A Report

On
Equity research in
banking sector-
public sector banks

Submitted By:
Ashi Garg
18BSPJP01C0176
IBS Jaipur

Aditya birla CApital

A REPORT
 ON
Equity Research in
banking sector - public
sector banks

By
Ashi Garg
18BSPJP01C0176

Aditya Birla capital

A report submitted in partial fulfilment of the requirements of

MBA Program of IBS Jaipur

Faculty Guide: Dr. Avinash Gupta

Company Guide: Mr Nikesh Ruparel (Executive Associate partner)

Date of Submission: 23rd May’19

AUTHORISATION
This is to certify that the Project Work titled “Equity Research in
Banking sector- Public Sector Banks ” is a bonafide record of
research work done by Ashi Garg 18BSPJP01C0176 as a partial
fulfilment of the requirement of MBA Program of IBS Jaipur. This
work has not been submitted earlier for any other purpose, to the best
of my belief.

Company Guide Faculty Guide

Mr. Nikesh Ruparel Dr. Avinash Gupta
(Executive Associate partner) (IBS Jaipur)

ACKNOWLEDGEMENT
The internship opportunity I had with Aditya Birla Capital was a great chance
for learning and professional development. Therefore, I consider myself as a
very lucky individual as I was provided with an opportunity to be a part of it. I
am also grateful for having a chance to meet so many wonderful people and
professionals who led me though this internship period.

I am sincerely thankful to Mr. Shashi Bhushan Rai (Branch Manager) at

Aditya Birla Capital for being cooperative during the internship. I express my
warm thanks to Mr. Nikesh Ruparel (Company guide) for being supportive
and guiding throughout the internship and making this internship more
understanding and successful.

I would like to express my profound thanks to my Faculty Guide Dr. Avinash

Gupta for being helpful in all possible manners and guiding with suggestions
during the internship, and all the people who provided me with the facilities
being required and conductive conditions for my MBA project.

Thank you,
Ashi Garg

TABLE OF CONTENTS

Authorisation
Acknowledgement
Abstract
1. Introduction
1.1 Aditya Birla Capital Limited (ABCL)
1.2 Vision & values
1.3 Products and services
1.4 Aditya Birla Sun Life Insurance (ABSLI)
1.5 Milestone of the company
1.6 Objectives
1.7 Methodology
1.8 Limitations
2. Banking Sector- Public Sector Banks
2.1 Introduction
2.2 Investments/ Developments
2.3 Government Initiatives
2.4 Factors affecting Banking sector
3. Equity Research in Banking Sector (PSUs)
3.1 Fundamental Analysis
3.1.1 Large Cap of Banking Sector (PSUs)
3.1.2 Analysis of flow
3.2 Technical Analysis
3.2.1 Long Term technical analysis
3.2.2 Short Term technical analysis
4. Suggestions
5. Conclusion
6. References

ABSTRACT
The project is about the study of different public sector banks in banking sector by
understanding the financial analysis. It gives us the knowledge about the market position of
the public sector banks listed on BSE and NSE of banking sector. I learned to analyse the
financial stability of the banks in the market, by studying the internal and external factors
affecting growth of financial market.
The purpose of the study to speculate about the future growth of the public sector banks, the
study will also help investors to decide in which public sector bank they should invest and at
what proportion, so they can get maximum return from that. This project will also help us to
understand that which public sector bank influences the banking sector the most.
Also, sectoral Mutual Fund of PSU Banks (done individually) is there in the report with every
step Followed. For comparison with the Market we have taken Benchmark as NIFTY 500
(NSE Index). Depending on the Benchmark we have analyzed whether our Fund is
performing well or not.
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. Indian banks are increasingly
focusing on adopting integrated approach to risk management.
As of Q1 FY19, total credit extended by commercial banks surged to Rs 86,976.2 billion
(US$ 1,297.4 billion) and deposits grew to Rs 115,070.3 billion (US$ 1,716.4 billion).
Reserve Bank of India (RBI) has decided to set up Public Credit Registry (PCR) an extensive
database of credit information which is accessible to all stakeholders. The Insolvency and
Bankruptcy Code (Amendment) Ordinance, 2017 Bill has been passed and is expected to
strengthen the banking sector. Credit off-take has been surging ahead over the past decade,
aided by strong economic growth, rising disposable incomes, increasing consumerism &
easier access to credit.
1. INTRODUCTION
1.1 Aditya Birla Capital Limited (ABCL)
Aditya Birla Capital Limited (ABCL), is the financial services platform of the Aditya Birla
Group.
Formerly known as Aditya Birla Financial Services Limited, ABCL has a strong presence
across the life insurance, asset management, private equity, corporate lending, structured
finance, project finance, general insurance broking, wealth management, equity, currency and
commodity broking, online personal finance management, housing finance, pension fund
management, health insurance and asset reconstruction business.
Anchored by more than 17,000 employees, ABCL has a nationwide reach and more than
2,00,000 agents / channel partners, ABCL is committed to serving the end-to-end financial
services needs of its retail and corporate customers under a unified brand — Aditya Birla
Capital. As of December 31st, 2018, Aditya Birla Capital manages aggregate assets worth Rs.
3,000 billion and has a consolidated lending book of over Rs. 600 billion, through its
subsidiaries and joint ventures.
Aditya Birla Capital is a part of the Aditya Birla Group, a US$ 44.3 billion Indian
multinational, in the league of Fortune 500. Anchored by an extraordinary force of over
120,000 employees, belonging to 42 nationalities, the Aditya Birla Group operates in 35
countries across the globe.

1.2 Vision and values:

"To be a leader and role model in a broad-based and integrated financial services business."
The 4 pillars of our vision that will help us achieve it are:
To be a leader – we are committed to being a leader in all facets of our businesses, rather
than being just another participant in this race.
To be a role model – we will not become leaders by cutting corners or making compromises.
Whatever we do, we will strive to be the best in class. And if we are the best, then our
customer will have no reason to go elsewhere – therefore our leadership is assured, on pure
merit.
To be a broad-based player – we are committed to meeting all the felt and unfelt needs of
our target customer. And thereby, we can retain him or her across their needs and life-stages.
We aim to be an integrated player –we believe that this approach gives us a competitive
edge through sharing of best practices, deriving cross – business synergies & providing talent
pool with world of opportunity to grow.
Our customers place a lot of trust when they choose us as a partner for fulfillment of their
dreams - be it buying a dream home or investing their hard earned money in mutual funds or
for meeting their retirement or child's education or protection needs or taking a business loan
for expansion. At Aditya Birla Capital, our endeavor is to become a preferred financial
services brand of choice for all our customers’ needs across their life cycle - a brand that
customers will not only just trust but also happily endorse. Keeping this customer insight in
mind, we have created a unique strategy & structure to present our spectrum of businesses
and offerings under one virtual brand. From a customer perspective, this offers simplicity &
convenience. For our employees, we offer a world of growth opportunities across all our
financial services offerings. And to our shareholders, this gives the reassurance that we will
attract and retain our customers, cost effectively, across their life-cycle needs.

1.3 Products and Services:

 Life Insurance:
Life insurance is a contract between two parties. Contract between insurer and policy
holder in which the insurer promise to pay sum of money upon the death on the insured
person beneficiaries. In this cases insurer will be Aditya Birla Sun life insurance, and
policy holder family will get the benefits. The insurance company promises death benefit
in consideration of the payment by the insured. Insurance helps to provide security to the
family of policy holder. Tax benefits can be availed on sec 80C and 80D under Income
tax Act 1962.

 Health Insurance:
Insurance, which is a promise to cover your expenses at the time of medical and surgical
expenses. Health insurance can reimburse the insured for expenses incurred from illness
or injury or pay the care provider directly. It is a also contract between policy holder and
insurer. Insurer gets the sum assured by paying sum premium amount to avail the
benefits. The cost of health insurance premium is deductible to the payer and benefits are
tax free. Diamond and platinum plans are the most saleable product of health insurance.

 Equity Trading:
It offers end-to-end equity solutions to individual Investors and active Traders serving
them with quality advice on individual stocks, sector trends and investment strategy.
Ethical Advice driven by detailed equity research has been the approach and hence this
has been a key reason in the gaining clients’ trust. Equity trading can be of two types,
inter day and intraday. When we are selling and purchasing equity on same day is called
as intraday. In inter day we hold purchased shares and sale it on future date.

 Commodity Trading:
Commodity Futures along with Currencies form the most attractive forms of investment
trading today. Our research team offers state-of-the-art investment strategies through
fundamental and technical reports. We cater to the needs of investors who believe in
generating revenues through derivatives. This type of trading has many similarities to
equity stock trading; but the biggest difference is the asset that is traded. Commodity
trading focuses on purchasing and trading commodities like gold, oil, currency, etc. rather
than companies equity shares as in stock trading.
 Derivative trading:
A derivative is a financial security with a value that is reliant upon, or derived from, an
underlying asset or group of assets. It is a contract between two or more parties and its
price is determined by change in price of underlying assets. Aditya birla asset
management helps us to understand the stocks and speculate the price of stock and invest
on the same. Derivatives have emerged as one of the popular Segment in financial
markets. Now days it is the options trading that dominate the overall volumes. It is
therefore imperative that one understands this segment well, not only for trading but for
hedging as well.

 IPO:
Initial public offering is a process of offering shares at large to public for the first time.
Companies which require capital for expansion or for growth ask public to invest in the
companies to raise the fund. In an initial public offering, the issuer, or company raising
capital, brings in underwriting firms or investment banks to help determine the best type
of security to issue, offering price, amount of shares and time frame for the market
offering. ABCL helps to choose best option to invest in. it gives you information of Best
performer IPO, forthcoming issues, and open issues.

 Mutual Funds:
Mutual funds are pool of money by several investors which aim to savings and make
money through it. Mutual Funds are considered as one of the best available investment
options as they are cost efficient, professionally Managed and easy to invest. Mutual
Fund investments are ideal for those who want to grow their wealth over a longer period
of time, avail tax benefits and enjoying tax free returns on such long term investments.
Investment in Mutual Funds can be done in two ways: either Lump Sum (one time) or
through Systematic Investment Plan (SIP).

 Insurance Investment:
Aditya Birla sun life is one of the biggest private firm of insurance in India is licensed by
IRDA to act as a broker for life as well as Non life insurance. It also serves as a
distribution partner to all major insurance companies with wide range of insurance
product offerings. Life Insurance, besides being a tool to protect dependents against
inopportune early death of the insurer, it also about provides saving plan that will pay
towards higher education of children, their marriage and old age requirements.

 Portfolio Management services:

A professional service which is often opted by wealthy investors who want exposure to a
variety of asset classes and who understand that investment in the market requires time,
knowledge, and constant monitoring. It also needs strong research and solid experience to
make the right decision. It’s imperative, that one needs to hit the right timing of the
investment. Investors can opt for discretionary services for the investments to be managed
by the portfolio managers or they can go for customized tailor made non-discretionary
service as per their investment needs.
1.4 Aditya Birla Sun Life Insurance Company Limited (ABSLI):
Aditya Birla Sun Life Insurance Company Limited (ABSLI), is a subsidiary of Aditya Birla
Capital Ltd (ABCL). is one of the leading private sector life insurance companies in India.
ABSLI was incorporated on August 4th, 2000 and commenced operations on January 17th,
2001. ABSLI is ABSLI is a 51:49 a joint venture between the Aditya Birla Group and Sun
Life Financial Inc., a leading international financial services organization in Canada. Sun life
Financial Inc. is Canada based company whose primary business is Life Insurance company.
This is oldest and largest insurance company in the world founded on 1865. Formerly known
as Birla Sun Life Insurance Company Limited, ABSLI is one of India's leading life insurance
companies offering a range of products across the customer's life cycle, including children
future plans, wealth protection plans, retirement and pension solutions, health plans,
traditional term plans and Unit Linked Insurance Plans ("ULIPs").
As of December 31st, 2018, total AUM of ABSLI stood at Rs. 389,548 million. ABSLI
recorded a gross premium income of Rs. 18,599 million in Q3 FY 2018-19 and registering a
y-o-y growth of 68% in Individual First Year Premium and currently ranked 7th in Individual
Business (Individual FYP adjusted for 10% single premium) (Source: IRDAI reported
Financials). ABSLI has a nation-wide distribution presence through 425 branches, 9
bancassurance partners, 6 distribution channels, over 83,000 direct selling agents, other
Corporate Agents and Brokers and through its website. The company has over 10,000
employees and more than 16 lac active customers.
The company offers a complete range of protection solutions to help secure your family’s
future and provide financial support for your child’s education, wealth with protection
solutions, health and wellness solutions, retirement solutions, and savings with protection
solutions to help you stay financially secure in the future with small disciplined savings at
regular intervals. ABSLI puts people’s need first and aims to protect what is dear to the
customer, with assurance. While, Life Insurance cannot prevent risk, it can compensate
financial losses arising from risk.
Aditya Birla Capital Limited (ABCL) is the financial services platform of the Aditya Birla
Group. With a strong presence across the life insurance, asset management, private equity,
corporate lending, structured finance, project finance, general insurance broking, wealth
management, equity, currency and commodity broking, online personal finance management,
housing finance, pension fund management, and health insurance business, ABCL is
committed to serving the end-to-end financial services needs of its retail and corporate
customers. Anchored by more than 17,000 employees, ABCL has a nationwide reach and
more than 200,000 agents / channel partners.

1.5 Milestone of the company

 FINANCIAL POSTION OF ADITYA BIRLA CAPITAL 2018-19

1.6 Objectives
 To research about various Public Sector Banks by understanding their financial and
analysts presentations.
 To prepare a portfolio of potential Public Sector Banks that would yield maximum
returns of the investor and to track it with performance of the NIFTY PSU Bank.
 Fundamental Analysis of Banking sector.
 Technical Analysis of the selected stocks (value picks and growth picks)

1.7 Methodology
In order to learn and observe the practical applicability and feasibility of various theories and
concepts, the following sources are being used.
1) Learning the fundamental analysis of financial market.
2) Understanding the financial and analyst presentation of the company
3) To analyse the financial stability of the company.
4) Prepare a research report that would yield maximum returns for an investor.
5) Live Trading on through Demat account to understand the fluctuation on equity
market
6) Watching Sensex and nifty for better understanding of Equity market.
Primary Sources:
  Discussion with the company guide and other staff members.
 Explanation of the methods of fundamental analysis theoretically.
 Explanation of the tools of fundamental analysis.
Secondary Data:
 https://www.moneycontrol.com/stocks/marketinfo/marketcap/bse/banks-public-
sector.html
 https://www.equitymaster.com/stockquotes/BANKPSU/banks-public-sector-group-
stocks
 https://www.equitymaster.com/research-it/sector-info/bank/Banking-Sector-Analysis-
Report.asp
 https://www.ibef.org/industry/banking-presentation

1.8 Limitations
Every research work suffers from certain limitation. The purpose of presenting the limitations
is to help the reader in forming opinion about the reliability and validity of the present result.

 Data considered will be short period

 Dynamic market conditions
 Scientific research on the part of research is also required
 Some findings are observation based
 Time constraints

2.PUBLIC SECTOR BANKS (BANKING SECTOR):

2.1 Introduction:
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. Indian banks are increasingly
focusing on adopting integrated approach to risk management. Banks have already embraced
the international banking supervision accord of Basel II, and majority of the banks already
meet capital requirements of Basel III, which has a deadline of 31 March 2019. Reserve Bank
of India (RBI) has decided to set up Public Credit Registry (PCR) an extensive database of
credit information which is accessible to all stakeholders. The Insolvency and Bankruptcy
Code (Amendment) Ordinance, 2017 Bill has been passed and is expected to strengthen the
banking sector.
In FY07-18, total lending increased at a CAGR of 10.94 per cent and total deposits increased
at a CAGR of 11.66 per cent. India’s retail credit market is the fourth largest in the emerging
countries. It increased to US$ 281 billion on December 2017 from US$ 181 billion on
December 2014.
Credit off-take has been surging ahead over the past decade, aided by strong economic
growth, rising disposable incomes, increasing consumerism & easier access to credit
As of Q1 FY19, total credit extended by commercial banks surged to Rs 86,976.2 billion
(US$ 1,297.4 billion) and deposits grew to Rs 115,070.3 billion (US$ 1,716.4 billion). Total
banking sector assets (including public and private sector banks) have increased at a CAGR
of 6% to US$ 2.2 trillion during FY13–18. FY13-18 saw growth in assets of banks across
sectors.

Growth prospects of banking sector:

 Favorable demographics and rising income levels. India ranks among the top six
economies with a GDP of US$ 2,597 in 2017 and economy is forecasted to grow at 7.3%
in 2018. The sector will benefit from structural economic stability and continued
credibility of Monetary Policy.

 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.

 Rising fee incomes improving the revenue mix of banks. High net interest margins, along
with low NPA levels, ensure healthy business fundamentals.

 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.

 As of August 2018, total number of ATMs in India increased to 213,004 and is further
expected to increase to 407,000 ATMs in 2021.

 With entry of foreign banks, competition in the Indian banking sector has intensified.
Banks are increasingly looking at consolidation to derive greater benefits such as
enhanced synergy, cost take-outs from economies of scale, organizational efficiency &
diversification of risks.

2.2 Investments/developments:

Key investments and developments in India’s banking industry include:

 As of September 2018, the Government of India launched India Post Payments Bank
(IPPB) and has opened branches across 650 districts to achieve the objective of financial
inclusion.

 The total value of mergers and acquisition during 2017 in NBFC diversified financial
services and banking was US$ 2,564 billion, US$ 103 million and US$ 79 million
respectively.

 The biggest merger deal of FY17 was in the microfinance segment of IndusInd Bank
Limited and Bharat Financial Inclusion Limited of US$ 2.4 billion.

 In May 2018, total equity funding's of microfinance sector grew at the rate of 39.88 to Rs
96.31 billion (Rs 4.49 billion) in 2017-18 from Rs 68.85 billion (US$ 1.03 billion).
2.3 Government Initiatives:

 As of September 2018, the Government of India has made the Pradhan Mantri Jan Dhan
Yojana (PMJDY) scheme an open ended scheme and has also added more incentives.

 The Government of India is planning to inject Rs 42,000 crore (US$ 5.99 billion) in the
public sector banks by March 2019 and will infuse the next tranche of recapitalisation by
mid- December 2018.

 The number of total bank accounts opened under Pradhan Mantri Jan Dhan Yojana
(PMJDY) reached 333.8 million as on November 28, 2018.
2.4 Factors affecting Banking sector:
 Supply: The supply of money to the banks is controlled by the Reserve Bank of India
(RBI). There cannot be infinite supply of money in the economy.

 Demand: Rising incomes are expected to enhance the need for banking services in rural
areas and therefore drive the growth of the sector. Consumers desire a seamless banking
experience. And technology is developing to allow consumers to buy products easier,
without requiring assistance directly from banks.

 Threat to new entrants: Entry to banking sector is not that easy. In order to enter into
banking, there are certain requirements like 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. People turn to banks for advice and
assistance for loans related to business, home, and academics. Consumers also seek
knowledge from bank tellers regarding saving accounts, bank related credit cards,
investments, and more.

 Competition: There is high competition in banking sector as 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.
3. EQUITY RESEARCH OF BANKING SECTOR
3.1 Fundamental Analysis:
Fundamental Analysis (FA) is a holistic approach to study a business. When an investor
wishes to invest in a business for the long term (say 3 – 5 years) it becomes extremely
essential to understand the business from various perspectives. It is critical for an investor to
separate the daily short term noise in the stock prices and concentrate on the underlying
business performance. Over the long term, the stock prices of a fundamentally strong
company tend to appreciate, thereby creating wealth for its investors.
Fundamental Analysis is the technique that gives you the conviction to invest for a long term
by helping you identify these attributes of wealth creating companies. Fundamental analysis
is a method of evaluating a security in an attempt to measure its intrinsic value, by examining
related economic, financial and other qualitative and quantitative factors. Fundamental
analysts study anything that can affect the security's value, including macroeconomic factors
such as the overall economy and industry conditions, and microeconomic factors such as
financial conditions and company management. The end goal of fundamental analysis is to
produce a quantitative value that an investor can compare with a security's current price, thus
indicating whether the security is undervalued or overvalued.
Doing basic fundamental valuation is quite straightforward; all it takes is a little time and
energy. The goal of analysing a company's fundamentals is to find a stock's intrinsic value, a
fancy term for what you believe a stock is really worth - as opposed to the value at which it is
being traded in the marketplace.

Tools for fundamental analysis:

The tools required for fundamental analysis are extremely basic, most of which are available
for free. Specifically you would need the following:

 Annual report of the company – All the information that you need for FA is available in
the annual report. You can download the annual report from the company’s website for
free.

 Industry related data – You will need industry data to see how the company under
consideration is performing with respect to the industry. Basic data is available for free,
and is usually published in the industry’s association website.

 Access to news – Daily News helps you stay updated on latest developments happening
both in the industry and the company you are interested in. A good business newspaper or
services such as Google Alert can help you stay abreast of the latest news.

 MS Excel– Although not free, MS Excel can be extremely helpful in fundamental

calculations.
For fundamental analysis, the following ratios are used:

 EPS = Profit After Tax (PAT) / No of equity shares

 P/E ratio = MPS / EPS
 PEG = P/E ratio/Growth rate of earnings
 Credit to Deposit Ratio = Total Credit/ Total Deposits
 CAR = CAR = Tier I capital + Tier II capital / Risk weighted assets
 NPA Ratio = Net non-performing assets / Loans given
 ROA = Net profits / Avg. total assets
 NII = Interest Received- Interest Paid.
 NIM = NII/ Average Interest Earning Assets
 EPS Growth =( EPS of current year- EPS of previous year)/ EPS of previous
year*100

3.1.1 Large cap of Banking sector (PSUs)

These are the following top 16 large capital stocks of Public Sector Banks, which have
acquired major share in the banking sector. SBI is one of the biggest Public Sector Bank with
the market share of 48.61%, followed by Bank of Baroda which have acquired 7.70% of the
market share. We have selected only large cap.
What is large cap or big cap? Large capital refers to those companies with a market
capitalization value of more than 500 Crores rupees.
Market Share = Market Capitalisation of company/ Total market capitalisation*100
S. No. Company Name Open Price Market Cap(cr.) Market Share
1 SBI 276.1 246,408.52 52.39%
2 IDBI Bank 44.75 34,619.93 7.36%
3 PNB 78.85 29,978.64 6.37%
4 Bank of Baroda 109.7 29,021.31 6.17%
5 Bank of India 89.45 24,122.31 5.13%
6 Canara Bank 248.15 18,691.77 3.97%
7 Oriental Bank 93.4 11,499.59 2.44%
8 Indian Bank 234.25 11,250.83 2.39%
9 Allahabad Bank 51.4 10,777.74 2.29%
10 Central Bank 32 9,512.04 2.02%
11 Union Bank 78.75 9,202.52 1.96%
12 IOB 13.66 8,805.48 1.87%
13 Corporation Bk 30.6 7,755.86 1.65%
14 UCO Bank 19.2 7,593.87 1.61%
15 Syndicate Bank 36.6 5,859.55 1.25%
16 United Bank 10.85 5,266.62 1.12%
Total Market Capitalisation 470,366.58
Data as per 5th March 201
Market Index: A stock market index is a statistical measure which shows moment taking
place in the stock market. To create an index, a few similar kinds of stocks are chosen from
amongst the securities already listed on the exchange and grouped together. I have chosen
large cap stocks of banking sector and maintained market index to check the statistical
momentum of stocks.

Sectorial Index:

 Market index base is 1000.

 Calculated market index on the basis of price of market share, which depends on the bid
price of the share. Market share changes on the daily basis.
Company sales ÷ Entire market sales = Market share
 Market index calculated on the basis of percentage on the market price and multiplies with
the market capital weightage. More weightage more price fluctuations will be there.
 Small price changes in large cap will be more in comparison to the small weighted of
market cap in the sector.
 As we can see Index was showing bullish behaviour, as the index rose to 1104.032 in 3
months (approx).
 There are market circuit, market circuit has maximum or minimum limit of fluctuation on
the price. Large Capital doesn’t have market circuit, but there is circuit on NIFTY.

Date Index Date Index Date Index

4-Mar-19 1000 1-Apr-19 1154.5977 2-May-19 1069.2675
5-Mar-19 1010.7275 2-Apr-19 1166.0587 3-May-19 1075.4212
6-Mar-19 1013.0741 3-Apr-19 1140.3707 6-May-19 1064.8086
7-Mar-19 1026.794 4-Apr-19 1138.1734 7-May-19 1048.1831
8-Mar-19 1023.7384 5-Apr-19 1130.8386 8-May-19 1029.9473
11-Mar-19 1046.3697 8-Apr-19 1118.9966 9-May-19 1033.5158
12-Mar-19 1044.6747 9-Apr-19 1128.8936 10-May-19 1056.9688
13-Mar-19 1052.8437 10-Apr-19 1118.8404 13-May-19 1024.3542
14-Mar-19 1050.5674 11-Apr-19 1121.5820 14-May-19 1051.8086
15-Mar-19 1062.7217 12-Apr-19 1126.2432 15-May-19 1033.8190
18-Mar-19 1071.8977 15-Apr-19 1125.5474 16-May-19 1037.9398
19-Mar-19 1091.5864 16-Apr-19 1123.6330 17-May-19 1048.0785
20-Mar-19 1090.4957 18-Apr-19 1104.7481 20-May-19 1124.6256
22-Mar-19 1075.9089 22-Apr-19 1090.1002 21-May-19 1104.0327
25-Mar-19 1062.3378 23-Apr-19 1082.9382
26-Mar-19 1089.5968 24-Apr-19 1097.3987
27-Mar-19 1105.6342 25-Apr-19 1086.2679
28-Mar-19 1138.4515 26-Apr-19 1098.0032
29-Mar-19 1144.5894 30-Apr-19 1071.0693
 Public Sector Banks
1160

1140

1120

1100

1080

1060

1040

1020

1000
M 9
M 9
-M 19

-A 19
-A 19
-A 19
-A 19
-A 19
M 9
-M 19
-M 19
-M 19
-M 19
-M 19
-M 19
Ap 9
Ap 9
A 9
-A 19

M 9
M 9
-M -19
-M -19
-M -19
-M -19

9
6- ar-1
8- ar-1

-1
2- r-1
4- r-1
8- r-1

2- pr-1
6- ay-1
8- ay-1
12 ar-
14 ar-
18 ar-
20 ar-
25 ar-
27 ar-
29 ar-

10 pr-
1 2 pr -
1 6 pr -
2 2 pr -
2 4 pr -
2 6 pr -

10 ay
14 ay
16 ay
20 ay
ay
a
M
4-

3.1.3 Analysis of flow:

As we have selected 16 Large Cap Companies of Banking sector (PSBs). As banks declare
their profit after doing provisioning (i.e. deducting provisions from the profits), so the EPS is
usually negative. We will recalculate the EPS (Earning per Share) of the year, by adding the
provisions to their profit (or loss) and then dividing it by number of outstanding shares of the
respective banks. We need two financial reports to calculated EPS for 2018 and 2017

EPS breaks down the profit on per share basis, which helps to calculate investor profit and
loss. EPS can be calculated:

Net Income – Preferred dividends + Provisions = Total Earnings, then

EPS = Total Earnings/ No. of Outstanding Shares

Then we will calculate P/E ratio (Price to Earnings Ratio). P/E ratio is also called as price
multiplier. It is common tool used by stock analyst for determining the stock valuation. A
high P/E could mean that a stock’s price is relative high earnings a low P/E could mean low
earning relative to its price. Formula for P/E Ratio is:

P/E Ratio=Market price per share/Earning per share

Now we will calculate share which are overvalued and undervalued. Overvalued stocks
means when individual’s stock P/E ratio is more than Industry P/E Ratio, similarly when
individual’s stock P/E ratio is less than Industry P/E Ratio, it is considered as undervalued
stocks.
Step 1: Calculate EPS

Step 2: Calculate P/E ratio

Step 3: Calculate Industry P/E (Average of all P/E ratios.)

Step 4: Identify Overvalued and Undervalued stocks.

S.No. Company Last Price EPS P/E OV/UV

1 SBI 318.4 59.50247 5.351039 OV
2 IDBI Bank 44.5 -1.90628 -
3 Punjab National Bank 95.35 37.2904 2.556959 UV
4 Bank of Baroda 129.6 45.27325 2.862618 UV
5 Bank of India 105.6 -8.13158 -
6 Canara Bank 295.1 92.73007 3.182355 UV
7 Oriental Bank 114.9 58.52332 1.96332 UV
8 Indian Bank 276.45 106.1463 2.604425 UV
9 Allahabad Bank 54.65 33.43443 1.634542 UV
10 Central Bank 34.7 -10.02 -
11 Union Bank 96.55 64.51963 1.496444 UV
12 Indian Overseas Bank 14.27 7.420263 1.923112 UV
13 Syndicate Bank 42.85 27.26262 1.571749 UV
14 UCO Bank 19.05 0.756447 25.18353 OV
15 Corporation Bk 28.75 23.71841 1.212139 UV
16 United Bank 11.21 3.413533 3.283987 UV
Total 54.82622
Average 4.217402

 Overvalued stocks are:

S.No. Company Last Price EPS P/E OV/UV
1 SBI 318.4 59.50247 5.351039 OV
2 UCO Bank 19.05 0.756447 25.18353 OV

 In case of overvalued stocks, we calculate growth of PEG Ratio (Price –Earnings-

Growth) ratio.
 PEG ratio = P/E ratio / Growth of EPS (Earnings per share).

PEG Ratio is used to determine stocks value while factoring in the company expected
earnings growth. Low PEG ratio is good stocks which is also called as Growth Pick,
factoring the company’s growth rate to get the stocks PEG ratio. PEG ratio less than or equal
to 1, will give you more returns in the future.

Step 5: Calculating Growth rate of EPS’17 and EPS’18

Step6: Calculate PEG Ratio

S.No. Company Price P/E EPS EPS EPS PEG

 Ratio (2018) (2017) Growth Ratio
1 SBI 318.4 5.351 59.50 63.771 -91.609
2 UCO Bank 19.05 25.183 0.756 23.428 7.489 3.362

As we can see above, PEG ratios are very high, there is no

stock which I less tha1. So we will discard all the stocks. No PEG ratio is less
Hence,
Undervalued stockspick.
there is no Growth are: than 1.Hence, No
Growth Pick
S.No. Company Last Price EPS P/E UV
1 Punjab National Bank 95.35 37.2904 2.556959 UV
2 Bank of Baroda 129.6 45.27325 2.862618 UV
3 Canara Bank 295.1 92.73007 3.182355 UV
4 Oriental Bank 114.9 58.52332 1.96332 UV
5 Indian Bank 276.45 106.1463 2.604425 UV
6 Allahabad Bank 54.65 33.43443 1.634542 UV
7 Union Bank 96.55 64.51963 1.496444 UV
8 Indian Overseas Bank 14.27 7.420263 1.923112 UV
9 Syndicate Bank 42.85 27.26262 1.571749 UV
10 Corporation Bk 28.75 23.71841 1.212139 UV
11 United Bank 11.21 3.413533 3.283987 UV

 Undervalued stocks are evaluated on the basis of their Profit and Revenue.
Top Line: Revenue and Bottom Line: Profits
 There will be different scenario to choose select the stocks. There are four cases:
Case1: Top line up, Bottom Line up
Case2: Top Line down, Bottom line up
Case3: Top line up, Bottom line down
Case4: Top line down, Bottom line down (discard these).

Step 7: Top line of Mar-18 and Mar-17

Step 8: Bottom line of Mar-18 and Mar-17
Step 9: Increase in Top line or bottom line (Marked in Green), decrease in top line and
bottom line (marked in red)
Step 10: Discard in case of Case4 mentioned above, and select value picks.

Topline Bottomline
S.No. Company P/E UV
(Revenue) (Profits)
1 Punjab National Bank 2.556959 UV
2 Bank of Baroda 2.862618 UV
3 Canara Bank 3.182355 UV
4 Oriental Bank 1.96332 UV
5 Indian Bank 2.604425 UV
6 Allahabad Bank 1.634542 UV
7 Union Bank 1.496444 UV
8 Indian Overseas Bank 1.923112 UV
9 Syndicate Bank 1.571749 UV
10 Corporation Bk 1.212139 UV
11 United Bank 3.283987 UV

Topline Bottomline
S.No. Company P/E UV
(Revenue) (Profits)
1 Punjab National Bank 2.556959 UV
2 Bank of Baroda 2.862618 UV
3 Indian Bank 2.604425 UV
4 Union Bank 1.496444 UV
There are 4 stocks considered as value picks, being undervalued stocks they have both
increasing top line and bottom line or either of them increasing, therefore are hidden gems.

Key Ratios
Now we have four potential banks with us, now we will calculate their ranks on the basis on
industrial ratios. Some industry specific Ratios are considered to rank the stocks. These are
the following ratio:

1. Return on assets Ratio (ROA): Returns on asset ratio is the net income (profits)
generated by the bank on its total assets (including fixed assets). The higher the
ROA, the better it is. The highest ROA will be ranked 1 and so on.
ROA = Net profits / Avg. total assets

2. Credit to deposit ratio (CD ratio): This ratio indicates how much of the advances
lent by banks is done through deposits. It is the proportion of loan-assets created by
banks from the deposits received. The higher the ratio, the higher the loan-assets
created from deposits. Bank having high CD Ratio will be ranked 1 and so on.
CD Ratio= Total Credit/ Total Deposits

3. Capital adequacy ratio (CAR): A bank's capital ratio is the ratio of qualifying
capital to risk adjusted (or weighted) assets. The RBI has set the minimum capital
adequacy ratio at 9% for all banks. The ratio ensures that the bank do not expand
their business without having adequate capital. Having high capital is an advantage to
the banks. Thus, Highest CAR is ranked as 1.
 CAR = Tier I capital + Tier II capital / Risk weighted assets

4. Non-performing asset (NPA) ratio: The net NPA to loans (advances) ratio is used
as a measure of the overall quality of the bank's loan book. An NPA are those assets
for which interest is overdue for more than 90 days (or 3 months). Higher ratio
reflects rising bad quality of loans, therefore banking having least NPA Ratio is
ranked as 1.
NPA ratio = Net non-performing assets / Loans given

5. Net Interest Income (NII): NII represents the difference in the interest earned from
a bank’s lending activities to its customers and the interest paid to account holders or
depositors. Higher the NII, the better it is.
Net Interest Income: Interest Received- Interest Paid.

6. Net Interest Margin (NIM): Net interest margin between banks varies to a large
extent depending on the type of loans, asset quality, change in the yield on interest-
bearing assets and interest paid on deposits. More NIM is profitable for the banks,
therefore higher NIM is better for the bank.
NIM= NII/ Average Interest Earning Assets

Step 11: Collect all the ratio of all growth picks and value picks. As we have only value picks
in our case.

Step 12: Rank the Ratios of all the banks

1) Return on assets ratio: Higher, the better and lower is bad

2) Credit to deposit ratio: Higher better and lower is bad
3) Capital adequacy ratio: Higher is better and lower is bad
4) Non- performing asset ratio : Lower is better and higher means poor position
5) Net Interest Income: Higher is better, lower is bad
6) Net Interest Margin: Higher is better and lower is bad

Step 13: Assign the ranks according to above description

Step 14: Calculate the total weightage after assigning the ranks. Lowest total is better, higher
is least.

S.No. Company ROA NII NIM NPA CAR Credit to Total

Deposit Rank
1 Punjab National 0.2 (3) 153 (1) 2.2 (3) 7.8 (4) 11.7 (4) 67.4 (3) 18
Bank
2 Bank of Baroda 0.3 (2) 148 (2) 2.3 (2) 4.7 (2) 12.2 (3) 63.5 (4) 15
3 Indian Bank 0.7 (1) 51 (4) 2.5 (1) 4.4 (1) 13.6 (1) 70.0 (2) 10
4 Union Bank 0.1(4) 90 (3) 2.1 (4) 6.6 (3) 12.9 (2) 76.3 (1) 17

Step15: we will rank according to the total weightage.

Indian Bank is at first Rank with least points i.e. 10 points, followed by Bank of Baroda, then
Union Bank, then Punjab National Bank which have maximum points i.e. 18 points.

Step 16: Now we have given ranks. This step will help us to distribute the total funds in
proportion to each company. Total fund raised is 10 Crore rupees. Lowest rank is better so
highest proportion will be in Indian Bank followed by the other banks.

 Portfolio of total AUM: 10 Crore

S.No. Company Allocation Price No. of Value

(in Rs.) (in Rs.) Shares (in Rs.)
1 Indian Bank 4,00,00,000 282.1 1,41,793 3,99,99,805
2 Bank of Baroda 3,00,00,000 130.05 2,30,680 2,99,99,934
3 Union Bank 2,00,00,000 95.9 2,08,550 1,99,99,945
4 Punjab National Bank 1,00,00,000 95.75 1,04,438 99,99,939
Total Invested 9,99,99,623
Total Amount of investment 10,00,00,000
Cash in hand 377

AUM (Asset under management): It is the total amount invested in the market by fund
manager on different stocks. AUM refers to how much of investors’ money a financial
company has to work with—the sum of the investments managed by a mutual fund, a venture
capital firm, brokerage company or an individual registered investment advisor or portfolio
manager.

AUM = 10 Crore

NAV (net asset value): The NAV represents the per share/unit price of the fund on a specific
date or time. NAV is the price at which the shares/units of the funds registered with the NSE
and are traded (invested or redeemed).

NAV = Total Value (AUM)/ 1 crore units

=10.
Step 17: The NAV is then being tracked on daily basis on the fund made, which will help us
to understand the returns value on the invested amount, i.e. whether the fund designed earns
higher returns in comparison to the benchmark NIFTY500.

After allocation we analysed how our fund is performing with respect to the sectorial index.
For this we considered sectorial index as benchmark. Initially as on 30 th March 2019 our
NAV was INR 10 and Nifty PSU Bank was 3399.35.
On 26th April 2019 and 21st May 2019 our NAV increased to 9.22 and 9.60 rupees.
NIFTY 500 was observed to be 3162.00 and 3141.00 on the same days respectively. It shows
that NIFTY 500 index decreased by 7.0% and 7.5% respectively but our NAV decreased by
7.8% and 4% respectively.

From this we can conclude that our mutual fund is performing better that market benchmark.

3.2 Technical Analysis:

Technical analysis as we know it today was first introduced by Charles Dow and the Dow
Theory in the late 1800s.
Technical analysis is the examination of past price movements to forecast future price
movements. Technical analysts are sometimes referred to as chartists because they rely
almost exclusively 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
timeframe. The time frame can be based on intraday (tick, 5-minute, 15-minute or hourly),
daily, weekly or monthly price data and last a few hours or many years. In addition, some
technical analysts include volume or open interest figures with their study of price action.
The Market Technicians Association (MTA) is one of the most popular groups supporting
technical analysts in their investments with the Chartered Market Technicians (CMT)
designation a popular certification for many advanced technical analysts.
There are two basic assumptions that have continued to form the framework for technical
analysis trading:

 Markets are efficient with values representing factors that influence a security’s price, but
 Market price movements are not purely random but move in identifiable patterns and
trends that tend to repeat over time.

3.2.1 Long term technical analysis

In technical analysis we analyse trend of stock price for last five years and look for patterns
which will help us to understand present trend of stock and as per trend we can take position
buy or sell. Basically it gives us idea about business cycle phase. Here are the patterns for
each stock in our portfolio:
Indian Bank

Bank of Baroda

Union Bank
Punjab National Bank

The patterns mainly observed in all above companies are Bump and Run Reversal, Head and
Shoulders Top, Double Top and Cup with Handle.
 The Bump and Run Reversal is a reversal pattern that forms after excessive speculation
drives prices up too far, too fast. The price action then reverses and the stock has a rapid
decrease, breaking its trend line.
The bump-and-run reversal top is a chart pattern that is a good performer in both bull and
bear markets,
The Bump and Run Reversal pattern can be applied to daily, weekly or monthly charts.

 The Head and Shoulders Top pattern is one of the most common reversal formations.
The pattern contains three successive peaks with the middle peak (head) being the highest
and the two outside peaks (shoulders) being low and roughly equal.
It is important to remember that it occurs after an uptrend and usually marks a major trend
reversal when complete. A sell signal is given when the neckline of a head and shoulders
pattern is broken.

 The Double Top is a form when the price makes a high within an uptrend, and then pulls
back. On the next rally the price peaks near the prior high, and then falls below the
pullback low.
The pattern is made up of two consecutive peaks that are roughly equal, with a moderate
trough in between.
Although there can be variations, the classic double top marks at least an intermediate
change, if not long-term change, in trend from bullish to bearish.

 The Cup with Handle is a bullish continuation pattern that marks a consolidation period
followed by a breakout.
The cup forms after an advance and looks like a bowl or rounding bottom. As the cup is
completed, a trading range develops on the right hand side and the handle is formed.
A cup and handle reversal may indicate a long-term trend change. Long-term trends can
last for years, therefore the reversal pattern doesn't have a long-term target.

3.2.2 Short term technical analysis

Originating in Japan over 300 years ago, candlestick charts have become quite popular in
recent years. For a candlestick chart, the open, high, low and close are all required. A daily
candlestick is based on the open price, the intraday high and low, and the close.

Green candlesticks form when the close is higher than the open and red candlesticks form
when the close is lower than the open. The green and red portion formed from the open and
close is called the body. The lines above and below are called shadows and represent the high
and low.

Doji form when a security's open and close are virtually equal. The length of the upper and
lower shadows can vary and the resulting candlestick looks like a cross, inverted cross or plus
sign. Alone, doji are neutral patterns. The Hammer is a bullish reversal pattern that forms
after a decline. A hammer occurs after a security has been declining, suggesting the market is
attempting to determine a bottom. Hammers are most effective when they are preceded by at
least three or more declining candles.

The Hanging Man candlestick formation, as one could predict from the name, is viewed as a
bearish sign. This pattern occurs mainly at the top of uptrends and can act as a warning of a
potential reversal downward. It is important to emphasize that the Hanging Man pattern is a
warning of potential price change, not a signal, in and of itself, to go short.

The Shooting star is a bearish reversal pattern that forms after an advance and in the star
position, hence its name. The Shooting Star is a candlestick pattern to help traders visually
see where resistance and supply is located. After an uptrend, the Shooting Star pattern can
signal to traders that the uptrend might be over and that long positions could potentially be
reduced or completely exited.

The Inverted hammer looks exactly like a shooting star, but forms after a decline or
downtrend. The Inverted Hammer candlestick formation occurs mainly at the bottom of
downtrends and can act as a warning of a potential reversal upward. It is important to note
that the Inverted pattern is a warning of potential price change, not a signal, in and of itself, to
buy.
Now, let us see the candlestick pattern for the stocks in our portfolio and observe whether
these candlesticks are there in these pattern or not.

Indian Bank

In the above given Short Term Trend of Indian Bank, we can see One Hammer which
changes the trend from upwards to downwards, then a shooting star which again changes the
trend to downwards, then hanging man and at last a useful Doji, which changes the trend
from upwards to downwards.

Bank of Baroda
In the above Short term trend, there is Hammer then share price go up substantially later on
there was inverted hammer which goes short as trend did not change, then a useful Doji from
where the Share price starts going down, after that there is again a useless Doji as the trend
does not change and then Hammer from where the Share Price went upwards.

Union Bank

In the above short term trend, inverted hammer changes the trend to upwards, then shooting
star and hanging man which further changes the trend to downwards and then a shooting star
which goes short and does not change the trend.

Punjab National Bank

In the above Short term trend, there is Inverted Hammer then share price go up substantially,
later on there was again inverted hammer which changes the trend from downwards to
upwards, then a useful Doji from where the Share price starts going down, after that there
Hanging Man as the trend goes downwards.

5. Suggestions
 For research one should have patience as things are not prompt in research process as you
have to observe and analyse the market on daily basis.
 One should read newspaper on regularly basis and should get updated with latest market
news and stock market trend as it helps in research, i.e. by market news of a particular
company, one can predict the future performance of stocks of the respective company.

6. Conclusion
Equity analysis seeks to assess whether a company’s shares can be expected to appreciate
from their current value. If their current price is below what you think it should be, i.e., they
are undervalued. Equity research is important for every investor in order to do wise
investment.

In technical analysis, one will study the historic price chart of a stock. One will look for
patterns in it that will help you ascertain its real value. Some of the important patterns used
for technical analysis are double top, double bottom, head and shoulder and candle. On the
basis of these, technical analysts establish a trading-range.

Fundamental stock analysis is the process of financial statement analysis; an examination of

company products, management, competitors, markets, and economic environment to
determine the value of its stock. Both historical and present data can be used, with the goal
being to forecast how the stock will perform in the future.
The most common data used in fundamental research and analysis would be revenues,
expenses, profits, earnings per share, assets, liabilities, book value, dividends, cash flow, and
projected earnings growth rates. Key ratios would include price/earnings ratio (P/E), dividend
yield, dividend payout ratio, return on equity, price to sale, and price to book value.

One can use long term and short term technical analysis along with fundamental analysis and
their Stocks.

It is always better and important to analyse the existing stocks in our portfolio, because some
of the Stocks which were not there in our Portfolio might have started performing well and
can give better returns, as time goes on and some stocks may start falling due to market
situation, sector performance or any company related matter, which makes it necessary to
pull out our investment and invest in other stocks in order to earn profit.

7. References
https://www.adityabirlacapital.com/about-us/our-businesses

https://www.adityabirla.com/businesses/companies/aditya-birla-capital-abcl/aditya-birla-
sun-life-insurance

https://www.ibef.org/industry/banking-india/infographic

https://www.equitymaster.com/detail.asp?date=03/08/2010&story=2&title=Key-ratios-
related-to-banks-balance-sheets

https://www.equitymaster.com/research-it/sector-info/bank/Banking-Sector-Analysis-
Report.asp

https://www.equitymaster.com/stockquotes/BANKPSU/banks-public-sector-group-stocks

https://www.investopedia.com/terms/t/technicalanalysis.asp

Hill, A. (n.d.). Retrieved from StockCharts.com