks down upon permanent relationships. So the more facets that a bank evolves to the relationship that it PG Department of Management Studies Atria Institute of Technology 16 . while overall economic activity suffers because priority sectors/industries fails to get adequate funds. decided in favor of social control.

supervisory review and market discipline. capital requirements. Basel – II aims to correct most of the deficiencies that Basel – I has suffered from. Banks which have a larger risk exposure will have to set apart more capital to meet the unexpected losses that go with it. Pillar 2: Supervisory Review This will involve a comprehensive review of the systems to calculate capital and also risks not covered under pillar 1 to ensure required as a minimum. The supervisor may. To start with. based on the review. BASEL II NORMS Meaning: Main feature of Basel – II is that its structure rests on a set of three “Mutually reinforcing” pillars. Through this approach. rests on the following three “Mutually reinforcing” pillars: Pillar 1: Minimum Capital Requirements Banks will be required to set apart capital for the credit market and operational risks faced by them. under the New Basel Capital Accord. Pillar 3: Market Discipline This is aimed at enhancing market discipline by ensuring that an adequate level of transparency is maintained by banks in their disclosures to the market participants in respect of various critical aspects of their functioning. A menu of approaches of increasing sophistication and lesser capital requirement will be available to choose from for each of the three risks. namely.has with the customer greater are the prospects of such a relationship enduring and possibly even flourish in the future. The Three Pillars: The capital framework. the standards are now more risk-sensitive. In other words. adjust the capital requirement upward. PG Department of Management Studies Atria Institute of Technology 17 .

1865 at Allahabad by a Group of Europeans with subscribed capital of Rs. The P & O Banking Corporation took over the bank by acquiring its shares. 2. Andhra Bank PG Department of Management Studies Atria Institute of Technology 18 .3 lakh.allbankcarloans. The Bank has 5 International Branches and 4 International Divisions. The Bank has entered into an MOU with the Small Industries Development Bank of India (SIDBI) for financing small scale industrial units. The Allahabad Bank has become one of the first banks in the country to draw up a credit management policy following the dismantling of the Reserve Bank of India-prescribed Maximum Permissible Bank Finance (MPBF) norms. In 1969 it was nationalized. Allahabad Bank Allahabad Bank was set up on 24th April. Allahabad Bank becomes the first public sector bank to have an exclusive Web site of its own.com. www.Introduction to Banks under study 1. dedicated to sanctioning car loans through the Internet. It is the oldest Bank in the country at present.

' was transferred to and vested in the new bank. The Bank of Baroda has signed up to be a depository participant with Central Depository Services (India) Ltd. The Bank has 974 full fledged branches. The Bank is a Government of India Undertaking and carries on all types of banking business including foreign exchange.. by the Central Government.com. The Company became Depository Participate of National Securities Depository Ltd. Bank of Baroda The Bank was brought into existence by an Ordinance issue.The Bank came into existence on by consequent to the taking over of the undertaking of Andhra Bank. The Bank transacts general banking business of all kinds including foreign exchange. With this in view. 3. the bank entered into an agreement with Bank of New York. to provide housing loans through the Internet. besides advancing on Mumbai Inter Bank Offer Rate (MIBOR). gift tax etc. 4. In terms of the Ordinance. by the Central Government. Bank started a new service called collection of Direct taxes which comprises corporate tax. Andhra Bank has tied up with a real estate portal indiaproperties. The bank had established a new department to act as custodian of local shares issued by Indian companies who came out with Euro Issues (GDRs/ADRs) to raise funds from abroad. 40 cluster branches. Andhra Bank has achieved 100% computerization of all its branches and all of them are running on uniform application software. The bank was associated as lead manager/co-manager in respect of 142 issues involving a sum of Rs 3411 crores. Andhra Bank has received Insurance Regulatory and Development Authority license to act as a corporate agent for procuring or soliciting business of the United India Insurance Company Ltd. The Bank has joined Central Depository Services as depository PG Department of Management Studies Atria Institute of Technology 19 . Bank of India The Bank was brought into existence by an Ordinance issued. who act as Depository for issue of GDRs by companies. for the purpose of clearing and settlement of trades in the dematerialized segment of BSE. estate tax. the Undertaking of `The Bank of India Ltd. Bank of India has introduced floating interest rate on deposits for select customers. Ltd. 76 extension counters. It is a Government of India undertaking.

Indian Overseas Bank (IOB) ties up with Times Online Money to launch an Internet-based remittance product. Punjab National Bank has informed that the Government of India. Indian Overseas Bank the first public sector bank in the country to introduce mobile banking services using Wireless Application Protocol (WAP). New Delhi PG Department of Management Studies Atria Institute of Technology 20 . Central Bank of India (CBI).Canara Bank became the first public sector bank to join the MasterCard ATM network. Ministry of Finance. When it was nationalized. at Chennai. The Public Sector Canara Bank has entered into an arrangement with the Infrastructure Development Finance Company for financing core sector projects. Indian Bank. the bank had 208 branches and business mix of Rs. targeted at NRIs in the US wishing to transfer money to India. Canara Bank The Bank is a Government of India undertaking. Indian Overseas Bank (IOB).156 crores. by the Central Government.participant. had the distinction of three branches. 7. Punjab National Bank Punjab National Bank (PNB) has formed a strategic alliance with Infrastructure Leasing and Financial Services Ltd (IL&FS) to set up a private equity fund for investing in domestic companies. Syndicate Bank and United Bank of India) enter into an agreement to share their respective ATM (automated teller machine) networks. 5. The Bank was brought into existence by an ordinance. Indian Overseas Bank Indian overseas bank. Four state-owned banks (Bank of India (BoI). Karaikudi and Rangoon simultaneously commencing business on the inaugural day. e-Cash Home. UCO Bank and Union Bank of India (UBI) form an alliance to launch `Cash Online' ATM network Canara Bank has entered into a franchise agreement with Western Union Financial Services for money transfer facility. and carries on all banking business. Canara Bank. 6. Department of Economic Affairs (Banking Division).

which handed over its assets and operations to a new entity called State Bank of India. it was abolished by an Act of Parliament. Punjab National Bank is entering into a MoU with India Infrastructure Finance Co. Other banks such as Punjab National Bank. upto July 31. Current Issues Regarding Banking Sector • E-trading: A Strategic imperative for banks The country’s leading public sector banks has recently said that its own broking arm SBICAP securities would be offering an electronic trading platform in listed stocks for its customers. it nationalized 14 largest commercial banks in India in 1969. too have announced tie-ups with broking outfits to offer such a facility. was formed as the result of amalgamation of the Bank of Bengal and two other presidency banks. 8. In 1955. (IIFC) on October 17. 2010 whichever is earlier. 2007 with an aim to extend its cooperation and support to IIFC in areas of creating a deal flow of infrastructure projects.vide Notification dated June 06. The concept of a bank cross-selling its third-party financial products to supplement its core business of accepting deposits and on-lending it to borrowers at a profit has come to be well recognized within the industry as a key component of a successful business strategy. namely. Jag Mohan Garg as a Wholetime-Director (designated as Executive Director) on the Board of Punjab National Bank from the date of his taking over charge of his post or until further orders or till the date of his superannuation i. Bank of India etc. Bank of Madras and Bank of Bombay. the Imperial Bank of India. It seeks to leverage a bank’s core strength of a customer network to generate PG Department of Management Studies Atria Institute of Technology 21 . This would supplement an arrangement it already has with a private stock broking firm. The SBI has a sense of social responsibility and caters to various sections of the society.. It is just as well that a number of public sector banks are taking to offering an online trading platform in listed stocks for their customers. Union Bank. the precursor to State Bank of India.e. 2007 has appointed Shri. State Bank of India In 1921. As the government wanted more control over the credit delivery.

Economists have said the banking industry will reflect the growth of an economy. Even though the interest rate has increased this hasn’t deteriorated the asset quality as much. “FIIs bet on India because of the growth of the economy.” he said.higher profits than may be inherent in the banking relationship that it may have with its customers. which will take care of the growth of this sector. “People seem to have digested the 50 bps hike in CRR by the RBI. P Chidambaram. Improved confidence As the 50 bps hike in CRR has already been expected by market men. Emphasising the role of technology. “Our nonperforming assets are the smallest and the net interest margin and return on assets are of substantial standards. said Public Sector Banks have largely driven the growth in the banking industry in spite of the several constraints faced by them. PG Department of Management Studies Atria Institute of Technology 22 . The bank announced its plans to bring all its 2.400 branches under the core-banking platform by March 2008. as most banks have updated their technical platform.” said a banking analyst with a broking firm. the overall confidence of investors has increased. they also bet on the banking sector. as it is performing quiet well”. He also says Tech adoption can quicken financial inclusion and the Indian Banking industry was among the best in the world.” he said. he said that it was a key factor in bringing about greater financial inclusion. Union Finance Minister. The technology centre would host the bank’s data centre with high-end servers. • Mr. Now. Most banks are also reducing their interest rates. “We must push the frontiers of technology in order to speed up the process of financial inclusion. it did not affect the sentiment towards banking sector. has reduced uncertainty towards the banking sector now.

The report titled ‘Strategic Business Risk 2008 – the top 10 risks for business’.” the international consulting firm said in a report. The bank has about Rs.B. 38.P. noted that a late entry into Asia would make it difficult for foreign banks to keep up with competition. banks will not be able to say they are global unless they have a presence in China. But Mr. Priority sector advances grew 25.1611.  The bank also has plenty of liquidity because it had opened a lot of accounts. • Canara Bank rejigs credit portfolio. Q2 net up 11% Canara Bank rebalanced its credit portfolio and shifted focus to priority sector areas during the second quarter of the current financial year.1.4 crore against Rs.920 crore. 17. to report a 36 per cent rise in second quarter net profit at Rs. because these emerging markets are going to be a major source of financial sector revenue and profit growth. PG Department of Management Studies Atria Institute of Technology 23 . India.1.4 crore in the same quarter last year.63 percent). Canara Bank Chairman and Managing Director.• Banks with global ambition must have India presence: E&Y “In the near future.184.Bhatt its chairman said.187 crore.85 per cent (12. • STATE BANK OF INDIA  State Bank of India plans to enter general insurance early this year.91 % on year-on-year basis to Rs.N. The bank’s Capital Adequacy Ratio was 12.08 % during the same period to Rs. Rao said. one of the main threats is the rapid transformation from “Government bureaucracies into corporate governance and transparency-driven organizations”. Mr. For the Asian banks themselves.” Retail advances grew only 5. M.  Higher non-interest income helped State Bank of India. Bhatt expects credit to pick up in the second half. especially term deposits due to the smart products and aggressive pricing. O. “We have contained the growth of retail advances.000 crore of sanctions pending disbursals. The bank is likely to tie up with a foreign player to set up a joint venture for general venture Mr.

franchisees.2 million customer accounts. the group caters to the financial needs of individuals and corporates.230 crore. to life insurance. to stock broking. From commercial banking.300 people in its various businesses and has a distribution network of branches. PG Department of Management Studies Atria Institute of Technology 24 . Dubai.Introduction to Company The Kotak Mahindra Group Kotak Mahindra is one of India's leading financial conglomerates. offering complete financial solutions that encompass every sphere of life. London. representative offices and satellite offices across 340 cities and towns in India and offices in New York. The group has a net worth of over Rs. Mauritius and Singapore. The Group services around 3. employs around 15. 5. to investment banking. to mutual funds.

and that's when the company changed its name to Kotak Mahindra Finance Limited.Kotak Securities.Kotak Mahindra Prime Limited (formerly known as Kotak Mahindra Primus Limited). Enters the Funds Syndication sector. Takes over FICOM. Lease and Hire Purchase market. Kotak Mahindra ties up with Old Mutual plc for the Life Insurance business. Industrialists Harish Mahindra and Anand Mahindra took a stake in 1986. A. Brokerage and Distribution businesses incorporated into a separate company .kotaksecurities. Enters the mutual fund market with the launch of Kotak Mahindra Asset Management Company. Kotak Mahindra takes a significant stake in Ford Credit Kotak Mahindra Limited. Kotak Securities launches its on-line broking site (now www. Pinto and Kotak & Company. Sidney A. Commencement of private equity activity through setting up of Kotak Mahindra Venture Capital Fund.com). Since then it's been a steady and confident journey to growth and success. and The Auto Finance division.Kotak Mahindra Capital Company • Third Phase (1996-2000) The Auto Finance Business is hived off into a separate company . Investment banking division incorporated into a separate company . • Second Phase (1991-1995) The Investment Banking Division is started.MILESTONE The Kotak Mahindra Group was born in 1985 as Kotak Capital Management Finance Limited. • First Phase (1986-1990) Kotak Mahindra Finance Limited starts the activity of Bill Discounting. This company was promoted by Uday Kotak. • Fourth Phase (2001-2006) 25 PG Department of Management Studies Atria Institute of Technology . for financing Ford vehicles. one of India's largest financial retail marketing networks.

Kotak Mahindra Finance Ltd. Launches India Growth Fund. Buys Kotak Mahindra Prime (formerly known as Kotak Mahindra Primus Limited) and sells Ford credit Kotak Mahindra. Kotak Group Product & Services: • • • • • • • • • Bank Life Insurance Mutual Fund Car Finance Securities Institutional Equities Investment Banking Kotak Mahindra International Kotak Private Equity 26 PG Department of Management Studies Atria Institute of Technology . Dipak Gupta CORPORATE IDENTITY Executive Vice Chairman & Managing Director.the first Indian company to do so. Jayaram Mr.Launches a real estate fund. Bought the 25% stake held by Goldman Sachs in Kotak Mahindra Capital Company and Kotak Securities MANAGEMENT CONTROL Mr. Shivaji Dam Mr. converts to a commercial bank . C. Uday Kotak Mr. Kotak Group realigns joint venture in Ford Credit. a private equity fund.

Best Broker In India Euromoney Award (2005)-Best Equities House In India Finance Asia Award (2005)-Best Broker In India Finance Asia Award (2004).• Kotak Realty Fund Kotak Securities Ltd. PG Department of Management Studies Atria Institute of Technology 27 . The accolades that Kotak Securities has been graced with include: • • • • • • • • • "Best Brokerage Firm in India" by Asiamoney in 2007 ‘The Leading Equity House in India’ in Thomson Extel Surveys Awards for the year 2007. has been the largest in IPO distribution. Euromoney Award (2006 & 2007) .5 percent as on 30th September. 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. is India's leading stock broking house with a market share of 8.Best Provider of Portfolio Management : Equities Avaya Customer Responsiveness Awards (2006) in Financial Institution Sector Asiamoney Award (2006). 2007. Kotak Securities Ltd.India's best Equity House Prime Ranking Award (2003-04).Largest Distributor of IPO's The company has a full-fledged research division involved in Macro Economic studies.

Kotak Mahindra Old Mutual Life Insurance is a 74:26 joint venture between Kotak Mahindra Bank Ltd. Kotak Mahindra Old Mutual Life Insurance Ltd. 2007. Kotak Mahindra Old Mutual Life Insurance is one of the fastest growing insurance companies in India and has shown remarkable growth since its inception in 2001. the online division of Kotak Securities Limited offers Internet Broking services and also online IPO and Mutual Fund Investments. 3490 crore of Assets Under Management (AUM) as of 30th September. The portfolio Management Services provide top class service. 2006. and Old Mutual plc. Kotak Securities Limited has over Rs. with the backing of an expert. a wholly owned subsidiary of KMBL.000 customers and a coverage of 310 cities. Portfolio Management from Kotak Securities comes as an answer to those who would like to grow exponentially on the crest of the stock market. Old Mutual. catering to the high end of the market. with assets under management worth $ 400 Billion as on 30th June. PG Department of Management Studies Atria Institute of Technology 28 . is the Asset Manager for Kotak Mahindra Mutual Fund (KMMF).60. Kotak Mahindra Asset Management Company Limited (KMAMC) Kotak Mahindra Asset Management Company Limited (KMAMC). 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. For customers. Kotak Securities has 862 outlets servicing over 3.Kotak Securities Ltd is also a depository participant with National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL). a company with 160 years experience in life insurance. this joint venture translates into a company that combines international expertise with the understanding of the local market.com. Kotaksecurities. is an international financial services group listed on the London Stock Exchange and included in the FTSE 100 list of companies.

one of India's fastest growing banks. a subsidiary of Kotak Mahindra Bank. 1998. We are sponsored by Kotak Mahindra Bank Limited. a wholly owned subsidiary of the bank. Today we offer a complete bouquet of products and services suiting the diverse and varying needs and risk-return profiles of our investors. Kotak Mahindra Asset Management Co. dealers and retail customers. The Company also offers Inventory funding to car dealers and has entered into strategic arrangement with various car manufacturers in India for being their preferred financier. KMMF offers schemes catering to investors with varying risk . is our Investment Manager. The institutional business division primarily covers secondary market broking. Ltd.KMAMC started operations in December 1998 and has over 4 Lac investors in various schemes. The company is dedicated to financing and supporting automotive and automotive related manufacturers. Kotak Securities Ltd . with a pedigree of over twenty years in the Indian Financial Markets. The division also has a comprehensive research cell with sectoral analysts covering all the major areas of the Indian economy.return profiles and was the first fund house in the country to launch a dedicated gilt scheme investing only in government securities. It caters to the needs of foreign and Indian institutional investors in Indian equities (both local shares and GDRs). PG Department of Management Studies Atria Institute of Technology 29 . The Company offers car financing in the form of loans for the entire range of passenger cars and multi utility vehicles. We made a humble beginning in the Mutual Fund space with the launch of our first scheme in December.Institutional Equities Kotak Securities.. We are committed to offering innovative investment solutions and world-class services and conveniences to facilitate wealth creation for our investors Car Finance Kotak Mahindra Prime Limited (KMPL) is a subsidiary of Kotak Mahindra Bank Limited formed to finance all passenger vehicles. is the stock-broking and distribution arm of the Kotak Mahindra Group.

KPEG provides these companies a combination of equity capital. The fund's corpuses have been contributed by leading banks. having been the leading book runner/lead manager in public equity offerings in the period FY 2002-06. established in May 2005. and in real estate intensive businesses not limited to hotels. 1996 in India. strategic support and other value added services. the funds would also be investing in non-performing loans with underlying property collateral. Kotak Reality Fund Kotak Realty Fund. The fund is closed ended and has a life of seven years. KMCC has the most current understanding of investor appetite. is one of India's first private equity funds with a focus on real estate and real estate intensive businesses. education and property management. financial institutions and government companies’ access domestic and international capital markets. We are a leading Private Equity Fund Manager focused on helping emerging corporates and mid-size enterprises evolve into tomorrow's industry leaders. Kotak Private Equity: "Partnering to Build Leaders of Tomorrow" Kotak Private Equity Group (KPEG) is a specialist Private Equity arm of Kotak Mahindra Bank. Kotak Realty Fund operates as a venture capital fund. PG Department of Management Studies Atria Institute of Technology 30 . banks. playing a pro-active role with the entrepreneur in building the business. enterprise level investments in real estate operating companies. healthcare. Investment Formats The funds would seek equity investments in development projects. retailing. family offices and high net worth individuals. domestic corporates. Further.Kotak Mahindra Capital Company (KMCC) Kotak Mahindra Capital Company (KMCC) helps leading Indian corporations. under the SEBI Venture Capital Fund Regulations.

hospitality (hotels and serviced apartments). luxury residential. Hyderabad and Chennai) and other Tier III cities. due diligence.Asset Class The funds would invest in all the main property asset classes such as residential (townships. Fund Management Team: Kotak Realty Fund is managed by its investment team located in Mumbai. the funds would invest in not just the Tier I cities such as Mumbai. infrastructure development and finance.  Motilal Oswal Securities Ltd. investment banking. asset class and investment formats. contrarian play. golf communities). This unique team brings together profiles combining real estate corporate finance advisory. the Funds should be well positioned to achieve superior risk adjusted returns. low cost housing. Kolkatta. office (core and business parks). PG Department of Management Studies Atria Institute of Technology 31 . examples of which are Nagpur. Leading players: In a competitive world the following emerging stock broking firms are leading the industry. India and supported by an organization in which thought leadership. analyzing.  Kotak Securities Ltd. venture capital. shopping centers and alternative asset classes such as logistics and warehousing. The Funds have a core team of professionals dedicated to sourcing. communication and collaborative partnerships take precedence. NCR and Bangalore but also in Tier II cities such as Pune. Mysore and Ludhiana) The Fund Manager believes that through diversification in geographies. Geographical Locations: In order to achieve geographical diversity. executing and managing the investments. and REITS valuation experience. Coimbatore.

MOSL is amongst the best-capitalized firms in the broking industry in terms of net worth. respect for professionalism. Karvy Financials.  Geojit Financial Services Limited. with just two people running the show. Hong Kong and Singapore.  Advice-Based Broking 32 PG Department of Management Studies Atria Institute of Technology .  Sharekhan. research-based value investing and implementation of cutting-edge technology have enabled it to blossom into a thousand-member team.  India Bulls. MOSL was founded in 1987 as a small sub-broking unit. In a recent media report MOSL was rated as one of the top-10 brokers in terms of business transacted for FII’s. UK. Focus on customer-first-attitude. ethical and transparent business practices. The retail business unit provides equity investment solutions to more than 74. MOSL provides. Motilal Oswal Securities Ltd: One of the top-3 stock – broking houses in India.  IL&FS Investments Ltd. The institutional business unit has relationships with several leading Foreign Institutional Investors (FII’s) in the US.000 investors through 400 outlets spanning 200 cities and 22 states. with a dominant position in both institutional and retail broking.

a strong research team consistently provides high-performance ideas. It has also won the Best Equity House Award from Finance Asia – April 2004. PG Department of Management Studies Atria Institute of Technology 33 .one of the world’s leading investment banks and brokerage firms) is India’s leading stock broking house with a market share of 5 – 6%. keeping in view unique client needs. As a result. One thing that sets MOSL apart is its time-tested and well-recognized equity research capability. Depository Services.. personalized investment strategies. Commodities Trading IPO and Mutual Fund Investment Advisory Services. Kotak Securities Ltd: Kotak Securities Ltd. the Capital Market now recognizes MOSL as synonymous to Solid Research and Solid Advice. The company has a full fledged research division involved in Macro Economic Studies. Kotak Securities Ltd has been the largest in IPO distribution – it was ranked number one in 2003-04 as Book Running Lead Managers in public equity offerings by PRIME Database. a strategic joint venture between Kotak Mahindra Bank and Goldman Sachs (holding 25% . These are in turn converted to sound. 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. Kotak Securities Ltd is also a depository participant with National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL) 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. With value investing at the core of its investment philosophy.    Portfolio Management Services (PMS) E-Broking Services.

Kotak Securities has 862 outlets servicing over 3,60,000 customers and a coverage of 310 cities. Kotaksecurities.com, the online division of Kotak Securities Limited offers Internet Broking services and also online IPO and Mutual Fund Investments. Kotak Securities Limited has over Rs. 3490 crore of Assets Under Management (AUM) as of 30th September, 2007. The portfolio Management Services provide top class service, catering to the high end of the market. Portfolio Management from Kotak Securities comes as an answer to those who would like to grow exponentially on the crest of the stock market, with the backing of an expert. Karvy Financials: Karvy is a premier integrated financial services provider, and ranked among the top five in the country in all its business segments, services over 16 million individual investors in various capacities, and provides investor services to over 300 corporates. KARVY covers the entire spectrum of financial services such as Stock Broking, Depository Participants, Distribution of Financial Products – Mutual funds, Bonds, Fixed Deposit, Equities, Insurance Broking, Commodities Broking, Personal Finance Advisory Services, Merchant banking and Corporate finance, Placement of Equity, IPO’s among others. Karvy has a professional management team and ranks among the best in technology, operations and research of various industrial segments. India Bulls: India bulls are India’s leading retail financial services company with 135 locations spread across 95 cities. Which its size and strong balance sheet allow us to provide you with varied products and services at very attractive price, it’s over 750 Client Relationship Managers are dedicated to serving your unique needs. India bulls are lead by a highly regarded management team that has invested crores of rupees into a world class Infrastructure that provides clients with real-time service & 24/7 access to all information and products. Flagship India Bulls Professional PG Department of Management Studies Atria Institute of Technology 34

Network TM offers real-time prices detailed data and news, intelligent analytics, and electronic trading capabilities, right at your fingertips. This powerful technology is complemented by our knowledgeable and customer focused Relationship Managers. IB are creating a world of Smart Investor. India bulls offer a full range of financial services and products ranging from Equities to Insurance to enhance your wealth and hence, achieve your financial goals. India bulls is a full service investment firm offering clients access to a tremendous range of financial services from 135 locations across 95 cities. We have a strong team of over 750 Client Relationship Managers focused on serving your unique needs. Geojit Financial Services Limited: Geojit Financial Services Limited was founded by Mr. George in 1987 as a Partnership for doing Broking business in Cochin Stock Exchange. In 1994, the business was taken over by Geojit’s Financial Services Ltd, a Joint Venture between Mr. George and the Kerala State Industrial Development Corporation Ltd. In the following year, the company came up with an IPO and the shares were listed in various stock exchanges in India in 1995. Geojit’s Business Plan is developed and implemented under the supervision of a Board constituted by eminent professionals who are experts in varied fields. Mr. Kurian, chairman of Geojit Financial Services Ltd, is a former executive trustee of Unit Trust of India, India’s largest mutual fund. Mr. Kurian is presently the chairman of the Association of Mutual Funds in India (AMFI) and is on the Board of National Stock Exchange (NSE) and several of the country’s leading corporations. Sharekhan: Sharekhan is an Equities focused organization tracing its lineage to SSKI, a veteran Equities solutions company with over 8 decades of experience in the Sharekhan does not claim expertise in too many things. Sharekhan’s expertise lies in stocks and PG Department of Management Studies Atria Institute of Technology 35

that’s what he talks about with authority. So when he says that investing in stocks should not be confused with trading in stocks or a portfolio based strategy is better than betting on a single horse, it is something that is spoken with years of focused learning and experience in the stock markets. And these beliefs are reflected in everything Sharekhan does in fact Sharekhan runs India’s largest chain of share shops with around 250 outlets in 113 cities. IL&FS Investments Ltd: IL&FS Investsmart leverages on its pedigree of IL&FS, which has the core competency of institutional and retail financial services. Infrastructure Leasing and Financial Services Limited (IL&FS), the promoters of IL&FS Investsmart Limited, is a multi-faceted organization providing a range of fund and non-fund based financial services. IL&FS was incorporated in 1987 and is amongst the few institutions in the country specifically mandated to implement infrastructure projects on a commercial format. To serve the investors of various kinds, the broking firms offer different types of products and services to cater to the needs of all such customers. The following are the main products offered by the brokering institutions:  Online securities trading  Offline securities trading  Portfolio Management Services  Commodities trading  Demat services Apart from these trading products they provide some Research Products, i.e., the Fundamental and Technical analysis Reports, Comprehensive Market Research Reports PG Department of Management Studies Atria Institute of Technology 36

Beta. The study will deal with Return and Risk analysis of BSE BankEx securities. 3. To offer suggestions. 2. OBJECTIVES OF THE STUDY 1. To identify and analyze the correlation between Banks returns with BSE BankEx returns. METHODOLOGY SOURCES OF DATA: Primary Data The primary data has been collected from discussions with the officials of the company. a. To ascertain the technique for investing in banking sectors. Bangalore” b. d. To examine and evaluate the growth prospects of BSE BankEx securities. which leads to investment ideas. 5. 3. weekly. These special services are provided as daily. 2. c. Secondary Data PG Department of Management Studies Atria Institute of Technology 37 . To identify profitable investment opportunities in Banking Sector Stocks. To fulfill the requirement of award of MBA. SCOPE OF THE STUDY 1. The scope of the study limits to the Public Sector banks only. To understand the causes. Alpha. Standard Deviation. 4. or on monthly basis. 6. STATEMENT OF PROBLEM “Risk – Return Analysis of BSE BankEx at Kotak Securities. Covariance and Correlation. To calculate Returns. 4.etc for particular sectors and for individual companies also.

This study is related to data collected from 3 rd December. Confidentiality of data – organizational constraints. 9. This is limited to BSE BANKEX. 5. This is a one time study. 6. 2007 to 11th January.The secondary data for this study was collected from News Papers. and Text Books etc. The analysis carried out and suggestions offered are limited to the researcher’s ability to understand complex financial aspects. Internet. But due to time constraints detailed analysis of each bank were not made. 8. 2. 7. LIMITATIONS OF THE STUDY 1. 3. Magazines. PG Department of Management Studies Atria Institute of Technology 38 . A good number of explanatory variables must be taken into consideration in order to assess the share price movement. This being an academic study suffers from time and cost constraints 4. During the study the Stock Market was Bullish. 2008. Observations made and suggestions offered cannot be generalized.

Risk due to internal environment of a firm or that affecting a particular industry is referred to as unsystematic risk. The effect of these factors is to put pressure on all securities in such a way that the prices of stock will move in the same direction. during a boom period. ‘Uncertainty’ is generally defined to apply to situation where the probabilities cannot be estimated. PG Department of Management Studies Atria Institute of Technology 39 . Systematic risk is non-diversifiable and is associated with the securities market as well as the economic. political and legal considerations of the prices of all securities in the economy. Risk is also influenced by external and internal considerations. Technically ‘Risk’ can be defined as a situation where the possible consequences of the decision that is to be taken are known. These external risks are called systematic risk. External risks are uncontrollable and broadly affect investments. sociological. However. The main forces contributing to risk are price and interest. Risk and Uncertainty are used interchangeably.INTRODUCTION TO RISK AND RETURN RISK Risk and Uncertainty are an integral part of an investment decision. prices of all securities will rise indicate that the economy is moving towards prosperity. For example. Risk is composed of the demands that bring in variations in return of income.

Unsystematic risk is caused by factors like labor strike. Interest rate risk and Purchasing power risk are grouped under systematic risk.Unsystematic risk is unique to a firm or industry. The problems of both systematic and unsystematic risk are inherent in industries dealing with basic raw materials as well as in consumer goods industries. SYSTEMATIC RISK Market risk. The prices of all securities rise or fall depending on the change in interest rates. The investor’s reaction towards tangible and intangible events in the chief cause affecting ‘market risk’. These may be termed as (1) long-term. social and economic reasons. PG Department of Management Studies Atria Institute of Technology 40 . (2) cyclical (bull and bear markets). irregular disorganized management policies and consumer preferences. It does not affect an average investor. • Market risk: Market risk is referred to as stock variability due to changes in investor’s attitude and expectations. During the last two decades. (3) intermediate or within the cycle and (4) short-term. These factors are independent of the price mechanism operating in the securities market. it has been seen that inflationary pressures have been continuously affecting the Indian Economy. Market risk triggers off through real events comprising political. • Interest rate risk: There are four types of movements in prices of stocks in the market. This risk rises out of change in the prices of goods and services and technically it covers both inflation and deflation periods. • Purchasing Power Risk: Purchasing power risk is also known as inflation risk.

but they are not familiar with the measure of risk of an investment. affect all the stocks in the market. The market risk is also called systematic risk. If the capital structure of a company tends to make earnings unstable. • Business Risk Business risk is also associated with risks directly affecting the internal environment of the firm and those of circumstances beyond its control. Market return is measured by the average returns of a large sample of stocks such as BSE BankEx. Risk and Return are the two sides of the investment coin. the beta coefficient or simply ‘beta’ measure the sensitivity of a stock price relative to the fluctuations of a particular stock market index.g. the company may fail financially. E. revision of interest rates. a change of Government policy. consumer preferences and management policies. • Financial Risk Financial risk in a company is associated with the method through which it plans its financial structure. S&P CNX Nifty etc. The risk in a share can be divided into two parts. BETA An important measure of risk. beta can be positive or negative. Within these two broad categories of risk the firm operates. The former is classified as internal business risk and the later as external business risk.UNSYSTEMATIC RISK The importance of unsystematic risk arises out of uncertainty surrounding a particular firm or industry due to facts like labor strike. one is market risk and other is company specific risk. Beta is calculated by relating the relevant returns on a security with the returns for the market.. Many investors are familiar with techniques to calculate returns of investment.. exim polity PG Department of Management Studies Atria Institute of Technology 41 .

then the investor will suffer less in a falling market. So it is important to quantify this market risk. it is said to have a beta of one. in case the market crashes.5 and 1. it is desirable to choose stocks with betas varying between 0.5. Positive value of variance is considered unfavorable and negative values as favorable. VARIANCE The variance is the sum of the squares of the deviations of actual returns from the expected returns. If beta is less than one. If a stock moves exactly in tandem with a market index such as the BSE BankEx. At the same time the investor should be prepared to lose more than the market average. The concept of beta for measuring the riskiness of a stock is.e.e.. This risk can be measured by the Scrips betas. The company specific risk is also known as unsystematic risk and affects the specific company or industry... will affect all the stocks in the market. In case an investor is prepared to take greater risk then he can choose stock with higher betas (beta>1) in order to gain more than the market average in a rising market. The systematic portion of risk is practically impossible to reduce. A stock with a beta higher than one is called a risky stock i. STANDARD DEVIATION PG Department of Management Studies Atria Institute of Technology 42 . ALPHA Alpha is commonly known as Unique Risk. However. at the same time investor will also stand to gain less than the market average in rising market. Of course. that is Aggressive stock and its market price may move faster than the market. the stock is called a Defensive stock. This unique risk is mainly for a particular organization and does not affect the whole industry. Lesser the value of Alpha lesser is the risk.etc. less than 1). if an investor selects stocks with low betas (i.

It is the square root of averaged of squared deviations. CORRELATION It is simply the covariance divided by the product of Standard Deviations.. 1) Beta 2) Alpha 3) Variance 4) Standard Deviation 5) Correlation PG Department of Management Studies Atria Institute of Technology 43 . Whatsoever a value of +1. Positive value of Standard Deviation is considered unfavorable and negative values as favorable.0 means perfect correlation or co movement in the same direction. A value of -1.0. The following tables show the Returns and Standard Deviation for each of the securities based on the total observations and matched observations with BSE BankEx. We are calculating returns based on opening and closing price of the securities by collecting the prices weekly for 6 weeks.0 and +1.0 means perfect negative correlation or co movement in a opposite direction. TOOLS OF ANALYSIS Before calculating Beta and Correlation Coefficient for each of the securities we have to calculate the Returns and Standard Deviation i.e. Thus the calculations wholly depend on the data collected from internet. a value of 0 means no correlation or co movement. The Correlation co-efficient can vary between -1. the risk factors for the individual securities.

RA = Closing price of last day of a week – Opening price of the first day of a week Opening price of the first day of a week 2. The rate of return is calculated using opening and closing prices of each Bank on weekly basis. 1. Computation of Rate of Return for Listed Banks. Computation of Rate of Return for BSE BANKEX. Computation of Covariance COV (R . RM = Closing index of last day of a week – Closing index of the first day of a week Closing index of the first day of a week 3.Use of Tools Formulas used. The rate of return is calculated using opening and closing prices of each Bank on weekly basis. R ) or σ A M im = Σ(RA – RA/) (RM – RM/) 44 PG Department of Management Studies Atria Institute of Technology .

n-1 4.σM PG Department of Management Studies Atria Institute of Technology 45 . Computation of variance of the Market Index σ 2 m = Σ(RM – RM/) 2 n–1 5. computation of Correlation correlation = Cov(RA. Computation of Beta βeta = σ im σm 2 6.RM/ 7. Computation of Variance of the scrips Variance or σA 2 = Σ(RA – RA/) 2 n–1 8. Computation of standard deviation of the scrips σA = variance or σA 2 9. Computation of standard deviation of the market σM = variance of market or σm2 10. Computation of Alpha άA = RA/ – β.RM) σA.

2355 5.6667 8.00 135.5347 PG Department of Management Studies Atria Institute of Technology 46 .3711 2.25 15.00 119.5316 -3.6105 13.1202 -6.7730 2.3016 -7.2042 27.3514 (RA-RA/)2 1.7342 2nd rd th th th 6 Total 1 2 3 4 5 6 7 8 9 10 RA/ RM/ COV(RA.9565 13.0321 4.7468 1.3613 -7.9890 -9.5510 58.2964 0.6533 0.8799 7.5247 3.6653 4.6211 14.RM) Variance of Scrips Variance of Market Beta Alpha SD of Scrips SD of Market Correlation 1.2656 6.0016 -0.65 Price change 3.7479 -7.7570 16.3613 -7.10 4.2735 0.00 115.8905 7.7434 4.6942 56.3723 RA-RA/*RMRM/ 3.60 2.7365 81. Allahabad Bank Calculation of Total and Average Returns Weeks 1st 2nd 3rd 4th 5th 6th Open 113.2337 1.35 Total Average Valid Returns 2.90 124.9575 -5.4055 -1.5767 57.10 121.1763 83.40 117.5727 0.0923 0.2337 RM 4.2810 1.2591 16.00 116.90 -10.7032 293.7739 58.1235 83.5555 2.3723 2.3413 143.25 134.5887 2.80 -7.50 121.00 Close 116.8697 Weeks 1 3 4 5 st RA 2.7848 (RM-RM/)2 5.9565 13.7434 4.7864 1.6667 8.5546 RA-RA/ 1.2810 1.6646 0.0390 RM-RM/ 2.2982 -3.5842 11.1202 -6.Calculation part 1.30 113.

2656 6.8483 38.9575 -5.7730 2.40 101.50 111.2355 5.6646 0.65 112.0189 464.3514 RA-RA/*RMRM/ 0.6480 -10.0839 RM 4.35 3.5546 RA-RA/ 0.0569 (RA-RA/)2 0.4899 16.5943 -7.9013 9.0120 106.7864 1.6211 14.4257 0.7342 6 Total 1 2 3 4 5 6 7 8 9 10 RA/ RM/ COV(RA.6405 4.2399 274.55 18.40 105.6620 -9.7189 RM-RM/ 2.00 122.00 106.4467 77.5247 3.7468 1.60 Price change 1.00 Close 104.0839 1.5478 PG Department of Management Studies Atria Institute of Technology 47 .80 104.5555 2.6114 92. Andhra Bank Calculation of Total and Average Returns Weeks 1st 2nd 3rd 4th 5th 6th Open 103.35 110.0140 2.2905 -1.7049 6.3016 -7.0880 7.0638 108.40 Total Average Valid Returns 1.0140 Weeks 1 2 3 4 5 st nd rd th th th RA 1.2964 0.3107 3.50 124.5943 -7.9383 16.6620 -9.7138 -3.1235 83.95 106.3107 3.3023 0.6105 13.9069 76.65 -9.2.0321 4.6916 (RM-RM/)2 5.0923 0.0750 -3.4055 -1.2591 21.3023 0.40 0.5241 17.6942 56.2735 0.2967 2.5803 -8.5241 17.7049 6.3163 -0.RM) Variance of Scrips Variance of Market Beta Alpha SD of Scrips SD of Market Correlation 1.6269 -1.90 -10.

2735 0.90 456.8975 16.9575 -5.4877 6.5555 2.3016 -7.50 403.9771 294.3.5247 3.7468 1.00 454. Bank of Baroda Calculation of Total and Average Returns Weeks 1st 2nd 3rd 4th 5th 6th Open 382.3144 -3.6745 PG Department of Management Studies Atria Institute of Technology 48 .4055 -1.1265 -8.9074 RM 4.5609 84.8434 (RA-RA/)2 0.4877 6.40 431.2964 0.5977 6.6646 0.7730 2.7497 -9.1878 12.10 392.4339 10.7864 1.00 406.9004 19.3514 RA-RA/*RMRM/ -2.1235 83.2393 90.15 Price change 9.9004 19.6211 14.85 Total Average Valid Returns 2.2183 RM-RM/ 2.30 39.0064 -5.05 472.7058 64.3179 2.10 50.7360 72.55 -27.6885 -8.4876 (RM-RM/)2 5.1698 2.2591 18.0676 -5.0852 7.0676 -5.0321 4.4339 10.25 426.00 Close 391.2355 5.0028 34.7815 44.0064 -5.5546 RA-RA/ -0.RM) Variance of Scrips Variance of Market Beta Alpha SD of Scrips 3.70 481.8670 7.7342 6 Total 1 2 3 4 5 6 7 8 RA/ RM/ COV(RA.3179 Weeks 1st 2 3 4 5 nd rd th th th RA 2.25 -22.2656 6.0849 0.8840 6.6942 56.1878 12.60 444.9074 3.70 27.5057 9.6105 13.3469 84.1687 58.

20 412.75 10.6333 RM 4.1235 83.0393 (RM-RM/)2 5.2606 4.6211 14.8798 8.6333 2.8103 2.7730 2.3514 RA-RA/*RMRM/ -3.RM) Variance of Scrips Variance of Market Beta Alpha SD of Scrips 2.8873 3.9032 56.9575 -5.20 30.65 Total Average Valid Returns 1.7864 1. Bank of India Calculation of Total and Average Returns Weeks 1st 2nd 3rd 4th 5th 6th Open 353.8798 8.2964 0.2353 -2.5247 3.6237 29.60 -17.2262 18.3284 55.6056 2.0923 0.7468 0.0794 1.4159 0.5785 4.2355 5.00 355.25 365.6105 13.1308 (RA-RA/)2 1.2591 11.1999 54.5555 2.2606 4.0912 4.6646 0.7342 4th th th 6 Total 1 2 3 4 5 6 7 8 RA/ RM/ COV(RA.3944 -4.2818 1.8873 3.00 355.9948 0.2671 PG Department of Management Studies Atria Institute of Technology 49 .00 366.75 Price change 4.9 10 SD of Market Correlation 4.8020 1.45 15.00 382.00 369.2743 5.6703 1.3016 -7.10 Close 357.8103 2.60 351.0215 15.3450 1.0630 2.7889 -7.0321 4.5546 RA-RA/ -1.4055 -1.25 380.2079 16.8089 3.2735 0.45 370.6056 Weeks 1 2 3 5 st nd rd RA 1.6942 56.2656 6.4160 RM-RM/ 2.3325 91.3944 -4.0215 15.9262 1.25 14.

7893 (RA-RA/)2 16.65 Total Average Valid Returns 9.85 297.35 Price change 26.4028 RM 4.10 308.773 2.00 Close 302.9575 -5.7964 1.2591 23.7338 2.7342 4th th th 6 Total 1 2 3 4 5 6 7 8 RA/ RM/ COV(RA.9735 2.80 315.1233 -8.2964 0.7073 -3.2317 13.8344 -9.2763 34.6211 14.5555 2.9909 73.0997 26. Canara Bank Calculation of Total and Average Returns Weeks 1st 2nd 3rd 4th 5th 6th Open 275.7726 4.6429 5.60 -8.7338 Weeks 1 2 3 5 st nd rd RA 9.6105 13.7864 1.55 304.9 10 SD of Market Correlation 4.00 309.3514 RA-RA/*RMRM/ 9.60 371.0012 (RM-RM/)2 5.20 399.1617 649.1235 83.7115 48.3016 -7.0321 4.00 380.2656 6.2067 446.8571 -2.8994 -3.2355 5.0101 RM-RM/ 2.2763 34.0445 -13.95 5.393 PG Department of Management Studies Atria Institute of Technology 50 .8994 -3.30 6.0923 0.85 -12.9735 2.4055 -1.4306 2.8002 16.6646 0.5047 14.2735 0.9579 129.1938 64.7026 94.7468 1.4028 5.8147 119.RM) Variance of Scrips Variance of Market Beta Alpha SD of Scrips 5.5075 -2.5546 RA-RA/ 4.0626 -3.0997 26.25 311.40 84.05 313.5247 3.6942 56.6341 21.5020 11.7964 1.8571 -2.

2764 116.4627 134.80 Total Average Valid Returns 5.65 185.2964 0.3313 7.9615 -11.7027 -0.0704 103.20 177.5546 RA-RA/ 4.25 165.1235 83.85 13.0321 4.0923 0.70 202.7864 1.2404 -1.9868 3.6184 -1.15 -15.7375 RM-RM/ 2.60 -19.2656 6.8944 11.4941 RM 4.9658 (RM-RM/)2 5.4941 0.3514 RA-RA/*RMRM/ 10.00 178.8294 24.4055 -1.6646 0.0611 87.4248 -6.7045 -7.85 186.3986 76.7730 2.9157 2.7754 -3.7932 16.6105 13.9327 PG Department of Management Studies Atria Institute of Technology 51 .7722 79.5555 2.6211 14.7342 4th th th 6 Total 1 2 3 4 5 6 7 8 RA/ RM/ COV(RA.30 201.9157 Weeks 1 2 3 5 st nd rd RA 5.00 172.60 21.7027 -0.7045 -7.3016 -7.4977 48.6942 56.3436 398.RM) Variance of Scrips Variance of Market Beta Alpha SD of Scrips 0.9 10 SD of Market Correlation 4.7468 1.00 Close 174.90 180.8772 -10.8944 11.7888 -8. Indian Overseas Bank Calculation of Total and Average Returns Weeks 1st 2nd 3rd 4th 5th 6th Open 166.8218 5.4156 6.9575 -5.8218 5.2591 20.3313 7.5247 3.2355 5.8772 -10.80 -1.5139 6.2735 0.20 Price change 8.85 186.8864 8.8101 10.8611 (RA-RA/)2 19.6218 -9.

5555 2.8350 31.3902 2.2964 0.3890 93.0406 RM 4.9774 PG Department of Management Studies Atria Institute of Technology 52 .00 669.8742 1.2611 75.3016 -7.50 635.6646 0.80 41.0406 1.5476 2.2792 10.25 19.3514 RA-RA/*RMRM/ 5.30 681.80 46.1354 -3.20 671.0510 4.6734 Weeks 1 2 3 5 st nd rd RA 4.6073 -1.5682 7.1235 83.00 678.3776 6.0321 4.8106 -7.RM) Variance of Scrips Variance of Market Beta Alpha SD of Scrips 1.0890 7.7342 4th th th 6 Total 1 2 3 4 5 6 7 8 RA/ RM/ COV(RA.00 630.7297 16.25 699.8088 -2.2792 10.10 653.2891 15.5786 -10.05 -56.0233 23.9526 RM-RM/ 2.8088 -2.7468 1.9575 -5.6734 2.7730 2.05 621.7578 35.9 10 SD of Market Correlation 4.2735 0.7891 (RA-RA/)2 5.0890 7.2591 18.2355 5.2520 -8.1204 101.4055 -1.6105 13.6942 56.6485 (RM-RM/)2 5.5247 3.1201 -0.7864 1. Punjab National Bank Calculation of Total and Average Returns Weeks 1st 2nd 3rd 4th 5th 6th Open 606.85 Price change 24.6310 18.3776 6.7575 1.2520 -8.2656 6.4156 5.0923 0.25 Total Average Valid Returns 4.8569 5.10 -15.10 Close 631.00 680.6233 178.6211 14.5476 2.5546 RA-RA/ 2.

60 2410.80 89. State Bank of India Calculation of Total and Average Returns Weeks 1st 2nd 3rd 4th 5th 6th Open 2330.25 45.2735 0.8976 -0.180583 -1.2716 0.8976 -0.00 2400.55 2265.3945 RA-RA/*RMRM/ 10.2171 -1.6436 13.2029 3.5555 2.5751 -1.00 2445.0923 0.803520 -6.7910 0.2355 5.2029 3.503083 -0.25 Price change 106.8837 -1.9 10 SD of Market Correlation 4.4055 -1.3671 RM 4.00 2295.77992 1.00 Close 2436.5261 73.5546 RA-RA/ 4.3016 -7.RM) Variance of Scrips Variance of Market Beta Alpha SD of Scrips 0.7999 15.45 -149.9575 -5.6105 13.8917 2.0321 4.7730 2.2527 43.5259 12.5247 3.1235 83.6083 2.60 -34.4773 3.4090 -6.6211 14.00 2415.5751 -1.6646 0.497183 RM-RM/ 2.59742 3.6020 3.2656 6.3475 49.7864 1.8917 2.3514 (RA-RA/)2 17.7668 8.7342 3rd th th th 6 Total 1 2 3 4 5 6 7 8 RA/ RM/ COV(RA.2416 79.3671 0.9997 Weeks 1 2 4 5 st nd RA 4.8755 16.3854 1.0564 2.00 2392.7468 0.20 2384.75 2437.4090 -6.25 Total Average Valid Returns 4.2591 14.3945 2.45 -9.3854 1.45 2390.9844 PG Department of Management Studies Atria Institute of Technology 53 .3773 (RM-RM/)2 5.6942 56.2964 0.

No 1 2 3 4 5 6 7 8 Banks Allahabad Bank Andhra Bank Bank of Baroda Bank of India Canara Bank Indian Overseas Bank Punjab National Bank State Bank of India Valid Returns 8.9 10 SD of Market Correlation 4.40 5.63 34.04 2.23 6.0922 0.91 15.08 19.9077 (iv). Interpretation and Inference Table showing Returns of Banks Sl.49 10.37 PG Department of Management Studies Atria Institute of Technology 54 .

40% and thus investor who are willing to get high return can invest and gain in this securities.37%.91%.63 Canara Bank 34.23 6. PG Department of Management Studies Atria Institute of Technology 55 .Returns Chart 35 30 25 20 Values 15 10 5 0 Allahabad Andhra Bank Bank Valid Returns 8. Canara Bank leads with highest returns of 34.4 Indian Punjab Overseas National Bank Bank 5. Therefore.49 10. The State Bank of India has the least returns of 2. Followed by Bank of Baroda having next highest returns of 19.37 Banks Interpretation and Inference : The above graph represents the Returns of Banks. The above table shows that.04 State Bank of India 2.91 Bank of India 15. the returns of Canara Bank are highest compared to any other banks.08 Bank of Baroda 19.

Table showing Average weekly returns of Banks Since the study is conducted for 6 weeks.No 1 2 3 4 5 6 7 8 Banks Allahabad Bank Andhra Bank Bank of Baroda Bank of India Canara Bank Indian Overseas Bank Punjab National Bank State Bank of India Average weekly returns 1.61 5.92 1.67 0.73 0. The weekly average return of each bank is as under Sl.32 2.37 1.01 3.39 PG Department of Management Studies Atria Institute of Technology 56 .

Therefore.73% PG Department of Management Studies Atria Institute of Technology 57 .39 Banks Interpretation and Inference : The above graph represents the average weekly Returns of Banks.67 State Bank of India 0.01 Bank of Baroda 3. the average weekly returns of Canara Bank are highest compared to any other banks.32 Bank of India 2.92 Punjab National Bank 1.Average weekly returns chart 6 5 4 Values 3 2 1 0 Allahabad Bank Average weekly returns 1.61 Canara Bank 5. The above table shows that.37 Andhra Bank 1. Canara Bank leads with highest average weekly returns of 5.73 Indian Overseas Bank 0.

and thus investor who are willing to get high average weekly return can invest and gain in these securities. The State Bank of India has the least average weekly returns of 0.32%. Table showing Standard Deviation of banks PG Department of Management Studies Atria Institute of Technology 58 . Followed by Bank of Baroda having next highest average weekly returns of 3.39%.

No 1 2 3 4 5 6 7 8 Banks Allahabad Bank Andhra Bank Bank of Baroda Bank of India Canara Bank Indian Overseas Bank Punjab National Bank State Bank of India Standard Deviation 7.39 8.67 4.Sl.98 3.64 7.67 9.98 PG Department of Management Studies Atria Institute of Technology 59 .39 5.27 11.

they may get even less than that also.64 Bank of Baroda 7. Canara Bank stocks have highest volatility though the Canara Bank has the highest returns but when it comes to certainty investors are not guaranteed about the returns. The State Bank of India has the least i.98%.e.98 Banks Interpretation and Inference : The most commonly used measures of risk in finance are variance or its square root i. the Standard Deviation.39% and followed by Andhra Bank with 9. The above graph shows that.98 State Bank of India 3. PG Department of Management Studies Atria Institute of Technology 60 . From the Standard Deviation one may infer that Canara Bank stocks have standard deviation of 11. 3.64%.39 Punjab National Bank 5.67 Bank of India 4.67 9.e. Positive value of Standard Deviation is considered unfavorable and negative values as favorable.27 Canara Bank 11.Standard Deviation chart 12 10 8 Values 6 4 2 0 Allahabad Andhra Bank Bank Standard Deviation 7.39 Indian Overseas Bank 8.

43 1.No 1 2 3 4 5 6 7 8 Banks Allahabad Bank Andhra Bank Bank of Baroda Bank of India Canara Bank Indian Overseas Bank Punjab National Bank State Bank of India Beta 1.88 PG Department of Management Studies Atria Institute of Technology 61 .29 1.24 1.08 0.Table showing Beta of Banks Sl.67 1.12 0.00 1.

4 0.2 0 Allahabad Bank Beta 1 Andhra Bank 1.88 Banks PG Department of Management Studies Atria Institute of Technology 62 .4 1.24 Punjab National Bank 1.67 Canara Bank 1.Beta chart 1.12 State Bank of India 0.29 Bank of Baroda 1.6 1.43 Indian Overseas Bank 1.8 0.6 0.08 Bank of India 0.2 1 Values 0.

43% is leading and Bank of India with Beta 0.Beta values 0.50 – 2.50. when the market moves by 10%.00. it is desirable to choose stocks with betas varying between 0. the stocks of these banks are more sensitive.50 to 1. the stocks price will decline an average of 5 to 10%. at the same time investor will also stand to gain less than the market average in rising market. during bullish trend the holders will get more than the market average.50 to below 1. Hence. the stock price will decline an average by 10 to 15%. PG Department of Management Studies Atria Institute of Technology 63 . these stocks are lesser sensitive to market risk. Though.67% is least among the list.00 – 0. Bank of India and State Bank of India having the Beta in the range of 0. of Banks 0 2 6 0 8 Interpretation and Inference : Compared with BSE BankEx.50 – 1.50 0.00 Total No. the stocks of these companies will move up by 5 to 10 % and if the market declines by 10%. It is not sensible to invest when the market is bearish. Canara Bank with Beta of 1.50 1.00 1.50.00 to below 1. the stocks of these companies will move up by 10 to 15% and if the market declines by 10%. Remaining banks are having Beta in the range of 1. Hence.00 – 1. when the market moves up by 10%.

No 1 2 3 4 5 6 7 8 Banks Allahabad Bank Andhra Bank Bank of Baroda Bank of India Canara Bank Indian Overseas Bank Punjab National Bank State Bank of India Alpha -0.90 0.60 PG Department of Management Studies Atria Institute of Technology 64 .86 -1.89 -1.09 2.89 -0.50 -1.87 1.Table showing Alpha of Banks Sl.

50 i. Canara Bank is having an Alpha of 2.5 Values 0 -0. one can infer that Andhra Bank is having Alpha of -1. From the above table.e. It is calculated and exhibited in the form of graph for banks.5 2 1.5 -2 Allahabad Bank Alpha -0.5 Indian Overseas Bank -1. PG Department of Management Studies Atria Institute of Technology 65 .5 -1 -1.87 Bank of India 1.89 Andhra Bank -1.Alpha chart 2.5 1 0.89 which are lesser sensitive and thus have less risk. its stocks being highly sensitive and riskier.89 Punjab National Bank -0.86 State Bank of India -1.90 followed by Indian Overseas Bank with -1.09 Canara Bank 2.6 Banks Interpretation and Inference : The above graph represents the value of Alpha which is commonly known as Unique Risk. In this respect. This unique risk is mainly for a particular organization and does not affect the whole industry. Lesser the value of Alpha lesser is the risk.9 Bank of Baroda 0.

94 58.76 92.80 79.90 18.Table showing Variance of Banks Sl.No 1 2 3 4 5 6 7 8 Banks Allahabad Bank Andhra Bank Bank of Baroda Bank of India Canara Bank Indian Overseas Bank Punjab National Bank State Bank of India Variance 58.73 15.79 35.20 129.88 PG Department of Management Studies Atria Institute of Technology 66 .

76 Andhra Bank 92.73 State Bank of India 15.Variance charts 140 120 100 80 Values 60 40 20 0 Allahabad Bank Variance 58. Positive value of variance is considered unfavorable and Negative values of variance are considered PG Department of Management Studies Atria Institute of Technology 67 .2 Canara Bank 129.79 Punjab National Bank 35.94 Bank of Baroda 58.8 Indian Overseas Bank 79.88 Banks Interpretation and Inference : The most commonly used measures of risk in finance are variance.9 Bank of India 18.

88% followed by Bank of India with 18.94%. Therefore from the above values and chart it is evident that State Bank of India has least risk of 15.favorable. From the Variance one may infer that Canara Bank and Andhra Bank securities have more risk of volatility.20%. Canara Bank has highest variance of 129.80% and followed by Andhra Bank with 92. Table showing Correlation of Banks PG Department of Management Studies Atria Institute of Technology 68 . The above graph shows that.

55 0.7 0.8 0.77 0.91 Correlation chart 1 0.No 1 2 3 4 5 6 7 8 Banks Allahabad Bank Andhra Bank Bank of Baroda Bank of India Canara Bank Indian Overseas Bank Punjab National Bank State Bank of India Correlation 0.55 Bank of Baroda 0.5 0.4 0.Sl.57 Punjab National Bank 0.51 0.9 0.3 0.53 0.77 State Bank of India 0.64 0.58 Bank of India 0.53 Andhra Bank 0.58 0.57 0.1 0 Allahabad Bank Correlation 0.2 0.6 Values 0.64 Canara Bank 0.91 Banks PG Department of Management Studies Atria Institute of Technology 69 .51 Indian Overseas Bank 0.

As the correlation values are positive. 0.53 and 0.51 respectively.Interpretation and Inference : Correlation co-efficient is simply covariance divided by the product of Standard Deviation. Hence.64 respectively. By the above graph we can infer that State Bank of India. Punjab National Bank and Bank of India stocks are closely correlated with correlation of 0. Whereas Canara Bank and Allahabad Bank stocks are lesser correlated with correlation co-efficient of 0. there is a positive correlation a small increase in BankEx will lead to change in Share prices and vice versa. PG Department of Management Studies Atria Institute of Technology 70 . there is a perfect correlation or comovement in the same direction.91. The Correlation co-efficient can vary between -1 to +1.77 and 0.

5.00 to 1. Whereas. State Bank of India has the least average weekly returns of 0. 4.e.91%.20% respectively. State Bank of India has the least standard deviation of 3. Whereas. Therefore. they are lesser sensitive.50. 6.e. It has been calculated by considering weekly values of stocks for 6 weeks. which clearly states that these stocks are highly sensitive and riskier. Positive values of Variance are considered unfavorable and Negative values as favorable.39%.89 respectively. Alpha value of -1. it is evident that State Bank of India and Bank of India are having least risk i.40% followed by Bank of Baroda with 19.50 to 1. Therefore. 15.94% respectively. State Bank of India has the least returns of 2. Whereas. hence. they are much volatile at the same time holders will get more than the market average.80% and 92. Andhra Bank and Indian Overseas Bank are having less risk i. Positive values of Standard deviation are considered unfavorable and Negative values as favorable. It has been calculated by dividing the total returns by 6 weeks as the study is conducted for 6 weeks.00 therefore.73% followed by Bank of Baroda with 3.90 and -1. Canara Bank and Andhra Bank are having highest risk of 129.32%. Whereas. PG Department of Management Studies Atria Institute of Technology 71 .(V) FINDINGS AND RECOMMENDATIONS 1. Whereas. as per the study Canara Bank is having standard deviation of 11.39% followed by Andhra Bank with 9. Canara Bank is having an Alpha of 2. Bank of India and State Bank of India is having Beta ranging from 0.50. 3. remaining 6 Banks have Beta ranging from 1. it is less volatile. It is clearly evident that Canara Bank has the highest returns of 34.88% and 18. Thus. It is clearly evident that Canara Bank has the highest average weekly returns of 5. Whereas.37%. 2.98%.64%.

7.27%.63% of returns.91% of returns. for the risk of 4.53 and 0. It is suitable to risk taking investors. Even the Bank of India is giving high returns with least risk i. Punjab National Bank and Bank of India are having correlation co-efficient of 0. 34. 19. PG Department of Management Studies Atria Institute of Technology 72 . 15. as the returns are more than one and half percent investment in these shares are also recommended. Allahabad Bank and Canara Bank are having correlation co-efficient of 0. Even Bank of Baroda is giving moderate returns for moderate risk i.64 respectively. State Bank of India. for the risk of 7. It is suitable for risk averse investors.e.68%. Thus.40% of returns. as it is evident through the values or correlation calculated. Whereas. (VI) CONCLUSION As far as our study is concerned Canara Bank is giving highest returns with moderate risk i. as the returns are double an investor can think of investment in these shares. 0. for the risk of 11. It is suitable for risk averse investors. Thus as the returns are more as compared to risk investment in these shares are also recommended.e.51 respectively. Thus. As far as our study to find out the relationship between BankEx returns and Bank returns is considered there is a positive correlation between them.91.77 and 0.39%.e.

Second Edition Tata McGraw-Hill 73 PG Department of Management Studies Atria Institute of Technology .Rediffmail. ltd.BIBLIOGRAPHY WEBSITES • • • • • • • • • • • • • Sl.Kotaksecurities.com TEXT BOOKS Title Investment Analysis and Portfolio Management 2 Financial Management M.Punjabnationalbank.Andhrabank.Bankofbaroda.K.Google.com www.com www.Y.com www.Statebankofindia. no 1 www. Khan and P.com www.com www.Bseindia.com www.com www.Bankofindia.Canarabank.Moneycontrol.com www.Allahabadbank.com www.com www.com www.Indianoverseasbank. Jain Author Prasanna Chandra Publication and Edition Tata McGraw-Hill Publishing co.com www.

ltd. Fifth Edition PG Department of Management Studies Atria Institute of Technology 74 .Publishing co.

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