CHAPTER I. INTRODUCTION 1.

1 General Introduction
Fundamental analysis is the examination of the underlying forces that affect the well being of the economy, industry groups, and companies. As with most analysis, the goal is to derive a forecast and profit from future price movements. At the company level, fundamental analysis may involve examination of financial data, management, examination of supply and demand forces for the products offered. To forecast future stock prices, fundamental analysis combines economic, industry, and company analysis to derive a stock’s current fair value and fore cast future value.

Definition:
A method of security valuation which involves examining the company's financials and operations, especially sales, earnings, growth potential, assets, debt, management, products, and competition. Fundamental analysis takes into consideration only those variables that are directly related to the company itself.

Company Analysis
In the company analysis the investor assimilates the several bits of information related to the company and evaluates the future value of stock. The company analysis is the last leg in the economy-industry-company analysis of fundamental analysis. The risk and return associated with the purchase of the stock is analyzed to take better decisions. The Valuation process depends upon the investors” ability to elicit information from the relationship and inter-relationship among the company related variables.

Steps involved in Fundamental Analysis Analyzing the economy
The economy is like the tide and the various industry groups and individual companies are like boats. When the economy expands, most sectors and the companies benefit and grow. When the economy declines, most sectors and companies usually suffer. The Economy analysis means looking at the macroeconomic situation. This includes GDP, growth rates, inflation, interest rates, exchange rates, productivity and energy prices.

Analyzing the industry
The next step taken in analysis in this category is looking at the industry as a whole. This includes total sales, price levels, competition and their effects, foreign competition as well as any entrances or exits from the industry.

Analyzing the company
The Company analysis is the last leg in the economy-industry-company analysis sequence. It may be organized into two parts (i) a study of financials. This includes looking at unit sales, prices, new products, earnings and any chance of debt or equity occurring. (ii) a study of other factors. This section looks into the financials and the following section examines the other factors.

risk identification and risk management systems for clearing houses of stock exchanges. brokers and subbrokers. In place of Government Control. credit rating agencies. portfolio managers. NSE). bankers to issue. registrars. a statutory and autonomous regulatory board with defined responsibilities. Stock & Exchange Board of India (SEBI) .The below mentioned are brief of some key bodies and indices which form a part of stock market. the code of obligations and the code of conduct for different intermediaries like. prescribed registration norms. It has framed bye-laws. underwriters and others. surveillance system. and was subsequently upgraded as a fully autonomous body (a statutory Board) in the year 1992 with the passing of the Securities and Exchange Board of India Act (SEBI Act) on 30th January 1992. Finally this is a positive outcome of the Securities Scam of 1990-1991 The basic objectives of the Board were identified as: • • • • To protect the interests of investors in securities.Regulating Body In 1988 the Securities and Exchange Board of India (SEBI) was established by the Government of India through an executive resolution. and independent powers has been set up. SEBI has introduced the comprehensive regulatory measures. . to cover both development & regulation of the market. To regulate the securities market and For matters connected therewith or incidental thereto. To promote the development of Securities Market. the eligibility criteria. merchant bankers.There are various indices available in the market in both the exchanges (BSE.

2. debt instruments and derivatives. Mumbai. Calcutta. SENSEX. . and Ahmedabad. Sensex 1. Popularly known as BSE it was established as "The Native Share & Stock Brokers Association" in 1875. BSE PSU Index 6. BSE 100 Index As BSE Sensex has only 30 scrip’s. It is the first stock exchange in India to obtain permanent recognition in 1956 Bombay Stock Exchange played a pivotal role in the development of the Indian capital market and its index. The Exchange has a nationwide reach with a presence in 417 cities and towns of India. Bombay Stock Exchange Limited. is tracked worldwide. viz. BSE 100 Index BSE 200 Index from the Government of India under the Securities Contracts(Regulation)Act. started compilation and publication of an index series called "BSE National Index". Delhi. BSE 500 Index 4. which could also reflect the movement of stock prices on a national scale. 3. BSE Technology Index 7. BSE provides an efficient and transparent market for trading in equity. The equity shares of 100 companies from the "Specified" and the "Non-Specified" list of the five major stock exchanges. Other indexes in BSE are: 1. a need was felt for a more broad-based index. BSE Banking Index 5. In 1989.Bombay Stock Exchange Bombay Stock Exchange Limited is the oldest stock exchange in Asia.1956.

namely. The number of companies listed on the Bombay Stock Exchange registered a phenomenal increase from 992 in the year 1980 to about 3. BSE 500 represents all 20 major industries of the economy. BSE-500 index represents nearly 93% of the total market capitalization on Bombay Stock Exchange Limited. The BSE-500 index was initially calculated on a full market capitalization methodology. The base value has been fixed at 1000 points in order to keep the index comparable with other similar indices. 1999. BSE 500 Index On August 9. the market activity as reflected by the volumes of turnover of the companies.2. These factors necessitated compilation of a new broad-based index series reflecting the present market trends in a more effective manner and providing a better representation of the increased equity stocks. 2005. market capitalization as also the newly emerged industry groups. It reflects the changing pattern of the economy and that of the market. . The companies have been selected on the basis of current market capitalization of the listed scrips on the exchange. As the base date for its proximity to the current period. BSE 200 Index BSE 200 Index was constructed and launched on 27th May 1994.200 companies by the end of March 1994. the index is computed on a free-float methodology in line with sensex. Since August 16. 3. The equity shares of 200 selected companies from the specified and non-specified lists of this Exchange have been considered for inclusion in the sample for `BSE-200'. Bombay Stock Exchange constructed a new index. consisting of 500 scrips in its basket. BSE-500. and certain fundamental factors.

scrips that form part of BSE-500 index are automatically included in BSE PSU index. BSE Banking Index Banking sector reforms such as fall in interest rates. are included in the index. BSE PSU Index BSE . and enactment of Securitization Bill have given a major fillip to Indian banking industry. For inclusion in BSE PSU index. These developments have significantly impacted the performance of bank stocks and bank stocks have emerged as a major segment in the equity markets. Since BSE PSU index is a subset of BSE-500 index. The index. . Twelve stocks. named as Bankex. It is a suitable benchmark for the Central Government to monitor its wealth on the bourses. Public Sector Undertaking refers to any undertaking wherein the Central Government holding is equal to or more than 51%. is based on the free float methodology of index construction. The base date for the BSE-PSU Index is 1st February 1999 and the base value for the BSE PSU Index has been set at 1000 to ensure adequacy in terms of daily index movement. Hence.Public Sector Undertaking (PSU) Index is a stock index that tracks the performance of the listed PSU stocks on the Exchange. which represent 90 percent of the total market capitalization of all banking sector stocks listed on BSE. BSE considered it important to design an index exclusively for bank stocks. Bankex tracks the performance of the leading banking sector stocks listed on the BSE.4. 5. The base date for Bankex is 1st January 2002 and the base value is 1000 points.

NSE launched S&P CNX Nifty in April 1996. Sensex is a basket of 30 constituent stocks representing a sample of large. In 1992.network is the largest private wide area network in India and the first extended C. National Stock Exchange became the largest stock exchange in the country. NSE was recognized as a stock exchange under the Securities Contracts (Regulation) Act. In October 1995. The NSE. That's why it's also known as BSE 30 Sensex. liquid and representative companies. Presently. . The base year of sensex is 1978-79 and the base value is 100.6. which recommended promotion of a National Stock Exchange by financial institutions to provide access to investors from all across the country on an equal footing. it supports more than 3000 VSATs.Band VSAT network in the world. 1956 and it commenced operations in the Wholesale Debt Market (WDM) segment in June 1994. In April 1993. NSE was incorporated as a tax-paying company unlike other stock exchanges in the country. Bombay Stock Exchange (BSE) in 1986 came out with a stock index that subsequently became the barometer of the Indian stock market. National Stock Exchange (NSE) The National Stock Exchange of India Limited was created on the basis of the report of the High Powered Study Group on Establishment of New Stock Exchanges. The Capital Market (Equities) segment commenced operations in November 1994 and operations in Derivatives segment were started in June 2000. BSE Sensex Sensex is the value-weighted index of the companies listed on the stock exchange. NSE is one of the largest interactive VSAT based stock exchanges in the world.

IISL is India’s first specialized company focused upon the index as a core product. which is a joint venture between NSE and CRISIL. (IISL). index based derivatives and index funds. S&P CNX Nifty is owned and managed by India Index services and Products Ltd.diversified 50 stock index accounting for 22 sectors of the economy. who are world leaders in index services. . IISL has a licensing and marketing agreement with standard & poor’s (S&P). It is used for a variety of purposes such as benchmarking fund portfolios.S&P CNX Nifty S&P CNX Nifty is a well.

The prominent subsidiaries of this Group are Prebone Yamane (Country’s largest debt broking company). The Sharyans Group has an impressive portfolio of businesses under its fold which mainly fall under the real estate and financial services categories. With an unblemished and reputed track record. The Inga Group is well known as a Category I Merchant Banker with operations revolving around investment banking and corporate finance. originally promoted by the Investment Trust of India. ITIFSL is all set become an imposing wealth management firm in the country by giving the best to its clients as well as stakeholders. is now a part of the Sharyans and Inga Group. ITIFSL will soon touch the pinnacles of success in the financial services industry by being a dominant force in the broking as well as the distribution arena. Intime Spectrum (India’s largest Registry & Transfer Agents).2 COMPANY PROFILE ITIFSL is emerging as one of the top most wealth management companies in India with a daily turnover of over 200 crores and 135 branches spread all over the country. . ITIFSL. The company is also into Private Equity. and Collin Stewarts India Private Limited (Portfolio Management Services & Research along with institutional broking operations for Collin Stewarts which is the largest wealth management company in the UK).1. Project Financing and Mergers & Acquisitions. Under the guidance of the Sharyans and Inga Group.

ITI FSL has been set up to engage in • • • • • • • Stock Broking Institutional Broking Derivatives Depository Services Distribution of Investment Products Distribution of Insurance Commodities Broking* *Activity conducted through the company's subsidiary ITI Investor Services Limited ITI’s Foot Path Headquartered in Chennai. ITIFSL has over 135 Branch Offices spread across the country to offer better reach and service to the investor.ITI’s Business With the objective to tap the growing potential in our capital markets. The company currently marks its presence in the following regions: • • • • • • • Andhra Pradesh Delhi Karnataka Kerala Madhya Pradesh Tamil Nadu West Bengal . ITI FSL has a growing network of offices across several states to ensure easy accessibility to our clients wherever they are.

Vision “To be the most Preferred Financial Advisor. Our Goal is  To be the best in the industry. Prosperity. we are continuously engaged in the assessment of market conditions to balance risk and reward so as to optimize returns to our investors. innovate continuously and develop multi skilled teams. Creator and Wealth Manager and to deliver the Highest Standards of Service to customers and Be Prominent in the crowd of Finance Companies offering similar services”.  To satisfy customer needs and deliver the best services. Mission ITI FSL’s mission is to deliver Value with commitment. Emerging as one of the front-line Brokerage Houses and a dominant force in the Distribution arena. To keep the company’s image and reputation at the highest levels. Openness and TEAM WORK. .  To respect and recognize individual contribution.Values We at ITI FSL believe in Trust.  To improve performance.

6. an increase of 36. Bank’s Credit – Deposit Ratio improved from 69. providing safe & ethical banking services to customers”.41%.12% from Rs. Total Business grew from Rs. 387 crore in 2006-07 to Rs. It stands increased from Rs. a major milestone in the history of the Bank recording a growth of 28.202 crore in 2007-08.058 crore from Rs. Total Income recorded a growth of 41. 5. 8. 2000 crore marks.45. 1. representing a growth of 24.663 crore at end 2006-07 to Rs.16. 61.23%. 47.62%.KPMG Best Banks 2007 survey and Financial Express Ernst & Young Survey both of which have ranked IOB as the FIRST among the Public Sector Banks. 08.63%.72% to 72.41% to Rs.968 crore for the year 2007-08 as against Rs. Gross Credit grew by 27. 7. This inspires us to set ourselves even more challenging goals as we strive to ensure all-round improvement of our performance levels.832 crore for the year 2006-07.Indian Overseas Bank (IOB) As your Bank moves forward into 2008-09. I am proud to share with you the recognition accorded to the Bank by two well reputed surveys viz.776 crore in 2007Interest Income improved to Rs. with our Vision “ To be a leader – in terms of profit and growth.79% from Rs.008 crore in 2006-07 to an all time high of Rs. 1. The Bank’s Net Profit posted an impressive rise of 19. Non Interest Income recorded growth of 108. Business Today .32% due to expansion in volume of business and improvement in efficiency levels. 1.219 crore in 2006-07 to Rs. Operating Profit at Rs. 808 crore in 2007-08 .384 crore in 2007-08. 1. 2002 crore crossed the Rs.923 crore.

Bangladesh. Qatar. Thailand and Malaysia. FII's hold more than 60% of HDFC's equity. Industrial Credit and Investment Corporation of India (ICICI Bank) ICICI Bank was promoted by the erstwhile Industrial Credit Investment Corporation of India Limited (ICICI Ltd. Charitable Trusts. offshore banking units in Singapore and Bahrain. South Africa. Asian Development Bank. Russia and Canada.) and the erstwhile Shipping Credit and Investment Corporation of India Limited (SCICI Ltd. incorporated in the year 1977 by Shri Hasmukhbhai Parekh aims at furthering home ownership by providing long term finances to the household sector. Hong Kong. an advisory branch in Dubai and branches in Bahrain. Sri Lanka. Indonesia. Pursuant to the merger of SCICI into ICICI. It also offers property related services and deposit products with safer investment options backed by competitive returns. United States' Agency for International Development etc. China. ICICI Bank has an international presence in 18 countries. Individuals. HDFC has branches across all major Indian cities and countries like Kuwait. Saudi Arabia. . Educational Institutions. the bank became the wholly owned subsidiary of the latter. It now has subsidiaries in the UK.Housing Development Finance Corporation Ltd (HDFC Ltd) The Housing Development Finance Corporation Ltd (HDFC Ltd). Religious Trusts and others whom the management decides can deposit with HDFC. It also provides housing finance consultancy services to various international agencies like The World Bank.) by an initial capital contribution in the proportion of 75:25 respectively. the UAE. Indian Public holds less than 15 \% and the rest is being held by banks and others. HDFC has also tied up with Credit Information Bureau (India) Ltd to offer credit information to commercial and individual consumers through its Commercial Credit Bureau and Consumer Credit Bureau respectively. Belgium and Quatar. Sultanate of Oman and UAE. It also established international finance centers and representative offices in the US.

On the whole. SBI traces its ancestry back to the Bank of Calcutta. the Bank is recruiting 20000 clerks and 3500 officers. Measured by the number of branch offices. this makes SBI the oldest commercial bank in the Indian subcontinent. The pick of the universities aspire to join the Bank and more than 2.5 million applications have been received . computerizing its operations. and ranked 219 in 2008 Forbes Global 2000. After a 20 year hiatus. With an asset base of $126 billion and its reach. SBI is the second largest bank in the world. trying to change the rude attitude of its staff through a program aptly named 'Parivartan' or 'change'. the Bank has been successful in the first three initiatives but has failed in Parivartan. implementation of Business Process ReEngineering(BPR). In recent years the bank has focused on four priorities. through its vast network in India and overseas. international and NRI products and services. which was established in 1806. third. and fourth. in which the Government of India is the biggest shareholder. first. SBI provides various domestic. second. reducing its huge staff through the Golden handshake scheme known as the Voluntary Retirement Scheme.State Bank of India (SBI) SBI is a Public Sector Banking Organization (PSB). it is a regional banking behemoth. It is the largest bank in India and is ranked at 380 in 2008 Fortune Global 500 list.

London. These branches are controlled through 48 Zonal Offices. There are 27 branches/ offices (including three representative offices) abroad.Tokyo.Bank of India Bank of India was founded on 7th September.Paris.and Singapore. Bank of India was the first Indian Bank to open a branch outside the country. to extend depository services to the stock broking community. It is an association that has blossomed into a joint venture with BSE. in 1946. The Bank has sizable presence abroad. 1906 by a group of eminent businessmen Bank has 2884 branches in India spread over all states/ union territories including 155 specialized branches.Hong-Kong.10% of Bank's total business. at London. Paris in 1974. Newyork. The Bank's association with the capital market goes back to 1921 when it entered into an agreement with the Bombay Stock Exchange (BSE) to manage the BSE Clearing House. called the BOI Shareholding Ltd. and also the first to open a branch in Europe. with a network of 27 branches (including three representative office ) at key banking and financial centers viz. The international business accounts for around 20. .

i. Which is known as Apex Bank. The Capital of all the banks was fully contributed by the govt. All these banks are controlled by one Central Bank. Co-operative Banks. But after 1990 the state owned banks were allowed to issue shares and raise capital from the public. When the principle of limited liability of Banks was accepted under Indian laws. The Government owned banks were later privatized partially by issuing shares to the public.1. Their activities were centered around only in the particular area and line. who converted their banks into public limited banks and simultaneously the government of India started nationalizing the private banks and also started banks funded and owned by it. Agricultural Banks. The Reserve Bank of India. they did not have any branches (or had a couple of branches). Development Banks. Now In India there is various types of Banks.e.3 Industry Profile: Growth of Indian Banking Sector: In the early days banks were run by individual entrepreneurs. Nationalized Bank. leaving only a handful. Commercial Banks. like Scheduled Banks. The were dealing with small amounts. The Following summarization will give a clear idea of history and growth of Indian Banking. The Banking industry in India did not truly emerge until 1860. Subsequently. All the banks in India are controlled by the Reserve Bank of India. In the year 1996 there were 15 Listed Banks and 16 unlisted who have issued shares to raise capital from the public. Hence some banks started issuing shares like public companies and thereby converted themselves into a public company. . As the years passed on the individual bankers could not withstand the pressures of the fast growing economy. So the individual bankers started to leave the sector slowly.

In 1949 Banking Regulation Act gave Wide-ranging powers to RBI to regulate supervise and develop the banking system. The act also made it mandatory for Banks to obtain RBI’s permission before opening branches. The year 1934 marked a very important year in the Indian Banking Industry because during this year RBI Act was enacted and established in 1935. rapid growth in agriculture.there was a surge in the number of Banks operating India and several modern banks trace their establishment back to this time. The Public Sector Banks (PSBs). It also gave rise to scheduled banks. In 1980 the government nationalized 6 more banks. The Indian Banking Industry can be categorized into non-scheduled banks and scheduled banks. In 1876 presidency Bank Act allowed the establishment of state purchased banks. On the other hand the Private Sector Banks . massive manpower and lack of modern technology. In October 1994 the minimum Prime Lending Rate (PLR) was abolished and banks were allowed to set their own PLR. Now there are only 3 non-scheduled banks and 274 scheduled ones. In 1921 these banks were reconstituted to form the Imperial Bank. There scheduled banks were allowed to approach RBI for financial assistance. As a result of this act there was an increase in the number of scheduled banks. which are the base of the Banking sector in India account for more than 78 per cent of the total banking industry assets. Unfortunately they are burdened with excessive Non Performing assets (NPAs). There are about 67.000 branches of Scheduled banks spread across India. In 1969 Bank Nationalization Act enabled the government to nationalize 14 major banks to achieve social objectives. small industry and exports. which were banks listed in the second schedule of the RBI Act. In Feb 1994 the Banks were allowed to fix their own deposit rates from deposits of over one year. Scheduled banks constitute of commercial banks and co-operative banks. which later became the State Bank of India (SBI).

even after the normal banking hours.). phone banking. especially the multinational ones. provide their customers with Online Banking facility. Now-a-days.are making tremendous progress.000 crores. on a 24x7 basis. almost all the banks all over the world. etc. The growth in the Indian Banking Industry has been more qualitative than quantitative and it is expected to remain the same in the coming years. . Banking Industry services is nothing but the access of most of the banking related services (such as verification of account details.7 percent that existed between 1994-95 and 200203. ATMs. Based on the projections made in the "India Vision 2020" prepared by the Planning Commission and the Draft 10th Plan.90. the report forecasts that the pace of expansion in the balance-sheets of banks is likely to decelerate. going with the transactions. Through the development in technology banking services has been availed to the customers at all times. The total assets of all scheduled commercial banks by end-March 2010 is estimated at Rs 40. progress of online services is available to all customers of the concerned bank and can be accessed at any point of time and from anywhere provided the place is equipped with the Internet facility. Banking Industry has revolutionized the transaction and financial services system worldwide. They are leaders in Internet banking.4 per cent during the rest of the decade as against the growth rate of 16. In today’s world. Bank assets are expected to grow at an annual composite rate of 13. That will comprise about 65 per cent of GDP at current market prices as compared to 67 per cent in 2002-03. mobile banking.

Curry and George (1983) provide an extensive survey of such research. According to Chakravarty.4 Literature Review Concentration refers to the degree of control of economic activity by large firms. capital intensity. the structureconduct-performance relationship. These are. Levy (1985) analyses changes in four – firm seller concentration ratio from 1963 to 1971 for a sample of US manufacturing industries by regressing the change in market concentration on MES (sales of minimum efficient scale of plant as a fraction of industry sales). concentration has traditionally been considered to be determined by scale economies. Stigler (1964). barriers to entry. Chakravarty (1995) has provided an excellent discussion on the subject by reviewing several papers.1. In the context of financial institutions. The studies in banking have generally examined concentration issues in the context of overall structure-conduct-performance relationship. Arguments have also been put forward that technological innovation are fundamental determinants of market concentration. which states that market concentration leads to superior performance and the efficient structure hypotheses. . studies on determinants of market concentration have been few. However. More recently. Literature on determinants of market concentration in industrial organizations dates back to Learner’s (1934) seminal work on measurement of monopoly power. which states that superior technological efficiency leads to superior performance. ASR (industry advertising sales ratio). Hannah and Kay (1977) and Hay and Morris (1991) have studied the theoretical aspects of the issue. GR (growth rate of industry sales). few studies have explored the determinants of concentration in the financial services industry. advertising intensity and size of the market. ACR (absolute capital requirements of a minimum efficient scale plant). Two hypotheses of superior performance have been advanced.

Berger (1995) states that 'to test for the condition that efficiency is related to structure as well as performance.While examining the issues of traditional SCP and efficient structure hypotheses. However. . we have not come across any study that examines the influence of foreign banks on concentration in Indian banking market. we also estimate the reduced forms for concentration and market power from the efficient structure model'. In this model concentration has been regressed on efficiency and other control variables. Rivera (1993) examined the influence of foreign banks in Spanish banking market using a dummy variable for presence of foreign banks. The present study fills this gap. Berger (1995) uses a reduced form concentration model.