INTERNSHIP REPORT

EQUITY RESEARCH ON BANKING SECTOR WITH

REFERENCE TO HDFC BANK LTD.
BY
HARITHA V H
UNDER THE GUIDANCE OF

MR. SUVIN
Senior Research Analyst
 ACKNOWLEDGEMENT

I sincerely thank Hedge Equities Ltd., Kochi, (Kerala) for providing me the corporate
exposure in Fundamental Analysis of Banking industry and an opportunity to
complete my Internship with their esteemed organization on the same.

I would like to take this opportunity to express my profound gratitude and deep
regards to Rajanikanth Sir, Suvin Sir and Haridas Sir for their exemplary guidance,
monitoring and constant encouragement throughout the course of the work.

I would also like to thank Mr. Benil Dani Alexander (Director, Hedge school of
Applied Economics) who extended his support and kept motivating us through his
very meaningful messages.

This internship at one of the prestigious finance organizations has given me a

background of strong learning which would be of great help to me in the future. I also
thank my fellow interns with whom I have worked and shared valuable inputs for
successful completion of this internship.
 EXECUTIVE SUMMARY

As a part of Academic requirement, I had pursued a six week Internship programme

at Hedge Equities Ltd. which provides numerous financial services to its customers.
This report is prepared on the light of Fundamental Analysis conducted with its
company analysis part focusing on HDFC Bank Ltd. The first chapter provides a
brief description on the host firm- Hedge Equities Ltd. and the products and services
offered by them.

The next chapter deals with impact of various Macro factors on Banking sector. The
third chapter includes Industry profile of Banking Sector and its prospects. Then the
Company Analysis and Valuation is explained in the next section with a detailed
understanding on quantitative as well as qualitative factors influencing the same. The
report ends with conclusion and findings of the analysis so as to decide whether to
buy, hold or sell the particular share.

The experience of being an Intern gave me a different perspective on evaluating the

macro factors and their influence on particular industry and understanding the Sector
and Company prospects. Moreover, an exposure to Corporate work culture boosted
my morale in carrying out the study.
HEDGE EQUITIES

Company Background

Hedge Equities Ltd (including its subsidiaries) is a leading provider of financial services with
an emphasis on customized solutions in the areas of financial advisory, capital markets,
wealth management and alternative asset management to its clients that include corporates
and high net worth families. Hedge leverages insights, relationships and a culture that
emphasizes strong orientation to excellence, to offer services to its clients. The Group relies
on its extensive experience, in-depth domain understanding and knowledge of the regulatory
environment, to offer customized solutions that enable clients to meet their strategic
aspirations.

Hedge equities is one of the leading non-banking Financial services company in India,
specialized in offering a wide range of financial products. The company works to educate the
investors and to make them take informed decisions with their expert advisory.

2008- Came into existence as a stock broking firm

2010- Company started providing Portfolio Management Services

2011- Company started providing Wealth Management Services

2015- Company Started providing Advisory Service

Vision

To be a financial supermarket

They believe in their vision and values as strongly today as they did the first time they put
them on paper. Staying true to them has served the company well and continues to guide us
as they cross milestones on growth and success.

Mission

Partnering with clients to build, manage, and grow their wealth

The company understands that each client is unique, so they deliver individualized wealth
management and investment solutions – aligning financial resources with values and goals.

They serve:

1. Individuals and families

2. Non-resident Indians (NRI)

3. Family offices

4. Women

5. Corporate and institutions

Services Provided by Hedge Equities

 Equity Trading

Equity gives you the opportunity to have a partnership with all the leading Business tycoons
around the globe. Power of Equity shareholders lies in the optimum selection of the Industry,
have a strong belief in the Company's fundamentals and also having a confidence in the
profit-making capability of the company. Equity Market, at present, is a rewarding field for the
investors and investing in Indian stocks are profitable for not only the long and medium term
investors, but also the position traders, short-term swing traders and also very short-term
intra-day traders. Hedge Equities opens the door to this highly lucrative investment
opportunity that could provide a feasible solution to all your financial queries.

 Commodities Trading

At present, 24 commodity futures exchanges are operational in India, which include 21

regional bourses and the three national-level players, with another three proposed
exchanges on the cards. While the trade in non-agricultural commodities, especially bullion
and crude, has increased in the past two financial years, the same in agricultural
commodities has declined. The share of agricultural commodities almost halved during
2008-09, due to the continued ban on several commodities. The clients can trade in
commodity futures like gold, silver, crude oil, rubber etc. And take advantage of the extended
trading hours (10 am to 11pm) in commodities trading. Hedge enables investors to trade and
make us to commodities trading merits.

 Currency Trading

Investments in Currency Derivatives can help you to diversify your portfolio from traditional
asset classes. Currency derivative serve the purpose of financial risk management
encompassing various market risks. An upfront premium is payable for buying a derivative.
Currency Futures will bring in more transparency and efficiency in price discovery, eliminate
Counterparty credit risk, provide access to all types of market participants, offer standardized
products and provide transparent trading platform.

 Mutual Funds

A Mutual Fund is a trust that pools the savings of a number of investors who share a
common financial goal. It offers an opportunity to invest in a diversified, professionally
managed portfolio at a relatively low cost. Mutual fund is also called unit trust or open-ended
trust a company that invests the funds of its clients in diversified securities and in turn
represent those holdings. They make continuous offering of new shares at NAV (Net Asset
Value) determined daily by the market values of the securities they hold. In Hedge Equities
the clients can select from a wide range of Mutual Funds and Bonds available in the markets
today.

 Online Trading

Hedge equities provide online trading services with a large network of branches with online
terminals of NSE and BSE in the capital market and Derivative segments. The clients are
assured of prompt order execution through employees attending phone calls from the clients
regarding buying, holding and selling of stocks.
  Internet Trading

Hedge equities offer internet trading through their website. Customers can trade through the
internet from their office, home or from anywhere in the world. The dedicated IT systems
ensure service up time and speed, making internet broking through Hedge equities hassle-
free. Using the easiest facility provided by NSDL, clients can transfer the shares sold by
them online since it is completely paperless.

 Depository Services

Hedge offers trading in the futures and options segment of the National Stock Exchange
(NSE). Through, the derivative trading an investor can have a short-term view on the market
for up to a three months’ period by paying a small margin on the futures segment and a
small premium in the options segment. In the case of options, if the trade goes against as to
what client expected then the maximum loss will be limited to the premium paid.

 Knowledge Centre

Knowledge Centre activities are intended to provide systematic and structured services
mainly to new investors and also to young aspirant aiming for a career in financial markets.
The Centre has three functional areas: the publication division, the training centre, and
wealth management advisory service which provides complete investment solutions to
investments through knowledge based personalized services.

 Equity Research

Hedge equities constantly work to deliver insightful research to enable pro-active investment
decisions. The research department is broadly divided into two divisions- Fundamental
Analysis Group (FAG) and Technical Analysis Group (TAG). Fundamental analysts are
continuously scanning the entire economy for discovering what they call the hidden gems in
stock market terminology and present it to their clients for profitable investments. Timing the
market has always been the most difficult task for all analysts and company’s Technical
Analysis Group has merged to predict the market movements well in advance using complex
analytical methods.

 Portfolio Management Services (PMS)

Hedge equity is a SEBI-approved portfolio manager offering discretionary and non-

discretionary schemes to its clients. Hedge equities’ portfolio management team keeps track
of the markets on a daily basis and is exposed to a lot of information and analytic tools which
an investor would not normally have access to. Other technicalities pertaining to shares like
dividends, rights, bonus, buy-back, Mergers and Acquisitions and are also taken care of by
them. The clients can avail their PMS services to maximize their returns from the stock
market.

 Wealth Management Services

The services provided under Wealth Management Services are:

1. Investment/ Portfolio Management

2. Retirement Planning

3. Managing Inheritance

4. Finance as an investment opportunity

5. Active advisory services

6. Estate planning

7. Philanthropy and planned-giving

8. Liquidity management solutions

Hedge school of Applied economics

Hedge school of applied economics is a distinguishing school instituted on the sturdy
premises of quality, with a singular objective of creating credentialed professionals for the
financial markets. The focus is on grooming students to have a cutting edge in hare trading
banking, insurance or wealth management by implementing innovative solution .it is also
considered as an ideal branch of hedge equities.

Their Approach includes:-

 A Dedicated Investment Advisor/Manager

The relationship with the client is personally led by a dedicated investment advisor who
crafts a customised investment strategy tailored to the client’s financial needs, the time
frame of your investment objectives and matching the client’s risk appetite. He or She works
to build a partnership with client, and regularly reviews client’s goals and changing life
circumstances to ensure the client’s investment objectives stay on track.

 A Strong Support Team

Each of the Investment Advisor/Manager is supported by a capable, experienced team of

investment professionals who also work to fully understand the client’s objectives and place
their satisfaction at the very core of the relationship. This team works in close conjunction
with the investment advisor, and any tax/legal advisors the client engages with to ensure that
the client’s needs are met proactively in a timely, efficient and consistent manner.

 Building A Portfolio

The assets that comprise client’s portfolio play differing roles in portfolio construction. A
customised investment portfolio should therefore balance the need for returns from the
investment with the risk profile of the investor. Portfolio construction should be done
dynamically with the flexibility to adapt to both the investor profile and changes in risk
appetite over time.
FUNDAMENTAL ANALYSIS
1. MACRO ECONOMIC ANALYSIS

Macroeconomics is the study of the behaviour of the economy as a whole. Macro-

economic analysis try to forecast economic conditions to help consumers, firms, and
governments make better decisions. Following are the various factors included in the
analysis:-

i. Inflation
In terms of inflation, oil prices directly affect the prices of goods made with
petroleum products and indirectly affect costs such as transportation,
manufacturing, and heating. The increase in these costs can in turn affect the
prices of a variety of goods and services, as producers may pass production
costs on to consumers. Increases in oil prices can depress the supply of
other goods because they increase the costs of producing them. Thus GDP is
having a negative correlation with crude oil price rise. Thus overall economic
activities reduce and banking sector is negatively affected.

ii. Monetary Policy

Monetary policy is enacted by central banks by manipulating the
money supply in an economy. The money supply influences interest
rates and inflation, both of which are major determinants of
employment, cost of debt and consumption levels. ... This creates
incentives for banks to loan and businesses to borrow.

iii. Fiscal policy

Budgeted excess of Government’s expenditure over its revenues in a
specific year is known as fiscal deficit, which is generally defined as a
percentage of GDP. The fiscal deficit is bridged by the government
through market borrowings, both short-term and long term. A large
fiscal deficit, and consequently a higher borrowing by the government,
will push up interest rates in the economy and make it difficult for
corporate borrowers to access funds. A high interest rate environment
is detrimental to economic growth.

iv. Inflation Rate

Inflation is the general increase in prices and corresponding fall in
value of money. Inflation affects the bank’s profitability inversely as
increase inflation affects banks cost that increased and its earning
main source is its fee that it charge on its services but free services
without any charges decrease in gross income that lead a reduction in
profit.

v. Unemployment Rate
The unemployment rate represents percent of unemployed workers in
the labour force and can be one of several indicators of the health of
the country's economy. Unemployment typically rises
during recessions and falls during prosperity.
 vi. Monsoon
Having a big majority of the country in the rural setup, despite the
lesser contribution of the agricultural sector to the GDP, it still
continues to be the sector those employees the majority of the labor
forces. Therefore the income and consumption of a huge part of the
population is based on the agricultural income. Bad monsoons mean a
dip in the production and income for the farmers. This leads to a fall in
the consumption of consumer durable s and industrial products such as
steel and cement because a good monsoon would mean an effort by
the farmers to improve their standard of living. Therefore there would
be a direct impact on the steel, cement, consumer durables and
automobile industry. It would also mean difficulty in paying back loans
and this leads to more NPAs and hits the banking sector.

vii. Trade wars

As a major exporter to various markets as a price competent exporter,
Indian goods are always affected by the political conditions across the
globe. The economic and political stability of these areas have a say on
the performance of the Indian export sectors as well.

viii. Forex Rate

A stronger rupee is good for the overall economy as it will bring down
the cost for crude oil, this leads to a fall in the cost of goods and leads
to a fall in inflation and thus makes the government to bring down the
repo rate and this will lead to a flow of money supply into the economy
that will boost the consumption and GDP.
2. INDUSTRY ANALYSIS

Banking Industry

Market Size
The Indian banking system consists of 27 public sector banks, 21 private
sector banks, 49 foreign banks, 56 regional rural banks, 1,562 urban
cooperative banks and 94,384 rural cooperative banks, in addition to
cooperative credit institutions
India’s retail credit market is the fourth largest in the emerging countries.

Growth Prospects
 Robust Demand
 Increase in working population & growing disposable incomes
will raise demand for banking & related services.
 Housing & personal finance are expected to remain key demand
drivers.
 Rural banking is expected to witness growth in the future.
 Innovation in Services
 Mobile, Internet banking & extension of facilities at ATM stations
to improve operational efficiency.
 Vast un-banked population highlights scope for innovation in
delivery.
 Business fundamentals
 Rising fee incomes improving the revenue mix of banks.
 High net interest margins, along with low NPA levels, ensure
healthy business fundamentals.
 Policy Support
 Wide policy support in the form of private sector participation &
liquidity infusion.
 Healthy regulatory oversight & credible Monetary Policy by the
Reserve Bank of India (RBI) have lent strength & stability to the
country’s banking sector.
 POTTER’S FIVE FORCE MODEL

 Supply
Liquidity is controlled by the Reserve Bank of India (RBI).

 Demand
Rising incomes are expected to enhance the need for banking services in
rural areas and therefore drive the growth of the sector.

 Barriers to entry
Licensing requirement, investment in technology and branch network, capital
and regulatory requirements.

 Bargaining power of suppliers

Largely, customers prefer banks for its reliability. Gradually, customers have
hedged inflation by investing in other riskier avenues.

 Bargaining power of customers

For good creditworthy borrowers bargaining power is high due to the
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.
Additionally, the RBI has approved for small finance banks and payment
banks which will further increase competition in the industry.

SWOT Analysis of Banking industry

 Strengths

 Driving force of economy: Banking industry is the driving force to any nation. It
helps in shaping the life of human race may be some time merely by
Exchange (which was called barter system), or by transaction or by facilitating
advances.
 Source of employment & GDP growth: There is a consensus among
economists that development of the financial system contributes
to economic growth. Financial development creates enabling conditions for
growth through either a supply-leading (financial development spurs growth)
or a demand-following. It is this industry which continuously works to secure
financial stability, facilitate international trade, promote employment, & reduce
poverty around the world.
 Hedge from risk : Whether it is natural calamity or man-made calamity banks
mitigate the after effect of the destruction by providing financial support to the
victims to stand –up & lead a peaceful life again.

 Diversified services: Banking industry offer services from CASA to insurance,

to loan, to investment.

 Connecting People: With the advent of new age technological advancement

Banks have made the life of the common man easier. People can transact on
real time basis in many places.

 Changing from mere savings & loan facilitator role: Top priorities of banks now
days include regulatory compliance, improving asset quality, enhancing
customer centricity, focusing on digital convergence, and tackling competition
from non-banks. Banks are therefore making business
and technology investments to change their business models.

 Weakness
 Lack of coordination: The global banking industry faces short-term
uncertainty due to the debt crises that challenge several major
economies. Industry assets stand at $143 trillion (2013)&the EU is the
largest regional market, with over 57% of the global market. Volatility in
different market/Currencies has created problems for the banks in
order to work properly across the borders.

 Vulnerable to risk: Since this sector deals with finances, it is the most
risky sector which can change the fate of any business/Industry.

 High NPA’s: Rise in Retail & corporate NPA’s (Non-performing assets)

is the single major issue this sector is going through worldwide.

 Can’t reach to Under-penetrated market: Due to several conflicting

objectives of government & banks which goes hand in hand, rural
areas of developing nations are still not in the shadow of banks.
Although PMJDY (PradhanMantri Jan DhanYojna) implemented by the
Indian banks got acknowledged by World Bank for financial inclusion
but the Idea is not fully capitalized even in the home country.

 Structural weaknesses such as a fragmented industry structure,

restrictions on capital availability and deployment, lack of institutional
support infrastructure, restrictive labour laws, weak corporate
governance, Political pressure and ineffective regulations.
 Opportunities

 Expansion: Penetrating to the rural markets & bringing the rural masses
under the purview of organized banking will be the objective of the Banks in
decades to come.

 Changing Socio-cultural & demographic factors: Given

the demographic shifts resulting from changes in age profile and household
income, consumers will increasingly demand enhanced institutional
capabilities and service levels from banks.

 Rise in private sector banking: Banking Industry across the world is highly
regulated &lead by PSU’s with their respective central banks. With the advent
of private sector banks this sector is going through structural & functional
changes mainly due to the adaptation of the advanced technologies &
increased competition thereby benefiting to the end customers.

 Threats

 Recession: It is one of the major threats to the financial system of the

nation. Traumatic shock of Economic crises & collapse of the several
businesses can affect the banks and vice-versa.

 Stability of the system: Failure of some weak banks has often

threatened the stability of the system.

 Competition: Competition from NBFC’s (Non-banking financial

companies) like insurance companies & mutual fund companies can
affect the business of Banks.
3. COMPANY ANALYSIS

HDFC – Introduction

The Housing Development Finance Corporation Limited (HDFC) was amongst

the first to receive an 'in principle' approval from the Reserve Bank of India
(RBI) to set up a bank in the private sector, as part of RBI's liberalisation of
the Indian Banking Industry in 1994. The bank was incorporated in August
1994 in the name of 'HDFC Bank Limited', with its registered office in Mumbai,
India. HDFC Bank commenced operations as a Scheduled Commercial Bank
in January 1995.

MISSION & OBJECTIVE

 Mission:- HDFC Bank's mission is to be a World Class Indian Bank.

 Objective:-The objective is to build sound customer franchises across

distinct businesses so as to be the preferred provider of banking
services for target retail and wholesale customer segments, and to
achieve healthy growth in profitability, consistent with the bank's risk
appetite. The bank is committed to maintain the highest level of ethical
standards, professional integrity, corporate governance and regulatory
compliance

COMPANY MANAGEMENT

Management - HDFC Bank

Name Designation

 Aditya Puri CEO

 Shyamala Gopinath Chairperson
 Kaizad Bharucha Executive Director
 Malay Patel Director
 Srikanth Nadhamuni Director
 Keki Mistry Director
 Umesh Chandra Sarangi Director
 MD Ranganath Addnl. & Ind. Director
 Srikanth Nadhamuni Director
SOWT Analysis- HDFC Bank

The core purpose of SWOT matrix is to identify the strategies that a company
can use to exploit external opportunities, counter threats, and build on &
protect its strengths, and eradicate its weaknesses.
Following are the major Strengths and Weakness of HDFC Bank Ltd.

The weakness of the bank has to be conentrated on so as to harness the

opportunity on countering these weakness and thereby acheiving more
business.
Following are the list of Opportunities and Threats of HDFC Bank Ltd.
COMPANY PRODUCTS

HDFC Bank is a leading Indian retail bank. Innovative products and smart
banking solutions make us the banker of choice for millions of users each day.
With a nationwide network of branches, ATMs and 240,000+ merchants
(point-of-sale) accepting HDFC Bank credit and debit cards, we continue to
redefine banking convenience.

Personal banking solutions from HDFC Bank offer smart features and benefits
to ensure that you make the most of your relationship with us. Our retail
banking products and services are designed to meet the end-to-end needs of
all types of users. From zero balance savings accounts to customized salary
accounts, flexible home and personal loans to 360 NRI Banking services,
HDFC Bank is for everybody.

HDFC Bank is preferred because it offers the entire banking experience under
one roof. Amazing offers, customized solutions, minimum paperwork and
quick turnaround times are some of the hallmarks of HDFC Bank that has
made it the banker of choice in India.
COMPANY BUSINESS MODEL
Business model is a plan for the successful operation of a business, identifying
sources of revenue, the intended customer base, products, and details of financing.

Following chart gives the business model followed by HDFC Bank Ltd.
SIGNIFICANCE OF HDFC BANK IN BANK NIFTY

The black line graph in the above chart denotes Nifty Bank Index (1 month time
scale) and Green line graph denotes HDFC Bank Index (1 month time scale).

The above table shows that HDFC Bank has got a weightage of 33.05% in Bank
Nifty Index. This clearly indicates that changes in HDFC share price results in a
significant change in the Bank Nifty index. This can be evaluated through the
observation of both Nifty Bank Index (Black line graph) and HDFC Index (Green line
graph) which shows a similar trend at each point of time.
HDFC – VALUATION
BALANCESHEET
PROFIT & LOSS ACCOUNT
TARGET PRICE DETERMINATION

SENSITIVITY ANALYSIS
CONCLUSION

In 2019, HDFC Bank delivered a 24% yoy growth in the loan book while deposits
grew 17% yoy for Q4 FY19. The retail loan book grew 19% yoy while the CASA ratio
fell by 112 bps over last year to 42.4%. C/D ratio stood at 88.8% in Q4 FY19 v/s
91.6% in Q3 FY19. NII at INR 13089 Cr. is up 22.8% yoy/4.1% qoq. Non-interest
income grew 15% yoy.
As a result of politically stable Government that tends to support Banking Sector
along favourable economic growth and support from the Central Bank, HDFC is
expected to show a positive trend in the market. Operating efficiency and robust loan
growth is also a major reason for their performance.
The expected Target Price of HDFC Share in 2020 based on above assumptions is
Rs.2669/-.This is based on the following assumptions:-

 Advances are expected to grow at 21%.

 Investments are expected to grow at 22%.
 Interest yield is expected to grow at 11%.
 Other Income is expected to grow at 17%.
 Provision & Contingency tends to remain at 0.9%.

On the light of above valuation analysis, we can support BUY Decision of HDFC
Shares in the up-coming Financial Year.
REFERENCES

 https://www.moneycontrol.com
 https://www.hdfcbank.com/aboutus/cg/Financial_Information.htm
 https://www.marketing91.com/swot-analysis-of-banking-industry/
 http://hedgefinance.com/about-us/
 https://www.ibef.org/industry/banking-presentation
 https://economictimes.indiatimes.com/default1.cms?utm_expid=.tZsN_qORRO-
NwGsScGpIUA.1&utm_referrer=
 https://www.equitybulls.com/admin/news2006/news_det.asp?id=249106
 https://www.bankbazaar.com/
 https://www.bseindia.com/
 https://www.nseindia.com/
 https://zerodha.com/varsity/
 https://www.investing.com/
 https://www.incrediblecharts.com/