International Journal of All Research Education and Scientific Methods (IJARESM), ISSN: 2455-6211

Volume 8, Issue 10, October-2020, Impact Factor: 7.429, Available online at: www.ijaresm.com

Equity Analysis in Banking Sector

Pravar Tikoo

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ABSTRACT

Purpose - This analysis is directed towards the use of different tools of equity analysis which helps the investor to identify
and decide when to buy or sell. In the current economic scenario interest rates are falling and a fluctuation in the share markets
has put investors in confusion.

Method- The study uses Fundamental Analysis to forecast stock prices and interpreting whether to buy or sell them.

Limitations – Fundamental Analysis is based on reported and historically published data. If the company has published
wrong data and figures, our analysis will be wrong and investors might buy wrong stocks.

Keywords: Investors, Technical Analysis, Fundamental Analysis, Equity Analysis

INTRODUCTION

Banking sector is the major source of finance for modern trade and commerce. The economic progress of a country depends
upon financial intermediaries such as banks. Equity analysis is the process of making an evaluation of different investment
avenues, especially for the equity shares. Equity valuation begins with analysis of the sector in which you want make
investment; if the sector looks positive then analyze various companies in the sector. Equity analysis is a lot like travel. All of
us want to choose the best performing stock but we may have varied approaches to do that. A company is analyzed
fundamentally to check its performance and financial strength. Technical analysis is used to decide the right price to buy a
stock so that higher return on investment can be generated. The dependent variable for stock investors is usually stock price.
Since investors are concerned with value of shares, most models will predict what the share will be worth in the future. An
analyst may desire to know how many shares will change hands, in which case the dependent variable becomes the trading
volume. The input that the analyst uses to predict the stock price is the independent variable. The level of a popular stock
market index, such as S&P 500, or the profit per share of the stock’s issuing corporation are some of the commonly used
independent variables. Equity analysis does encompass a vast range of factors and requires processing of information with
intensity. But the fundamental concepts are still simple and straightforward. Does the business hold an earning quality that
will sustain over a long time? This is the central question.

Research Objectives:
1) To provide an overview of banking sector and analysing the stocks of that sector
2) Analysing the tools of analysis used for forecasting stock prices and interpreting whether to buy or sell them.

Research Problem
The investors face problems while identifying the opportunities. So this analysis is directed towards the use of various tools of
equity analysis which will guide the investor to identify and decide whether to buy or sell. People find it difficult to take
decisions on investment. Therefore the study aims to analyze the risks in equity schemes among theinvestors

LITERATURE REVIEW

(Thamaraiselvi R & Anupama, 2008) R. Thamaraiselvi, Anupamain their thesis state that stock market is currently growing
with Bull Run and FII’s are pouring money into our market With the expansion of the industry and the growing number of
retail participants, everything seems to be set up right to "EQUITY BOOM" in India. So a person who wants to earn better
income, a substantial amount of risk is required to participate in the stock market to gain superiorityand better return in a short
time. So this plan will guide those investors for those who want to invest in Nifty50 with some useful insights about the

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 International Journal of All Research Education and Scientific Methods (IJARESM), ISSN: 2455-6211 Volume
8, Issue 10, October-2020, Impact Factor: 7.429, Available online at: www.ijaresm.com

banking sector. Knowledge about Indian market and some company specific information will help them to identify their stock
options and purchase time.

One can improve the odds of making money. Therefore,in an attempt to analyze the study, the stock price movements based
on the bank's basic and technical approach were calculated. The three-year period represents the impact of the department and
various factors affecting stock price. Fundamental analysis basically throws light on a broad range of companies, its
management, its performance over the years, its growth and future prospects. With technology analytics tools and various
trends, like Moving Average, MACD, it is possible to recommend short and long term trend of each stock. To conclude, some
recommendations can be made based on the findings for easy and profitable investment

(Kothari SP, Sloan & Shanken, 1998) SP Kothari and Jay Shanken and Sloan show a beta significantly explains the
cross-sectional variation in average income, but that size also has incremental explanatory power. The findings are
statistically significant, with the incremental benefit of a given beta economically surprisingly small.

(Annapoorna MS & Gupta, 2013) M.S. Annapoorna and Pradeepk Gupta (Oct 2013) they did a descriptive study of returns
of mutual funds scheme ranked No.1 by CRISIL. The main objective was to examine the performance of mutual fund
schemes ranked No.1 by CRISIL and to compare these returns with SBI domestic term rates. The end results attained from the
study clearly stated that, in most of the cases the mutual fund schemes have failed to provide the return of SBI domestic term
deposits.

(Narayanaswamy T & Muthulakshmi, 2014) T. Naryanaswamy & A.P. Muthulakshmi (2014) studied the relative
efficiency of all the private banks in India from the years 2008 to 2013. Axis Bank, Kotak Mahindra Bank, and ICICI Bank
were almost adequate in terms of technical efficiency, technical efficiency, and scale efficiency. The average technical
inefficiency score in the study period was found to be 6%. In terms of pure technical efficiency, besides from the above three
banks, HDFC Bank and National Bank were also relatively efficient. The average technical inefficiency score during the
study period was found to be 5%. Positive correlation ranging between 0.7 to 0.95 was detected between return on assets and
different types of efficiencies during the study period.

(Hanumantha Rao & Dutta, 2014) Hanumantha Rao P, Subhendu Dutta (2014) ascertained that the last 5-6 years have been
very erratic for not only the Indian economy, but also for the entire world. Many investors have lost their money as the stock
prices have fallen all over the world during this period. The banking sector has always been one of the prominent sectors for
investment. In the time of ambiguity, when some are disagreeing that the economies are in the process of stabilisation, and
while others are saying that the world is set for another recession , the article tries to study the fundamentals of the banking
sector in India.

(Roy, 2013)Dr Roy (2013) in her study analyses the economic environment, industry performance and company performance
before making an investment decision. The study arrived at an outcome about the decision making behaviour of the investors.

(R.K. Sharma, 2016) This study makes it clear that EPS is the strongest indicator for an investor to look for before investing
his money. A company may have high. NPM, ROE, PER, DPS and but there is no significant relationship found between
these variables and EPS. So an investor should compare the EPS of all companies before investing.

(Alapati Sai Bharath Reddy, Sarma & Rao, 2018) In this study they have shown that the managing an account file has
developed at an intensified yearly rate of more than 51 for every penny since April 2001
when compared with a 27 for each penny development in the market record for a similar period. These progressions
incorporate reinforcing prudential standards, improving the installments framework and coordinating controls amongst
business and co-agent banks. Nonetheless, the cost of intermediation stays high and bank entrance is restricted to just a couple
of client fragments and topographies.

(Renuka N & Prabhakar, 2016) P/E ratio of all the banks decreased in the year 2015. There was higher fluctuation of SBI
nd ICICI bank has consistent ratio from 2012 to 2015. The sudden change in PE ratio of SBI and ICICI is due to the stock split
from face value of Rs. 10 of both banks to lower denomination i.e, Rs.2 per share in 2014. Overall highest ratio in 2015 is of
ICICI Bank at 31.40 and lowest is of SBI. ICICI is better in this respect.

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 International Journal of All Research Education and Scientific Methods (IJARESM), ISSN: 2455-6211 Volume
8, Issue 10, October-2020, Impact Factor: 7.429, Available online at: www.ijaresm.com

(B.Nisha, 2018) By using the technical indicators the future market of securities would be known in which to invest. It allows
them to get knowledge about financial market and to avoid facing high risk in the share market. On the basis of prediction of
5 different bank and its pattern of share price used to predict the possible future swings of price in the market. By applying
technical indicators investors enjoy substantial profit. Therefore, the small investors and traders should not blindly make an
investment rather they should analyze using various tools to check if the scrip is technically strong.

(Dr. G. Sabitha & Niveditha, 2019) The financial system's contributes to the economy depends upon the quantity and
quality of its service and efficiency with which it provides them. By applying the fundamental and technical analysis, the
author finds out that ICICI Bank has highest Share capital of 1289.46 in 2019 and Canara Bank has lowest total asset of
578146.30 in 2017. State Bank of India has lowest EPS -7.34 in 2018, HDFC has highest EPS of 77.40 in 2019. SBI has low
return on equity of 1.42% for last 3 years

(Poornima & Devika, 2015)In this study they found that Fundamental Analysis , envisages on different trends of the stock
market and it relates the trends towards the usage of Fundamental and Technical analysis.

(Darshan & Mayur, 2016) In this study they found that the stock market indicators would help the investor to identify major
market turning points. The indicators like Moving averages and MACD is a significant technical analysis tool on any index or
stock which helps to understand the price behavior of the shares.

(Thamizhchelvan & J.Nithya, 2014) In this study they aimed at undertaking technical analysis of selected companies
included in the CNX Nifty. The purpose of the study demonstrates how technical analysis can be of valuable use for the
investors in making their investment decisions. Various analyze tools of technical analysis have been used for forecasting
stock prices.

(Venkatachalam & Divatia, 1978) In their study of operational efficiency and Performance, they recognized the problems in
creating such a composite index, some of which will be due to understanding of the term: operational efficiency.

This study divided the chosen indicators into operational efficiency in terms of productivity, operational efficiency in terms of
social objectives, and profitability.

The approach was taking to the approach profitability of banks proposed to create a composite index that would explore
certain indicators that would suitably represent varied aspects of banks of PEP Committee.

(Krishnaswamy, 1980) Mr Krishnaswamy, Chairman of the Working Group appointed by Reserve Bank of India in his
report on the 'Role of Banks in Priority Sector Lending and the 20-Point Economic Programme' has suggested modifications
in the definition of priority sector lending. It also recommended that the private sector commercial banks should actively
participate in extending assistance under the priority sector and the 20-Point Economic Programme.

(Srivastava, 1981) This study advocated the use of work measurement principle in banking to test the efficiency by using
these concepts in a simple manner. He identified other uses of work measurement, as to adjust current staffing levels,
projecting future staffing levels, justifying overtime, determining unit cost and pricing of services, budgeting staff expenses,
comparing employee or branch performance, etc. However, practical utility of the application of work measurement concept
in banking is questionable.

(Subrahmanyam, 1982) This paper has discussed conceptual issues in productivity measurement approach to inter-bank and
inter-temporal productivity comparisons. He has highlighted some of the conceptual issues that are faced in the Total Factor
Productivity (TFP) measurement associated with neutral technical progress. Out of a non-parametric index number approach
and a parametric production function approach, he confined to economic implications of non-parametric approach. He has
examined particularly, the mechanics of Laspayres and Divisia index number procedures; their affinity to linear and
homogenous translong production functions and preferred Divisia index over Laspayers index. Limitation of Divisia index
and index number approach has also been pointed out. He felt that production function approach may be more advantageous
as it can handle problems arising due to non-separability of inputs and outputs non-constant return to scales etc.

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 International Journal of All Research Education and Scientific Methods (IJARESM), ISSN: 2455-6211 Volume
8, Issue 10, October-2020, Impact Factor: 7.429, Available online at: www.ijaresm.com

(Srivastava & Anubha, 2015) In this study, the author finds that the performance and health of stock exchange is solely
dependent on the behavior n pattern of investments by the investor. Every investor wants high return at low risk and they buy
and sell on the basis of their perception causing stock market taking random walk. The capital market goes through brisk
changes, investors should look for right opportunities keeping in tune with the dynamics of market environment. Technical
analysis gives hints about the buy and sell of the stocks to the investor. Therefore, the small investors and traders should not
blindly make an investment

RESEARCH METHODOLOGY

Research methodology means collecting, analyzing interpreting the data. It is a random sample study.The present study is
based on secondary data. The secondary data was collected from company websites. The period of the study is five years 2016
to 2020. We have applied the Fundamental Analysis technique to measure the efficiency of Axis Bank and ICICI Bank.
Ratios taken are Net Interest Margin, Price/Book, Earning Per Share (EPS) and Return On Net Worth/Return On Equity

DATA ANALYSIS AND INTERPRETATION

Fundamental analysis
*Net Interest Margin

ICICI Bank

Particulars MAR 2020 MAR 2019 MAR 2018 MAR 2017 MAR 2016

Net Interest Margin (%) 2.91 2.64 2.48 2.64 2.75

Axis Bank

Particulars MAR 2020 MAR 2019 MAR 2018 MAR 2017 MAR 2016

Net Interest Margin (%) 2.77 2.72 2.70 3.00 3.20

Net interest margin (NIM) is a measurement comparing the net interest income a financial firm generates from credit
products like loans and mortgages, with the outgoing interest it pays holders of savings accounts and certificates of
deposit (CDs). Expressed as a percentage, the NIM is a profitability indicator that approximates the likelihood of a bank or
investment firm thriving over the long haul. This metric helps prospective investors determine whether or not to invest in a
given financial services firm by providing visibility into the profitability of their interest income versus their interest
expenses. A higher NIM would increase the profitability of the lender.

Here Axis Bank’s NIM is decreasing from 3.20 in 2016 to 2.77 in March 2020 whereas ICICI Bank’s NIM increased from
2.75 in 2016 to 2.91 in March 2020.

Here ICICI Bank’s NIM is higher which shows higher profitability than Axis Bank.

*Price/Book Value Ratio

Particulars MAR 2020 MAR 2019 MAR 2018 MAR 2017 MAR 2016

Price/Book value 1.75 2.31 1.66 1.59 1.51

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 International Journal of All Research Education and Scientific Methods (IJARESM), ISSN: 2455-6211 Volume
8, Issue 10, October-2020, Impact Factor: 7.429, Available online at: www.ijaresm.com

ICICI Bank
Axis Bank

Particulars MAR 2020 MAR 2019 MAR 2018 MAR 2017 MAR 2016

Price/Book value 1.24 2.94 2.04 2.08 1.98

Price-to-book ratio (P/B ratio) offers a more tangible measure of a company's value than earnings do and hence it is
evaluated by most conservative investors. P/B ratio is used to compare a stock's market value with its book value. P/B ratios
are used to compare banks and insurance companies, because most assets and liabilities of these companies are constantly
valued at market values.Higher the P/B ratio, more expensive the stock will be and lower the P/B ratio, more undervalued the
stock or company. Axis Bank has lower P/B ratio than ICICI Bank so an investor will favour taking the stock of Axis Bank.

*Earnings Per Share (EPS): It is used to know the fraction of total earnings per each share that is outstanding. This gives the
Net profit earned by each share of the company. If EPS is higher, it means that profit per share is higher. It indicates
profitability of the company. Taking ICICI Bank and Axis Bank as sample

ICICI Bank

Per Share Ratios MAR 2020 MAR 2019 MAR 2018 MAR 2017 MAR 2016

Basic EPS (Rs.) 14.81 6.61 12.02 15.91 17.53

Axis Bank

Per Share Ratios MAR 2020 MAR 2019 MAR 2018 MAR 2017 MAR 2016

Basic EPS (Rs.) 6.83 19.61 1.86 16.54 35.12

If a company has high earnings per share, investors perceive them to be more profitable. The EPS of ICICI Bank is higher
than Axis Bank. Axis Bank has the highest EPS in year 2016 but drastically decreases to its lowest in the year 2020.

*Return on Net Worth/ROE : Return on Net Worth (RONW) is the amount of net income returned as a percentage of
shareholders equity. Return on equity measures a corporation's profitability by revealing how much profit a company
generates with the money shareholders have invested. It is also called as Return on Equity (ROE).

ICICI Bank

Return Ratios MAR 2020 MAR 2019 MAR 2018 MAR 2017 MAR 2016

Return on Net worth / Equity 7.78 3.82 7.16 10.03 11.15

(%)

Axis Bank

Return Ratios MAR 2020 MAR 2019 MAR 2018 MAR 2017 MAR 2016

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 International Journal of All Research Education and Scientific Methods (IJARESM), ISSN: 2455-6211 Volume
8, Issue 10, October-2020, Impact Factor: 7.429, Available online at: www.ijaresm.com

Return Ratios MAR 2020 MAR 2019 MAR 2018 MAR 2017 MAR 2016

Return on Net worth / Equity 2.18 7.43 0.70 7.01 15.58

(%)

A rising ROE suggests that a company is increasing its profit generation without needing as much capital. It also indicates
how well a company's management deploys shareholder capital. Put another way, a higher ROE is usually better while a
falling ROE may indicate a less efficient usage of equity capital ICICI Bank has a higher ROE than Axis Bank.
.
Findings
*The Earning Per Share (EPS) of both the banks declined during the years. However the EPS of Axis Bank dropped from
35.12 in 2016 to 6.83 in March 2020 while the EPS of ICICI Bank dropped from 17.53 in 2016 to 14.81 which is a small
change as compared to decline of EPS in Axis Bank. If a company has high earnings per share, investors perceive them to be
more profitable. The EPS of ICICI Bank is higher than Axis Bank

So investors will prefer buying stocks of ICICI Bank rather than Axis Bank

*The Return On Net Worth of both the banks declined during the years. However the RONW of Axis Bank dropped from
15.58 in 2016 to 2.18 in March 2020 while the RONW of ICICI Bank dropped from 11.75 in 2016 to 7.78 in March 2020. The
change is comparatively small as compared to change in Axis Bank. A higher ROE is usually better while a
falling ROE may indicate a less efficient usage of equity capital

ICICI Bank has a higher ROE than Axis Bank so investors will prefer buying stocks of ICICI Bank.

* Higher the P/B ratio, more expensive the stock will be and lower the P/B ratio, more undervalued the stock or company.
Axis Bank has lower P/B ratio than ICICI Bank so an investor will favour taking the stock of Axis Bank.

*When interest rates are low, consumers are more likely to borrow money and less likely to save it. Over time, this generally
results in higher net interest margins. Contrarily, if interest rates rise, loans become costlier, thus making savings a more
attractive option, which consequently decreases net interest margins. Axis Bank’s NIM is decreasing from 3.20 in 2016 to
2.77 in March 2020 whereas ICICI Bank’s NIM increased from 2.75 in 2016 to 2.91 in March 2020.
Here ICICI Bank’s NIM is higher which shows higher profitability than Axis Bank

SUGGESTIONS

The investors should understand the past performance of the companies before investing in the shares of those companies.
Both the Fundamental analysis and Technical analysis should be used to study the stocks. Investors should understand the
limitations of the techniques used in both Fundamental as well as Technical analysis

CONCLUSION

Equity analysis is the process of analysing sectors and companies to give advice to professional fund managers and private
clients on which shares to buy. Sell-side analyst work for brokers who sell shares to the investors mainly for private clients
while Buy-side analysts work for fund management firms. Equity analysis is to provide information to the investors in the
markets. An efficient market relies on information. A retail investor may not have a huge investable surplus. Hence, he cannot
invest his money in different sectors. His ability to diversify investment is very much limited. A rational investor should try to
identify few sectors first and then should go for an in depth study of the sector. He should examine carefully the fundamentals
of the sector before taking a final investment decision.

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 International Journal of All Research Education and Scientific Methods (IJARESM), ISSN: 2455-6211 Volume
8, Issue 10, October-2020, Impact Factor: 7.429, Available online at: www.ijaresm.com

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