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Report submitted in partial fulfillment of the requirement for the award of the degree of
MASTER OF BUSINESS ADMINISTRATION OF ANNA UNIVERSITY Submitted by
Reg. No. 91005631030 Under Guidance of Mr.M.SIVA KUMAR M.B.A.,M.Phil., Lecturer
Department of Management Studies
P.S.N.A. COLLEGE OF ENGINEERING & TECHNOLOGY
DINDIGUL-624 622, TAMILNADU
JULY-2007 Department of management studies
P.S.N.A. College of engineering & technology
Dindigul-624 622, Tamilnadu.
This is certify that is a bonafide record of summer project By A.KARTHIGAINATHAN Reg.no.91005631030 Submitted in partial fulfillment of the requirement for the award of degree of the MASTER OF BUSINESS ADMINISTRATION OF ANNAUNIVERSITY, CHENNAI
Place: Dindigul Date :
HOD Department of management Studies
Signature of Faculty Guide:
I hereby certify that the project (BA1770) report submitted to the Anna University in partial fulfillment of the requirement for the award of the degree of Master of business administration is based on project undertaken by A.KARTHIGAINATHAN under my guidance.
Name of the Guide Mr.M.SIVA KUMAR MBA,M.Phil., Lecturer Department of Management Studies, P.S.N.A. College of Engineering & Technology, Dindigul-624 622, Tamilnadu. Place: Dindigul Date :
DECLARATION BY STUDENT
I A.KARTHIGAINATHAN the undersigned hereby declare that this summer project titled “A STUDY ON PERFORMANCE EVALUATION OF ICICI AND SBI USING FUNDAMENTAL AND TECHNICAL ANALYSIS” is submitted in partial fulfillment of the requirements for the award of Master of business administration, Anna University, Chennai.
Place: Dindigul Date :
My very special gratitude and heart felt thanks to our beloved Chairperson, for her blessings and best wishes to carry out my project work. I would like to express my deep gratitude to our Director and principle Dr.K.Thyagarajah who is responsible for moulding our thinking to complete this project. It is my great pleasure to express my sincere gratitude and thanks to my heads of the department Dr. M. Renganathan, for his valuable guidance and help. I am extremely thankful to my project guide Mr.M.Siva Kumar, MBA.,M.Phil., Department of management studies for imitating keen interest and giving valuable guidance at every stage of this project. I wish to express my sincere thanks to the company guide Mr.S.Anand, Investment Advisor, Kotak Securities, Madurai, who is my external guide for his kind support and guidance to complete my project. I wish to express my sincere thanks to Mr.Madhavan, Professor, Manonmaniam Sundharanar University, Thirunelveli, who is my external guide for his kind support and guidance to complete my project. I am also thankful to all the faculty members of the Department of management studies for their kind and valuable cooperation during the course of the project. I would also like to thank my parents, Friends and well wishers who encourage me to complete this project successfully.
Signature of the Candidate (A.KARTHIGAINATHAN)
36.6.3 2.6.b 3.10 2. 2.3. 38. 6. 16. 7.13.1 2. 14. 1. 27.7 2.2 1.9 22.214.171.124 3. 5.3.1 2. 33. 1.4 2. 10. 8.3. 28. 26. 11.3. 20.13. 34. 39. 30.3.13 2. 17. 3.2 2.2 1.1. 12. 13.3.1 1.3 1.1 1.2 Scope of the study Objective of the study Period of the study Limitation of the study Methodology Fundamental analysis Economical analysis Industrial analysis Banking Industrial analysis Monitory Policy CRR Liquidity Management Indian Financial Sector SWOT analysis Budget 2007 -2008 overview Secure Banking Key Ratio Interpretation (SBI) Interpretation (ICICI) Chapter – 3 Technical analysis ICICI Bank Outlook SBIN Outlook Finding Suggestion ICICI Bank SBI Bank Conclusion Bibliography 6 .a 3.1 3. 15. 18.12 2.6 2. 31. 19.11 2. 37.6. 22. 9. 1.4 3.3 3.8 2.1.6 1.4 1.5 2. 4. 35.1 2. 24.2 2.5 1.5 No Chapter – 1 Introduction Company Profile Product Profile The Industry Growth Background Management Shareholding & Liquidity Key area of Operation Strategy & New Developments ICICI Profile 1 2 3 4 4 5 5 6 8 8 11 11 11 11 12 13 13 21 22 22 23 26 27 29 34 35 35 36 39 39 40 41 42 42 43 46 47 Chapter .2 3. 25. 21.2 3.3 2. 29.3.No.2 3. 40.7 2. 32.3. 23.
As the RBI’s deputy Governor. things are getting better in the Banking Industry.000 level for the first time it was yet another sign the India as a market for global liquidity had arrived. but a small number of large banks. Though a dramatic changes sweeping through the industry for some years now in the rise of India’s Public sector bank and private sector still it should fuel its grow to open up eyes towards open market. 7 . but growth through mergers and acquisition. Form the Investors point of view earning growth.1 INTRODUCTION With the economy surging.CHAPTER 1 1.Leeladhar. There are plenty of changes occurs daily. We start corelating the Gross Domestic product (GDP) growth of emerging markets are supposed to reflect the health of the economy where India emerges as a key player. banks should use that as an opportunity to get their growth strategies in place. Not Just through organic growth. and better using technology to make banking more accessible and efficient. said at Indian Banking Associations Jan 31 Seminar on “Indian Banks and the Global change” there is growing realization that the ability to cope with possible downside risks would depend among others on the soundness of the financial system and the strength of Individual participation”. Evidently. the industry’s focus now is on scaling up both domestically and in markets abroad. India is still cagey about foreign investments in banks. India is arguably the best placed amongst the entire emerging market lot. In this scenario. Whether or not the sectors actually opens up in 2009. What India need is not a large number of small banks. Most of researcher’s conclusion is. When. V. While we look at the sensex breach the 10. price-earning multiplies and of course the performance of the economy matters. According to Reserve bank of India’s banking review of 2004 – 2005 there was a notable pick up in demand from industry for investments and a surge in exports. widening the product and services port folio.
2006. it services a customer base of over around 2. London.3. The group specializes in offering top class financial services. As on December 31. is India's leading stock broking house with a market share of around 8. to life insurance. to investment banking. to stock broking. Dubai and Mauritius. offering complete financial solutions that encompass every sphere of life.100 crore.5 % as on 31st March.1. 225 billion and employs over 9. With a presence in 282 cities in India and offices in New York. From commercial banking.2 million. has been the largest in IPO distribution.The various group companies include: Kotak Mahindra Capital Company Limited Kotak Mahindra Securities Limited Kotak Mahindra Inc Kotak Mahindra (International) Limited Global Investments Opportunities Fund Limited Kotak Mahindra (UK) Limited Kotak Securities Limited Kotak Mahindra Old Mutual Life Insurance Company Limited Kotak Mahindra Asset Management Company Limited Kotak Mahindra Trustee Company Limited Kotak Mahindra Investments Limited Kotak Forex Brokerage Limited Kotak Mahindra Private-Equity Trustee Limited Kotak Mahindra Prime Limited Kotak Securities Ltd. the group has a net worth of over Rs. and the AUM across the group is around Rs. to mutual funds. the group caters to the financial needs of individuals and corporates.2 COMPANY PROFILE The Kotak Mahindra Group Kotak Mahindra is one of India's leading financial institutions. catering to every segment of the industry.600 employees in its various businesses. 8 . Kotak Securities Ltd.
The accolades that Kotak Securities has been graced with include: Prime Ranking Award (2003-04). 9 . The central bank.3 PRODUCT PROFILE State Bank of India (SBI) has history of more than 200 years of existence. Kotak Securities Limited manages assets over 2500 crores of Assets Under Management (AUM) . Portfolio Management from Kotak Securities comes as an answer to those who would like to grow exponentially on the crest of the stock market . Kotak Securities has 195 branches servicing more than 2.000 customers and a coverage of 231 Cities.Best Provider of Portfolio Management: Equities The company has a full-fledged research division involved in Macro Economic studies.Best Broker In India Euromoney Award (2006) .with the backing of an expert.78% shareholding as on September 06.com. providing dual benefit services wherein the investors can use the brokerage services of the company for executing the transactions and the depository services for settling them. Reserve Bank of India (RBI) is the largest shareholder in the bank with 59.7% stake followed by overseas investors including GDRs with 19.The portfolio Management Services provide top class service .20. Kotak Securities Ltd is also a depository participant with National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL).India's best Equity House Finance Asia Award (2005)-Best Broker In India Euromoney Award (2005)-Best Equities House In India Finance Asia Award (2006). the online division of Kotak Securities Limited offers Internet Broking services and also online IPO and Mutual Fund Investments. catering to the high end of the market. RBIs stake in the bank is likely to be transferred to the Government of India (GOI). Sectoral research and Company Specific Equity Research combined with a strong and well networked sales force which helps deliver current and up to date market information and news.Largest Distributor of IPO's Finance Asia Award (2004). Kotaksecurities. 1. SBI is the largest commercial bank in India and accounts for approximately 18% of the total Indian banking business and the group account for 25% of the total Indian banking business.
The total credit book of the bank grew at a CAGR of 18.65% thereby.061 branches which include 4.1 THE INDUSTRY GROWTH The industry growth during the same period was around 28% • The bank’s asset quality has improved over the past few years.67% The bank has provided for 54. Since the last 5 years the bank has showed continued growth in its core business. The bank also has the largest network of 5. 1.832. 2. 1. 182.2 BACKGROUND State Bank of India is the largest and one of the oldest commercial bank in India. The bank also has cushion to raise RS40bn in the form of hybrid.06% of its NPLs as on Sep.8bn.69 bn as of September 2006. Indian central bank namely Reserve Bank of India (RBI) 10 .624 ATMs. signi. representing a growth fo 2.6% in FY06.32 • The capital adepuacy ratio of the bank stood at 12.74% and Tier –II of 3.5bn. ve years to reach Rs3.4% during the period FY01 –FY06 and stood at Rs. Gross NPL of gross loans stood at 3. the bank the plans to raise upto Rs.755 branches of its associated banks.3. The total asset size of the bank reported a CAGR of 9.end 2006.74% over HIFY06 while the bank reported a net profit of Rs.SBI has the largest distribution network in India spread across every nook and corner of India.4% during the same period.14bn.938. the bank reported net interest income (NII) of Rs. As on September 06.800. Contribution of low cost deposit to total deposit during the period too has moved up sharply from 36. To augment its CAR to provide a stable platform for further growth. In HIFY07.100bn as subordinate debt during the next few months.19. The bank provides a full range of corporate. registering a decline of 18.57% as of Sep-end 2006 while net NPLs stood at 1.63% (Tier –I of 8. However. Credit off take of the bank has been lower than the Indian banking industry during the past few years. 4.cantly increasing cost of funds and hensce margin contraction. On a sequential basis. commercial and retail banking services in India. which is below the industry average of around 68% • Total deposits of the bank grew at a CAGR of 94% over the last. in existenxe for more than 200 years. the bank has 14.3% in FY 01 to over 47. margins of the bank declined by 8bps to 3.68bn at the end of September 2006.2% over the past years stood at Rs.67% during the same period. with low cost deposits registering an impressive GAGR of 15.3.89 %) at the end of HIFY07. currentand saving account (CASA ) contribution in HIFY07 has declined to 43.
The bank is capitalized to the extend of Rs. In recent past. Kolkata stock Exchange. Indian financial 11 . The bank had total staff strength of 198. Of this. SBI has the largest branch and ATM network of over 14. The bank is listed on the Bombay stock Exchange. Net Interest Income of the bank has witnessed a CAGR of 13. Prior to this appointment.cers.is the major share holder of the bank with 59.3% during the last years. Bhattacharya is the managing Director of the bank and known for hisvast experience in the banking industry. 29. Recently.3.32% 1. and new heads for rural banking and for corporate development and new business banking have been appointed. Kenya and Indonesia. The Positions of CFO and the head of treasury have been segregated. ces in 30 countries in all time zones. Chennai Stock Exchange and Ahmedaoad stockeExchange while its GDRs are listed on the London stock Exchange.P. SBI has acquired banks in Mauritius. net interest margin (NIM) of the bank has gone up from as low as as2. ciencly levels. the senior management of the bank has been broadened considerably. 1.3 MANAGEMENT The bank has 14 directors on the Board and is responsible for the management of the bank’s business.000 branches (including subsidiaries) Apart form Indian network it also has a network of 73 overses of.S. 2006. reviewing and approving the annual budgets and borrowing limits and axing exposure limits.9% in FY02 to 3. correspondent relationship with 520 International banks in 123 countries.78% stake as on September 06. 45.3%.30% were sub-staff.7% stake followed by overseas investors including GDRs with 19. With this type of strong base.7% stake.40% in FY06 and currently is at 3.Bhatt was Managing Director at State Bank of Travancore Mr.646bn with the public holding (other than promoters) at 40.Bhatt is the Chairman of the bank.O. Mr. SBI has displayed a continued performance in the last few years in scaling up its ef.3.4 SHAREHOLDING & LIQUIDITY Reserve Bank of India is the largest shareholder in the bank with 59. The board in addition to monitoring corporate performance also carries out functions such as approving the business plan. The management’s thrust on growth of the bank in terms of network and size would also ensure encouraging prospects in time to come.19% clerical staff and the remaining 25. SBI group accounts for around 25% of the total business of the banking industry while it accounts for 35% of the total foreign exchange in India. Mr.T. During the same period.774 as on 31 st March.51% are of.
3% while Indian public held Just 8. Post this. RBI is the monetary authority and having majority shareholding re. Shareholding Pattern of the Bank as on 30th September 2006 Source : SBI As of Sep 2006. 12 exchange bureaus.3 mm shares outstanding and going by the actual trading volume. International Banking. a.ict of interest. Key Business Areas of the Bank a) Corporate Banking The corporate banking segment of the bank has total business of around Rs.institutions held 12.2007 bank’s market capitalization stood at Rs. 1.2% of the stock.6bn. Now the government is rectifying the above error by transferring RBI’s holding to inself. 104 satellite of.5 KEY AREAS OF OPERATIONS The business operations of SBI can be broadly classed into the key income generating areas such as National Banking.ces and 679 12 . Leasing b. Scale with the bank clocking further gains. Mid Corporate Group b. SBI will have afurther headroom to dilute the GOl’s stake from 59. SBI the 526.ects con.3. The daily share turnover during the year 2006 was 0. 93mm shares exchanged hasnds. & Treasury operations.0% Which will further improve its CAR and Tier I ratio. Corporate Banking. In the first half of FY2007.643.22% down from 0.93bn.1.177 branches.7% to 51. the Stock’s liquidity seems to have decreased in the past two years.39% witnessed in 2005. 4 Sub-of. as of January 12. SBI has created various Strategic Business Units (SBU) in order to streamline its operations. National Banking The national banking group has 14 administrative circles encompassing a vast network of 9.ces. But the sentiment in the sock market improved in the first six months of the current. Project Finance c.
SBI has installed ATMs at Male. In recent years. Associates & Subsidiaries The State Bank Group with a network of 14.2.3.061 branches including 4. 809 are specialized branches. SBI acquired 76% shareholding in Giro Commercial Bank Limited in Kenya and PT Indomonex Bank Ltd. This group consists of four business group which are enumerated below: b. The bank diversified it operations more actively into alternative revenue streams in order to offset the losses in. to reach out to customers.ces in 30 countries in all time zones and correspondent relationship with 520 international banks in 123 countries. Agricultural Banking c. Out of the total branches. International Banking SBI has a network of 73 overseas of. provides a whole range of 13 . the Group. In addition to banking. at Gaborone. the treasury operation of the bank has become more active amidst rising interest rate scenario. SBI has installed ATMs at Male Muscat and Colombo of. even it. Small & Medium Enterprises b. The bank is keen to implement core banking solution to its international branches also. In recent years. During FY06.xed income portfolio.extension counters.cex. Personal Banking SBU b. In Indonesia. The bank incorporated a company SBI Botswana Lte. d. robust credit growth and liquidity constraints. Treasury The bank manages an integrated treasury covering both domestic and foreign exchange markets. e.755 branches of its seven Associate Banks dominates the banking industry in India.ces. 25 foreign offices were successfully switched over to Finacle software. Reorganisation of the treasury processes at domestic and global levels is also being undertaken to leverage on the operational synergy between business units and network. through its various subsidiaries. The reoganization seeks to enhance the efficiencies in use of manpower resources an increase maneuverability of banks operations in the markets both domestic as well as international. Muscat and Colombo Of.1. the remotest corners of the country. In recent years.
ii. Non – Banking Subsidiaries/ Joint Ventures i. it has been moving swiftly to implement real time on-line banking. increase productivity. Despite intense competition and pressure on spreads it has maintained and Improved its NIM. v. SBI life SBI Capital Markets Limited (SBICAP) SBI DFHI LTD SBI Cards & Payments Services Pvt. (SBIFMPL)_ Human Resources 1.3. SBI had increased its benchmark lending rates by 50 basis points to 11.Ltd.3.5 percent. Associates Banks e. ICICI Bank offers a wide range of banking products 14 . and manage risk better.2. this lending rate increase is dure to the rising cost of funds for banks. service delivery channels and human resource to efficiently serve bank customers across the globe The bank maintains its drive on the technology front to enhance customer service.6 STRATEGY AND NEW DEVELOPMENTS Though a publis sector bank. As a part of its strategy to stay ahead of the competition.financial services which includes life Insurance.200 ATMs. technology enabled customer-centric. Credit card. Factoring. The bank has maintained its record of profitability. Major innovations and initiatives are in the arena of technology. banking products and processes. which are paying more for deposits as a way of encouraging investors to save. iv. After having computerized all its branches. world-class banking organiztation. iii. f. 1. It has a network of about 614 branches and extension counters and over 2.7 ICICI BANK PROFILE ICICI Bank is India’s second-largest bank. it has set in motion a series of steps to transform itself into a modern. Merchant Banking. e. while adjusting to the changing circumstances and interest rate environment.1. Mutual Funds. Security trading and primary dealership in the Money Market. meeting best global practices and standards in bankings and service delivery. (SBICSPL) SBI Funds Management (P) Ltd.
branches in Singapore. both directly and through a number of subsidiaries an affiliates like ICICI Bank. United Arab Emirates. In the 1990s. Sri Lanka and Dubai International Finance Centre and representative offices in the United States. ICICI Bank set up its international banking group in fiscal 2002 to cater to the cross border needs of clients and leverage on its domestic banking strengths to offer products internationally. ICICI Bank has formulated a Code of Business Conduct and Ethics for its directors and employees. ICICI was formed in 1955 at the initiative of the World Bank. The principal objective was to create a development financial institution for providing medium-term and long-term project financing to Indian businesses. Bahrain. China. amalgamation in fiscal 2001. At June 5. ICICI Bank’s acquisition of Bank of Madura Limited in all-stock.and financial services to corporate and retail customers through a variety of delivery channels and through its specialized subsidiaries and affiliates in the areas of investment banking. ICICI Bank was originally promoted in 1994 by ICICI Limited. from non-Japan Asia to be listed on the NYSE. Our UK Subsidiary has established a branch in Belgium. ICICI transformed its business from a development financial institution offering only project finance to a diversified financial services group offering a wide variety of products and services. In 1999. and secondary market sales by ICICI to institutional investors in fiscal 2001 and fiscal 2002. and was its wholly-owned subsidiary. with free float market capitalization* of about Rs. ICICI become the first Indian company and the first bank or financial institution. life and nonlife insurance. ICICI Bank is the most valuable bank in India in terms of market capitalization. 480. 15 . ICICI’s shareholding in ICICI Bank was reduced to 46% through a public offering of shares in Indian fiscal 1998. ICICI Bank currently has subsidiaries in the United Kingdom. Russia and Canada. the Government of India and representatives of Indian industry. ICICI Bank’s equity shares are listed in India on the Bombay stock Exchange and the National Stock Exchange of India Limited and its American Depositary Receipts ((ADRs) are listed on the New York Stock Exchange (NYSE). an Indian financial institution. South Africa and Bangladesh.00 billion ranked third amongst all the companies listed on the Indian Stock exchanges. an equity offering in the form of ADRs listed on the NYSE in fiscal 2000. ICICI Bank. venture capital and asset management. Hong Kong.
both wholesale and retail. strategic investments and cross holdings among public sector entities. and the move towards universal banking. the ICICI group’s financing and banking operations. and would create the optimal legal structure for the ICICI group’s universal banking strategy. with ICICI Bank The merger was approved by shareholders of ICICI and ICICI Bank in January 2002. the Boards of Directors of ICICI and ICICI Bank approved the merger of ICICI Personal Financial Services Limited and ICICI Capital Services Limited. The merger would enhance value for ICICI Bank shareholders through a large capital base and scale of operations. a’ lowing stake holders to access information on ICICI Bank at their convenience. Consequent to the merger. ICICI Bank’s dedicated investor relations personal play a proactive role in disseminating information to both analysts and investors and respond to specific queries. greater opportunities for earning fee-based income and the ability to participate in the payments system and provide transaction-banking services. and by the High Court of Judicature at Mumbai and the Reserve Bank of India in April 2002. particularly fee-based services. The merger would enhance value for ICICI shareholders through the merged entitty’s access to low-cost deposits. and access to the vast talent pool of ICICI hand its subsidiaries. hither market share in various business segments. In October 2001. seamless access to ICICI’s strong corporate relationships built up over five decades. 16 . *Free float holding excludes all promoter holdings. the managements of ICII and ICICI Bank formed the view that the merger of ICICI with ICICI Bank would be the optimal strategic alternative for both entities. The ICICI Bank website serves as a key investor awareness facility.After consideration of various corporate structuring alternatives in the context of the emerging competitive scenario in the Indian banking industry. ICICI Bank disseminates information on its operation and initiatives on a regular basis. have been integrated in a single entity. entry into new business segments.
4 LIMITATIONS OF THE STUDY: • This study is based on the secondary data collected form the kotak securities. 17 . The year 2005-2006 is chosen as a terminal year since only upto this period reliable time series data were available for the variables dealt in the study. This study will also help to identify the bank that is lagging behind in its performane. 2. 2. To study the performance of ICICI and SBI 2.CHAPTER 2 2.2 OBJECTIVES OF THE STUDY: PRIMERY OBJECTIVE • To analyse the various factors which influence the share price of SBI and ICICI bank SECONDREY OBJECTIVE • • • To analyze the market value of SBI and ICICI bank To offer suggestions and recommendations based on the findings. their relative growth and thereby decide on to buy or sell the particular slab.1 SCOPE OF THE STUDY : The project entitled “A Study on the performance evaluation of SBI and ICICI based and fundamental and technical analysis” will enable from the investors point of view to refer the performance of the Banks. com no other efforts have been made to verify their correctness. The approach to behavior of share price is based on long time view. • • Due to paucity of time important factors has been analysed and discussed.3 PERIOD OF THE STUDY: For the purpose of the study 5 years period starting from the financial year mar 2002 to march 2006 in considered.
Interest expended / total funds (%) 8. The key ratios considered of SBI and ICICI Bank considered includes 1. Cash / deposit (%) 3. Profit before provision / total funds (%) 12. Other income / total income (%) 5. Analysis Overlook: Fundamental analysis and technical analysis are taken into consideration. The required information are also collected form respective bulletins of RBI. Global research study is also adhered. Interest expended / interest earned (%) 4. Net interest income / total funds (%) 9.com. website of stockcharts. website of government of India.• There limitations do not undermine either the scope of the study on the analysis and inference. Net profit / total funds (%) 18 . Interest income / total funds (%) 7. Investment/deposit (%) 2. Non interest income / total funds (%) 10. Operating expenses / total funds (%) 11.5 METHODOLOGY DATA COLLECTION Secondary data: All secondary data has been collected from the kotak securities. Ration analysis The ratio analysis expresses the relationship of the financial ratios in percentages which are collected form the Balance sheet and profit and loss account. 2. Operating expenses / total income (%) 6.
Volume is favorable on the upswing. CPR.6 FUNDAMENTAL ANALYSIS INTRODUCTION Fundamental analysis is the study of economic factor industrial environment and the factor related to the company. and infrastructure facilities which provides a best environment for common stock investment Industrial analysis growth follow a pattern. If it is the other way round. This chapter of fundamental analysis consists of Economic analysis Banking industry analysis Profile of SBI Profile of ICICI Ratio analysis of SBI Ratio analysis of ICICI Economic analysis with favorable GDP with savings. investment. This replicates the banking industry monitory policy. Company analysis explains of the profile of SBI and ICICI bank and then deals with the ratio analysis of both the banks 2.1 ECONOMIC ANALYSIS 19 .6. SLR. stable prices.Technical Analysis It is the process of identifying trend reversal at an earlier stage to formulate the buying and selling strategy. 2. trend reversals can be expected. balance of payment. With the help of several indicators they analysis the relationship between price – volume and supply-demand for the overall market and the individual stock. the number of shares traded is greater than before and on the downside the number of shares traded dwindles. and the flow of the industry.
As a result. However. The positive saving of Rs. particularly in manufacturing boosted sentiments with in the country and abroad. which as proportion of GDP. in 2006-2007.7% in the two resent year.0% targeted by the tenth plan (2002-2003 to 2006-2007). Vigorous growth with strong macroeconomic fundamentals has characterized developments in the Indian economy in 2006-2007 so far.1%.4 per cent in 2002-03 to 29. The ratcheting up of growth observed in recent years in reflected in the eleventh five year target of an average annual growth of 9. Services contributed as much as 68. respectively. The private corporate sector has financed a 20 . and services maintained on the industrial segment.0% and 2.2% in2005-2006 and 2006-2007 shows a positive sign. The savings rate for 2005-06.6% of the overall average growth in GDP in the last five years. particularly with tangible progress towards fiscal consolidation and a strong balance of payment position.0% and 9. The higher growth trends. as per the quick estimates. the outlook is distinctly up beat. However. which had been negative until 2002-03.262 crore in 2005-06 (QE) is largely attributable to the higher savings of nondepartmental as well as departmental enterprises.7 percentage points. the stock price are high reflecting the prosperous outlook for sales and profit of the firms. The entire residual contribution came from industry.4% and 55. 71. Growth of 9. has been placed at 8. the industry can also be expected to show rapid growth and vice versa. The Indian economy has shown a sharp rise in the savings rate of the private corporate sector for tour years. SAVINGS AND INVESTMENT The gross domestic savings as a proportion of GDP shows an increasing trend with the saving ration rising from 26. 31. The rise in the savings rate in 2005-06 was due to private corporate and the household sector.1 per cent in 2004-05 and 32. and made a negative contribution to the overall saving rate.0% relative to 8. a redeeming feature of recent years is that the savings of the public sector. The overall macro economic fundamentals are robust. while the share of agriculture in GDP decline to 18. If the economic growth rapidly. and when the level of economic activity is high.The level of economy has an impact on investment in many ways.7 per cent in 2003-04. increased by 1.4 percent in 2005 – 06.1 per cent. When the level of economic activity is low. was positive for the third successive year in 2005-06.0 percentage point and 0. With an up surge in investment.5%. there are some genuine concerns on the inflation front. the surging pattern in agriculture continued with growth estimated at 6. stock price are low. the share of industry and service improved to 26.
Financial savings. This decline has also been accompanied by substantial changes in terms of the shares of different commodity groups.1 per cent in 2003-04.5 per cent of GDP in 2005-2006. As much as 0.1 per cent in 2004-05.7 percentage point of the 1. a construction boom with residential buildings financed from housing loans form banks and the progressive maturing of the domestic financial markets. rose from 15. after declining from 11. beverages and tobacco came down from 43. Physical savings as a proportion GDP has declined steadily from a high of 12. and further to 58.7 per cent in 2005-06. GDCF at constant prices base: 1999-200) as a proportion of GDP is consistently lower than the corresponding proportion at current prices. PFCE as a proportion of GDP declined from 63.9 per cent in 2006 to 68. transport and communication.7 per cent in 2005-06.4 percent of GDP in 2004 – 05 .4 percent in 2003-04 to 10.04 and 2004-05. more than recovered to 11.large part of its investment in the on-going long capex cycle from such retained earnings or savings.3 per cent to 10.8 per cent in 2002-03 to 19.7 per cent in 2005-06.9 per cent in 2002-03 to 11. 60.5 per cent of GDP leading to a savings investment gap or a current account deficit of 0. increased to 11.3 percentage points increase in gross domestic savings rate between 2004-05 and 2005 – 06 has come from the household sector. there was a step up in the rate of gross domestic capital formation (GDCF) or investment from 28 per cent of GDP to 31.0 per cent in 2004-05. has shown a declining trend particularly from 2001-02. private final consumption expenditure (PFCE) at current prices as a proportion of GDP. The increase in savings rate is what is to be expected with higher growth rate of the economy and a declining dependency ratio.4 per cent in 2005-06. with the rise in the rate of gross domestic savings between 2003. This differential may reflect the greater increase in the prices of capital goods relative to the general 21 . Progressive maturing of the domestic financial markets has provided shift in the household portfolio in the three years ending in 2005-06. Government final consumption expenditure GFCE). As the savings rate has gone up. In PFCE.1 per cent in 2002-03 to 62. The other major items of importance. on the other hand. While Housing loans from banks has tended to increase household savings in physical form and depress financial savings. as a proportion of PFCE.0 per cent in 2004-05. namely. the demographic dividend in the form of high savings rate is likely to continue.4 per cent in 2026. after declining from 11.3 per cent in 2002-03 to 39. the share of food.2 per cent between 2003-04 and 2004-05. with the proportion of population in the working age group of 15-64 years increasing steadily from 62.
with growing technological sophistication of the production processes in the economy in general and manufacturing in particular. Low investment. a distorted incentive system and low post-harvest value Addition continued to be a drag on the sector’s performance.1 percentage point for the first time in recent years. particularly in the private sector.7 per Cent in 2006-07. poor agricultural performance. it had again dominated GDP Growth in 2003-04.1 per cent and 14. from the demand side. as the current year Has demonstrated.0 per cent in the first five years of the New millennium starting 2001-02.0 per cent. respectively. But.1 per cent in 2004-05 and 2005-06. the external balance continued to have a negative contribution to GDP growth in recent years. with more Than half the population directly depending on this sector. is a Cause of concern. investment continued to provided the lead during 2004-05 and 2005-6. can complicate maintenance of price stability with Supply-side problems in essential commodities of day-to-day Consumption.8 percentage point contribution of investment to 13. on a base of 6. AGRICULTURE After an annual average of 3. growth of agriculture at only 2. The percentage point contribution of investment in the growth of GDP at current market prices of 13.0 per cent growth in the previous year. With imports growing faster than exports. Furthermore. PFCE Contributed more than one half of the growth every year until 2001-02. Data on consumption and investment in the national accounts available until 2005-05 show that the 6. low Agricultural growth has serious implications for the ‘inclusiveness’ of Growth. GDP growth in India in the post-reform period was driven mostly by Private final consumption expenditure or PFCE growth. respectively. . were 7. low seeds Replacement rate.1 per cent growth in GDP at current market prices in 2004-05 exceeded the corresponding contribution of private final consumption expenditure at 6. imbalance in fertilizer use.price level. But this appears to have undergone a virtuous Transformation with investment rather than private consumption being he Main source of GDP growth in the latest two years of 2004-05 and 2005. After falling below one half in 2002-03. the direction of change from year to year remains unaltered.06 .6 per cent and 7. The recent spurt of activity in food processing and Integration of the supply chain from the farm gate to the consumer’s plate Has the potential 22 . In terms of contribution to growth of GDP at current market prices. This may indicate a recent pick up in fresh investment for creating additional capacity through fixed capital formation. irrespective of the choice of constant or current prices as the weights..
Food articles contributed as much as 27. the in flation rate in 2006-07 has been on a general upward trend with intermittent decreases. sugar and Edible oils by a combination of enhanced imports. With a firming up of international prices. On January 22. INFLATION with a shortfall in domestic production vis-à-vis domestic demand and hardening of international prices. first in August 2006 and later in January 2007. sugar and pulses. Followed by food articles at 12. average inflation in the 2 weeks ending on February 3. and little postharvest processing. was reduced by 20-22. an Condiments and spices have been the major contributors to the higher Inflation rate of primary articles.7 per cent on February 3. Regulation of commodity futures markets was strengthened for wheat. prices of primary commodities. mainly food. However. Prices of primary commodities. State Trading Corporation. and National Agricultural Cooperative Marketing Federation (NAFED) purchased urad and moong overseas. poor quality seeds. export restrictions and Fiscal concessions. and exports were banned from February 9. the impact of duty-free import of wheat and pulses in rolling the domestic prices back was limited. 2007. various metals and machinery items. Food articles have a high weight of 15. 2007.4 per cent in the WPI Basket. The minimum support price (MSP) of wheat raised by Rs. tariff values of these oils for import duty assessment were frozen. fruits and vegetables. Starting with a rate of 3. Further.0Per cent. the mineral Subgroup recorded the highest year-on-year inflation at 18. 2007 remained at 5 per cent. Duty on palm group of oils.5 percentage points in a phased sequence.2 per cent and non-food articles at 12.98 per cent. and as a matter of abundant precaution.2 per cent. Government closely monitored prices every week and initiated Measures to enhance domestic availability of wheat. pulses. pulses. the parastatal. But such imports unproved domestic market discipline. which meets more than a half of the domestic demand –supply shortfall in edible oils. export was banned from June 22. In pulses. 2007. Wheat. 2006.2007. mainly food. further duty cuts were announced for Portland cement.50 Per quintal and announced well in advance of the sowing season to bring additional acreage under wheat. 2006.2 per cent to overall inflation of6. tendered overseas for 55 lakh tonnes of wheat.of redressing some of the root causes such as low Investment. imports were allowed at zero duty from June 8. futures trading was banned in urad and tur from January 24. Including manufactured products such as sugar and edibleoils. edible oils. Within the primary group. private trade as permitted to import wheat at zero duty from September 9. have been on the rise In 2006-07 so for. have been on the rise in 200623 . In wheat.
on August 8. In 2005-06. and 2004-05.7 per cent in the first nine months of the current year. reflecting in part the ongoing investment boom and the high international petroleum price.28 per barrel. Including manufactured products such as sugar and edible oils.2 billion and US$11. Exports grew fast. 2007 remained at 5 per cent. To stop the hemorrhaging of public sector oil companies’ finances. 2007. Government and oil marketing companies. Within the primary group.. Balance of payment In the balance of payments. 2000-01. in 2005-06 and in the first half of 2006-07.2 per cent to overall inflation of 6. In the first nine months of the current year. has turned negative since 2004-05. domestic prices of petrol (motor spirit) and high diesel were reduced by Rs. pluses. fruits and vegetables. there was an unavoidable upward revision of retail selling prices of petroproducts on June 6.2 per cent and non-food articles at 12. primarily because of high bullion prices leading to a decline in import balance.7 per cent on February 3. The pass –through to consumers was restricted to just 12. average inflation in the 52 weeks ending on February 3. While petroleum imports continued to grow rapidly. but imports grew even faster. and resulted in reserve accretion. 2003-04.0 per cent. the inflation rate in 2006-07 has been on a general upward trend with intermittent decreases.98 per cent.5 per cent in a three way burden sharing arrangement among consumers. after remaining in surplus till 2003-04. 2006.07 so far. after remaining more or less stable in 2002-04 at around US$27. followed by food articles at 12. and again by the same amounts with effect from February 16. capital flows more than made up for the current account deficits of US$9. the mineral subgroup recorded the highest year-on-year inflation at 18. edible oils. India’s exports (in US dollar terms and 24 . imports (in US dollar terms and customs basis) had grown by 33.4 per cent in the WPI basket.2 per cent. Starting with a rate of 3. With the softening of international petroleum prices. food articles contributed as much as 27. non-oil import growth decelerated to a moderate 18. 2006.7 billion. Wheat. respectively with effect from November 30.3 per cent. 2 and Re.1. The current account deficit reflected the large and growing trade deficit in the last two years.8 per cent. However. imports grew by 36. FOREIGN IMPACT oil prices The international annual average price of the Indian basket of crude (about 60 per cent of Oman/Dubai and 40 per cent of Brent). Food articles have a high weight of 15. and condiments and spices have been the major contributors to the higher inflation rate of primary articles. 2007 . 2006. A spurt in inflation like in the current year has been observed in the recent past in 1997-98. respectively.
grew by 30. growth of 23. as a proportion of total capital flows. after remaining buoyant until 2005-06. after a slow start. India with a market capitalization of 91.4 per cent in April –September 2006.3 per cent in the last four years ending in 2005-06. exports gained momentum to grow by an estimated 36. 2002-05.4 per cent.724 on February 9.929 on June 14.5 per cent to RS. 2007 the strength of the market microstructure from large retail participation continued. fluctuated from year to year. especially through private placements and Initial Public Offerings (IPOs). were 25 per cent in 2004-05 and 18 per cent in 2005-06.000 mark to the 1400 mark in only 26 trading from the fastest ever climb of 1. India’s exports crossed the US$100 billion mark. FDI and FII Capital flows into India remained strong.picked up in 2004-05. with about 6 IPOs every month. After being outflows in the previous two years. external assistance and external commercial borrowing (ECBs) –two major debt-creating flows. Foreign investment.769 crore in calendar year 2006. The growth rate was 27. on average.1 per cent to 79. The BSE sensex. These debt flows. turned into net outflows in the first half of 2006-07. 161. as a proportion of capital flows. 2006 to an alltime intra-day high of 14. In the three-year period. Fill flows are reported to have turned positive again in the second half of the current year. Net 25 . the dominant variety of portfolio flows.customs basis) have been growing at a high rate of more than 20 per cent since 2002-03. FII flows.5 billion. Aggregate mobilization. rallied from a low 8.4 per cent in 2005-06 followed by 98. There was strong growth in foreign direct investment (FDI) flows (net). This was even after gross outflows under FDI with domestic corporate entities seeking a global presence to harness scale. however. there were large ‘other flows’ (delayed export receipts and others) accounting for a sizeable proportion of net capital flows. technology and market access advantages through acquisitions overseas. The rally from the 13. Buovancy of exports was driven from major trading partners.000 points. with three-quarters of such flows in the form of equity. During 200607. During 205-06. The composition of flows. THE CAPITAL MARKET Bullish sentiments in the domestic capital market is foreseen. 2007.5 per cent of GDP on January 12. The positive sentiments were manifest also in most indicators such as resource mobilized through the primary market. has remained in the range of 39.3 per cent in the first nine months to reach US$89. stockindex of the Bombay Stock Exchange (BSE).
impressive progress in information technology (IT) and IT-enabled services. accelerated delivery. and fast addition to existing stock of telephone connections. Further. 25. Reflecting the improved growth prospects of the economy was partly also a result of steady progress made on the infrastructure front. There was. The negative inflows in 2004 turned positive for the public sector mutual funds in 2005 and accelerated in 2006. particularly mobile. 26 . INFRASTRUCTURE On the transport and communication front. along with the ‘value for money’ continues to remain critical. and cement.3 per cent. The upbeat mood of the capital markets.mobilization of resources by mutual funds increased by more than four-fold from Rs. The potential benefits expected from PPP are : cost-effectiveness. however. higher productivity. registered a growth of 8. Overall index of six core industries – electricity.2). clear customer focus. it is estimated that a leveraging of nearly six times could be achieved through this route.04. The news of gas discoveries in the Krishna Godavari (KG) basin under New exploration and Licensing Policy (NELP) in recent months was an encouraging development in the country’s pursuit of reduced impot dependence in hydrocarbons. the additionally of resources that PPP would bring. other indicators of market sentiments. and recovery of user charges. While nearly 60 percent of these resources would come from the public sector and/or through public-private partnership (PPP). such as equity returns and price/earnings ratio also continued to be strong and supportive of growth. a growth declaration in cargo handled at major maritime ports (both exports and imports) and airports (exports).950 crore in 2006. The sharp rise in mobilization by mutual funds was due to buoyant inflows under both income/debt-oriented schemes and growth/equity oriented schemes. Investment requirements for infrastructure during the Eleventh Five Year plan are estimated to be around US$ 320 billion.454 crore in 2005 to Rs. transport and communication services’ has continued to boost the sector by growing at double-digit rates for the forth successive year (table 1. Among the three sub-sector of services. railways maintained its nearly double-light growth in the first nine months of the current year. ‘trade. both rail and road traffic. petroleum refinery products. coal. 1. hotels. enhanced social service. crude oil. played a key role in such growth. Services sector growth has continued to be broad-based. Based on the number of projects that have been approved or are under consideration.
Growth in financial services (comprising banking. and does not adequately capture the signs of industrial resurgence.6.7 percent in 2004-05 and 10. Within industry. manufacturing. with the solitary exception of the festive month of October. respectively. The earlier statement of GDCF for 2004-2005 of 30. The growth of industry.4% in 2002-2003 and 2003-2004. Growth on industrial sector. had it not been for a relatively disappointing performance of the other two sub-sector.9% on the average between 1991-1992 and 1999-2000. has been growing at double digit rates every month since march 2006. released by CSO in their advance estimates. 2. insurance.9 percent in 2005-2006.6 percent in 2003-2004 bounced back to 8. YoY. namely mining and quarrying.7 % in the last seven years. industry has never consistently grown at over 7.0% in 2006-2007. which was78. the growth impulses in the sector seem to have spread to manufacturing. Now stand upgraded to 31.5% in the next two years. improved to 88. from a low of 2. Investment reflect a high degree of business optimism. touched 10. and after accelerating to over 9.0% per year for more than three years in a row before 2004-2005. The revival in gross domestic capital formation (GDCF) that commenced in 2002-2003 has been followed by a sharp rise in the rate of investment in the for four consecutive years.7% in 2001-2002. real estate and business services).2 INDUSTRY ANALYSIS The lower contribution of industry to GDP growth relative to services in recent year is partly because of its lower share in GDP. gas and water supply. Industrial growth would have been even higher. as a proportion of the corresponding growth in services.5% in the quick estimates. accounting to the monthly index of industrial production (IIP) available until 2006.1%. after dipping to 5. the momentum has been maintained with a growth of 11. and electricity. Since 1951-1952. The current growth phase shows a sharp rise in the rate of investment in the economy.1% and 7. This sharp increase in the investment rate has sustained the industrial performance and reinforces the outlook for growth 27 . revived to 7.1 percent in 2006-2007.
2007 over March 31. 2006.8 per cent in the corresponding period of 2005. 2007. broad many growth has remained above the Indicative trajectory . acceleration in inflation. partly Reflecting lower 28 . year-on-year (Y-o-Y).6.2.0 per cent a year ago.7 MONETARY POLICY Broad money (M3) growth. Concomitantly. M3 growth during 2006-07 so far (January 5. Taking into account. on December 8. Other development in the Domestic economy impacting upon the decision to increase the CRR Included growth in real GDP.9 per cent. have declined further from their end-March 2006 levels. sustained growth in credit offtake. The increase in the CRR is estimated to have absorbed banks’ resources to the extent of Rs. 2006 2. the Reserve Bank raised cash Reserve ratio (CRR) by 50 basis points in two phases with effect from the Fortnight beginning December 23.06 (January 6. The Reserve Bank continued to modulate market liquidity with the help ofLAF repo and reverse repos and issuance of securities under the Market Stabilisation Scheme (MSS).based new monetary aggregate (NM3) – which. reflecting strong demand conditions. beginning December 23. these trends in monetary aggregates. 2005). 2006). inter alia. Sustained Growth of bank credit was accommodated by acceleration in deposit Growth. was higher than that of 8. expectations of the Private corporate sector of higher increase in prices of both inputs and Outputs. 2006 over Apirl1. inter alia does not directly reckon non-resident foreign currency deposits such as India Millennium Deposits (IMDs) and FCNR (B)-was lower than M3. 2007 from 17.3 BANKING INDUSTRY ANALYAIS Bank credit has continued to grow at a pace. accelerated to 20. Banks’ SLR Investments. Expansion in the residency. decided to increase the CRR by 50 basis points in two stages – 25 basis points each effective the fortnights. and additional absorption of liquidity under the MSS. and Challenges emanating from capital flows and consequent impact on Increasing liquidity.0 per cent t end-march 2006 and 16. 2006 and January 6. Furthermore. reports of growing strains on domestic capacity utilization. 13. On a fiscal year basis too.500 crore. the Reserve Bank.4 per cent as on January 5. as a proportion of their net demand and time liabilities (NDTL). at 11.
acceleration in money supply (M3 ) growth and reserve money growth and absorption of additional liquidity under the market stabilization scheme(MSS) 3. The objective is to continue to maintain conditions of stability that contribute to sustaining the momentum of growth on an enduring basis. inter alia. containing inflation expectations in the current environment and consolidating gains achieved so far in regard to stability would warrant appropriate. Growth in liquidity aggregate L 1 was lower that that in NM3 on account Of decline in postal deposits. 4. These included: 1. 29 . Subsequent to the announcement of the Mid-term Review.2 per cent during July-September 2006 and 9. The External sector continues to be strong and current account deficit is likely To be close to the trend.November 2006 will moderate inflation. the monetary policy stance and measures will need to be in a process of careful rebalancing and timely adjustment”. Towards this objective.1 per cent in the first half of 2006-07.recourse to call/term funding from financial institutions.8 CRR The Reserve Bank in its Mid-Term Review of Annual Policy Statement for the year 200607 (October 31. but the overall impact on Inflation expectations requires to be monitored and moderated. with inflation based on the various consumer price indices being higher than WPI. 2. 2.Real GDP growth at 9. Increase in WPI inflation. it is necessary to recognize the challenges Emanating from capital flows and consequent impact on increasing Liquidity. a majority of respondents from the private corporate sector expect higher increase in prices of both inputs and outputs. there were a Number of significant developments. As per the RBI s Industrial Outlook survey. and will continue to be accommodated by net Capital flows. Continued high growth in non-food bank. There were also reports that expansion of capacity is Underway but the realization could be constrained over the next two years. particularly on the domestic front. A seasonal decline in prices of food articles could moderate the inflation Pressures but the WPI inflation excluding food articles remains at Elevated levels. The reduction in prices of petrol and diesel in end. However. that: “Furthermore. There were reports of growing strains on domestic capacity Utilization. immediate measures and willingness to take recourse to all possible measures in response to evolving circumstances promptly. 2006) noted.
As a result of the ncreases in CRR on liabilities to banking system. Amongst its major components. scheduled state co. Concomitantly. 2007. as On January 5. 2007 from 7.75-6.7 per cent). Growth in time deposits of scheduled commercial banks accelerated to 22. on the back of higher Accretion to time deposits. 2006 and January 6. significantly higher than that in the previous year. 2006. 2006 before moderating to 16. On a y-o-y basis. however.9 per Cent as on January 5. y-o-y.9 per cent (y-o-y) as on January 5. This. Growth in aggregate deposits accelerated to 21.50-7.75-8.4 per cent as on January 6.75 per cent over the same period. 2007 from 15. both currency and time deposits Contributed to acceleration in growth in M3 year-year basis growth in Currency with the public increased from 15. On a year-on-year asis.Operative banks and scheduled primary (urban) co-operative banking System by 50 basis points of their net demand and time liabilities NDTL ) In two stages-25 basis points each effective from fortnights beginning December 23. apart from Acceleration in economic activity.8 per cent as on January 5. 2007. Rates offered by private sector banks on deposits of similar maturity increased from a range of 5. Acceleration in growth in October 2006 could be partly attributed to the early onset of festival Season currency demand during the current year. 2007 was of a lower order than a year ago (28. In view of the Acceleration in deposits. regional rural banks (RRBs).1 per cent. with unchanged interest Rates. Growth in time deposits also appears to have benefited from the Recently introduced tax benefits under section 80C for deposits with Maturity of five years and above.2 Per cent as on January 5.5 per cent a year ago.25 per cent in January 2007. On a fiscal Year basis. 2007 from 16. 2007. growth in demand deposits (19.the same rate as a year ago. an amount of about Rs.0 per cent a year ago. growth in non-food credit decelerated marginally to 16. postal deposits have witnessed a significant decline since end march 2006.2006 to a peak of 19.In view of the above. Accertion to time deposits was.75 per cent to 6. the ncremental credit 30 .2 per cent a year ago.75 per cent in March 2006 to 6.75-9. Commercial sector’s demand for bank credit has continued To remainstrong during 2006-07 so far. 13. the Reserve Bank. could be attributed to higher interest Rates on deposits as well as tax benefits.500 crore Of resources of banks would be absorbed. Decided to increase the cash reserve ratio (CRR) of the scheduled Commercial banks. on December 8.2 per cent) as on January 5. Interest rates on time deposits of 1-3 years maturity offered by public sector banks increased from a range of 5. non-food Credit of scheduled commercial banks (SCBs) registered a growth of 31.4 per cent as on October 27.
On a y-o-y basis. commercial bank’s investments in gifts witnessed a large expansion of Rs. 15. internal sources of funds continued to provide large financing support to the domestic corporate sector during the first half of 2006-2007. 23.9 per cent) During 2006-07 (up to January 5.551 crore during April-September 2005 to Rs.7 percent from 18.580 crore a year ago. which increased by 84 per Cent. absorbed 5 per cent of incremental non-food credit. has exhibited some moderation in recent months. Apart From bank credit. 43.222 crore in contrast to a decline of Rs. 843 crore) were more than double of that in the corresponding period of 2005-2006. Mogbilisation theough issuances of commercial papers during April-December 2006 was more than three times of that a year ago.019 crore) were 55 percent higher than that in the same period of 2005. amounts raised from the primary market picked up during the third quarter of 2006-2007. In the fiscal year 2006-2007 (up to January 5.1 percent a year ago. 2007). with net disbursement under ECBs increasing from Rs. y-o-y. Resources raised thorough domestic equity issuances during the first nine months of 2006-2007 (Rs. 34. Profits after tax of select non-financial nongovernment companies during April-September 2006 were almost 40 percent higher than those in the first half of 2005-2006. After remaining subdued during the second quarter. Disaggregated data available up to October 2006 show that credit Growth has been largely broad-based. 17. 2007.6 percent as against a decline of 0. recouse to external commercial borrowings (ECBs) during the first half of 2006-2007 was almost double of that in the corresponding period of 2005-2006. Finally. 12 per cent by ‘other Retail loans’. Profits after tax during the second quarter of 2006-2007 were higher than those in each of the five preceding quarters.031 crore during April-September 2006. Over the same period. Mobilisation of resources through equity issuances abroad ADRs /DGRs ) during April-December 2006 (Rs. With incremental investment in gilts not keeping pace with the high growth in 31 . After remaining above/around 100 per cent for the most part since October 2004. Loans to commercial real estate. reflecting the need to meet statutory requirements. As on January 5. the incremental redit-deposit ratio was around 93 per Cent (y-o-y) as compared with 108 per cent a year ago scheduled Commercial banks’ food credit has recorded a modest rise (5.deposit ratio of SCBs. 8.3 percent a year ago. 2007) reflecting lower order of Procurement of food grains. the corporate sector continued to rely on non-bank. growth in commercial banks’ NDLT accelerated to 20. now withstanding some sluggishness in the third quarter. commercial banks’ investments in gilts increased by 5. Sources of funds financing their requirement. About 34 per cent of incremental Non-food credit was absorbed by industry.
0 percent. 80. 1. 50. During the first quarter. unwinding of the Center’s surplus balances with the Reserve Bank’s purchase of foreign exchange from authorized dealers led to ample liquidity into the banking system. During 2006-2007 so far Central Government deposits with te Reserve Bank have increased by Rs. Reserve money movements over the course of the year reflected the Reserve Bank’s market operations.6 percent a year ago.9 percent a year ago. 2007) as against an increase of Rs.407 crore as on January 5. The Reserve Bank’s foreign currency assets (net of revaluation) increased by Rs. 11. 6. 2007) as compared with an increase of Rs. 2007) as against an increase of Rs. the Reserve Bank’s holdings of Government securities increased by Rs. increased by Rs.615 crore. 2007 fron 31. 2007 as compared with 14. This was mirrored in an increase in the LAF reverse repo balances. and using all the policy instruments as its disposal flexibly.963 crore during the fiscal year 2006-2007 ( up to January 19. 2007 from Rs. 27. Liquidity management emerged to be more complex during the past year. commercial bank’s holdings of Government securities declined to 28.3 percent at the end o-March 2006 and 32.68. y-o-y.6 percent of their NDLT as on January 5. largely reflecting variations in cash balances of the Governments and capital flows. as on January 19. Funds raised through equity issuances in the primary market as well as higher internal reserves also enabled banks to fund strong credit demand.NDLT. consistent with the objective of price and financial stability.4 percent as on Janurary 29. Excess SLR investments of SCBs fell to Rs. However. LAF and CRR.9 LIQUIDITY MANAGEMENT The Reserve Bank continued to ensure the appropriate liquidity is maintained in the system so that all legitimate requirements of credit are met.185 crore during the corresponding period of the previous year Mirroring the liquidity management operations through LAF. Towards this end. 2007. reserve money growth was 17. the Reserve Bank continued with its policy of active demand management of liquidity through OMO including MSS. The Reserve Bank’s net credit to the Centre.029 crore a year ago. thus.166 crore during the fiscal year 2006-2007 (up to January 19. 622 crore during the corresponding period of 2005 –206 2. 96. 3. Adjusted for the first round effect of the hike in the CRR.435 crore in the corresponding period of 2005-2006. Reserve Money Reserve money expanded by 20. 10. particularly for productive purposes.615 crore during 20062007 (up to January 19. with greater variation in market liquidity. 32 .
The Reserve Bank injected liquidity through repo on eight occasions between mid September 2006 and end-October 2006. Stable industry dynamics 4. 814 crore during January 2007 (up to January 20. 5.585 crore during December 22-29. and the increase in the CRR by 501 basis points in two phases. as liquidity pressures eased partly on account of reduction in the Centre’s balance with the Reserve Bank from Rs.615 crore during December 13-21. net injection of liquidity was witnessed only on two occasions (October 20 and October 23. Beginning mid September 2006.However. 42. 10. the absorption under LAF reverse repose witnessed some decline during the second quarter. 2006 to Rs.262 crore and Rs.190 crore as on January 24. the Reserve Bank injected liquidity into the system through repo operations from December 12. 2006 in contrast to the average daily absorption of Rs. track record 3. 2. however. Liquidity conditions eased during November 2006.682 crore as on December 29. 10. 73. advance tax outflows (with concomitant increase in the Centre’s surplus cash balances with the Reserve Bank from Rs. 25.937 crore during October 2006 and November 2006.528 crore as on January 19.10 INIDAN FINANCIAL SECTOR SWOT ANALYSIS Strengths 1. 716 crore as on December 15. In view of the prevailing liquidity conditions. 65. Well – established regulatory frame work 33 . This was mirrored in balances under LAF reverse repos. however. which increased to Rs. conditi8ons. Average daily net injection of liquidity by the Reserve Bank moderated to Rs. 2007. 2007). 48. 34.2006 to Rs. 2007. 2006). Prove management teams.634 crore on December 22. partly reflecting market liquidity purchases of foreign exchange by the Reserve Bank. respectively. Liquidity pressures eased by end-October 2006 following soje decline in Centre’s surplus cash balances. 9. in view of some build-up of Centre’s cash balances with the Reserve Bank during August 2006. 2006. Net outstanding balance under LAF repos was Rs. Average daily net injection of liquidity by the Reserve Bank increased from Rs. 2006 to Rs.255 crore as on December 6. 2006. proven asses quality resilience in past downturns. 2. 1. liquidity conditions turned tight on account of advance tax outflows and festival season currency demand. turned tight from the second week of December 2006 largely due to payments for auctioned Central Government securities. 2006).
Establishment of special economic zone likely to promote further industrialization 3. Rapid financial deepening. 3. Liquidity : Deposit growth sustaining momentum and loan growth moderating to 25% from the current level of 30% 2. of catch-up economics – low per capita income.5. if not decades. 4. Key risk factors 1. combained with accelerating private credit demands 2. Continued crowding out effect form Govt. 5. loan growth as multiple of nominal GDP growth. Opportunities 1. Rising corporate capex. consumer credit business. should earnings delivery disappoint expectations. 6. budget deficit. Improving secular GDP growth prospectus 2. Rising consumer spending. i. “Running on empty’ in terms of liquidity 2. Loan growth : Moderation needed more for maintaining industry dynamics. Weakness.e. M&A optimality. Ownership restrictions 34 . Reduction in reserve requirements: key swing factor for liquidity and hence for sustaining growth momentum. Stable / low NPL formation rates. Key challenges 1. potential rise in long bond yields. 5. 4. potential for valuation pullback. investments 7. MTM risk for banks 5. Years. Potentially hawkish RBI stant on inflation/monetary policy 4. Policy risks: Moderating in inflation outlook. educated work force.t be a shock factor. Potential for further tightening in the short term. Our echonomist believes that the risk is less. Interest rate outlook some headwind from policy rate hike but won. Tightening in global liquidity may trickle down to Inida 3. Key issues/swing factors 1.
400 crore 35 .000 crore for 2007-2008 with an addition of 50 lakh new farmers to the banking system. Constraints on state. in real terms.6% growth target for the Tenth Plan of 8% will be nearly achieved. until December 2006 drinking water provided to 55.3. about Rs. and supply constraints in some essential commodities – consequently.3% and in services sector from 9. 2. of this. savings rate estimated at 32. year on year. additional irrigation potential of 2. faster employment creation.8% and further to 11. 12. staff cut.2 and 5. growth rate of approximately 10% by the end of plan period.4%. during three year period.1% and further to 11.6% expansion in money supply (M3) by 21. AGRICULTURE Farm credit : Target of Rs. 225. pressure on domestic pri8ces by global commodity prices.2%.198 kilometers of rural roads completed and 783. 12. and balance to be covered by the end of the year. In 2006-2007. acceleration in growth rate inmanufacturing from 8.000 rural houses constructed with 914. branch cut constraints.5% in 2004-2005 to 9% in 2006-2007.8%. a special plan being implemented over a period of three years in 31 especially distressed districts in four states involving a total amount of Rs.400. 16. ELEVENTH FIVE YEAR PLAN Objectives : “Faster and more Inclusive Growth”. growth of 4% in the agriculture sector. provision of Rs. increased by 7.3% foreign exchange reserves at US$ 180 billion.6% to 9.054 villages provided with telephone against target of 20.979 crore. average inflation in 2006-2007 estimated at between 5.758 villages covered so far under the Rajiv Gandhi Grameen Vidyutikaran Yojana. 19.4% vis-à-vis 4.677 crore for 2% interest subvention for short-tem crop loans.11 BUDGET 2007-2008 OVERVIEW BUDGET 2007-2008 Improvement in GDP growth rate from 7. 15.4% last year. 1.7% to 9. Inflation : Growth in bank credit. 000 villages.000 hectares to be created.4% and investment rate at 33. average growth in agriculture during Tenth Plan estimated at 2.512 habitation.3% Income and Savings : per capita income in 2005-2006.owned banks micro including HR. average growth rate in the three ears of the UPA Government at 8.000 houses under construction. by 29. reducing disparities across regions and ensuring access to basic physical infrastructure and health and education services to all.
Agriculture Technology Management Agency (ATMA) now in place in 262 districts to be extended to another 300 districts.580 crore. oil palm. a pilot programme to be implemented for delivering subsidy directly to farmer.350 crore. Agricultural Insurance : National Agricultural Insurance Scheme to be continued for Kharif and Rabi 2007-2008 with a provision of Rs. Water Resources Management : Restoring Water Bodies : World Bank loan agreement signed with TamilNadu for Rs. Fertiliser Subsidies : Based on study to be conducted. Government to fund the expansion of Indian Institute of Pulses Research.763 water bodies having a command area of 400. an increase from Rs. Accelerated Irrigation Benefit Programme : 35 projects likely to be completed in 2006-2007 and additional irrigation potential of 900. Extension System : New programme to be drawn up that will replicate earlier Training and Visit (T&V) programme. Pulses and Maize Development programme to be expanded with sharper focus on scaling up the production of breeder. cashew and coconut. Mission for Pulses : Integrated Oilseeds. 11. a weather based crop insurance scheme to 36 . Kanpur. Plantation Sector : Financial mechanisms for re-plantation and rejuvenation to be put in place for coffee.000 hectares to be created.000 hectares.182 crore to resore 5. rubber. special plan includes a scheme with proposed provision of Rs. 230 crore. Rainfed Area Development Programme: Proposed allocation of Rs. provision for ATMA to increase from Rs. 2. 50 crore to Rs.121 crore to Rs.to be on water related schemes.000 crore including grant component to State Governments of Rs. outlay to be increased from Rs.000 hectares. 2. 7. spices. 100 crore for the new Rainfed Area Development Programme. 3. foundation and certified seeds. agreement for Andhra Pradesh expected to be concluded in March 2007 to cover 3000 water bodies with a command area of 250. 500 crore. and offer the other producers a capital grant or concessional financing to double production of certified seeds within a period of three years. 153 crore for induction of high yielding milch animals and related activities.
fund to contribute upto 75% of preparatory expenditure in the form of interest free loan to be recovered from the successful bidder. 20062007. 650 crore to Rs. 10. 800 crore.000. investment of Rs.be started by Agricultural Insurance Corporation on a pilot basis as an alternative to NAIS allocation of Rs.5 billion and outpaced portfolio investment of US$ 6. Assam. over Brahmaputra. 100 crore to be set up to quicken project preparation. 165. 3.945 crore to Rs. 23 coal bed methane blocks awarded for exploration.983 crore.053 crore through internal and extra budgetary resources in 2007-2008.361 crore and loans of Rs. Provision for National Highway Development Programme to increase from Rs. Accelerated Power Development and Reforms being restructured to cover all district headquarters and town with a population of more than 501. definition of specific end use to be enlarged to include underground coal gasification and coal liquefaction. 2007. INFRASTRUCTURE : Power : Seven more Ultra Mega Power Projects under process and at least two to be awarded by July. 100 crore to be made in 2007-2008 INVESTMENT : Gross domestic capital formation in 2005-2006 grew by 23. foreign direct investment amounted to US $ 12. 97. allocation to increase from Rs. budgetary support for APDRP to increase from Rs. 37 . Coal : 26 coal blocks with reserves of 8.7 percent in April-January. National Highways . to be taken up as an national project. road-cum rail bridge at Bogibee.970 crore. INDUSTRY Petroleum and Naural Gas :162 production contracts awarded. 16. 3.000 crore made in exploration. 9.000 crore to Rs. Public Private Partnership and Vialibility Gap Funding : Revolving fund with a corpus of Rs. Central Public Sector To invest Rs. Government to provide equity support of Rs. Rajiv Gandhi Grameen Vidyutikaran Yojana. other initiatives include facilitating setting up of merchant power plants by private developers and private participation in transmission projects.8 billion.667 crore.581million tones and four lignite blocks with reserves of 755 million tones allotted to Government companies and approved end users. 2.
Provision for tourist infrastructure to increase from Rs. Handlooms : Additional 100-150 clusters to be taken up in 2007-2008. 460 crore at end December 2006. 20. Tourism . Securitisation and Reconstruction of Financial Assets and Enforcement of Securitisation of Interest (SARFAESH) Act to be extended to loans advanced by RRBs. echnology Upgradation Fund scheme to continue with provision of Rs. Regional Rural Banks : To open at least one branch in 80 uncovered districts in 2007-2008 \. Housing Loans : National Housing Bank to introduce ‘reverse mortgage’ under which a senior citizen who is owner of a hose can avail of a monthly stream of income against mortgage of his/her house. SERVICE SECTOR Foreign Trade : Merchandise exports expected to cross US $ 125 billion by the end of the current fiscal. 22. 38 . and those which have a negative net worth to be recapitalized. limit of loan to be raised from Rs. 173. 911 crore. 241 crore to Rs 321 crore. 189 crore to Rs.500 to Rs.Textiles : Provision for Scheme for Integrated Textiles Parks to increase from Rs. Small & Medium Enterprises : Increase in outstanding credit from Rs. while remaining the owner and occupying the house throughout his/her lifetime.50 crore. 135. Coir Industry :Scheme for modernization and technology upgradation with special emphasis to major coir producing States announced with a proposed provision of Rs. 15. allocation for the sector to be enhanced from Rs. FINANCIAL SECTOR Banking : Under Differential Rate of Interest scheme providing finance at a rate of 4% to weaker sections of the community engaged in gainful occupations. 5. health insurance scheme to be extended to more weavers and also to be enlarge to include ancillary workers.000 to Rs. 520 crore. 6. 425 crore. to be permitted to accept NRE/FCNR deposits.000 and limit of housing loan to be raised from Rs. 423 crore to Rs.000 per beneficiary.200 crore to Rs.
by institutions to be allowed. regulations to be put in place to allow creation of mortgage guarantee companies. individuals to be permitted to invest in overseas securities through Indian mutual funds. or to co-finance their ECBs for such projects. RBI and NABARD. and (ii) borrow funds from the RBI. a Financial Inclusion Technology Fund to be also established to meet costs of technology adoption. solely for capital expenditure outside India. enabling mechanism to be put in place to permit Indian companies to unlock a part of their holdings in group companies for meeting their financing requirements by issue of Exchangable Bonds Innovative Financing for Infrastructure : Funds from National Small Savings Fund may also now be borrowed by India Infrastructure Finance Company Limited. each fund to have an overall corpus of Rs. mutual funds to be permitted to launch and operate dedicated infrastructure funds. SOLUTION OVERVIEW 39 . and securities lending and borrowing to facilitate deliver. idea of self Regulating Organisations (SRO) to be taken forward for different market participants under regulations to be made by SEBI. suggestions of Deepak Parekh Committee to be examined for establishment of two wholly owned overseas subsidiaries of IIFCL with objectives to (i) borrow funds form RBI and lend to Indian companies implementing infrastructure projects in India. other three public sector insurance companies to offer a similar product to senior citizens. Capital Markets : PAN to be made sole identification number for all participants in securities market with an alpha-numeric prefix or suffix to distinguish a particular kind of account. Financial Inclusion: A Financial Inclusion Fund to be established with NABARD for meeting cost of development and promotional interventions. short selling settled by delivery. Insurance : Exclusive health insurance scheme for senior citizens offered by National Insurance Company. 500 crore. Micro Financial Sector (Development and Regulation) Bill and a comprehensive Bill to amen insurance laws to be introduced in Budget Session. invest such funds in highly reated collateral securities and provide ‘credit wrap’ insurance to infrastructure projects in India for raising resources in international markets.without repayment or servicing of the loan. with initial funding to be contributed by Government.
On an average. passwords. Another key challenge was managing transaction volumes. first by acquiring Bank of Madura followed by a reverse merger of the bank with its parent organization. thus increasing overall efficiency. the bank currently has the ability to process 0. Over the years.27 million cheques per day and manage 7000 concurrent users. mutual funds. With Financial. enable Finance to successfully manage the resultant increase in transaction levels from 400. cards. Currently. it was the first bank in India to offer Internet Banking with Finacle’s ebanking solution and established itself as a leader in the Internet and eCommerce space. only 25 percent of all transactions take place through branches and 75 percent through other deliver channels.000 transactions a day in 2000 to nearly 201 million by 2005 with an associated growth in peak volumes by 5. the bank has been able to successfully move over 70 percent of routine banking transactions from the branch to the other delivery channels. Do not share their User Ids. 2. The bank followed it up with offering several e-Commerce services like Bill Payments. 40 .000 customers as month. in 1997. The Scalable and open systems based architecture. For instantance. Financial needed to seamlessly integrate with multiple applications such as credit cards. This reduction in routine transactions through the branch has enable ICICI Bank to aggressively use its branch network as customer acquisition units. With the ICICI group having several companies under its umbrella. the strategic partnership between ICICI Bank and Infosys that started in 1994 has grown stronger and the close collaboration has resulted in many innovations. which is among the highest in the world. ICICI Bank.One of the biggest challenges for Financial was ensuring straight through processing (STP) of most of the financial transactions. brokerage. card numbers on PINs with anyone. Between 2000 and 2004. NOR from their consequent unauthorized use. call center and data were housing systems. Funds Transfers and Corporate Banking over the net. ICICI Bank adds 300. The Internet is a critical element of ICICI Bank’s award winning multi-channel strategy that is one of the main engines of growth for the bank.12 SECURE BANKING ICICI Secure online banking experience • • It strives provide a secure banking environment.5 times. ICICI Limited. provided the customers. underwent a phase of organic and inorganic growth.
1 (A) INTERPRETATION SBI-RATIO ANALYSIS • Net interest incoming growth is due to Low cost deposits which helped the bank in containing its costs of funds.13. 41 . • Interest expenses. 2.13 KEY RATIOS RATIO ANALYSIS [SBI] The financial statements of the company reveal the needed information for the investor to make investment decision. low cost deposit grew by 19. liquidity leverage and the value of the stock. Incomes from foreign exchange transactions are also recorded. • • • Credit off take of the bank has been lower than the Indian banking industry.29% in 2004 to 57% in 2005.3% on a year basis which helped contain the cost of funds. Other income includes the fees and commission income. Firewall (Virtual electronic fence that prevents unauthorized access to the ICICI Bank server) • • • Verisign Digital Certificate Two levels of passwords for executing Financial Transactions Secured Funds Transfer & Bill Payment.• • ICICI Bank employs a range of security features for its Online Banking services.. • The bank would sustain Net interest income ratio and can marginally improve on it because of its resource mobilization power and cost control measure. During 2006. 2. The ratio analysis helps the investor to study the individual parameters like profitability. to the interest income ratio declined consistently from 63. Not interest income’s key contributor is the other income.
62% while increase in deposit was at 9. • • Investment/deposit ratio was on the declining trend excepting the year Mar 2004. The reduction in investment ratio was mainly due to deployment of funds under advances. RONW is very much declined to an extent of (12. which always contributed substantial chunk of the total operating expenses.• The ratio of non-interest income is on the decline trend excepting the year 2004. also grew. staff accounts nearly 5000 employees. there has been a significant decline in profits from trading in investments to Rs. • • High investment is made in core banking facilities New technology products coupled with quick turn around time (TAT) have enabled midcorporate group to increase its business substantially.9 bn compared to Rs. • Operating expenses by 6% over the previous years (Mar 2005) which shows a decline (69%).3%) from March 2005-March 2005March 2006. natural retirement. because of the stagnant net profit ratio. As of SBI launched VRS scheme. which shows reduction in. because its growth was not adequate enough to work the increase in the total funds. The increase in investment during Mar 2004 was at 18.774 as on 31st Mar 2006.75 bn in the previous. • • A sizeable increase of operating expenses is being notices. • Employee expenses. 5. 2.6% • SBI group is continuously losing their market share in deposits since the opening up of the banking sector to their private counterparts. It is also note worthy that the bank has total staff strength of 1. • During 2005-2006.13. • New department growth in every branch by introducing new technologies with computerized improvement.98.2 (A) INTERPRETATION ICICI – RATIO ANALYSIS 42 . 17.
2006. increase in transaction banking fee and fee income.5% increase in other income. exchange and brokerage and a 12. offset.72 (2006)] which includes the unrealized gain/loss on certain derivative transaction.8% in the six month period ended sep 30. 2006.2% in average interest-bearing liabilities to Rs. due to growth in retail banking fee income arising form retail assets like home loans and credit cards and retail liability product income like account servicing charges.39% to 6. • Other income decreased comparatively [25.41(2004) 27. 2354. • Total deposits increased consequence to the general increases in interest rates reflecting a tight systemic liquidity scenario and increase in deposit rates for retail and other customers in Fiscal 2006.3% from 1511. 2006 from 5. • Interest expenses has increase during 2005-2006 is primarily due to an increase of 55. In accordance with RBI guidelines for Accounting for securitization of standard assets. • Non interest has increased and is stable during 2005-2006 due to increase in commission. The lower capital gain 43 .33 (2005) 26. benchmark rate for floating home loans has increased by 150 points in the same period. These commissions are expended and not amortized over the live of the loan.3 billion in 2005 and an increase of 50 basic points in the six month period ended sep 30. ICICI accounts for any loss arising on Securitization immediately at the time of sale and the profit/premium arising on account of securitization is amortized over the life of the asset. This is due to the increase in allowances (626) in spite of prime leading rate increase by 225 basic points in the period of 2005-2006. in part by a 22.7 billion in the six-months period ended sep 30. • All direct marketing agency expenses. on automobile loans and other retail loans are reported separately under “Not interest expense”.56% in the end. • In Feb 2006. • Interest income/total funds have increased from 6.• Net Interest Income / Total funds has increased primarily reflecting an increase of the average volume of Interest learning assets. 2006 is primarily due to an Increase in the average Interest earning assets. • Cost of funds to 6.5% decline in house income.
increase in fee income increase in treasury income and of operating expenses. investments in government securities and lower level of writ backs in fiscal 2006. 2005 RBI increased the requirement of general provisioning on standard loans (excluding loans to agriculture sector and small and medicines enterprises) to 0.09% (2005) is primarily due to increase in net interest income.23% form 2. primarily in retail banking and includes maintenance of ATMs. But her profit per employee is being decreased (1.52% decreasing trend is foreseen. in accordance with this. credit card related expenses.25% applicable till September 30.40% compared to 0. • Operating expenses increases are primarily due to the increased volume of business. 2006 from 562 at March 31. • With effect from the quarter ended Dec 31. • Employee expenses have been increased primarily due to the number of employees.853) March 2006 to (1. • The number of savings deposit and deposits from outside India has increased to a good extent. 44 . call centre expenses and technology expenses.is a result of the sharp fall in the equity markets in May 2006 and adverse conditions in the debt markets. • Provisions and contingencies (excluding provisions for tax) increases in primarily due to the significantly higher level of amortization of premium on government securities in fiscal 2006.39 billion in fiscal 2006.99. the bank has made general provision of Rs. 3.115.157) March 2005 to the extent 10. • Operating profit before provision and tax ratio increase of 2.2005. • The number of branches excluding foreign branch and OBVSL and extension counter increased to 614 at March 31. 2005.
At present the stock trades in the Indecisive zone on intraday basis. 45 . Short term investor can initiate a buy above 920 with a target of 995 – 1055.a. The above targets are fixed based on leading Indicator Analysis and the trend following.1 TECHINICAL ANALYSIS OF ICICI AND SBIN 3.CHAPTER 3 3. The level of 920 is crucial since the short term Bullish trend will be confirmed. it has considered secondary in Analysis. Indicator Analysis: Moving Average (14 Day) is on positive note and RSI started moving towards North. ICICI BANK Outlook I would recommend a buy only above 830 on close basis. only if the price sustains above 920. If the stock slips below this support level. Major support for the stock is at 800.1. we can see further levels of 730 – 630 – 597. Since Moving averages being a lagging indicator. The continuation pattern negates immediate bearish momentum on the stock and it’s advisable to buy at declines.
A close below 885 could drag the stock towards south to the target zone of 660. 46 . 4. Since Moving averages being a lagging indicator.The above chart is the weekly chart for ICICI BANK. it has considered secondary in Analysis. If that proves to be successful. The current level is crucial for the stock to hold the support of 885. there could be greater chances of bounce back from 885. This could become a complete head and shoulder pattern in coming months. At current levels. it is advisable to unwind all long positions at the right shoulder top (1330-1350) Indicator Analysis: Moving Average (14 Day) is on positive note and RSI started moving towards North.2 SBIN Outlook The weekly pattern suggest a short term bullishness on the stock with a price target of 1300.
3. The ratio of interest expences to total funds shows an increase in Value in ICICI Bank whereas in SBI interest expences shows a Rising mode The ratio of Non Interest income remains the same for ICICI for The past 2 Years whereas in SBI at shows a decline The stock witness some selling pressure in the coming days in ICICI Bank whereas the stock witnessed a huge selling pressure • From the top and bounced back from the major support of 800 • The continuation pattern negates immediate bearish momentum on the stock and it’s advisable to buy at declines. Short term investor can initiate a buy above 920 with a target of 995 – 1055.2. FINDINGS • • • • • • • • • • • • • ICICI and SBI credit deposit ratio is on the side though ICICI banks shows a little decreasing trend to the exten of 2. 47 .24 % Over mar2005 _ mar 2006 Both the bank investment deposit ratio is on the declining trend Both the banks has shown better utilization of cash portfolio ICICI bank Interest expences to interest earned remains the same Over 2 Years whereas SBI shows reduction Other Income ratio remains fluctuation in both the banks Operating expences to total income shows a decresing trend in ICICI bank whereas it was on the rising side in SBI Interest income to total funds shows rising mode in ICICI whereas In SBI more or less it remains at the level.
as the back 48 .3.15% to ICICIB’s operating revenues and have boosted its preprovision RoAA. ICICI BANK: 1.a. It is believed that the profitability of this segment has improved as a Result of lower loan loss provisions and lower taxable rates of Income from this source.Will. however. • • Strong pricing power and a balance sheet that is significantly Biased towards retail lending buffers ICICB’s profitability from Potential shocks in the bank’s funding cost. • Market related revenues is believed to contribute 14% . benefit immensely form a positive operating Environment. in our view. buoyant Market – related revenues and a benign environment for asset quality. Pricing power in consumer financing segment profitability Against potential shocks. ICICB has an adverse mismatch profile between assets and Liabilities. The strong market position and robust Demand for consumer financing vests significant pricing power With ICICIB is believed either by allowing a hike in lending rats. • ICICI is viewed as it is benefited from the procyclicality effect of The economic cycle as its borrowers in the legacy project financing Activity witnessed their debt servicing ability increasing considerably. Expectations is on the procyclical benefit To continue and hence profitability of legacy lending to be sustained At levels seen earlier. particularly retail lending. High volatility in interest rates could adversely effect Profitability in the short term. • ICICIB enjoys a dominant market position across customer Categories in retail lending. Buoyant environment to sustain the contribution from market -related revenues is expected and hence the operating profitability. Best play in a buoyant environment – Favorable macro. SUGGESTIONS 3. Negotiating higher subvention form manufacturers of cutting Distribution costs. 2. • ICICI –as a player focused on maintaining and /or improving Market share in key business segments.3.3.
3. like other large players in the private sector. The life insurance business is Believed in creating wealth for its shareholders through market Share gains.b. however. Market Has rewarded both strategies: ICICIB’s broad-based strategy allows capturing value across the Value chain in a customer segment. enjoys Favorable conditions arising from a restrictive regulatory/policy Environment towards new entrants and foreign banks and slow Pace of reforms for state-owned banks is believed.3. particularly for deposits (2.2%) • In a bid to protect its profitability. these businesses is Believed to hold significant upside potential as they achieve scale Economies. • The life insurance business of ICICIB has been incurring losses On an accounting basis due to continued investment in expznding The sacle and scope of the business. the extent of loss over the Past 18 months has been staggering. 4. In line with consensus. But given the bank’s spread and size. but about Their respective operating metrics and growth conditions. but we recommend buy ICICIB for growth Reasons and not for the relative valuation appeal. • The asset management and venture capital fund of ICICB makes A negligible contribution currently. and ICICIB. Increasing contribution from strategic investments – Yet another driver • The value accruing from subsidiaries to be 17% of ICICIB’s Current market capitization. both in terms of loans and Deposits. SBI has embarked on a Selective growth strategy. Potential headwind to price performance from loss of market share and weaker RoAA • SBI’ has been losing market share. This to rise to 20% of ICICIB’s target Price over the next 12 months is expected with banking and life Insurance being the key drivers. increasing penetration of life insurance and improving operating efficiency. would be difficult to pursue a 49 . 3. SBI 1. It is not so much about ICICIB versus HSFC or HDFCB. This phenomenon to play out through FY1002E and FY2009E is expected. for quite some time.book gets Reprised at new lending rates upon maturity. But . the bank’s NIM will Likely show improvement.
in research view. Significant downward revision to consensus estimates for Operating revenues and profits over the past 12 months. Excess liquidity provides upside only in the Short term is viewed. • SBI’s size and potential to improve efficiency may sway Consensus opinion. but catalysts limited Investors will maintain a growth bias in the Indian market. 2. the deep value inherent makes the Investment case compelling .selective growth strategy unless It reconciles to a significant loss a market share over time. the focus of the market will be on Earnings is believed. 50 . • Challenges are compounded by weaker profitability. in our view. Convinced Size and potential is convincing. The Expectoration is the core operating profits to rebound past Y2004 levels in FY2008 E.Term catalysts. However.limited upside to growth expectations in the medium term Believe SBI’s growth will remain volatile. it remains unrealized thus far. significant volatility in net profit Growth is expected The estimates are below that of consensus for FY2009E and FY2009E by 10%. SBI would likely utilize the excess liquidity over The next 12 months. The forecast says12% CAGR in net profit through FY2009E.. Although there is potential to Improve performance. However. Growth expectations for SBI are below that of consensus (21% CAGR through FY2009E versus consensus 15% CAGR) is Believed News flow about reduction of government holding in SBI to 15% And amendment to the SBI subsidiary act could be potential short. on YoY basis. there are no catalysts to drive earnings Strongly is viewed. Consensus is overestimating revenues by Either assuming higher loan growth or NIM. Lack of exceptional Income/cost elements and need to raise loan loss provisions from Very low levels will likely cause volatility in earnings growth Through FY2009E. The latter is more Likely that the former. Non recurring revenues and costs masked this condition in FY2005 and FY2006. 3. Consensus appears to be positive about excess liquidity that SBI Has reserve holding are significantly higher than minimum Required level. Value inherent.
including SBIS. • The RBI has chalked out a roadmap for opening up the sector to Foreign banks in 2009. significantly disadvantages as We except to see consolidation within the private sector. it will be at a disadvantage to peers in the Private sector is believed • There have a few incremental changes such as introduction of Voluntary retirement scheme for employees. Reforms could be a trigger-assigning a low probability. • • SBI is viewed as it will need flexibility in reorganizing its Distribution network and human resources. As long as the Constraints remain. However. Should this come to fruition. there Changes tend to drain the productive resources rather than Eliminating redundancy is viewed.4. it will leave State-owned banks. 51 .
This indicates that.3.4. the key driver of stock performance of ICICI potential. The initial investment summary cover with a Buy rating to ICICI Bank and a sell rating to SBI based on strategic investment using the Analysis. Bank shows an Increasing trend where as underperformance of SBIS hows a decreasing trend besides its high 52 . CONCLUSION This study on investment decision is conducted by analyzing and Comparing ICICI Bank and SBI based on fundamental analysis and Technical Analysis.
com www. Ltd • Book of Readings.5.in www.nseindia.rbi.stockcharts.org.3. “Security Analysis”.com 53 . The financial express Sanjoy Narayan “Indian’s Best Banks – KPMG Survey” Website: www. “Security Analysis and portfolio Management” Vikas Publishing House Pvt.in www.gov. BIBLIOGRAPHY Books • Punithiavathy pandian. “India’s Best Banks”. ICFAI university Reports • • • Report on Kotak Securities research on the ICICI Bank and SBI Report on “Indian Economic Survey 2006-2007” Goldmen sachs Global Investment Reasearch Journal • • Ernst and Young.
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