A PROJECT REPORT ON

“EQUITY RESEARCH ON BANKING

SECTOR”
Research Project submitted
In The Partial Fulfillment Of The Requirement Of The Course

Masters of Management Studies

University of Mumbai

Submitted by:
Kaustubh Barve
MMS 2013-15
Roll No: 11

Mumbai Educational Trust’s

Institute of Management
 ACKNOWLEDGEMENT

On the onset I take the privilege to convey my gratitude to those who have co-operated,
supported, helped and suggested me to accomplish my project work.

I take this opportunity to sincerely thanks and express my gratitude to my corporate trainer
Mr. Nikesh Ruparel of Birla Sunlie Insurance Company for guiding me throughout my entire
project. The insights provided by him have helped make this Project Report a truly professiona l
effort.

This project has given me the chance to get in touch with the practical aspects of management
The experience and the knowledge acquired over the interactions with the guide have been
invaluable to say the least and will help me a great deal in my future education and career.

I would also like to thank all the faculty members of college name for their critical advice and
guidance without which this project would not have been possible.

Last but not the least I place a deep sense of gratitude to my family members and my friends
who have been constant source of inspiration during the preparation of this project work. Any
omission in this brief acknowledgement does not mean lack of gratitude.
 DECLARATION

I, the undersigned Kaustubh Barve, Student of MET’s Institute of Management batch of

MMS 2013-2015 hereby declare that the project “Equity Research on Banking Sector”
presented in this report is my own work and has been carried out under the supervision of Mr.
Nikesh Ruparel of Birla Sunlife Company

I have completed this project in the academic year 2013 – 2015, during which my internship
period was from 5th May, 2014 to 15th July, 2014.

This Work has not been previously submitted to any other university for examination
INDEX
 EXECUTIVE SUMMARY

The main aim of this project is to do equity research banking sector and to find out the
opportunities of investment in these sectors where returns can be maximized.
Indian Economy being one of the fastest developing economies in the world, companies in
India are growing at faster rate as compared to their growth rate a decade back. Many Indian
companies are expanding their business globally with mergers and acquisitions.

As companies grow their shareholders are benefitted with good dividend and capital
appreciation on investment in equity shares of such companies. Number of companies listed in
stock exchange (BSE & NSE) has been increasing every year with new IPOs coming in the
market.

In India people are realizing that equity has potential to give highest return as compared to
other investment avenues however people are not aware how to do equity valuation, they just
invest in shares based on tips given by brokers, friends or family members.

Investing in equity shares based on tips is not the true investment but it is clear gambling with
your money which many of us would not like to do with our hard earned money.

Equity valuation begins with analysis of the sector in which you want make investment; if the
sector looks positive then analyze various companies in the sector. A Company is analyzed
fundamentally to check its performance and financial strength. Technical analysis is used to
decide the right price to buy a stock so that higher return on investment can be generated.

This report starts from the fundamental analysis where EIC (economy, industry, Company)
analysis of the four banks (ICICI Bank, HDFC Bank, Punjab National Bank & Bank of Baroda)
is done. Economy of India and banking industry are analyzed on the basis of various factors
and indicators. Above mentioned four banks were analyzed based on the various qualitative
and quantitative factors. After analyzing these banks, stock price is estimated using relative
valuation method. . The market price and P/E ratios have been taken to calculate the EPS. After
the target price was calculated with the help of sector P/E and EPS and finally the differe nce
was taken between the target price and market price to arrive at the best performing company.

Then the technical analysis of the top Banks has been done. Technical analysis is used to study
stock chart patterns of these banks. The observed patterns are tested with various oscillato rs
and decision about particular stock is made. Based on these factors, trend of a particular stock
is observed and then the target price is estimated.

Finally the conclusion and recommendatio ns are given with respect to derived result.
OBJECTIVES OF THE PROJECT:

 To provide an overview of the Banking sector and analysing the stocks of that sector.
 To study about some of the major players in Banking sector which has good
investment prospects.
 To identify the growth drivers of the Banking sector.
 To identify the top line and bottom-line of the companies selected under Banking sector
and the factors that affect them.

 To justify the current investment in the chosen securities.

 To understand the movement and performance of stocks.

 To recommend increase/decrease of investment in a particular security.

 The main objective of project is to do fundamental analysis of banks.

 To study the present scenario of banks through its net interest income and net interest
margin

This report will help the investors to know about the current growth prospects of Indian
economy and Banking sector. They will get to understand various factors affecting banking
sector and their impact on the growth of banking sector. This report will help them in
comparing the above mentioned four banks and their estimated future share prices, so that they
can invest in better options.

The Report will also help Birla Sunlife Wealth Management in their investment decisions.
RESEARCH METHODOLOGY AND DESIGN:

 The project is on equity research analysis of the sectors. Hence study has to be done
on the basis of information and news available about the sectors i.e. secondary data by
various modes. This research has completed by doing Fundamental analysis and
Technical analysis of the companies.

 Secondary data was collected from the internet, company websites. However the main
source of information is Annual Report issued by the companies and also quarterly
reports of the current year showing their performances in current market scenario.

 Firstly data was analyzed on the basis of the industry. The industry i.e. financ ia l
services sector were focused on and its performance and relation with the Indian
economy was monitored and then specific stocks were chosen to be invested in
depending upon the fundamentals of the company stocks. These stocks were
individually analyzed and then measured whether it would give maximum returns if
invested in.

 The research on the sectors and companies in those sectors is explained in the later part
of the report.

 Though, Primary data collection for preparing this project was not possible due to time
and money constraints. Thus, secondary data collection was been used.

 While preparing this project, daily stock market prices were been tracked and also the
annual reports of the company analyzed were taken into consideration for evaluation of
company performance.

 Company websites were a major source for collecting the annual reports of the
company.

 Internet was a major source of information while preparing the project as most of the
data collected was gathered from various websites.

The knowledge thus gained from preliminary study forms the basis for future detailed
descriptive research. In the exploratory study, the various technical indicators that are important
for analyzing stock were actually identified and important ones short were listed.
SAMPLE DESIGN:

The sample of the stocks for the purpose of collecting primary and secondary data has
been selected on the basis of random sampling. The stocks are chosen in an unbiased manner
and each stock is chosen independent of the other stock chosen. The stocks are chosen from
the Banking sector.

LIMITATIONS OF THE STUDY:

 This study has been conducted purely to understand equity analysis for investors.
 The study is restricted to three companies based on Fundamental Analysis.
 The study is limited to the companies having equities.
 Detailed study of the topic was not possible due to limited size of the project.
 There was a constraint with regard to time allocation for the research study i.e for a
period of 45 days.
 Suggestions and conclusions are based on the data of five years.
 COMPANY BACKGROUND

ADITYA BIRLA GROUP

A US $40 billion corporation, the Aditya Birla Group is in the League of Fortune 500. It is
anchored by an extraordinary force of over 120,000 employees belonging to 42 differe nt
nationalities. The Group has been ranked Number 4 in the global 'Top Companies for Leaders'
survey and ranked Number 1 in Asia Pacific for 2011. 'Top Companies for Leaders' is the most
comprehensive study of organisational leadership in the world conducted by Aon Hewitt,
Fortune Magazine, and RBL (a strategic HR and Leadership Advisory firm). The Group has
topped the Nielsen's Corporate Image Monitor 2012-13 and emerged as the Number 1
corporate, the 'Best in Class'

50 per cent of the Aditya Birla Group's revenues flow from its overseas operations. The Group
operates in 36 countries – Australia, Austria, Bangladesh, Brazil, Canada, China, Egypt,
France, Germany, Hungary, India, Indonesia, Italy, Ivory Coast, Japan, Korea, Laos,
Luxembourg, Malaysia, Myanmar, Philippines, Poland, Russia, Singapore, South Africa,
Spain, Sri Lanka, Sweden, Switzerland, Tanzania, Thailand, Turkey, UAE, UK, USA, and
Vietnam.

SUNLIFE FINANCIAL INC

Sun Life Financial Inc. Is a leading international financial services organization providing a
diverse range of wealth accumulation and protection products and services to individuals and
corporate customers. Tracing its route back to 1865, Sun Life Financials and its partners today
have operations in key markets worldwide, including Canada, The United States, The United
Kingdom, Hong Kong, The Philippines, Japan, Indonesia, India, China and Bermuda.
BIRLA SUN LIFE INSURANCE CO. LTD.

Birla Sun Life Insurance Company Limited (BSLI) is a joint venture between the Aditya Birla
Group and Sun Life Financial Inc, one of the leading international financial services
organisations from Canada. With experience of over a decade, BSLI has contributed to the
growth and development of the Indian life insurance industry and currently is one of the leading
life insurance companies in the country.

Birla Sun Life Insurance has an extensive distribution reach of over 500 cities through its
network of over 632 branches, 134,000 empanelled advisors and over 200 partnerships with
corporate agents and banks. Assets under Management (AUM) of Birla Sun Life Insurance is
close to Rs.22,000 crore and it has a robust capital base of over Rs.2,450 crore as on 31 March
2013.

BSLI has a customer base of over two million policy holders and has attained recognition as
the 3rd Most Trusted Life Insurance Company in the 'Most Trusted Brands' survey 2013
conducted by Brand Equity (The Economic Times Group) with Neilsen. The Company offers
a complete range of offerings comprising protection solutions, children's future solutio ns,
wealth with protection solutions, health and wellness solutions, retirement solutions and
savings with protection solutions. It has an extensive distribution reach in over 500 cities
through its network of over 540 branches, more than 81,000 empanelled advisors and over 140
partnerships with corporate agents, brokers and banks. Birla Sun Life Insurance has total assets
under management of 24,775 Crores and a robust capital base of over 2,170 Crores, as on 31st
Mar, 2014.

BSLI is in its five successful years of operations have contributed significantly to the growth
and development of the life insurance industry in India. It pioneered the launch of Unit Linked
Life insurance Plans (ULIP) amongst the private players in India. It was the first player in the
industry to sell its policies through bank assurance route and through the internet. It was also
the first private sector player to introduce a pure term plan in the Indian market. This was
supported by new to the market. The process of getting sales illustrations signed by customers,
offering a free look period on all policies, which are now industry standards were introduced
by BSLI.
SWOT ANALYSYS OF BIRLA SUNLIFE

SWOT Analysis

Strength 1. Backed By Aditya Birla Brand and Sun Life financ ia l

services
2. Emphasis on Customer Satisfaction through Transparent
Functioning
3. Strong Capital Base

Weakness 1. Low Presence in Rural Market

2. Lesser advertising as compared to competitors

Opportunity 1. Growing potential in the Rural Market

2.Alignment with Government Schemes
3. Better awareness amongst people for getting insurance

Threats 1. Economic crisis and economic instability

2. Entry of new NBFCs in the sector
 INTRODUCTION TO EQUITY

What is Equity?

In accounting and finance, equity is the residual claim or interest of the most junior class of
investors in assets, after all liabilities are paid. If valuations placed on assets do not exceed
liabilities, negative equity exists. In an accounting context, Shareholders equity (or
stockholders equity, shareholders’ funds, shareholders capital or similar terms) represent the
remaining interest in assets of a company, spread among individual shareholders of common
or preferred stock.
This definition is helpful to understand the liquidation process in case of bankruptcy. At first,
all the secured creditors are paid against proceeds from assets. Afterword, a series of creditors,
ranked in priority sequence, have the next claim/right on the residual proceeds. Ownership
equity is the last or residual claim against assets, paid only after all other creditors are paid. In
such cases where even creditors could not get enough money to pay their bills, nothing is left
over to reimburse owners’ equity. Thus owner’s equity is reduced to zero. Ownership equity is
also known as risk capital, liable capital and equity.

EQUITY SHARES

An equity share, commonly referred to as ordinary share also represents the form of fractiona l
or part ownership in which a shareholder, as a fractional owner, undertakes the maximum
entrepreneurial risk associated with a business venture. The holders of such shares are members
of the company and have voting rights.

DERIVATIVES

A derivative is a financial instrument that gets its value from some real good or stock. It is the
derived value of an underlying asset. It is, in its most basic form, simply a contract between
two parties to exchange value based on the action of a real good or service. Typically, the seller
receives money in exchange for an agreement to purchase or sell some good or service at some
specified future date.

Derivatives offer the some degree of leverage or multiplication as a mortgage. For a small
amount of money, the investor can control a much larger value of company stock than would
be possible without use of these instruments. This can work both ways, though. If the investor
is correct, then more money can be made than if the investment had been made directly into
the company itself. The losses are multiplied instead, however, if the investor is wrong.

The basic concept of a derivative contract remains the same whether the underlying happens
to be a commodity or a financial asset. However, there are some features which are very
peculiar to commodity derivative markets.
EQUITY INVESTMENT

Equity investment generally refers to buying and holding of shares of stock on a stock market
by individuals and firms in anticipation of income from dividend and capital gain as the value
of the stock rises. It also sometimes refers to the acquisition of equity (ownership) participatio n
in private (unlisted) company or start up (a company being created or newly created). When
investment is in infant companies, it is referred to as venture capital investing and is generally
understood to be higher risk than investment in listed going-concern situation.

How to invest in Equity Shares?

Investors can buy equity shares of a company from security market that is from primary market
or secondary. The primary market provides the channel for sale of new securities. Primary
market provides opportunity to issuers of securities ; Government as well as corporate, to raise
resources to meet their requirements of investment and/or discharge some obligations some
obligations. Investors can buy shares of a company through IPO (Initial Public Offerings) when
it is first time issued to the public. Once shares are issued to the public it is traded in the
secondary market. Stock exchange only acts as facilitator for trading of equity shares. Anyone
who wishes to buy shares of company can buy it from an existing shareholder of a company.

Why should one invest in equity in particular?

Equities have the potential to increase in value over time. It also provides your portfolio with
the growth necessary to reach your long term investment goals .research studies have proved
that the equities have outperform most other forms of investments in the long term. Research
studies have proved that investments in some shares with a longer tenure of investment have
yielded far superior returns than any other investment. However this does not mean all equity
investments would guarantee similar higher returns. Equities are high in investment. One need
to study before investment.
Purpose of equity research is to study companies, analyze financials, and look at quantitative
and qualitative aspects mainly for decision: Whether to invest or not.

To be able to value equity, we need to first understand how equity is to be analyzed.

Equity Share of any company can be analyzed through:

 Fundamental Analysis
 Technical Analysis
FUNDAMENTAL ANALYSIS

Fundamental Analysis is a method of evaluating a security that entails attempting to measure

its intrinsic value by examining related economic, financial and other qualitative and
quantitative factors. Fundamental analysts attempt to study everything that can affect the
security's value, including macroeconomic factors (like the overall economy and industry
conditions) and company-specific factors (like financial condition and management).

Fundamental analysis is about using real data to evaluate a security's value. Although most
analysts use fundamental analysis to value stocks, this method of valuation can be used for just
about any type of security

Fundamental analysis observes numerous elements that affect stock prices such as sales, price
to earnings (P/E) ratio, profits, earnings per share (EPS), as well as macroeconomic and
industry specific factors.

The end goal of performing fundamental analysis is to produce a value that an investor can
compare with the security's current price, with the aim of figuring out what sort of position to
take with that security (underpriced = buy, overpriced = sell or short).

Fundamental analysis of a business involves analyzing its financial statements and health, its
management and competitive advantages, and its competitors and markets. When analyzing a
stock, futures contract, or currency using fundamental analysis there are two basic approaches
one can use; bottom up analysis and top down analysis. The term is used to distinguish such
analysis from other types of investment analysis, such as quantitative analysis and technica l
analysis.

Fundamental analysis is performed on historical and present data, but with the goal of making
financial forecasts. There are several possible objectives:

 To conduct a company stock valuation and predict its probable price evolution,

 To make a projection on its business performance,

 To evaluate its management and make projected decisions

Fundamental analysis includes:

1. Economic analysis
2. Industry analysis
3. Company analysis

On the basis of these three analyses the intrinsic value of the shares are determined. This is
considered as the true value of the share. If the intrinsic value is higher than the market price it
is recommended to buy the share. If it is equal to market price then hold the share and if it is
less than the market price then sell the shares.
TYPES OF FUNDAMENTAL ANALYSIS:

1. Quantitative Factors
2. Qualitative Factors

The various fundamental factors can be grouped into two categories: quantitative and
qualitative.

 Qualitative - related to or based on the quality or character of something, often

as opposed to its size or quantity.
 Quantitative - capable of being measured or expressed in numerical terms.

QUALITATIVE FACTOR – THE INDUSTRY

Each industry has differences in terms of its customer base, market share among firms,
industry-wide growth, competition, regulation and business cycles. Learning about how the
industry works will give an investor a deeper understanding of a company’s financial health.

 Customers

Some companies serve only a handful of customers, while others serve millions. In general,
it’s negative if a business relies on a small number of customers for a large portion of its sales
because the loss of each customer could dramatically affect revenues. For example, think of a
military supplier who has 100% of its sales with the Indian government. One change in
government policy could potentially wipe out all of its sales. For this reason, companies will
always disclose in their annual report if any one customer accounts for a majority of revenues.

 Market Share

Understanding a company’s present market share can tell volumes about the company’s
business. The fact that a company possesses an 85% market share tells you that it is the largest
player in its market by far. Furthermore, this could also suggest that the company possesses
some sort of “economic moat” in other words, a competitive barrier serving to protect its
current and further earnings, along with its market share. Market share is important because of
economies of scale. When the firm is bigger than the rest of its rivals, it is in a better position
to absorb the high fixed costs of a capital -intensive industry.
  Industry Growth

One way of examining a company’s growth potential is to first examine whether the amount
of customers in the overall market will grow. This is crucial because without new customers, a
company has to steal market in order to grow. In some markets, there is zero or negative growth,
a factor demanding careful consideration. For example, a manufacturing company dedicated
solely to creating audio compact cassettes might have been very successful in the 70’s, 80’s
and early 90’s. However that same company would probably have a rough time now due to the
advent of newer technologies, such as CDs and MP3s. The current market for audio compact
cassettes is only a fraction of what it was during the peak of its popularity.

 Competition

Simply looking at the number of competitors goes a long way in understanding the competitive
landscape of a company. Industries that have limited barriers to entry and a large number of
competing firms create a difficult operating environment for firms. One of the biggest risk in a
highly competitive industry is pricing power. This refers to the ability of supplier to increase
prices and pass those costs on to customers. Companies operating in industries with few
alternatives have the ability to pass on costs to customers. A great example of this is Wal-Mart.
They are so dominant in the retailing business, that Wal-Mart practically sets the price for any
of the suppliers wanting to do business with them. If you want to sell to Wal-Mart, you have
little, if any, pricing power.

QUALITATIVE FACTOR – THE COMPANY

Before diving into a company’s financial statements, let’s take a look at some of the qualitative
aspects of a company. Following are the qualitative factors of the company that investor should
be aware of-

 Business Model

One of the most important questions that should be asked is what exactly does the company
do? This is referred to as a company’s business model. It’s how a company makes money? You
can get a good overview of a company’s business model by checking out its website or annual
report.

 Competitive Advantage

Another business consideration for investors is competitive advantage. A company’s long- term
success is driven largely by its ability to maintain a competitive advantage – and keep it.
Powerful competitive advantages, such as Reliance’s brand name and Microsoft’s dominatio n
of the personal computer operating system, create a moat around a business allowing it to keep
competitors at bay and enjoy growth and profits. When a company can achieve competitive
advantage, its shareholders can be well rewarded for decades.

 Management

A company relies upon management to steer it towards financial success. Some believe that
management is the most important aspect for investing in a company. It makes sense – even
the best business model is doomed if the leaders of the company fail to properly execute the
plan. Every public company has a corporate information section on its website. Usually there
will be a quick biography on each executive with their employment history, educationa l
background and any applicable achievements. Don’t expect to find anything useful here. Let’s
be honest: We’re looking for dirt, and no company is going to put negative information on its
corporate website.

Instead, here are a few ways for to get a feel for management:

1. Management Discussion and Analysis (MD&A)

The Management Discussion and Analysis is found at the beginning of the annual report. In
theory, the MD&A is supposed to be frank commentary on the management’s outlook.
Sometimes the content is worthwhile, other items its boilerplate. One tip is to compare what
management said in past years with what they are saying now. Is it the same material rehashed?
Have strategies actually been implemented? If Possible, sit down and read the last five years
of MD&As.

2. Past Performance

Another good way to get a feel for management capability is to check and see how executives
have done at other companies in the past. You can normally find biographies of top executives
on company websites. Identify the companies they worked at in the past and do a search on
those companies and their performance.

3. Conference Calls

Some of the big market capitalization companies have conference calls do that manageme nt
can address critical issues such as performance review, critical developments etc. The excerpts
of these are later displayed on the company’s websites so as to enable investors to access these.
QUANTITATIVE FACTORS

Now as we know the qualitative factor of fundamental analysis, let’s proceed to the quantitative
factor of the fundamental analysis. Quantitative factor include analysis of financial statement
of the company.

RATIO ANALYSIS

Financial ratios are tools for interpreting financial statements to provide a basis for valuing
securities and appraising financial and management performance. In general, there are 3 kinds
of financial ratios that a financial analyst will use most frequently, these are:

 Working capital ratios

 Liquidity ratios
 Solvency ratios

These 3 financial ratios allow a good financial analyst to quickly and efficiently address the
following questions or concerns:

Working capital ratios

 How quickly are debts paid?

 How many times is inventory turned?

Liquidity ratios

 Can the company continue to pay its liabilities and debts?

Solvency ratios

 What is the level of debt in relation to other assets and to equity?

 Is the level of interest payable out of profits?
EARNINGS PER SHARE

Earnings per share is calculated by dividing the net profit ( after interest, tax and preference
dividend) by the number of equity shares.

Earnings per share = Net profit after Interest, Tax and Preference Dividend/ No. of Equity
shares

P/E Ratio -

In general, a high P/E suggests that investors are expecting higher earnings growth in the future
compared to companies with a lower P/E. However, the P/E ratio doesn't tell us the whole story
by itself. It's usually more useful to compare the P/E ratios of one company to other companies
in the same industry, to the market in general or against the company's own historical P/E. It
would not be useful for investors using the P/E ratio as a basis for their investment to compare
the P/E of a technology company (high P/E) to a utility company (low P/E) as each industry
has much different growth prospects.

The P/E is sometimes referred to as the "multiple", because it shows how much investors are
willing to pay per rupee of earnings. If a company were currently trading at a multiple (P/E) of
20, the interpretation is that an investor is willing to pay Rs.20 for Re.1 of current earnings.

It is important that investors note an important problem that arises with the P/E measure, and
to avoid basing a decision on this measure alone. The denominator (earnings) is based on an
accounting measure of earnings that is susceptible to forms of manipulation, making the quality
of the P/E only as good as the quality of the underlying earnings number.

 Generally a high P/E ratio means that investors are anticipating higher growth in the
future.
 The average market P/E ratio is 20-25 times earnings.
 The p/e ratio can use estimated earnings to get the forward looking P/E ratio.

 PEG ratio -

The PEG ratio that indicates an over or underpriced stock varies by industry and by company
type; though a broad rule of thumb is that a PEG ratio below one is desirable. Also, the accuracy
of the PEG ratio depends on the inputs used. Using historical growth rates, for example, may
provide an inaccurate PEG ratio if future growth rates are expected to deviate from historic a l
growth rates. To distinguish between calculation methods using future growth and historic a l
growth, the terms "forward PEG" and "trailing PEG" are sometimes used.
TECHNICAL ANALYSIS

Technical analysis is a financial term used to denote a security analysis discipline for
forecasting the direction of prices through the study of past market data, primarily price and
volume. Behavioral economics and quantitative analysis incorporate technical analysis, which
being an aspect of active management stands in contradiction to much of modern portfolio
theory.
Technical analysis employs models and trading rules based on price and volume
transformations, such as the relative strength index, moving averages, regressions, inter-market
and intra-market price correlations, business cycles, stock market cycles or, classically, through
recognition of chart patterns.
Technical analysis stands in contrast to the fundamental analysis approach to security and stock
analysis. Technical analysis analyzes price, volume and other market information, whereas
fundamental analysis looks at the actual facts of the company, market, currency or commodity.
Most large brokerage, trading group, or financial institutions will typically have both a
technical analysis and fundamental analysis team.
Simply put, technical analysis is the study of prices, with charts being the primary tool.
Technical analysts are sometimes referred to as chartists because they rely almost exclusive ly
on charts for their analysis.
Technical analysis is applicable to stocks, indices, commodities, futures or any tradable
instrument where the price is influenced by the forces of supply and demand. Price refers to
any combination of the open, high, low or close for a given security over a specific timefra me.
The time frame can be based on intraday, daily, weekly or monthly price data and last a few
hours or many years.

Technicians, as technical analysts are called, are only concerned with two things:
1. What is the current price?
2. What is the history of the price movement?

The price is the end result of the battle between the forces of supply and demand for
the company’s stock. The objective of analysis is to forecast the direction of the future price.
By focusing on price and only price, technical analysis represents a direct approach. After all,
the value of any asset is only what someone is willing to pay for it.
TYPES OF CHARTS

There are four main types of charts that are used by investors and traders depending on the
information that they are seeking and their individual skill levels. The chart types are: the line
chart, the bar chart, the candlestick chart and the point and figure chart. In the following
sections, we will focus on the State Bank of India (SBI) stock during the period of May 2014
to July 2014. Notice how the data used to create the charts is the same, but the way the data is
plotted and shown in the charts is different.

 Line Chart

The most basic of the four charts is the line chart because it represents only the closing
prices over a set period of time. The line is formed by connecting the closing prices over the
time frame. Line charts do not provide visual information of the trading range for the individ ua l
points such as the high, low and opening prices. However, the closing price is often considered
to be the most important price in stock data compared to the high and low for the day and this
is why it is the only value used in line charts.

 Bar Chart
 The bar chart expands on the line chart by adding several more key pieces of
information to each data point. The chart is made up of a series of vertical lines that represent
each data point. This vertical line represents the high and low for the trading period, along with
the closing price. The close and open are represented on the vertical line by a horizontal dash.
The opening price on a bar chart is illustrated by the dash that is located on the left side of the
vertical bar. Conversely, the close is represented by the dash on the right. Generally, if the left
dash (open) is lower than the right dash (close) then the bar will be shaded black, representing
an up period for the stock, which means it has gained value. A bar that is colored red signals
that the stock has gone down in value over that period. When this is the case, the dash on the
right (close) is lower than the dash on the left (open).

 Candlestick Chart

The candlestick chart is similar to a bar chart, but it differs in the way that it is
visually constructed. Similar to the bar chart, the candlestick also has a thin vertical line
showing the period's trading range. The difference comes in the formation of a wide bar on the
vertical line, which illustrates the difference between the open and close. And, like bar charts,
candlesticks also rely heavily on the use of colors to explain what has happened during the
trading period. A major problem with the candlestick color configuration, however, is that
different sites use different standards; therefore, it is important to understand the candlestick
configuration used at the chart site you are working with. There are two color constructs for
days up and one for days that the price falls. When the price of the stock is up and closes above
the opening trade, the candlestick will usually be white or clear. If the stock has traded down
for the period, then the candlestick will usually be red or black, depending on the site. If the
stock's price has closed above the previous day's close but below the day's open, the candlestick
will be black or filled with the color that is used to indicate an up day.
  Point and Figure Chart

The point and figure chart is not well known or used by the average investor but it has
had a long history of use dating back to the first technical traders. This type of chart reflects
price movements and is not as concerned about time and volume in the formulation of the
points. The point and figure chart removes the noise, or insignificant price movements, in the
stock, which can distort traders' views of the price trends. These types of charts also try to
neutralize the skewing effect that time has on chart analysis.
TYPES OF CHARTING PATTERNS

There are hundreds of thousands of market participants buying and selling securities for
a wide variety of reasons: hope of gain, fear of loss, tax consequences, short-covering, hedging,
stop-loss triggers, price target triggers, fundamental analysis, technical analysis, broker
recommendations and a few dozen more. Trying to figure out why participants are buying and
selling can be a daunting process. Chart patterns put all buying and selling into perspective by
consolidating the forces of supply and demand into a concise picture. As a complete pictorial
record of all trading, chart patterns provide a framework to analyze the battle raging between
bulls and bears. More importantly, chart patterns and technical analysis can help determine
who is winning the battle, allowing traders and investors to position themselves accordingly.
Chart pattern analysis can be used to make short-term or long-term forecasts. The data can be
intraday, daily, weekly or monthly and the patterns can be as short as one day or as long as
many years. Gaps and outside reversals may form in one trading session,while broadening tops
and dormant bottoms may require many months to form.

A chart pattern is a distinct formation on a stock chart that creates a trading signal, or
a sign of future price movements. Chartists use these patterns to identify current trends and
trend reversals and to trigger buy and sell signals. The theory behind chart patterns is based on
this assumption. The idea is that certain patterns are seen many times, and that these patterns
signal a certain high probability move in a stock. Based on the historic trend of a chart pattern
setting up a certain price movement, chartists look for these patterns to identify trading
opportunities.
  Head and Shoulders

This is one of the most popular and reliable chart patterns in technical analysis. Head and
shoulders is a reversal chart pattern that when formed, signals that the security is likely to move
against the previous trend. As you can see in Figure 1, there are two versions of the head and
shoulders chart pattern. Head and shoulders top (shown on the left) is a chart pattern that is
formed at the high of an upward movement and signals that the upward trend is about to end.
Head and shoulders bottom, also known as inverse head and shoulders (shown on the right) is
the lesser known of the two, but is used to signal a reversal in a downtrend. Both of these head
and shoulders patterns are similar in that there are four main parts: two shoulders, a head and
a neckline. Also, each individual head and shoulder is comprised of a high and a low.

 Double Tops and Bottoms

This chart pattern is another well-known pattern that signals a trend reversal - it is considered
to be one of the most reliable and is commonly used. These patterns are formed after a sustained
trend and signal to chartists that the trend is about to reverse. The pattern is created when a
price movement tests support or resistance levels twice and is unable to break through. This
pattern is often used to signal intermediate and long-term trend reversals.
  Triple Tops and Bottoms

Triple tops and triple bottoms are another type of reversal chart pattern in chart analysis. These
are not as prevalent in charts as head and shoulders and double tops and bottoms, but they act
in a similar fashion. These two chart patterns are formed when the price movement tests a level
of support or resistance three times and is unable to break through; this signals a reversal of the
prior trend. Confusion can form with triple tops and bottoms during the formation of the pattern
because they can look similar to other chart patterns. After the first two support/resistance tests
are formed in the price movement, the pattern will look like a double top or bottom, which
could lead a chartist to enter a reversal position too soon.

 Rounding Bottom

A rounding bottom, also referred to as a saucer bottom, is a long-term reversal pattern that
signals a shift from a downward trend to an upward trend. This pattern is traditionally thought
to last anywhere from several months to several years.
A rounding bottom chart pattern looks similar to a cup and handle pattern but without the
handle. The long-term nature of this pattern and the lack of a confirmation trigger, such as the
handle in the cup and handle, makes it a difficult pattern to trade.
  Triangles

Triangles are some of the most well-known chart patterns used in technical analysis. The three
types of triangles, which vary in construct and implication, are the symmetrical triangle,
ascending and descending triangle. These chart patterns are considered to last anywhere from
a couple of weeks to several months.

 Cup and Handle

A cup and handle chart is a bullish continuation pattern in which the upward trend has paused
but will continue in an upward direction once the pattern is confirmed. Price pattern forms what
looks like a cup, which is preceded by an upward trend. The handle follows the cup formatio n
and is formed by a generally downward/sideways movement in the security's price. Once the
price movement pushes above the resistance lines formed in the handle, the upward trend can
continue.
 INTRODUCTION TO BANKING SECTOR

India is considered among the top economies in the world, with tremendous potential for its
banking sector to flourish. The last decade witnessed a significant upsurge in transactions
through ATMs, as well as internet and mobile banking.

Influenced by the global financial turmoil and repercussion of the subprime crisis, the global
banking sector has witness some of the largest and best known names succumb to multi-billio n
dollar write-offs and face near bankruptcy. However, the Indian banking sector has been well
shielded by the central bank and has managed to sail through most of the crisis with relative
ease, the sector is also looking forward to consolidation and investme nts on the FDI front.

Public sector banks have been very proactive in their restructuring initiatives be it in technology
implementation or pruning their loss assets. Retail lending that formed a significant portion of
the portfolio for most banks in the last two years lost some weightage on the banks portfolios
due to their risk weightage. The monetary stimuli (reduction in repo rate, cash reserve ratio and
statutory liquidity ratio) offered to the banks by the RBI made things easier. The repo rate is
unchanged at 8% currently where the new credit policy will be announced soon. Recently
Reserve bank Deputy Governor R Gandhi expressed concern over bad loans and said banks
should strengthen their internal credit appraisal systems to minimise the risk of default. The
growing NPAs are the biggest challenge for the banking sector with the increase in bad loans
which needs to be resolved

The country's banking industry looks set for greater transformation. With the Indian Parliame nt
passing the Banking Laws (Amendment) Bill in 2012, the landscape of the sector has duly
changed. The bill allows the Reserve Bank of India (RBI) to make final guidelines on issuing
new licenses, which could lead to a greater number of banks in the country. The style of
operation is also slowly evolving with the integration of modern technology into the banking
industry.

In the next 5-10 years, the sector is expected to create up to two million new jobs driven by the
efforts of the RBI and the Government of India to expand financial services into rural
areas.Two new banks have already received licences from the government, and the RBI's new
norms will offer incentives to banks to spot bad loans and take necessary recourse to curb the
practices of rogue borrowers.
STRUCTURE OF THE INDIAN BANKING SYSTEM
The existing banking structure in India, evolved over several decades, is elaborate and has been
serving the credit and banking services needs of the economy. There are multiple layers in
today's banking structure to cater to the specific and varied requirements of different customers
and borrowers. The banking structure played a major role in the mobilisation of savings and
promoting economic development. In the post financial sector reforms (1991) phase, the
performance and strength of the banking structure improved perceptibly. Financial soundness
of the Indian commercial banking system compares favourably with most of the advanced and
emerging countries.

The Indian financial system comprises a large number of commercial and cooperative banks,
specialized developmental banks for industry, agriculture, external trade and housing, social
security institutions, collective investment institutions, etc. The banking system is at the heart
of the financial system. The Indian banking system has the RBI at the apex. It is the central
bank of the country under which there are the commercial banks including public sector and
private sector banks, foreign banks and local area banks. They include regional rural banks as
well as cooperative banks
MARKET SIZE
The size of banking assets in Indiatotalled US$ 1.8 trillion in FY 13 and is expected to touch
US$ 28.5 trillion in FY 25.Bank deposits have grown at a compound annual growth rate
(CAGR) of 21.2 per cent over FY 06-13. In FY 13, total deposits were US$ 1,274.3 billion.

The revenue of Indian banks increased from US$ 11.8 billion to US$ 46.9 billion over the
period 2001-2010. Profit after tax also reached US$ 12 billion from US$ 1.4 billion in the
period.

Credit to housing sector grew at a CAGR of 11.1 per cent during the period FY 08-13. Total
banking sector credit is anticipated to grow at a CAGR of 18.1 per cent (in terms of INR) to
reach US$ 2.4 trillion by 2017.

In FY 14, private sector lenders experienced significant growth in credit cards and personal
loan businesses. ICICI Bank saw 141.6 per cent growth in personal loan disbursement in FY
14, as per a report by Emkay Global Financial Services. The bank also experienced healthy
growth of 20.8 per cent in credit card dues, according to the report. Axis Bank's personal loan
business also grew 49.8 per cent, with its credit card business expanding by 31.1 per cent.

INVESTMENTS

HDFC Bank and state-owned United Bank of India plan to tap the equity markets to raise funds
to enhance capital base and lending. HDFC Bank plans to raise Rs 10,000 crore (US$ 1.66
billion) while the board of Kolkata-based United Bank will seek approval for raising about Rs
1,300 crore (US$ 216.47 million) by selling shares to increase its capital base.

Export-Import Bank of India (Exim Bank) will increase its focus on supporting project exports
from India to South Asia, Africa and Latin America, as per Mr Yaduvendra Mathur, Chairman
and MD, Exim Bank. The bank has moved up the value chain by supporting project exports so
that India earns foreign exchange. In 2012-13, Exim Bank had lent support to 85 project export
contracts valued at Rs 24,255 crore (US$ 4.03 billion) secured by 47 companies in 23 countries.

IndusInd Bank will soon begin its asset reconstruction business. The private-sector lender plans
to partner asset reconstruction companies (ARCs) for this venture. "I think our new initiative,
which is going to launch in the next two months, is about asset reconstruction. We will do asset
reconstruction within the bank but in tie-ups with ARCs. The business plan is ready. We believe
a huge stock of assets is coming into the ARCs as a business area that we need to look at and
we will exploit," as per Mr Romesh Sobti, CEO and MD, IndusInd Bank.

Jammu and Kashmir (J&K) Bank plans to increase its presence outside India. The bank is
looking to establish branches in London and Dubai to enhance its relationship with current
customers who have business interests in West Asia and Europe. "We have a number of
business relationships in these countries and it makes sense for us to have a presence there," as
per Mr Mushtaq Ahmad, Chairman and CEO, J&K Bank.
GOVERNMENT INITIATIVES

The RBI has announced a few measures in its bi-monthly monetary policy on June 3, 2014
which includes an increase in the foreign exchange remittance limit to US$ 125,000 from the
previous limit of US$ 75,000.

State Bank of India (SBI) has announced a one-year rural fellowship programme 'SBI Youth
for India (SBI YFI)' for 2014 to draft the country's youth to become change agents in the
country's rural regions. The programme is for young professionals who are keen to leadthe
change for a better India.

The RBI has simplified the rules for credit to exporters. Exporters can now receive long- term
advance credit from banks for up to 10 years to service their contracts. Exporters have to have
a satisfactory record of three years to receive payments from banks, who can adjust the
payments against future exports.

The RBI has enabled overseas investors, including foreign portfolio investors (FPIs) and non-
resident Indians (NRIs), to invest up to 26 per cent in insurance and related activities through
the automatic route.

FUTURE PROSPECTS

India's banking industry could become the fifth largest banking sector globally by 2020 and the
third largest by 2025. These days, banks in India are turning their focus to servicing clients and
improving their technology infrastructure, which can help better customer experience and give
them a competitive edge. The popularity of internet and mobile banking is at an all-time high,
with customer relationship management (CRM) and data warehousing anticipated to drive the
next wave of banking technology in the country. . Since Indian economy is witnessing strong
growth the demand for banking services, especially retail banking, mortgages and investme nt
services are expected to be strong.
PERFORMANCE IN FY 2014

Indian banks’ (PSBs + private) credit growth was muted at 14.7% during 2013-14 and PSBs
profitability saw a significant decline, in line with ICRA’s expectation of single digit return on
net worth for PSBs for FY2014. The aggregated profit after tax (PAT) of PSBs declined by
27% (year-on-year, or y-o-y) to Rs. 370 billion during FY2014 from Rs. 507 billio n during
FY2013. The PSBs net profitability (PAT/ATA declined to 0.50% in relation to average total
assets (ATA) during FY2014 vs. 0.78% during FY2013 and their return on net worth dropped
to 9.1% in FY2014 from 14.2% in FY2013.

The highlights of the banks’ latest performance and outlook are captured in the following
bullet list:

 Credit Growth drops marginally

Credit growth for the PSBs dropped from 15.3% in 2012-13 to 14% in 2013-14, while that for
private sector banks increased from 16.6% to 17.8% with overall growth declined from 15.6%
to 14.7%
  PSBs’ Earnings deteriorate sharply

Yield on advances for PSBs dropped by 40 basis points in FY2014 vs. FY2013, partly due to
increase in Gross NPA%, partly due to reduction in base rate towards the end of 2012-13 as
well as reduction in interest rates in selective segments (few banks, in a bid to gain higher
growth in retail loans, reduced interest rates for housing & auto loans). However, this was
offset by reduction in Cash Reserve Ratio (CRR), increase in G sec yields and margina l
reduction in cost of funds, which led to only 10 basis points (bps) contraction in net interest
margin (NIMs) to 2.5% in 2013-14

Reduction in NIMs by 10 bps and increase in credit cost by around 20 bps led to drop in PSBs
profitability to 0.5% in relation to ATA, while the private sector banks continued to report
robust profitability at 1.6% in relation to ATA. Lower yield on advances (9.7% for PSBs vs.
11.2% for private sector banks), lower non-interest income (0.9% vs 1.7%) and higher
provisions (1.1% vs. 0.5%,) were the key reasons for lower profitability of PSBs even as their
operating expenses were moderate at 1.6% (as against 2.2% for private sector banks)

 Asset Quality slide continues for PSBs

Fresh NPA generation rate of PSBs increased to 3.5-3.6% in 2013-14 as against 3.1% in 2012-
13 leading to increase in Gross NPA% to 4.4% as on March 31, 2014 from 3.6% the previous
year. Gross NPA% of Private + Public Sector Banks increased to 3.9% from 3.3% in
corresponding period

PSBs Standard restructured advances remained elevated at 6.2% as on March 31, 2014

 Capitalization comfortable against the current regulatory norms

Banks started reporting capital adequacy as per Basel III norms since June 2013, Tier 1 capital
of PSBs was around 8.6% as on March 31, 2014 as against the required Tier 1 capital of 6.5%,
while that of private sector banks was well above the norms around 12.8%

Operating profits as % of Net NPAs for PSBs was 90% during FY2014 as against 130% during
FY2013.
PORTER’S 5 FORCES ANALYSIS FOR THE BANKING SECTOR

Supply Liquidity is controlled by the Liquidity is controlled by the Reserve Bank

of India (RBI).

Demand India is a growing economy and demand for credit is high though it could
be cyclical.

Barriers to entry Licensing requirement, investment in technology and branch network,

capital and regulatory requirements.

Bargaining power High during periods of tight liquidity. Trade unions in public sector banks
of suppliers can be anti reforms and orchestrate strikes. Depositors may invest
elsewhere if interest rates fall.

Bargaining power For good creditworthy borrowers bargaining power is high due to the
of customers availability of large number of banks.

Competition High- There are public sector banks, private sector and foreign banks
along with non banking finance companies competing in similar business
segments. Plus the RBI is all set to issue new banking licenses soon.
KEY INDICATORS OF THE TOP BANKS IN THE INDIAN BANKING
INDUSTRY

Current account and saving account (CASA) :

The CASA (current and savings account) ratio is the ratio of deposits in the current and
savings accounts of a bank to its total deposits.
A high CASA ratio indicates that a higher portion of the bank deposits come from current and
savings accounts. This means that the bank is getting money at low cost, since no interest is
paid on the current accounts and the interest paid on savings account is usually low.
CASA deposits are considered low-cost, as banks do not pay interest on current account
deposits, while savings account deposit rates are below retail term deposit and wholesale
deposit rates. Most banks pay only four per cent interest on savings deposits; only a few
private lenders—-Kotak Mahindra Bank, IndusInd Bank, YES Bank and RBL Bank
(formerly Ratnakar Bank) —-offer higher rates on these deposits.

While the Casa ratios of public sector banks such as SBI, Bank of India, Canara Bank and
Union Bank of India declined compared to the year-ago period, the ratio improved for private
banks such as ICICI Bank, Axis Bank, Kotak Mahindra Bank, IndusInd Bank and YES Bank.
Net Interest Margin (Nim)

Net interest margin (NIM) is a measure of the difference between the interest income
generated by banks or other financial institutions and the amount of interest paid out to their
lenders (for example, deposits), relative to the amount of their (interest-earning) assets. It is
similar to the gross margin of non-financial companies.

Net Interest Margins (FY 14)

5
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
Impact of NPAs

Non Performing Asset means an asset or account of borrower, which has been classified by a
bank or financial institution as sub-standard, doubtful or loss asset, in accordance with the
directions or guidelines relating to asset classification issued by The Reserve Bank of India.

A debt obligation where the borrower has not paid any previously agreed upon interest and
principal repayments to the designated lender for an extended period of time. The
nonperforming asset is therefore not yielding any income to the lender in the form of principa l
and interest payments.NPA means booking of money in terms of bad asset, which occurreddue
to wrong choice of client. Because of the money getting blockedthe prodigality of bank
decreases not only by the amount of NPA but NPA lead to opportunity cost also as that much
of profit invested insome return earning project/asset. So NPA doesn’t affect current profitbut
also future stream of profit, which may lead to loss of some long-term beneficial opportunity.
Another impact of reduction in profitabilityis low ROI (return on investment), which adversely
affect currentearning of bank.
Growth in credit off-take

During FY0 6-13, credit off-take expanded at a CAGR of 22.8 per cent to US$ 991 billion.
The growth of banking industry is closely interlinked with the growth in the economy.
Slowdown in economy in the past few years meant lower credit offtake. With lower demand
for credit, banks had no option but to invest in low yielding Government securities (G-sec).
However with the recent recovery in economy the credit offtake is likey to pick-up and pick-
up in credit offtake means deploying funds to the commercial sector and earning a higher return
than G-sec. Recovery in the select sectors, like steel, textile and capital goods which have high
credit consumption, has lead to pick-up in credit offtake. This clearly means a good topline
growth for the banks.
EVALUATION OF BANKING STOCKS

It is said that the banking sector reflects the economy's health. The sector acts as a funne l
providing the funds that corporates need to expand their business. When the economy is
expanding, as is happening in India currently, banks lend more and hence profit more.

Banking stocks are evaluated on the basis of price/book value multiples but again these
valuations are given premium or discount considering the categories such as public sector
banks and private banks.

Data was collected on all the private and public sector banks having market cap of more than
5000 crores and accordingly banks were selected.

After collecting data of all the banks the banks were analysed on the basis of value picks,
growth picks, top line and bottom line factors.

 Earnings per share (EPS) :

EPS indicate the overall quality of earnings, the main thing on which analysis was done is
at the growth in EPS over the past years to understand how volatile the EPS is and to see if
they are an underachiever or overachiever.

 Price to Earnings (P/E)-

After having EPS figures the analysis was done on P/E which reflect the future
growth of the company. By comparing price and earnings per share for a company the analys is
was on the market’s stock valuation of a company and its shares relative to the income the
company is actually generating. Stocks with higher forecast earnings growth usually have a
higher P/E, and those expected to have lower earnings growth usually have a lower P/E.

 Price Earnings to Growth (PEG) Ratio:

This valuation technique is better than just looking at a P/E because it takes three
factors into account; the price, earnings and earnings growth rates. The theory goes that as the
percentage rises over 100% the stock becomes more and more overvalued, and as the PEG ratio
falls below 100% the stock becomes more and more undervalued. The theory is based on a
belief that P/E ratios should approximate the long- term growth rate of a company’s earnings.

The analysis was also made on the basis of top line and bottom line factors, the top line which
is net interest income and the bottom line which is net interest margin. All the banks were
analysed on net interest income and net interest margin which was compared on yoy basis and
at the end banks were shortlisted.
 PRIVATE SECTOR BANKS

SCRIP NAME LAST PRICE P/E EPS LTPT

HDFC Bank 816.55 23.17 35.25 641.021

ICICI Bank 1469.20 17.31 84.87 1543.36
Axis Bank 1924.65 14.58 132.03 2400
Kotak Mahindra bank 861.90 44.18 19.50 354.6
Induslnd Bank 540.50 20.19 26.75 486.4
Yes Bank 581.15 12.97 44.82 815
Ing Vysya Bank 659 18.82 34.77 632
Federal Bank 122.35 12.47 9.81 178.39

JK Bank 1543.60 6.32 243.92 4435

Karur Vysya Bank 473.05 11.84 40.06 728.49

SECTOR PE FOR PSU BANKS = 18.2

The value picks among Private Sector Banks were ICICI Bank, Axis Bank, Yes Bank,
Federal Bank and JK Bank as their Profit Earning (P/E) ratios were lower than that of the
industry average P/E

The overvalued stocks were further analyzed for growth potential by calculating the Price
Earnings to Growth (PEG) Ratio :

PEG CALCULATION FOR OVERVALUED STOCKS

SCRIP NAME EPS ( FY14) EPS (FY 13) EPS GROWTH PEG ( PE/EPS
% GROWTH)
HDFC Bank 35.25 28.27 24.7 0.93
Kotak Mahindra Bank 19.50 18.23 6.96 6.34
Inudsind Bank 26.75 20.30 31.77 0.63
Ing Vyasya Bank 34.77 39.58 ---- ----

The growth picks among PrivateSector Banks were found to be HDFC Bank and Indusind
Bank as they had a favorable PEG Ratio
 PUBLIC SECTOR BANKS

SCRIP NAME LAST PRICE P/E EPS LTPT

SBI 2682.30 18.39 145.88 1557.123

Bank of Baroda 891.15 8.45 105.44 1125.46
PNB 996.30 10.80 92.32 985.42
Bank of India 322.30 9.38 34.38 366.9
Canara Bank 450.65 8.53 52.86 564.22
IDBI Bank 112.35 16.06 6.99 74.611
Union Bank 231.80 8.61 26.91 287.23
UCO Bank 111.15 7.47 14.89 158.9
Oriental Bank 360.35 9.49 38.00 405.612
IOB 87.30 17.92 4.87 51.98
Syndicate Bank 171.70 6.28 27.40 292.46
Indian Bank 174.60 7.01 24.93 266.10
Allahabad Bank 137.80 6.41 21.52 229.70
Andhra Bank 106.70 14.43 7.39 78.88
Corporation Bank 365.20 10.88 33.53 357.89

The overvalued stocks were further analyzed for growth potential by calculating the Price
Earnings to Growth (PEG) Ratio :

Sector PE for Private Sector Banks = 10.9

SCRIP NAME EPS ( FY14) EPS (FY 13) EPS PEG ( PE/EPS
GROWTH% GROWTH)
SBI 145.88 206.20 ---- ----
IDBI 6.99 14.12 ---- ----
IOB 4.87 6.14 ---- ----
Andhra Bank 7.39 24.03 ---- ----

None of the stocks had an increase in Earnings per share as compared to the previous financ ia l
year and hence there were no growth picks

CONCLUSION
After a comprehensive analysis of all the banks on various factors such as Topline and
Bottomline factors, Non-Performing Asset (NPAs) analysis and Ratio analysis; Axis bank, Yes
Bank and ICICI Bank among Private Sector Banks and Bank of Baroda among public sector
bank was selected.
Investment in Private Sector Banks was preferred due to low Non Performing Assets (NPAs)
and stronger financials as compared to Public Sector Banks

Reason for selecting these banks have been explained below:-

AXIS BANK

Axis Bank is India's third largest non-government-owned bank, with over 2,400 branches and
$60 billion in assets. Axis is mainly known for its corporate banking franchise, with loans to
large and mid-sized corporations forming roughly half its loans outstanding. However, its
current focus is in growing its retail lending operations, which have grown from 27% to 32%
of its total loans in fiscal 2014 (ending March). Remaining loans are shared between small
and medium enterprises and agricultural loans, of 15% and 8%, respectively.

Financial FY 14 FY 13 %Growth
Performance

Net Interest Income 11951.64 crores 9666.26 crores 23.64%

Net Interest Margin 3.89% 3.70% 5%
CASA Ratio 39% 37% 2%
Gross NPA 1.22% 1.25% (2.4%)

As per the research and analysis done on this company it was found that Axis bank has a good
Price Earnings ratio (P/E) of 14.58 in comparison with its sector P/E of 18. which is favourable
and indicates potential for growth in the stock price can be seen in its LTPT that is long term
price target. It is a value stock as it is undervalued and will rise further. Also NII (Net Interest
Income) showed a growth of 23% and NIM also showed a good sign and hence this stock was
selected.
ICICI BANK

With over $100 billion in assets and over 3,700 branches, ICICI bank is India's largest non-
government-owned financial institution. Over the years, it has shifted from a bank offering
only project finance to a consumer-oriented financial services provider. Today, it provides an
array of banking and insurance services to a wide spectrum of clients in both urban and rural
areas. The bank's insurance business contributes over 40% to consolidated net revenues and
12% to pre-tax profits

Financial FY 14 FY 13 %Growth
Performance
Net Interest Income 16400.75 crore 13800.66 crore 18.8%
Net Interest Margin 3.33% 3.11% 7%
CASA ratio 43% 42% 2.4%

After doing an analysis on this bank it was found that ICICI bank is a value pick stock as its
P/E which is 17.31 is less than sector P/E which is 18.2 which which is favourable and indicates
potential for growth in the stock price. Its EPS is also fairly well which also has an effect on
LTPT (long term price target) which is a good indicator and hence this bank was selected. It is
an undervalued stock and so is a value pick.
YES BANK

YES BANK is a private bank in India with headquarters in Mumbai engaged in providing a
range of banking and financial services. The Bank operates in four segments: Treasury,
Corporate / Wholesale Banking, Retail Banking and Other Banking Operations. Yes Bank has
been delivering steady operating performance in the challenging operating environme nt.
Stable lending rates, increasing CASA ratio, high growth in low yield segments offset by
decline in wholesale rates helped to maintain net interest margin of Yes Bank.

Financial FY 14 FY 13 Growth %
Performance

NII 720 crore 638 crore 13 %

NIM 3% 3% ---

CASA Deposits 22.3 % 20.2 % 10.4 %

After doing an analysis on this bank it was found that ICICI bank is a value pick stock as its
P/E which is 12.97 is less than sector P/E which is 18.2 which is favourable and indicates
potential for growth in the stock price. Going forward, with an improving liability franchise,
strong capital adequacy and lowest NPA ratio in the industry
BANK OF BARODA

Financial FY 2014 FY 2013 %Growth

Performance
Net Interest Income 11,965 crore 10,300 crore 16.16%
Net Interest Margin 2.87% 2.36% 21.6%
Gross NPA 2.94% 3.32% (12.9%)
CASA 31.76% 30.90% 2.78%

The reason for selecting Bank of Baroda is mainly because its gross NPA is declined to an
extent and it’s P/E which is 8.45 which is less than sector P/E of 10.675 which shows that it is
an undervalued stock and so its prices will rise in future. Its EPS of 145.88 is also a good sign
of efficient performance of the bank and hence Bank of Baroda was selected.