1.

Introduction

1.1 Nature of Business

State Bank of India (SBI) is an Indian multinational public sector bank and financial services statutory entity
headquartered in Mumbai, Maharashtra. SBI is the world's 49th largest bank by total assets and 221st on
the Fortune Global 500 ranking of the world's largest corporations for 2020.Through its many subsidiaries,
such as SBI General Insurance, SBI Life Insurance, SBI Mutual Fund, SBI Card, and so on, the bank has
successfully expanded its operations. It has a global presence and functions across time zones with 229
offices in 31 different nations.

1.2 Ownership

The Bank, as among India's public sector banks, is driven by the social objective of increasing the benefits
of banking services to all regions of the country as well as all groups of people. As seen in Figure 2,
promoters own 57.52% of the shares in State Bank of India, while FIIs own 9.95%, DII own 25.42%, Public
own 7.1%%, and others own the remaining 0.01%.

Share holding pattern- State Bank of India

Fig 2: The following data is as per the information quoted by SBI at the end of second quarter (September 2022)

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1.3 Business Commencement Circumstances

The bank evolved from the Bank of Calcutta, which was founded in 1806 by the Imperial Bank of India,
making it the Indian subcontinent's oldest commercial bank. The Bank of Madras amalgamated with British
India's other two presidential banks, the Bank of Calcutta, and the Bank of Bombay, to form the Imperial
Bank of India, which later became the State Bank of India in 1955. The bank was created through the
merger and acquisition of around twenty banks over its 200-year history. The Imperial Bank of India was
taken over by the Government of India in 1955, with the Reserve Bank of India owning 60% of the bank,
and renamed State Bank of India.

1.4 Industry of the Business and its Importance

State Bank of India Bank is primarily involved in the Banking and Financial Services Industries, which is one
of the major service sector industries. The banking sector has always been seen as one of the most
essential to the economy's ability to function. It is unparalleled in its role as the "lifeline" of economic
activity, collecting deposits and providing credits to states and people, households, and businesses.

1.5 Greatness of the Company

The State Bank of India has contributed significantly to the success of our rural regions by providing
opportunities for agriculturists, poorer sectors of society, cottage, and small-scale enterprises, and so on.
By opening branches in rural regions, it has instilled in rural inhabitants the habit of saving. India has
22,010 branches and 58,415 ATMs. State Bank of India has a total NPA of 7.53%. SBI is India's second
largest bank in terms of market capitalization. As of 2022, its market capitalization is Rs. 2,60,331 crores.

2 Underlying Stock Returns

Table 1 shows that weekly and monthly trading yields larger profits than daily trading, which yields low
returns. Furthermore, daily returns account for 0.068607 % per day, or 28.44% per year, whereas weekly
returns account for 0.3497% per day, or 19.90% per year, and monthly returns account for 1.206% per
month, or 15.47% per year. Thus, when the return/risk ratio of risk unadjusted returns is compared for
daily, monthly, and weekly intervals, the daily frequency offers the highest reward/risk ratio of 16.53%.
Metric Daily Weekly Monthly

Minimum -5.3247 -8.1206 -10.6942

Maximum 4.6669 7.2218 16.9073
Mean 0.0686 0.3497 1.2062
1.7195 3.5132 8.0167
Standard Deviation

Table 1: Comparison of risk-adjusted daily, weekly, and monthly returns (returns in%)

3 Underlying Stock Risk Adjusted Returns

Table 2 shows that risk adjusted daily, weekly, and monthly returns are negative. Hence trading in any
frequency is not advisable. Out of all the given frequency, the daily frequency is having the lowest return
but at the same time is having lowest volatility also and the monthly return is comparatively less negative
i.e., less loss but at the same time is having highest risk component as the standard deviation which is a
measure of risk is highest among monthly, daily and weekly.

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 Metric Daily Weekly Monthly

Minimum -9.0848 -13.0007 -14.24420206

Maximum 0.8969 2.959108 13.14737322
Mean -4.5136 -4.38457 -3.486244019
1.913618463 3.637636 7.771419752
Standard Deviation

Table 2: Comparison of risk-adjusted daily, weekly, and monthly returns (returns in%)

4. Economic Interpretation of risk adjusted and risk unadjusted returns

Risk-adjusted returns refine a great investment's return by analysing the amount of risk associated with
reaching that return, whereas risk-unadjusted returns do not completely account for the risk associated
with creating the return.

A good investor must invest promptly after taking risk adjusted returns into consideration in order to
balance the reward to risk ratio. This ratio is especially significant for portfolio managers that work with a
range of clients who require different returns for different degrees of risk, or vice versa.

By comparing on a frequency basis, we find:

Trend for unadjusted risk-weighted average return: Monthly > Weekly > Daily. A similar trend is observed
for the mean risk-adjusted data. However, the standard deviations for the unadjusted and risk-adjusted
data are as follows: Daily < weekly< monthly.
Therefore, this indicates that monthly returns are more volatile than daily and weekly returns and
therefore the riskiest to invest in.
The adjusted average returns the following trend is daily< weekly < monthly. However, all the mean
average return is negative that don’t make it fit to consider investing. The trend of standard deviation (risk)
is as follows: daily < weekly < monthly.

Figures 3, 4, and 5 depict the underlying stock's daily, weekly, and monthly returns, respectively.

Figure 3: Daily Returns of Underlying Stock

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 Figure 4: Weekly Returns of Underlying Stock

Figure 5: Monthly Returns of Underlying Stock

Figures 6,7 and 8 depict the underlying stocks adjusted daily, weekly, and monthly returns, respectively.

Figure 6: Adjusted Daily Returns of Underlying Stock

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Figure 7: Adjusted weekly Returns of Underlying Stock

Figure 8: Adjusted Monthly Returns of Underlying Stock

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5 Equity Futures

5.1 Commencement of Equity Futures

Derivatives trading pioneered by the National Stock Exchange of India (NSE), with the launch of index
futures contracts on June 12, 2000. Futures contracts based on the Nifty 50 index, a popular reference.
Trade index and options futures (both based on Nifty 50) on individual titles were released on October
27,2004. Futures and Personal Security Options available on over 100+ securities in 3 key indices,
designated by the SEBI which is regulatory body for security and commodity market in India

5.2 Lot size and Contract Specifications

The contract specification is given in the below table. As it an equity derivative, there is no physical
delivery.
SYMBOL SBIN

INSTRUMENTS STOCK FUTURES

LOT SIZE 1500

TRADING CYCLE NEAR, NEXT, FAR

EXPIRY LAST THURSDAY OF EACH MONTH

5.3 Greatness of Equity Futures

The SBI’s CASA account for 44.52% of all deposits, and over the previous three years, it has produced
significant profit growth of 232.43%. However, the bank's ROA history is dismal. The three-year ROA
average is at 0.51%. Cost-to-income ratio is high, at 57.91%. 4.29% during the last three years, which is a
terrible performance from the organisation.

6 FUTURES RETURN

6.1 Near Month Return

Metric Daily (%) Weekly (%) Monthly (%)

Mean
0.056038803 0.257798 1.165639423
Minimum
-5.293005671 -8.72686 -11.02331856
Maximum
4.750499002 7.07734 16.69553919
Standard Deviation
1.708759759 3.553904 8.112841868

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 Unadjusted Near Daily Returns of SBI
6

PERCENTAGE RETURN
2

-2

-4

-6
DATE

Figure 8: Unadjusted daily Returns of Near Month

Unadjusted Near Weekly Returns of SBI

8
6
4
PERCENTAGE RETURN

2
0
-2
-4
-6
-8
-10
DATE

Figure 8: Unadjusted weekly Returns of Near Month

Unadjusted Near Monthly Returns

20

15
PERCENTAGE RETUNRN

10

-5

-10

-15
DATE

Figure 8: Unadjusted Monthly Returns of Near Month

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6.2 Middle Month Returns

Metric Daily (%) Weekly (%) Monthly (%)

Mean 0.055951573 0.256139885 1.160823849
Minimum -5.649435056 -8.177740691 -10.98953834
Maximum 4.649314524 7.151767152 16.67385677
Standard Deviation 1.712606751 3.530238534 8.099472007

Unadjusted Next Daily Returns of SBI

6
4
PERCENTAGE RETURN

2
0
-2
-4
-6
-8
DATE

Figure 8: Unadjusted daily Returns of Middle Month

Unadjusted Next Weekly Returns

10
PERCENTAGE RETURN

-5

-10
DATE

Figure 8: Unadjusted weekly Returns of Middle Month

Unadjusted Next Monthly Returns of SBI

20

15
PERCENTAGE RETURN

10

-5

-10

-15
DATE

Figure 8: Unadjusted Monthly Returns of Middle Month

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Far Month Returns
Metric Daily (%) Weekly (%) Monthly (%)
Mean 0.055687866 0.254619995 1.154519091
Minimum -5.84841854 -8.316852295 -10.98890589
Maximum 4.629538035 7.119170984 16.55920911
Standard Deviation 1.721359086 3.541724232 8.12033098

Unadjusted Far Daily Returns of SBI

6
4
PERCENTAGE RETURN

2
0
-2
-4
-6
-8
DATE

Figure 8: Unadjusted daily Returns of Far Month

Unadjusted Far Weekly Returns of SBI

8
6
PERCENTAGE RETURN

4
2
0
-2
-4
-6
-8
-10
DATE

Figure 8: Unadjusted weekly Returns of far Month

Unadjusted Far Monthly Returns of SBI

20
15
PERCENTAGE RETURN

10
5
0
-5
-10
-15
DATE

Figure 8: Unadjusted Monthly Returns of far Month

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7 Future Risk Adjusted Return
7.1 Near Month

Metric Daily (%) Weekly (%) Monthly (%)

Mean -4.5167 -4.442970827 -3.526860577
Minimum -9.4885 -13.60685667 -14.57331856
Maximum 0.9805 3.112789086 12.93553919
Standard Deviation 1.893578 3.554575735 7.86838904

Adjusted Near Daily Returns of SBI

2.0000
0.0000
PERCENTAGE RETURN

-2.0000
-4.0000
-6.0000
-8.0000
-10.0000
-12.0000
DATE

Figure 8: Adjusted daily Returns of Near Month

Adjusted Near Weekly Returns of SBI

5
PERCENTAGE RETURN

-5

-10

-15
DATE

Figure 8: Adjusted weekly Returns of Near Month

Adjusted Near Monthly Returns

15
10
PERCENTAGE RETURN

5
0
-5
-10
-15
-20
DATE

Figure 8: Adjusted Monthly Returns of Near Month

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7.2 Next Month

Metric Daily (%) Weekly (%) Monthly (%)

Mean -4.5168 -4.444629346 -3.531676151
Minimum -9.3894 -13.05774069 -14.53953834
Maximum 0.8793 3.107791199 12.91385677
Standard Deviation 1.895561 3.530308949 7.847576722

Adjusted Next Daily Returns of SBI

5.0000
PERCENTAGE RETURN

0.0000

-5.0000

-10.0000
DATE

Figure 8: Adjusted daily Returns of Next Month

Adjusted Next Weekly Returns of SBI

5
PERCENTAGE RETURN

-5

-10

-15
DATE

Figure 8: Adjusted weekly Returns of Next Month

Adjusted Next Monthly Returns of SBI

15
10
PERCENTAGE RETURN

5
0
-5
-10
-15
-20
DATE

Figure 8: Adjusted Monthly Returns of Next Month

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7.3 Far Month

Metric Daily (%) Weekly (%) Monthly (%)

Mean -4.5171 -4.446149236 -3.537980909
Minimum -9.5884 -13.1968523 -14.53890589
Maximum 0.8595 3.158029228 12.79920911
Standard Deviation 1.903341 3.538613931 7.873264116

Adjusted Far Daily Returns of SBI

2.0000
0.0000
PERCENTAGE RETURN

-2.0000
-4.0000
-6.0000
-8.0000
-10.0000
-12.0000
DATE

Figure 8: Adjusted daily Returns of far Month

Adjusted Far Weekly Returns of SBI

5
PERCENTAGE RETURN

-5

-10

-15
DATE

Figure 8: Adjusted weekly Returns of far Month

Adjusted Far Monthly Returns of SBI

15
10
PERCENTAGE RETURN

5
0
-5
-10
-15
-20
DATE

Figure 8: Adjusted Monthly Returns of far Month

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7.4 Sharpe Ratio

Sharpe ratio, defined as the excess portfolio return over the risk-free rate relative to its standard deviation,
is commonly used to measure risk-adjusted return (rx)

Sharpe Ratio = (rp - rf)/stdev(rx)

rp refers for risk-adjusted return.

rf refer to risk-free rate/return
rx refers to risk-adjusted return.

In our futures instrument:

TYPES/TIME FRAME DAILY WEEKLY MONTHLT

NEAR -2.64329 -1.25017 -0.43473

NEXT -2.6374 -1.25902 -0.43604

FAR -2.62415 -1.25536 -0.43569

In the above table of sharp ratio, all the sharp ratio in all the frequency is negative. The sharp ratio of far
month is comparatively less negative as compare to next and near month. Due to all sharp ratio being
negative, the investor is not advised to trade any of these futures contract.

8. Economic Interpretation of Risk Adjusted and Unadjusted Returns

On analysing different returns based on different time frame and frequency, following are the
observations:

 The nature of Risk adjusted and Risk unadjusted for a particular time frame among near, next, and
far on a given frequency among daily, weekly, and monthly is similar. The graphs depict congruent
behaviour.
 If a comparison is drawn between the adjusted and non-risk adjusted return, the non-risk adjusted
return is higher than the risk adjusted return.
 Unadjusted risk return follow similar trend in all the time frame where monthly frequency average
return is greater than weekly frequency average return followed by daily frequency average return.
 Average Risk adjusted returns are negative in all the frequency in all the time frame. In this, the
monthly frequency average return is comparatively less negative as compare to weekly followed by
daily frequency
 As all the sharp ratio is negative, it is expected that the firm will not generate any profit. Therefore,
it is not suggested to consider any futures trade in SBIN futures contracts
9. On comparing the expiry dates, the following are observed:
 The mean unadjusted returns trend as Far < Next< Near.
 The mean adjusted returns trend as Far < Next< Near.
 The standard deviation (risk) trends as: Near < Next < Far.
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SECTION 3
10. COMPARISION OF FUTURES WITH EQUITY STOCK

1. For unadjusted Returns

In the following table, returns of underlying asset and futures are compared

Types/Time Frame Daily (%) Weekly (%) Monthly (%)

Underline Assets 0.0686 0.3497 1.2062
Near 0.056038803 0.257798 1.165639423
Middle 0.055951573 0.256139885 1.160823849
Far 0.055687866 0.254619995 1.154519091

Analysis: -

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2. For adjusted Returns and sharp ratio comparison

In the following table, Risk Adjusted returns of underlying asset and futures are
compared
Types/Time Frame Daily (%) Weekly (%) Monthly (%)
Underline Assets -4.5136 -4.3846 -3.4862
Near -4.5167 -4.442970827 -3.526860577
Middle -4.5168 -4.444629346 -3.531676151
Far -4.5171 -4.446149236 -3.537980909

Analysis:

In the following table, there is comparison of futures and sharp ratios:

Types/Time Frame Daily (%) Weekly (%) Monthly (%)
Underline Assets -2.6248193 -1.24802 -0.43486985
Near -2.64329 -1.25017 -0.43473
Middle -2.6374 -1.25902 -0.43604
Far -2.62415 -1.25536 -0.43569

Analysis:

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Liquidity
 For the equity shares, the average volume trade daily is 10.33 million. For Futures calculation,
we considered open interest as the liquidity increases as the open interest increases.
 While investing, liquidity is considered as on of the most important parameters.
 From the table given below, it is depicted that Open interest of Near month is greater than
open interest of next month which is greater than open interest of far month.

Expiration Near Month Neat Month Far Month

Open Interest 60878577.55 12781995.92 464846.9388

Section 4
11. Backwardation or Contango for SBIN futures Instrument

1. Spot Price and Near Month Futures Price

Near Month Price Vs Spot Price

700

600

500

400

300

200

100

SETTLE_PR Spot price

If we plot graph between the futures price and spot price, the future price is greater than the spot
price. Hence it is Contango.
As we have shown above that the risk adjusted return is negative so, the return rate is negative, which
is contango because market is considerate toward giving positive return.

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2. Spot Price and Next Month Futures Price

Next Month Price Vs Spot Price

700

600

500

400

300

200

100

SETTLE_PR Spot price

3. Spot Price and Far Month Futures Price

Far Month Price Vs Spot Price

700

600

500

400

300

200

100

SETTLE_PR Spot price

In both the above cases, plotting and comparing graph between the futures price and spot price,
the future price is greater than the spot price. Hence it is Contango.
As we have shown above that the risk adjusted return is negative so, the return rate is negative, which
is contango because market is considerate toward giving positive return.

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12. Trading Frequency
Economic theories just like the Random Walk Theory count on that beyond moves of a stock price or
marketplace cannot be used to predict its further movement. It considers technical analysis, i.e., look at
of price and quantity of shares and the frequency of returns, that is undependable. Nevertheless, it is
far of maximum significance to buyers to gain most profits. The frequency of the timing is used to
calculate the usual deviation at some stage in that period, as a result the use of the Sharpe ratio.

For SBI instruments, both the risk adjusted as well as the risk unadjusted returns follows a declining
trend from monthly to weekly to daily.

It can also be noticed that most of the returns are negative in nature in any timeframe. Therefore it is
not recommended to trade in any time frame but if we want to have a comparative say, then it is
better to trade long term/monthly basis in our case.

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