A PROJECT ON

EQUITY RESEARCH- BANKING SECTOR (ICICI Bank, SBI and Yes Bank)

SUBMITTED BY MR. VIKAS RAGHUNATH WAGHMARE

IN FULLFILLMENT OF REQUIREMENT FOR MASTERS OF MANAGEMENT STUDES OF UNIVERSITY OF MUMBAI (2009-2011)

RAJEEV GANDHI COLLEGE OF MANAGEMENT STUDIES

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CERTIFICATE

This is to certify that Mr. VIKAS RAGHUNATH WAGHMARE student of second year Masters of Management Studies (MMS) of Rajeev Gandhi college of Management Studies has successfully completed the project work titled Equity Research in fulfillment for the degree of Masters of Management Studies of University of Mumbai. This project is the record of authentic work carried out during the academic year 2009-2011.

Date:

Prof. Brijesh Sharma

Menon Shridharan

(Internal Project Guide)

(Director)

DECLARATION

I hereby declare that the project entitle Equity Research Is submitted in fulfillment of Masters of Management Studies degree of University of Mumbai in the academic year 2009-2011 was carried with sincere intension. To the best of my knowledge it is an original piece of work done by me and it has neither been submitted to any other organization nor published at anywhere before.

(Vikas Raghunath Waghmare)

ACKNOWLEDGEMENT

By the grace of God who has provided me with the skills and abilities to be able to complete this report and present a clear picture of what I have been doing during the course of my internship. I would firstly like to thank the Department of Capital Market, for making this learning experience a part of our education and specifically thank Prof. Brijesh Sharma for his advice and assistance in helping us avail this opportunity. Lastly I would like to express my deepest and utmost thanks to my parents, who have made me whatever I am today.

TABLE OF CONTENTS CHAPTER NO. 1 TITLE

INTRODUCTION 1.1 Introduction to the Topic 1.2 Rationale of the study 1.3 Investment decision making 1.4 Changing Role of Equity Research 1.5 Role of Equity Research analyst 1.6 Objective of the study 1.7 Research Methodology & Design

PAGE NO.
1 2 3 4 6 10 12 13 14 15 19 22 29 32 36 41 42 42 42 43 49 50 55 58 59 65 71 77 5

TECHNICAL ANALYSIS 2.1 Introduction 2.2 Support & Resistance 2.3 Charts & Chart Patterns 2.4 Theories 2.5 Moving Average 2.6 Indicators

FUNDAMENTAL ANALYSIS 3.1 Introduction 3.2 Economy analysis 3.3 Industry 3.4 Company

BANKING SECTOR 4.1 Introduction to the Banking 4.2 Banking structure

RESEARCH & ANAYSIS 5.1 ICICI Bank 5.2 State Bank of India 5.3 YES Bank

FINDINGS & CONCLUSION

BIBLIOGRAPHY

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EXECUTIVE SUMMARY
The field of equity research is very vast and one has to look into various aspects market. of the functioning of the company to get like warren buffet made a fortune to any out of conclusion about the possible Investors investments performance of the company in the without all, to

in the stock market, which is quiet impossible It is your door to fame, is fortune and,

proper research about the companies. The field of equity research is full of challenges. above due professional challenge. In a world that information technology shrinking in size

and blurring boundaries between nations, the

stock market (or the equities market), which is considered to be in its infant stage, is all set to grow in size. The project on Equity Research was carried out by self study. This is limited learning and devoting time towards equity research but it also provided an insight on what various services such broking houses provide and what efforts are required to manage such organizations. The reason behind choosing this project is that it provides hands on experience with what goes on in the stock market on a day-to-day basis. Some value investors only look at present of assets/earnings and don't place any value on future growth. Other value investors base strategies completely cash around the estimation future growth and it all comes back to flows. Despite the different methodologies,

trying to buy something for less than its worth. The project initiated with understanding the mannerisms of the stock market trading followed by the dynamics of the banking sector. Some of the major players in Banking sector were then chosen for further

analysis. These companies were further studied in detail with respect to their financials and the managements future plans regarding the functioning of the company, their expansion plans, and various news about these companies and their global forays. Based on the complete study of the companies and sector wise analysis of banks, leading banks in private and public sector ICICI Bank ,SBI Bank, YES Bank and also giving recommendation on the for Buy or Sell or Hold by analyzing the fundamental and technicals of the company. LITERATURE REVIEW

Stocks

&

Markets

are

analyzed

by

using

various

methods

by

the

learned Researchers & Analysts. All these methods can be broadly classified into three categories - Fundamental Analysis, Technical Analysis & TechnoFundamental (Tech-Funda) Analysis. FUNDAMENTAL ANALYSIS Fundamental Analysis aims at determining the intrinsic (in-built) worth of the stock or financial security & comparing it with the market price to identify as to whether it is overpriced or under priced. A Fundamentalist would buy a stock or financial security if it is under priced & sell if it is over priced. Fundamentalists firmly believe that sooner or later, market price will be equal to the intrinsic the levels worth of the stock or financial security. Global Market Analysis, Economic Analysis, Industry Analysis & Corporate Analysis - are at which Fundamental Analysis is carried out. Balance Sheet Analysis, Profit & Loss Account Analysis by using various ratios like EPS, PE, CR, IRRI etc are only the

basic

fundamentals

used at the Corporate level

Analysis,

which are

considered by many as the basic indicators. Foreign Institutional Investors (FII), Banks, Mutual Funds etc. have their teams of researchers & trained fundamental analysts who are capable of carrying out detailed fundamental analysis with the help of sophisticated information systems. Similarly, these institutions have 5 to 15 years of long term investment strategies. Therefore fundamental analysis is more suitable for them. Individual investors are not capable Industry of carrying & out Global Market Analysis in has

Analysis, Economic

Analysis,

Analysis

Corporate

details due to limited resources. Similarly, individual investors can not wait for earning returns after 5 to 15 years. Therefore, limited use for individual & common investors. fundamental analysis

TECHNICAL ANALYSIS Technical Analysis aims at analyzing the Markets, Stocks & Financial

Securities by considering only two factors - Prices & Volume (Number of stocks / securities bought & sold). Technical Analysis is more of an Art than a Science of Analyzing Charts of the securities for identifying prevailing Trends. Institutions create the trends (tides) because of their voluminous investments & technicians (Technical Analysts) ride those tides, at the earliest, to make profits. "Ride the tides to make profits and skip off the tides when there is a slide", is the modus operendi of Technical Analysts. The beauty of Technical Analysis is in its simplicity & effectiveness. Any

individual of even average educational background can learn Technical Analysis. Technical Analysis is effective in analyzing stock markets, commodities markets, debt markets, derivatives market & foreign markets. In the globalized urban
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scenario,

every intelligent

investor

must at least

have

working, if not

expert, knowledge of Technical Analysis. Technical Analysis is not a flaw less Art of taking investment decisions. One of the major drawbacks of this Art is delayed decisions. Unless the trend gets established, a technician cannot take decision but one must admit that these decisions are more reliable with exact entry & exit levels, which is not possible with fundamental analysis. Timing the strength of technical analysis. For short and medium term trading and investment, there is no substitute to Technical Analysis. For long term investments, Techno-Fundamental Analysis is best suited for the common and individual investors. TECH-FUNDA ANALYSIS This approach is by far the best & more suitable to the common individual investors, having long term perspective. In this approach, stocks or securities are identified by using technicals but before taking the investment decisions a few selected fundamentals are checked. and bonus history, operating & net The fundamentals such as size trend, position of free of equity, owner's equity holding, institutional holding, floating stock, dividend profit reserves are considered. When technicals are favorable and so are these fundamentals, the investors can invest with conviction for long term. The primary objective of equity research is to analyze the earnings persistence. Some key aspects that affect the earnings persistence can be summarized as follows: - The stability of the equity under consideration - The predictability of the value of the given equity under the given circumstances entry & exit is the real

- The variability of the given equity, given the various variance factors The general market trend influencing the market value of the given equity - The earnings management - And the accounting methods in use Two ways in which you can facilitate the assessment of the earnings persistence are by either recasting the income statement or adjusting the same. Objectives of recasting include: - Ensuring that the given earnings and their components are suitably recasted to facilitate stable, consistent and maintainable elements. These elements are composed of earnings. These earnings are distinctly separable from any random, abnormal or unique elements. - Whatever elements have been recast, and at the same time have also been included as part of the current earnings, must subsequently get included within the operating results of one or more of an earlier period. - Determining the earning power Objectives of adjusting include: - Allocating the earnings component to the most appropriate period On the other hand, the primary objectives of stock valuation include an understanding of: - The benefits and drawbacks of common stock. Here the common stock is considered to be an investment, in addition to being a source of funds

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- The characteristics, the legal implications, the rights and the privileges if any, in holding common stocks - The different types of common stock existent - The comprehension of various types of transactions or markets where common stock is prevalent - The valuation process used for common stock - The conditions that lead up to a state of stock market equilibrium - The efficient market hypothesis - The general characteristics of a preferred stock - The pre-requisites of a preferred stock or the conditions that a preferred stock must satisfy, in order to be considered as an investment or a source of funds - The legal implications and rights as well as the privileges of being a preferred stock holder - The valuation process of a preferred stock Thus, you are now aware of the objectives behind the process of equity analysis and stock valuation. These objectives have also made you aware of the goals to be achieved or the results that are expected from a given equity analysis and stock valuation process.

- Arrnica Dayannandan

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OBJECTIVES OF THE STUDY

Primary Objective: To understand the basics of equity research

Sub-Objectives: a) To justify the current investment in the chosen securities. b) To understand the movement and performance of stocks.
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c) To recommend increase/decrease of investment in a particular security.

RESEARCH METHODOLOGY & DESIGN

TYPE OF STUDY The research has been based on secondary data analysis. The study has been exploratory as it aims at examining the secondary data for analyzing the previous researches that have been done in the area of technical and fundamental analysis of stocks. The knowledge thus gained from this preliminary study forms the basis for the further detailed Descriptive research. In the exploratory study, the various technical indicators that are important for analyzing stock were actually identified and important ones short listed.

SAMPLE DESIGN The sample of the stocks for the purpose of collecting secondary data has been selected on the basis of Random Sampling. The stocks are chosen in an unbiased manner and each stock is chosen independent of the other stocks chosen. The stocks are chosen from the Banking Sector.

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SAMPLE SIZE The sample size for the number of stocks is taken as 3 for technical analysis and fundamental analysis of stocks as fundamental analysis is very exhaustive and requires detailed study.

SCOPE OF THE STUDY

The scope of this project is limited to only one sector i.e. Banking sector.

This project is concerned with only one sector of companies in the stock market. The project does not extend its scope to any other sector of companies. Also, the project is concerned with only three banks among the major players in the Banking sector i.e ICICI bank, State Bank India bank, YES bank

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CHAPTER- 1 INTRODUCTION

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1.1 INTRODUCTION
Investing, like marriage, isn't something that should be entered into lightly. Investing in equities gives high returns but they correspondingly have higher risk also. Before we invest in a company, there are more than a few things we need to know about it. Securities Analysis An analysis of securities and the organization and operation of their markets. The determination of the risk reward structure of equity and debt securities and their valuation. Special emphasis on common stocks. Other topics include options, mutual fluids and technical analysis. Technical analysis is a method of predicting price movements and future market trends by studying charts of past market action which take into account price of instruments, volume of trading and, where applicable, open interest in the instruments. Fundamental analysis is a method of forecasting the future price movements of a financial instrument based on economic, political, environmental and other relevant factors and statistics that will affect the basic supply and demand of whatever underlies the financial instrument. Main differences between the two types of analysis:

Fundamental analysis

Technical analysis

Focuses on what ought to happen Focuses on what actually happens in a market Factors analysis: 1.Supply and demand 2.Seasonalcycles 3.Weather 4.Government policy involved in in a market price Charts are based on market action involving: 1.Price 2.Volume 3.Open interest (futures only)

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1.2 RATIONALE FOR THE STUDY

In an industry plagued with skepticism and a stock market increasingly difficult to predict and contend with, if one looks hard enough there may still be a genuine aid for the Day Trader and Short Term Investor. The price of a security represents a consensus. It is the price at which one person agrees to buy and another agrees to sell. The price at which an investor is willing to buy or sell depends primarily on his expectations. If he expects the security's price to rise, he will buy it; if the investor expects the price to fall, he will sell it. These simple statements are the cause of a major challenge in forecasting security prices, because they refer to human expectations. As we all know firsthand, humans expectations are neither easily quantifiable nor predictable. If prices are based on investor expectations, then knowing what a security should sell for (i.e., fundamental analysis) becomes less important than knowing what other investors expect it to sell for. That's not to say that knowing what a security should sell for isn't important--it is. But there is usually a fairly strong consensus of a stock's future earnings that the average investor cannot disprove Fundamental analysis and technical analysis can co-exist in peace and complement each other. Since all the investors in the stock market want to make the maximum profits possible, they just cannot afford to ignore either fundamental or technical analysis.

1.3 INVESTMENT DECISION MAKING: APPROACHES

As investors we would have diverse investment strategies with the primary aim to achieve superior performance, which would also mean a higher rate of return on our investments. All investment strategies can be broadly classified under 4 approaches, which are explained below. Fundamental approach: In this approach the investor is concerned with the intrinsic value of the investment instrument. Given below are the basic rules followed by the fundamental investor.

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There is an intrinsic value of a security, which in turn is dependent on the underlying economic factors. This intrinsic value can be ascertained by an in-depth analysis of the fundamental or economic factors related to an economy, industry and company. At any point in time, many securities have current market prices, which are different from their intrinsic values. However, sometime in the future the current market price would become the same as its intrinsic value. We as fundamental investors can achieve superior results by buying undervalued securities and selling overvalued securities. Psychological approach: The psychological investor would base his investment decision on the premise that stock prices are guided by emotions and not reason. This would imply that the stock prices are influenced by the prevalent mood of the investors. This mood would swing and oscillate between the two extremes of greed and fear. When greed has the lead stock prices tend to achieve dizzy heights. And when fear takes over stock prices get depressed to lower than lower levels. As psychic values seem to be more important than intrinsic values, it is suggested that it would be more profitable to analyze investor behaviour as the market is swept by optimism and pessimism. Which seem to alternate one after the other. This approach is also called Castle-in-the-air theory. In this approach the investor uses some tools of technical analysis, with a view to study the internal market data, towards developing trading rules to make profits. In technical analysis the basic premise is that price movement of stocks have certain persistent and recurring patterns, which can be derived from market trading data. Technical analysts use many tools like bar charts, point and figure charts, moving average analysis, market breadth analysis amongst others. Academic approach: Over the years, the academics have studied many aspects of the securities market and have developed advanced methods of analysis. The basic rules are: The stock markets are efficient and react rationally and fast to the information flow over time. So, the current market price would reflect its intrinsic value at all times. This would mean "Current market price = Intrinsic value".

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Stock prices behave in a random fashion and successive price changes are independent of each other. Thus, present price behavior can not predict future price behavior. In the securities market there is a positive and linear relationship between risk and return. That is the expected return from a security has a linear relationship with the systemic or non-diversifiable risk of the market. Eclectic approach: This approach draws upon all the 3 approaches discussed above. The basic rules of this approach are: 1. Fundamental analysis would help us in establishing standards and benchmarks. 2. Technical analysis would help us gauge the current investor mood and the relative strength of demand and supply. 3. The market is neither well ordered nor speculative. The market has imperfections, but reacts reasonably well to the flow of information. Although some securities would be mispriced, there is a positive correlation between risk and return.

1.4 THE CHANGING ROLE OF EQUITY RESEARCH

In this interactive discussion of equity research, we will review the role of this research and how it is impacted by bull and bear markets. We will also discuss fee-based research and its growing importance. Your responses to the questions at the end of this article will be the basis for the last part of this article, where you can observe what investors think is the role of equity research in today's market.

Research and the Stock Market

Actually, the title of this article is a bit misleading because the role of research has not changed since the first trade occurred under the Buttonwood Tree on Manhattan Island. What has changed is the environments (bull and bear markets) that influence research. The role of research is to provide information to the market. An efficient market relies on information: a
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lack of information creates inefficiencies that result in stocks being misrepresented (over or under valued). Analysts use their expertise and spend a lot of time analyzing a stock, its industry and peer group to provide earnings and valuation estimates. Research is valuable because it fills information gaps so that each individual investor does not need to analyze every stock. This division of labor makes the market more efficient.

Research in Bull and Bear Markets

If the role of research has always been so "noble", why is it currently in such a state of ill-repute? There are two reasons: firstly the current bear market gives us a new perspective to evaluate the excesses of the last bull market; secondly investors need to blame somebody. In every bull market there are excesses that become apparent only in the bear market that follows. Whether it is tulips or transistors, each age has its mania that distorts the normal functioning of the market. In the rush to make money, rationality is the first casualty. Investors rush to jump on the bandwagon and the market over-allocates capital to the "hot" sector(s). The most recent examples being web-based grocery companies, online pet stores and fiber-optic capacity. This herd mentality is the reason why bull markets have funded so many "me-too" ideas throughout history. Research is a function of the market and is influenced by these swings. In a bull market investment bankers, the media and investors pressure analysts to focus on the hot sectors. Some analysts morph into promoters as they ride the market. Those analysts that remain rational practitioners are ignored, and their research reports go unread. During the late 1990s the business media catered to the audience's demands and gave the spotlight to the famous talking heads that are now under investigation.

Research in Today's Market

To discuss the role of research in today's market, we need to differentiate between Wall Street research and other research. Wall Street research is provided by the major brokerage firms (both on and off Wall Street). Other research is produced by independent research firms and small boutique brokerage firms.

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This differentiation is important. First, Wall Street research has become focused on big cap, very liquid stocks and ignores the majority (over 60% based on our research) of publicly-traded stocks. This myopic focus on a small number of stocks is the result of deregulation and industry consolidation. In order to remain profitable, Wall Street firms have focused on big-cap stocks to generate highly lucrative investment banking deals and trading profits. Those companies that are likely to provide the research firms with a sizable investment banking deals are the stocks that are determined worth being followed by the market. The stock's long-term investment potential is secondary. The second reason to distinguish Wall Street from other research is that most of the blame for the excesses of the last bull market is rightfully placed on Wall Street. Other research is filling the information gap created by Wall Street. Independent research firms and boutique brokerage firms are providing research on the stocks that have been orphaned by Wall Street. Investors, now educated in the benefits of electronic trading, may not be willing to support boutique brokerage firms for their research by opening an account and paying higher commissions.

Who Pays for Research? Big Investors Do!

The ironic thing is that while research has proven to be valuable, individual investors do not seem to want to pay for it. This may be because, under the traditional system, brokerage houses provided research in order to gain and keep clients. Investors just had to ask their brokers for a report and retained it at no charge. What seems to have gone unrealized is that the commissions pay for that research. A good indicator of the value of research is the amount institutional investors are willing to pay for it. Institutional investors hire their own analysts to gain a competitive edge over other investors. They also pay (often handsomely) independent research firms for additional research. Institutions also pay for the sell-side research they receive (either with dollars or by giving the supplying brokerage firm trades to execute). All this amounts to big money, but the institutions realize that research is integral to making successful investment decisions. If investors are unwilling to buy research how will the market correct the imbalance caused by the lack
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of coverage? The solution may be found by looking at the issue a slightly different way.

The Growing Role of Fee-Based Research

Fee-based research increases market efficiency and bridges the gap between investors who want research (without paying) and companies who realize that Wall Street is not likely to provide research on their stock. Fee-based research provides information to the widest possible audience at no charge to the reader because the subject company has funded the research. It is important to differentiate between objective fee-based research and research that is promotional. Objective fee-based research is analogous to the role of your physician. You pay a physician not to tell you that you feel good but to give you his or her professional and truthful opinion of your condition. Legitimate fee-based research is a professional and objective analysis and opinion of a company's investment potential. Promotional research is short on analysis and full of hype. An example is the fax and email reports about the penny stocks that will supposedly triple in a short time. Legitimate fee-based research firms have the following characteristics: 1. They provide analytical not promotional services. 2. They are paid a set annual fee in cash; they do not accept any form of equity, which may cause conflicts of interest. 3. They provide full and clear disclosure of the relationship between the company and the research firm so investors can evaluate objectivity. Companies who engage a legitimate fee-based research firm to analyze their stock are trying to get information to investors and improve market efficiency. Such a company is making the following important statements: 1. That it believes its shares are undervalued because investor are not aware of the company. 2. That it is aware that Wall Street is no longer an option. 3. That it believes that its investment potential can withstand objective analysis.
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Perhaps more importantly, the reputations/credibility of the company and the research firm depends on the efforts they make to inform investors. A company does not want to be tarnished by being associated with disreputable research. Similarly, a research firm will only want to analyze companies that have strong fundamentals and long-term investment potential. Fee-based research has had to fight the stereotype of promotional research, but the market is starting to realize that fee-based research is a viable source of information. The National Investor Relations Institute (NIRI) was probably the first group to recognize the need for fee-based research. In January 2002 NIRI issued a letter emphasizing the need for small-cap companies to find alternatives to Wall Street research in order to get their information to investors. More recently, the NIRI is conducting a survey on research alternatives and will possibly have a session on this topic at their national conference this year.

1.5 ROLE OF AN EQUITY RESEARCH ANALYST

Equity research analysts study the movements of the stock market, especially specific business stocks. Companies constantly produce large amounts of information regarding their financial status, their success in business markets and their current investments. Much of this information is required for legal purposes, but it also provides necessary data for the stock market. Most investors do not have the time or resources to follow this massive amount of company information. Equity research analysts work to compile this data, along with relevant market information, to provide investors with useful recommendations. Definition In stock market terms, "equity" refers to ownership of a business, which a business can sell as shares to interested investors. An equity research analyst specializes in examining what shares are for sale, what shares are selling well and what companies appear to be growing and will be worthwhile investments. Equity research analysts also track which stocks are falling so they can point out trends and provide useful information to brokers and investors.

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Process Analysts spend much of their time analyzing individual stocks, especially stocks that have earned a lot of interest due to changing value. They look at the company that issued the stock and its history, then analyze the company's industry as a whole and what major changes are influencing it. The analyst will then look at businesses similar to the company they are studying to find information about overall value and average earnings for that kind of business. Common Tasks Equity research analysts have many different jobs. Once they have compiled information, many use basic formulas and programs to create financial models of specific companies and industries, or ratios that show important facts about a business's financial standing. Many follow up these models by writing reports for investors summarizing their findings. Some may tap into independent sources and contacts to keep up on recent events. All research analysts must ensure they use only publicly available knowledge and not illegal, insider information. Market Influence Equity research analysts tend to be influenced by current events, and many tend to make recommendations based on market activity. This means that as the market changes, analysts' attitudes also change to mirror current interest. This can create a tendency for some analysts to become myopic, only reporting on popular news and backing certain stocks because they are trendy in the short term.

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CHAPTER- 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW

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TECHNICAL ANALYSIS
2.2 INTRODUCTION What is Technical Analysis?
We can define Technical Analysis as a study of the stock market considering factors related to the supply and demand of stocks. Technical Analysis doesnt look at underlying earnings potential of a company while evaluating stocks {unlike fundamental Analysis}. It uses charts and computer programs to study the stocks trading volume and price movements in the hope of identifying a trend. In fact the decision made on the basis of technical analysis is done only after inferring a trend and judging the future movement of the stock on the basis of the trend. Technical Analysis assumes that the market is efficient and the price has already taken into consideration the other factors related to the company and the industry. It is because of this assumption that many think technical analysis is a tool, which is effective for short-term investing.

History of Technical Analysis:

Technical Analysis as a tool of investment for the average investor thrived in the late nineteenth century when Charles Dow, then editor of the Wall Street Journal, proposed the Dow theory. He recognized that the movement is caused by the action/reaction of the people dealing in stocks rather than the news in itself. Walter Deemer was one of the technical analysts of that time. He started at Merrill Lynch in New York as a member of Bob Farrell's department. Then when the legendary Gerry Tsai moved from Fidelity to found the Manhattan Fund in 1966, Deemer joined him. Tsai used to consult him before every major block trade, at the start of a time when large volume institutional trading became the norm and the meal ticket for brokers. Deemer, could recreate market history on his charts and cite statistics. He maintained contact with the group of other pros around then, who shared their insights with each other in a collegial confidence worthy of the priesthood.

A technical analysis is based on three axioms:

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1. The Market Discounts Everything A major criticism of technical analysis is that it only considers price movement, ignoring the fundamental factors of the company. However, technical analysis assumes that, at any given time, a stock's price reflects everything that has or could affect the company - including fundamental factors. Technical analysts believe that the company's fundamentals, along with broader economic factors and market psychology, are all priced into the stock, removing the need to actually consider these factors separately. This only leaves the analysis of price movement, which technical theory views as a product of the supply and demand for a particular stock in the market.

2. Price Moves in Trends In technical analysis, price movements are believed to follow trends. This means that after a trend has been established, the future price movement is more likely to be in the same direction as the trend than to be against it. Most technical trading strategies are based on this assumption. 3. History Tends To Repeat Itself Another important idea in technical analysis is that history tends to repeat itself, mainly in terms of price movement. The repetitive nature of price movements is attributed to market psychology; in other words, market participants tend to provide a consistent reaction to similar market stimuli over time. Technical analysis uses chart patterns to analyze market movements and understand trends. Although many of these charts have been used for more than 100 years, they are still believed to be relevant because they illustrate patterns in price movements that often repeat themselves.

Technical Analysis: The Use Of Trend

One of the most important concepts in technical analysis is that of trend. The meaning in finance isn't all that different from the general definition of the term - a trend is really nothing more than the general direction in which a security or market is headed. Types of Trend
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Uptrends Downtrends Sideways/Horizontal

Trend Lengths Along with these three trend directions, there are three trend classifications. A trend of any direction can be classified as a long-term trend, intermediate trend or a short-term trend. In terms of the stock market, a major trend is generally categorized as one lasting longer than a year. An intermediate trend is considered to last between one and three months and a near-term trend is anything less than a month. A long-term trend is composed of several intermediate trends, which often move against the direction of the major trend. If the major trend is upward and there is a downward correction in price movement followed by a continuation of the uptrend, the correction is considered to be an intermediate trend. The short-term trends are components of both major and intermediate trends. Take a look a Figure to get a sense of how these three trend lengths might look.

When analyzing trends, it is important that the chart is constructed to best reflect the type of trend being analyzed. To help identify long-term trends, weekly charts or daily charts spanning a five-year period are used by chartists to get a better idea of the long-term trend. Daily data charts are best used when analyzing both intermediate and short-term trends. It is also important to remember that the longer the trend, the more important it is; for example, a one-month trend is not as significant as a five-year trend.
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Trendlines A trendline is a simple charting technique that adds a line to a chart to represent the trend in the market or a stock. Drawing a trendline is as simple as drawing a straight line that follows a general trend. These lines are used to clearly show the trend and are also used in the identification of trend reversals. As you can see in Figure 5, an upward trendline is drawn at the lows of an upward trend. This line represents the support the stock has every time it moves from a high to a low. Notice how the price is propped up by this support. This type of trendline helps traders to anticipate the point at which a stock's price will begin moving upwards again. Similarly, a downward trendline is drawn at the highs of the downward trend. This line represents the resistance level that a stock faces every time the price moves from a low to a high.

Channels

Figure 5

A channel, or channel lines, is the addition of two parallel trendlines that act as strong areas of support and resistance. The upper trendline connects a series of highs, while the lower trendline connects a series of lows. A channel can slope upward, downward or sideways but, regardless of the direction, the interpretation remains the same. Traders will expect a given security to trade between the two levels of support and resistance until it breaks beyond one of the levels, in which case traders can expect a sharp move in the direction of the break. Along with clearly displaying the trend, channels are mainly used to illustrate important areas of support and resistance.

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2.2 SUPPORT AND RESISTANCE

nce you understand the concept of a trend, the next major concept is that of support and resistance. You'll often hear technical analysts talk about the ongoing battle between the bulls and the bears, or the struggle between buyers (demand) and sellers (supply). This is revealed by the prices a security seldom moves above (resistance) or below (support).

Figure 1 As you can see in Figure 1, support is the price level through which a stock or market seldom falls (illustrated by the blue arrows). Resistance, on the other hand, is the price level that a stock or market
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seldom surpasses (illustrated by the red arrows). Why Does it Happen? These support and resistance levels are seen as important in terms of market psychology and supply and demand. Support and resistance levels are the levels at which a lot of traders are willing to buy the stock (in the case of a support) or sell it (in the case of resistance). When these trend lines are broken, the supply and demand and the psychology behind the stock's movements is thought to have shifted, in which case new levels of support and resistance will likely be established. Role Reversal Once a resistance or support level is broken, its role is reversed. If the price falls below a support level, that level will become resistance. If the price rises above a resistance level, it will often become support. As the price moves past a level of support or resistance, it is thought that supply and demand has shifted, causing the breached level to reverse its role. For a true reversal to occur, however, it is important that the price make a strong move through either the support or resistance. (For further reading, see Retracement Or Reversal: Know The Difference.)

Figure 2 For example, as you can see in Figure 2, the dotted line is shown as a level of resistance that has prevented the price from heading higher on two previous occasions (Points 1 and 2). However, once the resistance is broken, it becomes a level of support (shown by Points 3 and 4) by propping up the price and preventing it from heading lower again. Many traders who begin using technical analysis find this concept hard to believe and don't realize that this phenomenon occurs rather frequently, even with some of the most well-known companies. For
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example, as you can see in Figure 3, this phenomenon is evident on the Wal-Mart Stores Inc. (WMT) chart between 2003 and 2006. Notice how the role of the $51 level changes from a strong level of support to a level of resistance.

Figure 3 In almost every case, a stock will have both a level of support and a level of resistance and will trade in this range as it bounces between these levels. This is most often seen when a stock is trading in a generally sideways manner as the price moves through successive peaks and troughs, testing resistance and support. The Importance of Support and Resistance Support and resistance analysis is an important part of trends because it can be used to make trading decisions and identify when a trend is reversing. For example, if a trader identifies an important level of resistance that has been tested several times but never broken, he or she may decide to take profits as the security moves toward this point because it is unlikely that it will move past this level. Support and resistance levels both test and confirm trends and need to be monitored by anyone who uses technical analysis. As long as the price of the share remains between these levels of support and resistance, the trend is likely to continue. It is important to note, however, that a break beyond a level of support or resistance does not always have to be a reversal. For example, if prices moved above the resistance levels of an upward trending channel, the trend has accelerated, not reversed. This means that the price appreciation is expected to be faster than it was in the channel.

2.3 CHARTS AND CHART PATEERNS

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There are main types of charts used in technical analysis: Line charts Bar charts Candlestick charts Point and figure charts A chart pattern is a distinct formation on a stock chart that creates a trading signal, or a sign of future price movements. Chartists use these patterns to identify current trends and trend reversals and to trigger buy and sell signals. In the first section of this tutorial, we talked about the three assumptions of technical analysis, the third of which was that in technical analysis, history repeats itself. The theory behind chart patters is based on this assumption. The idea is that certain patterns are seen many times, and that these patterns signal a certain high probability move in a stock. Based on the historic trend of a chart pattern setting up a certain price movement, chartists look for these patterns to identify trading opportunities.

Head and Shoulders

This is one of the most popular and reliable chart patterns in technical analysis. Head and shoulders is a reversal chart pattern that when formed, signals that the security is likely to move against the previous trend. As you can see in Figure 1, there are two versions of the head and shoulders chart pattern. Head and shoulders top (shown on the left) is a chart pattern that is formed at the high of an upward movement and signals that the upward trend is about to end. Head and shoulders bottom, also known as inverse head and shoulders (shown on the right) is the lesser known of the two, but is used to signal a reversal in a downtrend.

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Figure 1: Head and shoulders top is shown on the left. Head and shoulders bottom, or inverse head and shoulders, is on the right. Both of these head and shoulders patterns are similar in that there are four main parts: two shoulders, a head and a neckline. Also, each individual head and shoulder is comprised of a high and a low. For example, in the head and shoulders top image shown on the left side in Figure 1, the left shoulder is made up of a high followed by a low. In this pattern, the neckline is a level of support or resistance. Remember that an upward trend is a period of successive rising highs and rising lows. The head and shoulders chart pattern, therefore, illustrates a weakening in a trend by showing the deterioration in the successive movements of the highs and lows.

Cup and Handle

A cup and handle chart is a bullish continuation pattern in which the upward trend has paused but will continue in an upward direction once the pattern is confirmed.

Figure 2 As you can see in Figure 2, this price pattern forms what looks like a cup, which is preceded by an upward trend. The handle follows the cup formation and is formed by a generally downward/sideways movement in the security's price. Once the price movement pushes above the resistance lines formed in the handle, the upward trend can continue. There is a wide ranging time frame for this type of pattern, with the span ranging from several months to more than a year.

Double Tops and Bottoms

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This chart pattern is another well-known pattern that signals a trend reversal - it is considered to be one of the most reliable and is commonly used. These patterns are formed after a sustained trend and signal to chartists that the trend is about to reverse. The pattern is created when a price movement tests support or resistance levels twice and is unable to break through. This pattern is often used to signal intermediate and long-term trend reversals.

Figure 3: A double top pattern is shown on the left, while a double bottom pattern is shown on the right. In the case of the double top pattern in Figure 3, the price movement has twice tried to move above a certain price level. After two unsuccessful attempts at pushing the price higher, the trend reverses and the price heads lower. In the case of a double bottom (shown on the right), the price movement has tried to go lower twice, but has found support each time. After the second bounce off of the support, the security enters a new trend and heads upward.

Triangles
Triangles are some of the most well-known chart patterns used in technical analysis. The three types of triangles, which vary in construct and implication, are the symmetrical triangle, ascending and descending triangle. These chart patterns are considered to last anywhere from a couple of weeks to several months.

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Figure 4 The symmetrical triangle in Figure 4 is a pattern in which two trendlines converge toward each other. This pattern is neutral in that a breakout to the upside or downside is a confirmation of a trend in that direction. In an ascending triangle, the upper trendline is flat, while the bottom trendline is upward sloping. This is generally thought of as a bullish pattern in which chartists look for an upside breakout. In a descending triangle, the lower trendline is flat and the upper trendline is descending. This is generally seen as a bearish pattern where chartists look for a downside breakout. Flag and Pennant These two short-term chart patterns are continuation patterns that are formed when there is a sharp price movement followed by a generally sideways price movement. This pattern is then completed upon another sharp price movement in the same direction as the move that started the trend. The patterns are generally thought to last from one to three weeks.

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Figure 5 As you can see in Figure 5, there is little difference between a pennant and a flag. The main difference between these price movements can be seen in the middle section of the chart pattern. In a pennant, the middle section is characterized by converging trend lines, much like what is seen in a symmetrical triangle. The middle section on the flag pattern, on the other hand, shows a channel pattern, with no convergence between the trendlines. In both cases, the trend is expected to continue when the price moves above the upper trendline.

Wedge
The wedge chart pattern can be either a continuation or reversal pattern. It is similar to a symmetrical triangle except that the wedge pattern slants in an upward or downward direction, while the symmetrical triangle generally shows a sideways movement. The other difference is that wedges tend to form over longer periods, usually between three and six months.

Figure 6 The fact that wedges are classified as both continuation and reversal patterns can make reading signals confusing. However, at the most basic level, a falling wedge is bullish and a rising wedge is bearish. In Figure 6, we have a falling wedge in which two trendlines are converging in a downward direction. If
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the price was to rise above the upper trendline, it would form a continuation pattern, while a move below the lower trendline would signal a reversal pattern.

Gaps
A gap in a chart is an empty space between a trading period and the following trading period. This occurs when there is a large difference in prices between two sequential trading periods. For example, if the trading range in one period is between $25 and $30 and the next trading period opens at $40, there will be a large gap on the chart between these two periods. Gap price movements can be found on bar charts and candlestick charts but will not be found on point and figure or basic line charts. Gaps generally show that something of significance has happened in the security, such as a better-thanexpected earnings announcement. There are three main types of gaps, breakaway, runaway (measuring) and exhaustion. A breakaway gap forms at the start of a trend, a runaway gap forms during the middle of a trend and an exhaustion gap forms near the end of a trend.

Triple Tops and Bottoms

Triple tops and triple bottoms are another type of reversal chart pattern in chart analysis. These are not as prevalent in charts as head and shoulders and double tops and bottoms, but they act in a similar fashion. These two chart patterns are formed when the price movement tests a level of support or resistance three times and is unable to break through; this signals a reversal of the prior trend.

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Confusion can form with triple tops and bottoms during the formation of the pattern because they can look similar to other chart patterns. After the first two support/resistance tests are formed in the price movement, the pattern will look like a double top or bottom, which could lead a chartist to enter a reversal position too soon.

Rounding Bottom
A rounding bottom, also referred to as a saucer bottom, is a long-term reversal pattern that signals a shift from a downward trend to an upward trend. This pattern is traditionally thought to last anywhere from several months to several years.

Figure 8 A rounding bottom chart pattern looks similar to a cup and handle pattern but without the handle. The long-term nature of this pattern and the lack of a confirmation trigger, such as the handle in the cup and
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handle, makes it a difficult pattern to trade.

2.4 THEORIES
DOW THEORY TRENDS: The ideas of Charles Dow, the first editor of the Wall Street Journal, form the basis of technical analysis. The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages. Dow created the Industrial Average, of top blue chip stocks, and a second average of top railroad stocks (now the Transport Average). He believed that the behavior of the averages reflected the hopes and fears of the entire market. The behavior patterns that he observed apply to markets throughout the world. Three Movements Markets fluctuate in more than one time frame at the same time: Nothing is more certain than that the market has three well defined movements which fit into each other. The first is the daily variation due to local causes and the balance of buying and selling at that particular time. The secondary movement covers a period ranging from ten days to sixty days, averaging probably between thirty and forty days. The third move is the great swing covering from four to six years.

Bull markets are broad upward movements of the market that may last several years, interrupted by secondary reactions. Bear markets are long declines interrupted by secondary rallies. These movements are referred to as the primary trend.

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Secondary movements normally retrace from one third to two thirds of the primary trend since the previous secondary movement. Daily fluctuations are important for short-term trading, but are unimportant in analysis of broad market movements. Various cycles have subsequently been identified within these broad categories. Primary Movements have Three Phases The general conditions in the market: Bull markets Bull markets commence with reviving confidence as business conditions improve. Prices rise as the market responds to improved earnings Rampant speculation dominates the market and price advances are based on hopes and expectations rather than actual results. Bear markets Bear markets start with abandonment of the hopes and expectations that sustained inflated prices. Prices decline in response to disappointing earnings. Distress selling follows as speculators attempt to close out their positions and securities are sold without regard to their true value. Trends Bull Trends A bull trend is identified by a series of rallies where each rally exceeds the highest point of the previous rally. The decline, between rallies, ends above the lowest point of the previous decline. Successive higher highs and higher lows.

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The start of an up trend is signaled when price makes a higher low (trough), followed by a rally above the previous high (peak): Start = higher Low + break above previous High. The end is signaled by a lower high (peak), followed by a decline below the previous low (trough): End = lower High + break below previous Low.

A bear trend starts at the end of a bull trend: when a rally ends with a lower peak and then retreats below the previous low. The end of a bear trend is identical to the start of a bull trend.

ELLIOT WAVES THEORY BASICS TRENDLINES

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Breaking through support or resistance levels results in a change of traders expectations (which causes supply/demand lines to shift). An Uptrend is defined by successively higher low-prices. A rising trend can be thought of as a rising support level: the bulls are in control and are pushing prices higher. A Downtrend is defined by successively lower high-prices. A falling trend can be thought of as a falling resistance level: the bears are in control and are pushing prices lower.

2.5 MOVING AVERAGES

Most chart patterns show a lot of variation in price movement. This can make it difficult for traders to get an idea of a security's overall trend. One simple method traders use to combat this is to apply moving averages. A moving average is the average price of a security over a set amount of time. By plotting a security's average price, the price movement is smoothed out. Once the day-to-day fluctuations are removed, traders are better able to identify the true trend and increase the probability that it will work in their favor.There are a number of different types of moving averages that vary in the way they are calculated, but how each average is interpreted remains the same. The calculations only differ in regards to the weighting that they place on the price data, shifting from equal weighting of each price point to more weight being placed on recent data. The three most common types of moving averages are simple, linear and exponential. Simple Moving Average (SMA) This is the most common method used to calculate the moving average of prices. It simply takes the sum of all of the past closing prices over the time period and divides the result by the number of prices
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used in the calculation. For example, in a 10-day moving average, the last 10 closing prices are added together and then divided by 10. As you can

Linear Weighted Average This moving average indicator is the least common out of the three and is used to address the problem of the equal weighting. The linear weighted moving average is calculated by taking the sum of all the closing prices over a certain time period and multiplying them by the position of the data point and then dividing by the sum of the number of periods. For example, in a five-day linear weighted average, today's closing price is multiplied by five, yesterday's by four and so on until the first day in the period range is reached. These numbers are then added together and divided by the sum of the multipliers. Exponential Moving Average (EMA) This moving average calculation uses a smoothing factor to place a higher weight on recent data points and is regarded as much more efficient than the linear weighted average. Having an understanding of the calculation is not generally required for most traders because most charting packages do the calculation for you. The most important thing to remember about the exponential moving average is that it is more responsive to new information relative to the simple moving average.

Major Uses of Moving Averages

Moving averages are used to identify current trends and trend reversals as well as to set up support and resistance levels. Moving averages can be used to quickly identify whether a security is moving in an uptrend or a downtrend depending on the direction of the moving average. As you can see in Figure 3, when a moving average is heading upward and the price is above it, the security is in an uptrend. Conversely, a downward sloping moving average with the price below can be used to signal a downtrend.

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Figure 3 Another method of determining momentum is to look at the order of a pair of moving averages. When a short-term average is above a longer-term average, the trend is up. On the other hand, a long-term average above a shorter-term average signals a downward movement in the trend. Moving average trend reversals are formed in two main ways: when the price moves through a moving average and when it moves through moving average crossovers. The first common signal is when the price moves through an important moving average. For example, when the price of a security that was in an uptrend falls below a 50-period moving average, like in Figure 4, it is a sign that the uptrend may be reversing.

Figure 4 The other signal of a trend reversal is when one moving average crosses through another. For example, as you can see in Figure 5, if the 15-day moving average crosses above the 50-day moving average, it is a positive sign that the price will start to increase.

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Figure 5 If the periods used in the calculation are relatively short, for example 15 and 35, this could signal a short-term trend reversal. On the other hand, when two averages with relatively long time frames cross over (50 and 200, for example), this is used to suggest a long-term shift in trend. Another major way moving averages are used is to identify support and resistance levels. It is not uncommon to see a stock that has been falling stop its decline and reverse direction once it hits the support of a major moving average. A move through a major moving average is often used as a signal by technical traders that the trend is reversing. For example, if the price breaks through the 200-day moving average in a downward direction, it is a signal that the uptrend is reversing.

Figure 6 Moving averages are a powerful tool for analyzing the trend in a security. They provide useful support and resistance points and are very easy to use. The most common time frames that are used when creating moving averages are the 200-day, 100-day, 50-day, 20-day and 10-day. The 200-day average is thought to be a good measure of a trading year, a 100-day average of a half a year, a 50-day average of a quarter of a year, a 20-day average of a month and 10-day average of two weeks.

2.6 INDICATORS
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Accumulation/Distribution Line The accumulation/distribution line is one of the more popular volume indicators that measures money flows in a security. This indicator attempts to measure the ratio of buying to selling by comparing the price movement of a period to the volume of that period. Calculated:

Acc/Dist = ((Close - Low) - (High - Close)) / (High - Low) * Period's Volume This is a non-bounded indicator that simply keeps a running sum over the period of the security. Traders look for trends in this indicator to gain insight on the amount of purchasing compared to selling of a security. If a security has an accumulation/distribution line that is trending upward, it is a sign that there is more buying than selling. Average Directional Index (ADX) The average directional index (ADX) is a trend indicator that is used to measure the strength of a current trend. The indicator is seldom used to identify the direction of the current trend, but can identify the momentum behind trends. The ADX is a combination of two price movement measures: the positive directional indicator (+DI) and the negative directional indicator (-DI). The ADX measures the strength of a trend but not the direction. The +DI measures the strength of the upward trend while the -DI measures the strength of the downward trend. These two measures are also plotted along with the ADX line. Measured on a scale between zero and 100, readings below 20 signal a weak trend while readings above 40 signal a strong trend. Moving Average Convergence Divergence (MACD) The moving average convergence divergence (MACD) is one of the most well known and used indicators in technical analysis. This indicator is comprised of two exponential moving averages, which help to measure momentum in the security. The MACD is simply the difference between these two moving averages plotted against a centerline. The centerline is the point at which the two moving
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averages are equal. Along with the MACD and the centerline, an exponential moving average of the MACD itself is plotted on the chart. The idea behind this momentum indicator is to measure short-term momentum compared to longer term momentum to help signal the current direction of momentum.

MACD= shorter term moving average - longer term moving average When the MACD is positive, it signals that the shorter term moving average is above the longer term moving average and suggests upward momentum. The opposite holds true when the MACD is negative - this signals that the shorter term is below the longer and suggest downward momentum. When the MACD line crosses over the centerline, it signals a crossing in the moving averages. The most common moving average values used in the calculation are the 26-day and 12-day exponential moving averages. The signal line is commonly created by using a nine-day exponential moving average of the MACD values. These values can be adjusted to meet the needs of the technician and the security. For more volatile securities, shorter term averages are used while less volatile securities should have longer averages. As you can see in Figure 2, one of the most common buy signals is generated when the MACD crosses above the signal line (blue dotted line), while sell signals often occur when the MACD crosses below the signal.

Figure 2 The relative strength index (RSI) is another one of the most used and well-known momentum indicators in technical analysis. RSI helps to signal overbought and oversold conditions in a security. The indicator
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is plotted in a range between zero and 100. A reading above 70 is used to suggest that a security is overbought, while a reading below 30 is used to suggest that it is oversold. This indicator helps traders to identify whether a securitys price has been unreasonably pushed to current levels and whether a reversal may be on the way.

Figure 3 The standard calculation for RSI uses 14 trading days as the basis, which can be adjusted to meet the needs of the user. If the trading period is adjusted to use fewer days, the RSI will be more volatile and will be used for shorter term trades. On-Balance Volume The on-balance volume (OBV) indicator is a well-known technical indicator that reflect movements in volume. It is also one of the simplest volume indicators to compute and understand. The OBV is calculated by taking the total volume for the trading period and assigning it a positive or negative value depending on whether the price is up or down during the trading period. When price is up during the trading period, the volume is assigned a positive value, while a negative value is assigned when the price is down for the period. The positive or negative volume total for the period is then added to a total that is accumulated from the start of the measure. It is important to focus on the trend in the OBV - this is more important than the actual value of the OBV measure. This measure expands on the basic volume measure by combining volume and price movement Stochastic Oscillator

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The stochastic oscillator is one of the most recognized momentum indicators used in technical analysis. The idea behind this indicator is that in an uptrend, the price should be closing near the highs of the trading range, signaling upward momentum in the security. In downtrends, the price should be closing near the lows of the trading range, signaling downward momentum. The stochastic oscillator is plotted within a range of zero and 100 and signals overbought conditions above 80 and oversold conditions below 20. The stochastic oscillator contains two lines. The first line is the %K, which is essentially the raw measure used to formulate the idea of momentum behind the oscillator. The second line is the %D, which is simply a moving average of the %K. The %D line is considered to be the more important of the two lines as it is seen to produce better signals. The stochastic oscillator generally uses the past 14 trading periods in its calculation but can be adjusted to meet the needs of the user.

Figure 4

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CHAPTER- 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW

FUNDAMENTALANALYSIS

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Fundamental analysis refers to the study of the core underlying elements that influence the economy of a particular entity. It is a method of study that attempts to predict price action and market trends by analyzing economic indicators, government policy and societal factors (to name just a few elements) within a business cycle framework. I. ECONOMIC ANALYSIS: POLITICO-ECONOMIC ANALYSIS: No industry or company can exist in isolation. It may have splendid managers and a tremendous product. However, its sales and its costs are affected by factors, some of which are beyond its control the world economy, price inflation, taxes and a host of others. It is important, therefore, to have an appreciation of the politico-economic factors that affect an industry and a company. II. INDUSTRY ANALYSIS The importance of industry analysis is now dawning on the Indian investor as never before. 1. BARRIER TO ENTRY New entrants increase the capacity in an industry and the inflow of funds. The question that arises is how easy is it to enter an industry ? There are some barriers to entry: a) Economies of scale b) Product differentiation c) Capital requirement d) Government policy

2. THE THREAT OF SUBSTITUTION New inventions are always taking place and new and better products replace existing ones. An industry that can be replaced by substitutes or is threatened by substitutes is normally an industry one must be careful of investing in. An industry where this occurs constantly is the packaging industry -bottles
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replaced by cans, cans replaced by plastic bottles, and the like. To ward off the threat of substitution, companies often have to spend large sums of money in advertising and promotion. 3. BARGAINING POWER OF THE BUYERS In an industry where buyers have control, i.e. in a buyer's market, buyers are constantly forcing prices down, demanding better services or higher quality and this often erodes profitability. 4. BARGAINING POWER FOR THE SUPPLIERS An industry unduly controlled by its suppliers is also under threat. 5. RIVALRY AMONG COMPETITORS Rivalry among competitors can cause an industry great harm. This occurs mainly by price cuts, heavy advertising, additional high cost services or offers, and the like.

III. COMPANY ANALYSIS:

At the final stage of fundamental analysis, the investor analyzes the company. This analysis has two thrusts: How has the company performed vis--vis other similar companies and How has the company performed in comparison to earlier years It is imperative that one completes the politico economic analysis and the industry analysis before a company is analyzed because the company's performance at a period of time is to an extent a reflection of the economy, the political situation and the industry. What does one look at when analyzing a company? The different issues regarding a company that should be examined are: The Management The Company The Annual Report Ratios THE MANAGEMENT:
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The single most important factor one should consider when investing in a company and one often never considered is its management. In India management can be broadly divided in two types: Family Management Professional Management THE COMPANY: An aspect not necessarily examined during an analysis of fundamentals is the company. A company may have made losses consecutively for two years or more and one may not wish to touch its shares yet it may be a good company and worth purchasing into. There are several factors one should look at. 1. How a company is perceived by its competitors? One of the key factors to ascertain is how a company is perceived by its competitors. It is held in high regard. Its management may be known for its maturity, vision, competence and aggressiveness. The investor must ascertain the reason and then determine whether the reason will continue into the foreseeable future. 2. Whether the company is the market leader in its products or in its segment Another aspect that should be ascertained is whether the company is the market leader in its products or in its segment. When you invest in market leaders, the risk is less. The shares of market leaders do not fall as quickly as those of other companies. There is a magic to their name that would make individuals prefer to buy their products as opposed to others. 3. Company Policies The policy a company follows is also important. What is its plans for growth? What is its vision? Every company has a life. If it is allowed to live a normal life it will grow upto a point and then begin to level out and eventually die. It is at the point of leveling out that it must be given new life. This can give it renewed vigour and a new lease of life. THE ANNUAL REPORT:
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The primary and most important source of information about a company is its Annual Report. By law, this is prepared every year and distributed to the shareholders. Annual Reports are usually very well presented. A tremendous amount of data is given about the performance of a company over a period of time. The Annual Report is broken down into the following specific parts: A) The Director's Report, B) The Auditor's Report, C) The Financial Statements, and D) The Schedules and Notes to the Accounts. A. THE DIRECTORS REPORT The Directors Report is a report submitted by the directors of a company to its shareholders, advising them of the performance of the company under their stewardship. 1. It enunciates the opinion of the directors on the state of the economy and the political situation vis-vis the company. 2. Explains the performance and the financial results of the company in the period under review. This is an extremely important part. The results and operations of the various separate divisions are usually detailed and investors can determine the reasons for their good or bad performance. 3. The Directors Report details the company's plans for modernization, expansion and diversification. Without these, a company will remain static and eventually decline. 4. Discusses the profit earned in the period under review and the dividend. Recommended by the directors. This paragraph should normally be read with some skepticism, as the directors will always argue that the performance was satisfactory. If adverse economic conditions are usually at fault. 5. Elaborates on the directors' views of the company's prospects in the future. 6. Discusses plans for new acquisition and investments. An investor must intelligently evaluate the issues raised in a Directors Report. Industry conditions and the management's knowledge of the business must be considered. B. THE AUDITOR'S REPORT The auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors. Auditors are required to report whether the
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financial statements presented do, in fact, present a true and fair view of the state of the company. Investors must remember that the auditors are their representatives and that they are required by law to point out if the financial statements are not true and fair.. C. FINANCIAL STATEMENTS The published financial statements of a company in an Annual Report consist of its Balance Sheet as at the end of the accounting period detailing the financing condition of the company at that date, and the Profit and Loss Account or Income Statement summarizing the activities of the company for the accounting period. Balance sheet The Balance Sheet details the financial position of a company on a particular date; of the company's assets (that which the company owns), and liabilities (that which the company owes), grouped logically under specific heads. It must however, be noted that the Balance Sheet details the financial position on a particular day and that the position can be materially different on the next day or the day after. SOURCES OF FUNDS Shareholders Funds Share Capital (i) Private Placement (ii) Public Issue iii) Rights issues RESERVES i) Capital Reserves ii) Revenue Reserves LOAN FUNDS i) Secured loans: ii) Unsecured loans FIXED ASSETS Investments
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Stock Or Inventories i) Raw materials ii) Work in progress iii) Finished goods Cash And Bank Balances Loans And Advances PROFIT AND LOSS ACCOUNT The Profit and Loss account summarizes the activities of a company during an accounting period which may be a month, a quarter, six months, a year or longer, and the result achieved by the company. It details the income earned by the company, its cost and the resulting profit or loss. It is, in effect, the performance appraisal not only of the company but also of its management- its competence, foresight and ability to lead. RATIOS: Ratios express mathematically the relationship between performance figures and/or assets/liabilities in a form that can be easily understood and interpreted. No single ratio tells the complete story Ratios can be broken down into four broad categories: (A) Profit and Loss Ratios These show the relationship between two items or groups of items in a profit and loss account or income statement. The more common of these ratios are: (B) Balance Sheet Ratios These deal with the relationship in the balance sheet such as : 1. Current assets to current liabilities. 2. Liabilities to net worth. (C) Balance Sheet and Profit and Loss Account Ratios. These relate an item on the balance sheet to another in the profit and loss account such as: 1. Earnings to shareholder's funds. 2. Net income to assets employed. (D) Financial Statements and Market Ratios

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These are normally known as market ratios and are arrived at by relative financial figures to market prices: 1. Market value to earnings and 2. Book value to market value. (a) Market value (b) Earnings (c) Profitability The major ratios that are considered: (i) Market value (ii) Price- earnings ratio (iii) Market-to-book ratio (iv) Earnings (v) Earnings per share (vi) Dividend per share

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CHAPTER- 4 BANKING SECTOR

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4.1 BANKING IN INDIA The Indian banking scenario witnessed a significant development in the recent years with the entry of private banks and their focus on retail banking and convergence of services. The business models of the leading players are adapting to this impending change as banks widen the spectrum of savings and loan products they offer. Private Banks are the best positioned to acquire market share in the emerging scenario: A change is expected to make mergers between banks and Foreign Institutional Investors possible, which will. Benefit large private bank group(s).

Nationalization
A significant milestone in Indian Banking happened in the late 1960s when the then Indira Gandhi government nationalized, on 19th July, 1969, 14 major commercial Indian banks, followed by nationalization of 6 more commercial Indian banks in 1980. The stated reason for the nationalization was more control of credit delivery. After this, until the 1990s, the nationalized banks grew at a leisurely pace of around 4%-also called as the Hindu growth of the Indian economy. After the amalgamation of New Bank of India with Punjab National Bank, currently there are 59 nationalized banks in India.

Liberalization
In the early 1990s the then Narasimha Rao government embarked on a policy of liberalization and gave licenses to a small number of private banks, which came to be known as New Generation tech-savvy banks, which included banks like ICICI Bank and HDFC Bank. This move along with the rapid growth in the economy of India, kick started the banking sector in India, which has seen rapid growth with strong contribution from all the three sectors of banks, namely, government banks, private banks and foreign banks. However there had been a few hiccups for these new banks with many either being taken over like Global Trust Bank while others like Centurion Bank have found the going tough. The next stage for the Indian banking has been setup with the proposed relaxation in the norms for Foreign Direct Investment, where all Foreign Investors in banks may be given voting rights which could exceed the present cap of 10%.

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4.2 CURRENT SCENARIO

The growth in the Indian Banking Industry has been more qualitative than quantitative and it is expected to remain the same in the coming years. Based on the projections made in the "India Vision 2020" prepared by the Planning Commission and the Draft 10th Plan, the report forecasts that the pace of expansion in the balance-sheets banks is likely to decelerate. The total assets of of all scheduled

commercial banks by end- March 2010 is estimated at Rs 40,90,000 crores. That will comprise about 65 per cent of GDP at current market prices as compared to 67 per cent in 2002-03. Bank assets are expected to grow at an annual composite rate of 13.4 per cent during the rest of the decade as against the growth rate of 16.7 per cent that existed between 1994-95 and 200203. It is expected that there The Indian Banking will be large additions to the capital can be categorized into nonof the base and reserves on the liability side. Industry scheduled banks and scheduled banks. Scheduled banks constitute commercial banks and co-operative branches banks. There of Scheduled banks spread across India. As far as

are about 67,000

present scenario is concerned the Banking Industry in India is going through a transitional phase. The Public Sector Banks(PSBs), which are the base of the Banking sector in India account for more than 78 per cent of the total banking industry assets. Unfortunately they are burdened with excessive Non Performing assets (NPAs), massive technology. On the other hand the tremendous manpower and lack of modern Private Sector Banks are making in Internet banking, mobile Indian

progress. They are leaders

banking, phone banking, ATMs. As far as foreign banks are concerned they are likely to succeed in the Banking In the Indian Industry. Banking Industry some of the Private Sector

61

Banks operating International Public Sector

are IDBI

Ban k, I NG

Vyasa

Bank,SBI Commercial Ltd.

and Bank,

Bank Ltd,

Bank of Rajasthan

and banks from the Grindlays Bank, ABNof the

include Punjab National bank, Vijaya Bank, UCO Bank Ltd, Citibank are some

Oriental Bank, Allahabad Bank among others. ANZ AMRO Bank, American Express foreign banks operating in the India

FUTURE OUTLOOK
Total banking assets are expected to double and grow to $915 billion by 2015 - a CAGR of 15% $70 billion additional equity needed for growth plus Basel II compliance Mutual Funds: Assets Under Management (AUM) are expected to grow by 15% till 2015 Retail Finance is expected to grow at an annual rate of 18%, from $27.6 billion in 2003-04 to $64.2 billion by 2011-12

4.3 FUTURE POTENTIALS

Loan growth of ~20%, operating leverage and fall in credit cost will drive banking sector's profitability over FY12 and FY13. Margins, even with some moderation from their peaks in 3QFY11, would be above/near the average level of FY04-09. Higher recoveries could provide positive surprise to earning estimates (write-offs were aggressive over FY09 and FY10 to keep reported GNPAs lower). We expect banks to report 20%+ earnings growth on an aggregate basis and return ratios to be healthy with RoA of 1.1%+ and RoE of ~18%. Valuations at P/E of 8x and P/BV of 1.3x for PSU banks and P/E of 16x and P/BV of 2.3x for private banks are at the five-year average multiples, despite strong core operating performance expected.

Margins robust; to remain above/near FY04-09 average levels

Downward deposit re-pricing, fall in excess liquidity on the balance sheet, better
62

pricing power (led by a liquidity crunch and a higher CD ratio) and stronger CASA growth led to a sharp improvement in margins in 9MFY11. Overall, FY11 blended margins are expected to be ~50bp higher YoY, driving core operating profits. Given the tight liquidity and rising rates scenario, margins are unlikely to fall in a hurry, and gradual moderations have been factored in estimates. As FY11 is amongst the best year of margins for Indian banks, we expect margins to moderate 1020bp (bank specific), but to remain above/near the average margins of FY04-09. Banks that reported higher slippages over the past two years are likely to have lower margin compression because of expected improvement in asset quality. Our sensitivity analysis suggests that for every 5bp change in margins, profits will be impacted by ~3%. With a 1% fall in CASA ratio and a 1% fall in CD ratio, margins are likely to compress by 5bp and 7bp, respectively.

Asset quality improvement; lower credit cost to drive earnings growth

Banks added higher stressed assets over FY09-11 due to fall out of the financial crisis and moderation in economic growth. However, incremental trends on asset quality are positive. Over the last two quarters, the slippage ratio has been coming down and we expect the trend to continue in 4QFY11 and FY12. In our view, large corporate and retail delinquencies and slippages from restructured loans have peaked. Private banks are well placed in terms of asset quality as retail delinquencies have peaked and due to conservative restructuring policy adopted in the past. Banks like SBI, PNB and Union Bank, which posted higher slippages, can surprise positively with a fall in slippages, higher up gradation and recoveries. Lower slippages, higher up gradations and recoveries should reduce credit costs and drive earnings growth. Risk to our call is slowdown in industrial growth led by possible shocks on crude oil prices and delay in project implementation. Technical slippages on account of CBS implementation can also lead to negative surprise for PSU banks.

Operating leverage - a key driver for RoA improvement

63

PSU banks' operating cost growth will peak in FY11 as full pension provisions for retired employees and wage revision will be provided for. On a higher base, we expect opex growth to be limited to 15%, providing banks with strong operating leverage. Private banks operating expenses will rise with wage and rental inflation, and large scale branch expansion. However, due to strong core operating income, we expect C/I ratio to remain stable.

Valuations at five-year average multiples; inflation remains a key risk

Banks' core operating performance is likely to be strong led by improving asset quality and operating leverage. We believe valuations are attractive with stocks trading at five-year average multiples. Correction in valuations from their peaks largely discount some of the macro headwinds such as tight liquidity, a sharp increase in interest rates, high inflation and mixed key economic indicators like IIP. Net market borrowing of Rs3.6t for FY12 (including T Bills of Rs150b) is below the market estimates of Rs3.8t+. Lower-than-expected fiscal deficit is positive for domestic liquidity and will allay fears of crowding out for private players. Food inflation, which is showing a decelerating trend, gives confidence of moderation in inflation. However, turmoil in the MENA region and its resultant impact on oil prices and inflation is a key risk. Some of the key regulatory headwinds, such as savings bank deregulation and change in the status of certain loans granted by banks to NBFCs as priority sector loans (PSL) etc, are specific risks.

64

4.4 BANKING STRUCTURE IN INDIA

The banking institutions in the organized sector, commercial banks are the oldest institutions, some them having their genesis in the nineteenth century. Initially they were set up in large numbers, mostly as corporate bodies with shareholding with private individuals. In the sixties of the 20 th century a large number of smaller and weaker banks emerged in the country. Subsequently there has been a drift towards state ownership and control. Today 27 banks constitute a strong Public Sector in Indian Commercial Banking. Commercial Banks operating in India fall under the different sub categories on the basis of their ownership and control over management.
1. Public Sector Banks: Public Sector Banks emerged in India in three stages. First the

conversion of the then existing Imperial Bank of India into State Bank of India in 1955, followed by the taking over of the seven associated banks as its subsidiary. Second the nationalization of 14 major commercial banks in 1969and last the nationalization of 6 more commercial Bank in 1980. Thus 27 banks constitute the Public Sector Banks.
2. New Private Sector Banks: after the nationalization of the major banks in the private sector in

1969 and 1980, no new bank could be setup in India for about two decades, though there was no legal bar to that effect. The Narasimham Committee on financial sector reforms recommended the establishment of new banks of India. RBI thereafter issued guidelines for setting up of new private sector banks in India in January 1993. These guidelines aim at ensuring that new banks are financially viable and technologically up to date from the start. They have to work in a professional manner, so as to improve the public. image of commercial banking system and to win the confidence of the

Eight private sector banks have been established including banks sector by financially institutions like IDBI, ICICI, and UTI etc.

65

Fig 1: Banking Structure in India

66

3. Local Area Banks: Such Banks can be established as public limited companies in the private

sector and can be promoted by individuals, companies, trusts and societies. The minimum paid up capital of such banks would be 5 crores with promoters contribution at least Rs. 2 crores. They are to be set up in district towns and the area of their operations would be limited to a maximum of 3 districts. At present, four local area banks are functional, one each in Punjab, Gujarat, Maharashtra and Andhra Pradesh.
4. Foreign Banks: foreign commercial banks are the branches in India of the joint stock banks

incorporated abroad. .
5. Cooperative Banks: Besides the commercial banks, there exists in India another set of banking

institutions called cooperative credit institutions. These have been made in existence in India since long. They undertake the business of banking both in urban and rural areas on the They have served a useful role in spreading the banking habit principle of cooperation.

throughout the country. Yet, there financial position is not sound and a majority of cooperative banks has yet to achieve financial viability on a sustainable basis. The cooperative banks have been set up under various Cooperative Societies Acts enacted State Governments. Hence the State Governments regulate these banks. In regulate their activities to ensure their soundness and to protect the cooperative Banks as well. These Banks have thus State Government and tat of the RBI which Operations are concerned. interests of by

1966, need was felt to depositors.

Consequently, certain provisions of the Banking Regulation Act 1949 were made applicable to the fallen under dual control viz., that of the exercises control over them so far as their banking

67

CHAPTER- 4 ANALYSIS

SBI

68

69

Brief Company Profile: ICICI BANK

ICICI Bank is India's second-largest bank with total assets of Rs. 3,634.00 billion (US$ 81 billion) at March 31, 2010 and profit after tax Rs. 40.25 billion (US$ 896 million) for the year ended March 31, 2010. The Bank has a network of 2,529 branches and 6,102 ATMs in India, and has a presence in 19 countries, including India. ICICI Bank offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and through its specialized subsidiaries in the areas of investment banking, life and non-life insurance, venture capital and asset management. The Bank currently has subsidiaries in the United Kingdom, Russia and Canada, branches in United States, Singapore, Bahrain, Hong Kong, Sri Lanka, Qatar and Dubai International Finance Centre and representative offices in United Arab Emirates, China, South Africa, Bangladesh, Thailand, Malaysia and Indonesia. Our UK subsidiary has established branches in Belgium and Germany. Key Executives
Mr. Kundapur Vaman Kamath
Chairman

Smt. Vishakha Mulye

Chief Financial Officer

Mrs. Chanda Kochhar

Managing Director & CEO

70

ICICIBank
BSE SENSEX S&P CNX

ICICI Bank
5,414

17,988 Bloomberg Equity Shares (rn) 52-Week Range (Rs) 1,6,12 ReI.Perf.(%) M.Cap. (Rs b) M.Cap. (US$ b)

Rs1,003
Operating parameters in place; Growth is the key

Buy

ICICIBCIN 1,150.8
1,277/803 -1/-1/4

Structural improvement in RoA to 1.5%; Top pick, Buy with the target price of Rs1,385
After a period of consolidation over the past two years, focus has shifted to growth, with corporate, autos and home loans being key drivers. Over FY11-13, domestic business growth is expected to be above the industry at 40%+. Stable/improving margins, control growth with CASA ratio expected to remain over cost-to-income ratio and a fall in credit

1,154.7 25.7

costs will ensure RoA of -1.5% over FY11-13. Strong CAR of 20% with tier-I ratio of -14% VIE March Nil (Rsb) OP (Rs b) NP (Rs b) 2011E 2012E 2013E 88.5 91.6 52.0 105.8 127.2 110.2 132.8 66.0 78.4 57.4 26.9 17.5 404 1.9 68.1 18.7 14.7 448 1.7 will ensure dilution-free growth.

EPS(Rs) 45.2 EPS Growth (%)25.2 PIE (x) 22.2 BV/Share (Rs)* 367 P/BV (x) ABV (Rs)* 2.2

Execution of 4 Cs strategy commendable: ICICI Bank's execution on 4Cs strategy has been commendable, with (1) average CASA ratio improving to -40% (from 22% in FY07), (2) cost-to-core income declining to -42% from 58% in FY07, (3) NNPAdeciining to 1.2% with improved PCR of 72% and (4) adequate capitalization with tier-I ratio of -14% for the next growth phase. Loan growth is the key to the earnings given other operating parameters in place now. We expect disbursement to exceed repayment driving the loan CAGR of -19% over FY1 0-13. Structural improvement in margins: As of 3QFY11, ICICI Bank had domestic

353 389 433 Adj P/ABV (x) 2.3 2.0 1.7 RoE(%) 12.0 14.1 15.1 RoA (%) 1.3 1.5 1.5 * BV adjusted for investmentin susbdiaries, Prices adj for sub value

margins of 3% and international margins of 85bp. Despite the increased share of CAS A ratio, margins were largely stable over FY08-11, as growth was driven by low yielding corporate and home loans and slippages were higher. Over FY11-13, we expect NIM to improve as corporate book likely to reprice, CASA ratio is expected to be 40%+ and asset quality to remain healthy. Even international margins are expected to improve with the fixed liability reprising. We model in margin improvement of 10bp each for FY12 and FY13. Near term NIM is expected to be stable/marginal with a higher share of RIDF bonds and priority sector loans. Decline in credit costs to boost return ratios: ICICI Bank's moderate loan growth over the past two years, seasoning of the retail loans and increased proportion of secured products, will result in lower incremental slippage, and credit cost. We believe credit cost has peaked in 1HFY11 (0.93% in 3QFY11 from 1.55% 1HFY11 and 2.2% decline

Shareholding 10)
Domestic

pattern % (Oec-

Others, 9.3

in FY10) and we model in a decline in credit costs to -0.9% leading to improved RoA. Sharp improvement in fundamental; valuation attractive:

in FY12 and FY13,

Structural improvement

on the liability side increases our comfort with improved ALM, fall in proportion of bulk Stock performance (1 year)
--ICICI Bank -Sensex - Rebased 1,350 1,200 1.050

deposits and a strong CASA ratio. Aggressive branch expansion (in FY10) and takeover of BoR will help ICICI Bank to keep its CASA share high and improve retail term deposits growth and fee income growth. ICICI bank is our top pick among private banks considering (a) expected improvement in core performance (led by loan growth), (b) strong capitalization among large private banks and (c) value unlocking potential

..._

71

3QFY11 highlights
Key positives
Loan growth picked up and grew 6.5% sequentially and 15%+ YoY. On a YTD basis loans grew 14%, driven by higher disbursals in the corporate segment. Corporate loans grew 17% QoQ and 65% YoY. 3QFY11 provisions declined 28% QoQ to Rs4.6b, led by stable asset quality. PCR increased to -72% vis 69% a quarter earlier. Credit cost during the quarter was -0.9% of loans vis 1.4% a quarter earlier and 1.55% in 1HFY11. CASAgrew 23% YoY (declined 2% QoQ} to Rs962b. On an average daily basis, CASA ratio was 40.3%. 3QFY11 RoA was -1.5% led by a decline in credit costs. Loan growth on an upward trajectory
Loan Book (Rs b) ~ YaY Gr. (%)

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41 7 421 ,.....:. ~ 44 .0
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Key negatives
ICICI Bank's N IMs were sequentially stable at 2.6% (unlike improvement for peers) led by a higher CD ratio. Higher proportion of RIDF bonds (to full priority sector targets) led to a drag on margins. Fee income growth lagged loan growth. Fees grew 2% QoQ and 14% YoY to Rs16.3b.
36.9
r-

44.2
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27.6 29.6 27.6 3,..0.......4,

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r-

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Other highlights
Restructured assets remained stable Rs25.6b (-1% of the customer assets). QoQ at
0>

a
NIMsstable QoQ,expect improvement in FY12(%)
2.6 2.5 2.4 2.4 2.4 2.4 2.6 2.6 2.5 2.6 2.6

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Asset quality stable, PCRimproves further

GNPA(%) _NNPA(%) ~PCR(%)

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72

Yearly trends
Loan growth to be in line with industry average Loans (Rs 8) ....,._ YoY 60 Improved liability mix to sustain _CASA
1 1

,G-row-th (-%) --,

1 1 1 1 1

Ratio (%)

....,._CASA Growth (%)

55.0

20

20

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While domestic loans expected to grow above industry; moderate growth in international loans to will lead to loan growth of -20% Fee income growth to pick up with loan growth Fee Incorre (Rs 8) ....,._ Fee Incomeas %age assets

Structural improvement in CASA ratio will lead to higher margins going forward Operating efficiency improving _Core
Cli (%)

,-----,
1

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to avg assets (%)

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Higher share of fee income to improve core operating performance

Strong improvement in operating efficiency; Control over Cost to income ratio a key focus area under new 5C strategy

Lower slippages, credit costs to boost profitability (%) ....,._ Slippages ....,._Credit Cost 2.2 2.2

Return ratios to improve RoA(%) ....,._ Core RoE(%) ,-----:-1 1 14

1 1 1 1

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73

Financials: ICICI Bank

Income Statement
Y/E March Interest Income Interest Expended Net Interest Income Change (%) Other Income Net Income Change (%) Operating Exp. Operating Profits Change (%) Provisions & Cant. PBT Tax Tax Rate (%) PAT Change (%) Dividend (Including Tax) 2009 310,926 227,259 83,666 14.5 76,037 159,703 -0.9 70,451 89,252 12.1 38,083 51,170 13,588 26.6 37,581 -9.6 13,764 2010 257,069 175,926 81,144 -3.0 74,777 155,920 -2.4 58,598 97,322 9.0 43,869 53,453 13,203 24.7 40,250 7.1 15,020 85,512 0.8 2011E 259,826 171,323 88,504 9.1 68,664 157,167 0.8 65,520 91,647 -5.8 23,628 68,019 15,984 23.5 52,035 29.3 18,851 91,647 7.2 2012E 315,439 209,605 105,833 19.6 82,370 188,203 19.7 77,974 110,229 20.3 22,211 88,018 22,005 25.0 66,014 26.9 24,236 108,729 18.6

(Rs Million)
2013E 388,679 261,447 127,233 20.2 99,294 226,527 20.4 93,745 132,782 20.5 25,406 107,376 28,991 27.0 78,384 18.7 26,929 130,532 20.1

Core PPP* 84,822 % Change 18.7 *Core PPP is (NII+Fee income-Opex)

Balance Sheet
Y/E March Share Capital Equity Share Capital Preference Capital Reserves & Surplus Net Worth Of which Equity Net Worth Deposits Change (%) Of which CASA Deposits Change (%) Borrowings Other Liabilities & Provo Total Liabilities Current Assets 2009 14,633 11,133 3,500 484,197 498,830 495,330 2,183,478 -10.7 626,678 -1.7 928,055 182,647 3,793,010 299,666
... n'ln
1:0..,

(Rs Million)
2010 14,649 11,149 3,500 505,035 519,684 516,184 2,020,166 -7.5 842,158 34.4 939,136 155,012 3,633,997 388,737
... ']no
0']0

2011E 15,008 11,508 3,500 538,219 553,227 549,727 2,423,699 20.0 952,983 13.2 1,012,482 190,175 4,179,583 415,099
... ..,on
']1:'7

2012E 15,008 11,508 3,500 579,996 595,004 591,504 2,824,720 16.5 1,109,483 16.4 1,092,164 234,554 4,746,441 388,558
... 1:']0 ,)OA

2013E 15,008 11,508 3,500 631,451 646,459 642,959 3,392,188 20.1 1,312,626 18.3 1,217,138 290,273 5,546,058 407,100
... '71:0 1:00

I_"._~ ..-.-- ..~.

74

Financials: ICICI Bank

Ratios
Y/E March Spreads Analysis (%) Avg. Yield Earning Assets Avg. Yield on loans Avg. Yield on Investments Avg. Cost-tnt. Bear. Liab. Avg. Cost of Deposits Interest Spread Net Interest Profitability RoE Adjusted RoA Margin Ratios (%) 7.8 RoE 9.3 1.0 73.1 47.6 8.0 9.7 1.1 68.4 48.0 9.8 12.0 1.3 65.9 43.7 11.6 14.1 1.5 66.4 43.8 12.7 15.1 1.5 67.3 43.8 2009 9.2 10.1 7.4 6.5 6.8 2.6 2.5 2010 7.9 8.7 6.9 5.3 5.5 2.7 2.5 2011E 7.7 8.3 5.8 4.9 5.1 2.8 2.6 2012E 8.1 8.9 6.1 5.2 5.5 2.8 2.7 2013E 8.5 9.3 6.0 5.7 6.0 2.8 2.8

Int. Expended/lnt.Earned Other Inc.lNet Income Efficiency Ratios (%) Cost//Net Income* Empl. Cost/Op. Exps. Busi. per Empl. (Rs m) NP per Empl. (Rs lac) * ex treasury Asset-Liability Profile (%)

45.4 28.0 131.0 10.9

40.7 32.9 116.3 11.4

41.7 41.9 79.4 9.9

41.8 42.2 85.0 11.3

41.8 42.2 94.9 12.6

Loans/Deposit Ratio CASA Ratio % Invest.iDeposit Ratio G-Sec/lnvest. Ratio CAR Tier 1

100.0 28.7 47.2 61.5 15.5 11.8

89.7 41.7 59.8 56.6 19.4 14.4

87.7 39.3 57.4 49.8 17.9 13.0

90.3 39.3 54.1 56.3 16.7 12.2

90.5 38.7 51.8 57.8 15.3 11.3

Valuation
Book Value (Rs) BV Growth (%) Price-BV (x) ABV (for Subsidaries) ABV Growth (%) 444.9 6.5 2.3 330.7 -3.1 463.0 4.1 2.2 349.1 5.5 477.7 3.2 2.1 367.3 5.2 514.0 7.6 2.0 403.6 9.9 558.7 8.7 1.8 448.3 11.1

(Rs)

75

Brief Company Profile: STATE BANK OF INDIA

State Bank of India, the countrys largest commercial Bank in terms of profits, assets, deposits,
branches and employees, welcomes you to its Investors Relations Section. SBI, with its heritage dating back to the year 1806, strives to continuously provide latest and upto date information on its financial performance. It is our endeavor to walk on the path of transparency and allow complete access to all the stakeholders enabling total awareness about the Bank. The Bank communicates with the stakeholders through a variety of channels, such as through e-mail, website, conference call, one-on-one meeting, analysts meet and attendance at Investor Conference throughout the world Please find below Banks financial results, analysis of performance and other highlights which will be of interest to Investors, Fund Managers and Analysts. SBI has always been fundamentally strong in its core business which is mirrored in its results year after year.

Key Executives
Mr. O. P. Bhatt
Chairman

Mr.R. Shridharan
Managing director

Mr.Dileep Choksi
Director

76

BSE SENSEX

State Bank of India

S&P CNX

17,988 Bloomberg Equity Shares (m) 52-Week Range (Rs) 1,6,12 ReI.Perf.(%) M.Cap. (Rs b) M.Cap.(US$ b)

5,414 PNBIN 635.0 3,515/2,014 -4/-6/25 1,664.2 37.0

Rs2,621
Dominance and improving parameters - key strength
Strengthening return ratios to drive valuations
Strong liability integration franchises of over 13,000 owned branches banks will further strengthen

Buy

(standalone), and more than its dominant position in the

17,000 branches (group), are a key strength for State Bank of India (SBI). SBI's increasing with associate banking sector. The power of its liability franchises can be seen in its strong, improving shares of fee income-to

Y/E March Nil (Rsb)

2011E 2012E 2013E 337.4 382.2 446.2 302.2 362.0 140.8 166.6 9,40511,475 3.2 3.1 221.7 262.4 24.4 18.3 259.6 317.2 9.7 7.9 1,345 1,549 1,644 1,902 1.5 1.3 1,514 1,765 1.7 1.4 17.6 18.1 1.1 1.1

CASA ratio of -48% (vis 42% in FY09) and one of the highest over FY11-13.

average assets (-1% vIs peers of 0.8%). We expect SBI to report net profit of CAGR of 21%

OP (Rs b) 263.8 NP (Rs b) 113.1 Loans (Rs b) 7,709 NIM(%) 3.3 EPS (Rs) 178.2 EPS Gr. (%) 23.4 Cons EPS (Rs) 209.9 Cons. PIE (x) 12.0 BV/Share (Rs) 1,176 Cons. BV (Rs) 1,437 Cons. P/BV (x) 1.8 Cons.ABV (Rs) 1,297 Cons P/ABV (x) 1.9 RoE(%) 16.1 RoA (%) 1.0

Strong CASA base a boon in a rising interest rate scenario: SBI's branchexpansion, technological advancement and marketing efforts have led to CASA CAGR of 20% over FY06-11.Strong, sustainableand growing CASA base is the key strengths of SBI and is likelyto providea cushionto NIMs in a rising interestrate scenario. Nevertheless, a sharp increase in term deposit rates will lead to moderation in margins from 3.6%, reported in 3QFY11. While we expect blended margins to improve 70bp in FY11, it is likely to decline by -10bp in FY12 (on a higher base). We factor in flat margins in FY13 over FY12. Operating leverage to boost RoE: Growth in operating expenses in FY09 and FY10 should be viewed in the context of capacity addition for the next growth phase. We believe large investments in CBS/technology, staff additions and branch/ATM expansionshave already been made and the benefitsof the investmentswill be realized in FY12 and FY13, driving strong and profitable growth. While pension-related provisions for the ninth bipartite agreement will kick in, a higher base due to gratuity related provisions in FY11will keep opex growth in check. We expect opex growth of -13% vis overall income growth of -16% over FY1113. Fall in credit cost to drive earnings growth: Over the past two quarters, asset quality has shown signs of stability after higher slippages in FY09 and FY10. Higher slippages and excess provisioning to reach 70% of NPL coverage ratio have kept credit costs high. We expect slippages to decline and upgrades and recoveries to increase in FY12 and FY13, lowering credit costs. SBI is likely to reach 70% PCR by 1HFY12, which will provide a fillip to profitability. We factor in credit costs of 0.9% for FY12 and FY13 as against 1.1% in FY11 and an average of 0.5% over FY0510. Return ratios to be strong, pension-related cost a concern: Strong fee and loan growth, fall in credit costs and operating leverage will keep return ratios

Shareholding pattern % (Dec-10)

Others, 8.6 Foreign, 16.4

Promoter

Inst, 15.6

Stock performance (1 year)

-State Bank --Sensex - Rebased

strong. We expect RoA to 3,700

3,200

improve from 0.9% in FY10 to -1.1 % in FY12 and FY13. RoE is likely to improve from -15% in FY10 to 18% by FY13 (without assuming capital raising).

77

3QFY11 highlights
Key positives
Margins improved 18bp sequentially and 79bp YoYto 3.61 %, led by a sequential drop in cost of deposits(13bp).lmproved CASA ratio (-90bp 000) and CDratio of 77% also aided margin improvement. Slippages for the quarter were Rs39b (including Rs7.7b of URIPY balance reduction). Annualized slippage ratio for the quarter was 2.5% vis 2.6% (core in 1HFY11). The management guided for improvement in slippages and reduction in GNPA quality increases our confidence of a fall in credit costs in FY12.
73.0 73.8 71.5 67.6 66.6 64.8 67.5 73.6 74.9 74.7

Excess liquidity adequately taken care; CD ratio at peak

(%) 77.2

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SBI's second pension liability provisions are without considering the ninth bipartite agreement and provided as per the eighth bipartite agreement. The management is waiting for actuarial valuations and plans to amortize the liability over five years.

CASA ratio remains one of the best in the industry (%)

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SBI has not yet made its 2% standard provision on a teaser loan portfolio, pending clarification from the RBI. The bank has provided at 0.4% and if the RBI does not agree, it will have to make an additional provision of Rs5b.
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3.2

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78

Yearly trends
Loan growth expected to be above industry growth c::::::J Loans (Rs T) --+Loans (Grow th %) Strong reach leading to higher CASA growth (%) _CASARatio 22 --+-CASA 23 ,-----, 22 19
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Improving CASA mix a boon in the rising rate scenario, CASA has grown 20% CAGR over last 5 years

Strong expansion in the branch network 3,150+ branches added from FY07-10

Fee income expected to post -20% CAGR over FY10-13 _ Fee Income (Rs b) --+-As a % age to Average Assets

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Opened just 230 branches from FY02-07

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7 9

Financials: State Bank of India

Income Statement (Standalone)
VIE March Interest Income Interest Expense Net Interest Income Change (%) Non Interest Income Net Income Change (%) Operating Expenses Pre Provision Profits Change (%) Provisions (excl tax) PBT Tax Tax Rate (%) PAT Change (%) Equity Dividend (Incl tax) Core PPP* Change (%) 2009 637,884 429,153 208,731 22.6 126,908 335,639 30.5 156,487 179,152 36.7 37,346 141,807 50,594 35.7 91,212 35.5 20,892 144,599 36.6 2010 709,939 473,225 236,714 13.4 149,682 386,396 15.1 203,187 183,209 2.3 43,948 139,261 47,600 34.2 91,661 0.5 21,414 152,051 5.2 2011E 832,171 494,816 337,355 42.5 158,285 495,640 28.3 231,808 263,832 44.0 87,051 176,781 63,641 36.0 113,140 23.4 25,998 246,582 62.2 2012E 1,005,336 623,108 382,228 13.3 185,617 567,845 14.6 265,614 302,231 14.6 85,661 216,570 75,799 35.0 140,770 24.4 33,427 282,731 14.7

(Rs Million)
2013E 1,224,870 778,664 446,205 16.7 216,164 662,369 16.6 300,326 362,043 19.8 105,737 256,306 89,707 35.0 166,599 18.3 37,141 341,543 20.8

*Core PPP is (NII+Fee income-Opex)

Balance Sheet
VIE March Equity Share Capital Reserves & Surplus Net Worth Deposits Change (%) of which CASA Oep Change (%) Borrowings Other Liabilities & Provo Total Liabilities Current Assets Investments Change (%) Loans 2009 6,349 573,128 579,477 7,420,731 38.1 3,089,778 22.4 840,579 803,534 9,644,321 1,044,038 2,759,540 45.6 5.425,032 2010 6,349 653,143 659,492 8,041,162 8.4 3,800,397 23.0 1,030,116 803,368 10,534,137 961,838 2,857,901 3.6 6,319,142 2011E 6,349 740,285 746,634 9,488,571 18.0 4,627,917 21.8 1,117,874 771,130 12,124,209 1,122,078 2,857,901 0.0 7,709,353 2012E 6,349 847,629 853,977 11,196,514 18.0 5,412,534 17.0 1,223,879 927,691 14,202,060 1,176,525 3,143,691 10.0 9,405.410

(Rs Million)
2013E 6,349 977,087 983,436 13,491,800 20.5 6,417,510 18.6 1,361,543 1,115,729 16,952,506 1,499,801 3,458,060 10.0 11,474,600

80

Financials: State Bank of India

Ratios
YIE March Spreads Analysis Avg. Yield-Earning Avg. Yield on loans Avg. Yield on Investments Avg. Cost-Int. Bear. Liab. Avg. Cost of Deposits Interest Spread Net Interest Profitability RoE RoA Int. ExpensellnUncome Fee Income/Net Income Non Int. Inc'/Net Income Efficiency Ratios (%) 50.5 62.3 58.1 4.7 55.6 62.8 67.0 4.5 47.6 63.1 77.3 5.5 47.5 61.9 89.9 6.7 45.9 61.3 105.8 7.7 Margin Ratios (%) 17.1 1.1 67.3 26.2 37.8 14.8 0.9 66.7 29.1 38.7 16.1 1.0 59.5 26.9 31.9 17.6 1.1 62.0 27.7 32.7 18.1 1.1 63.6 27.9 32.6 (%) Assets 8.6 9.7 6.7 6.0 5.9 2.6 2.8 7.8 8.6 6.3 5.5 5.6 2.3 2.6 8.1 8.8 7.0 5.0 5.0 3.1 3.3 8.4 9.1 7.0 5.4 5.4 3.0 3.2 8.6 9.3 7.0 5.7 5.7 2.9 3.1 2009 2010 2011E 2012E 2013E

Cost/lncome* Empl. Cost/Op. Exps. Busi. per Empl. (Rs m) NP per Empl. (Rs lac)
* ex treasury

Asset-Liability CASA Ratio

Profile (%) 73.1 41.6 37.2 82.7 14.3 9.4 78.6 47.3 35.5 79.7 13.4 9.5 81.2 48.8 30.1 85.2 12.5 9.0 84.0 48.3 28.1 88.0 11.7 8.6 85.0 47.6 25.6 96.4 11.0 8.1

Loans/Deposit Ratio Investment/Deposit Ratio G-Sec/I nvestment Ratio CAR Tier 1

Valuatuion
Book Value (Rs) BV Growth (%) Price-BV (x) Consol BV (Rs) BV Growth (%) Price-Consol BV (x) 913 17.5 2.9 1,105 17.9 2.3 1,039 13.8 2.5 1,268 14.7 2.0 1,176 13.2 2.2 1,437 13.3 1.8 1,345 14.4 1.9 1,644 14.4 1.5 1,549 15.2 1.7 1,902 15.7 1.3

81

Brief Company Profile: YES BANK

YES BANK is a state-of-the-art high quality, customer centric, service driven, private Indian Bank catering to the Future Businesses of India, and is an outcome of the professional & entrepreneurial commitment of Rana Kapoor, Founder, Managing Director & CEO. As the Professionals Bank of India, YES BANK has exemplified creating and sharing value for all its stakeholders, and has created a differentiated Banking Paradigm. Since inception, YES BANK has tried to play a catalytic role in bridging the infrastructure and knowledge gap in various Sunrise sectors of the economy. As part of the differentiated strategy, YES BANK has had a strong focus on Development Banking, and has tried to play a catalytic role in bridging the infrastructure and knowledge gap in Sunrise sectors of the economy, asis evident from cutting-edge work that the Bank has done in the area of Food & Agribusiness, in most cases first-of-its kind in India, Infrastructure, Microfinance, and Sustainability. Our focus onGovernanceand Good Corporate Citizenship, actualized through YES BANKs Responsible Banking approach, stands evidence of YES BANKs strategic vision.

Key Executives Mr. Rana Kapoor Managing director& CEO Mr. Sipko Schat Vice Chairman Mr. Bharat Patel Independent Director

82

BANK
BSE SENSEX S&P CNX

Yes Bank
5,414 YESIN 339.7
388/234 01-6/13

17,988 Bloomberg EquityShares (rn) 52-WeekRange(Rs) 1,6,12 ReI.Perf.(%) M.Cap.(Rs b) M.Cap.(US$b)

Rs280
Execution at its best; Superior return ratio
Robust growth; impeccable asset quality; Buy

Buy

Yes Bank reported 76% CAGR in assets over FY06-10 however its market share is still lower at 0.83% as of December 2010. The management aims to increase its market share by 10bp every year until FY15 and grow its loan book by 2x of the industry growth. Rapid branch network expansion, acquisition of new customers and deepening of existing customer relationships will ensure that the bank's asset growth is higher than that of

95.0 2.1

Y/E March

2011E 2012E 2013E

the industry. We expect loan CAGR of 33% and PAT CAGR of -27% over FY11-13.Yes Bank is comfortably placed in terms of capital with tier-I of 10.4% and total CAR of 18.2%

NII(Rsm) 12,288 16,615 21,436 OP(Rs m) 11,844 15,98020,043 NP(Rsm) 7,250 9,362 11,627 EPS(Rs) 21.3 27.6 34.2 EPSGr.(%) 51.8 29.1 24.2 PIE (x) 13.1 10.1 8.2 BV/Sh. (Rs) 110.0 134.6 165.3 P/BV (x) 2.5 2.1 1.7 ABV (Rs) 109.6 133.9 164.3 P/ABV (x) 2.6 2.1 1.7 RoE(%) 21.2 22.5 22.8 RoA (%) 1.6 1.4 1.3

Reach, liability

franchise

- the next growth drivers: As of December 2010, Yes

Bank had 185 operational branches. It aims to scale up its branches to 250 by June 2012 and to 750 by FY15. Branch productivity is expected to improve, driven by aging of existing network. We believe CASA growth will outpace overall deposit growth, going forward, and CASA ratio will increase from the current 10% to 14% by FY13. Superior margin performance across the cycle: Yes Bank is a predominantly

wholesale funded bank, however it has a well matched ALM profile to cushion against the interest rate risk. About 95% of loans are either linked to PLR or have duration of less than a year, which provides flexibility to the bank to pass on increased costs and limit moderation in NIMs in a tight liquidity scenario. Historically the bank delivered

Shareholding pattern % (Oec-10)

Domestic Inst,6.7

superior margin performance across the cycle despite being a wholesale funded bank. With focus on increasing retail deposits (currently -24% of total deposits) we believe reported NIMs to remain in the range of2.8-3% over FY11-13. However, on a conservative basis we factor in a 20bp decline in FY12 margins. Strong execution, superior asset quality: The bank's key strengths are its capable business

and incentives-driven

top management team, and its relationship-based

strategy. Under the leadership of Mr Rana Kapoor the bank posted "above industry" loan CAGR of 96% and PAT CAGR of 70%+ over FY05-1 O.Yes Bank's asset quality is among the best in the industry. As of December 2010 its GNPA ratio was 23bp and provision coverage ratio was 76% (including specific provisions of 283%). Its standard restructured loans are among the lowest at 27bp. We believe short-term concerns about asset quality (related to MFI and 2G exposure) is over done and expects asset quality to remain healthy. Stock performance (1 year)
--Yes Bank -Sensex- Rebased 400 350 300

Superior

return ratios, attractive

valuations:

Strong growth, proven execution

capabilities, diversified fee income and superior return ratios are key positives for Yes Bank, whereas relatively weak liability mix is an overhang (especially in the current scenario).RoA is expected to remain healthy at 1.3-1.5% and RoE at -23% over FY11-13. Buy with a price target of415 (2.5x FY13E BV).

83

3QFY11 highlights
Key positives
Strong loan growth of66% YoY and deposits growth of79% Yoy. CAS A deposit grew 81% Yoy. Superior asset quality with GNPA ratio of 23bp and net NPA ratio of 6bp. PCR stood at 76% against 75% in 20FY11 (total loan loss coverage was 283% against 299% a quarter earlier). Despite adding 14 branches in 30FY11, cost-to income (CI) ratio improved sequentially to 35.8% from 36.6% due to controlled opex and strong growth in total income. 0 {) .. .L..
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Strong loan growth

Loans (Rs B) ~YoY Growth (%)

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Key negatives
NIM declined 20bp sequentially to 2.8%. Higher proportion of investments in total assets and lower re-pricing benefit on investment portfolio resulted in the margin decline. Margins decline 20bp in a tight liquidity scenario (%)

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Other highlights
Non-interest income increased 27% YoY and 24% 000 to Rs1.6b, led by higher income from the financial market and transaction banking segment. Transaction banking fees grew 30% 000 (34% YoY) to Rs498m and income from third-party product distribution was up 18% 000.

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Diversified fee income base

Third party fees and others Financial Markets

Strong control over apex (%)

50.5 51.7 41.3 37.2 36.0 38.4 36.2 36.3 38.7 36.6 35.8

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84

Yearly trends
Above industry loan growth to be sustain 216 Industry (%chg) .Yes Bank (%chg) Strong improvement in market share (%)

161

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- Wholesale and commercial banking (90% of non-PSL loan book) will remain a key growth driver in near term Asset and liability rates move in tandem... ~ Yield on loans (%) ~Cost 13.6 of funds (%)

- Superior execution; sharp improvement in market share led by strong growth in corporate loan book ... Ieading to stable margins across the cycle 3.3 Margins calc (%) 2.7 2.3 2.5 2.8

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- With average durationofthe loan book at16-17 months and deposits - Margin stability is impressive considering higher share of bulk at 19-20 months,YoLand CoF to track interest rates in the economy deposits (-80% of the overall deposits)

Strong CASA growth

--~--

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~--------------------------

CASA Gr. (%) _Loan Gr. (%) ~CASA I

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85

Financials: Yes bank

Income Statement VIE March Interest Income Interest Expense Net Interest Change (%) Non Interest Income Net Income Change (%) Operating Expenses Pre Provision Change (%) Provisions (excl tax) PBT Tax Tax Rate (%) PAT Change (%) Equity Dividend (Incl tax) Core PPP* Change (%) *Core PPP is (NII+Fee income-Opex) Balance Sheet 2009 2,970 13,272 16,242 161,694 21.8 14,118 25.1 37,017 14,055 229,008 19,227 71,170 39.7
.. .,A n'l"

(Rs Million)
2009 20,014 14,921 5,093 54.1 4,369 9,462 36.9 4,185 5,277 50.7 617 4,659 1,621 34.8 3,038 51.9 0 9,462 36.9 2010 23,697 15,818 7,880 54.7 5,755 13,635 44.1 5,002 8,633 63.6 1,368 7,265 2,487 34.2 4,777 57.2 510 13,635 44.1 2011E 42,304 30,016 12,288 55.9 6,459 18,747 37.5 6,902 11,844 37.2 942 10,902 3,652 33.5 7,250 51.8 679 18,747 37.5 2012E 63,014 46,399 16,615 35.2 8,826 25,441 35.7 9,462 15,980 34.9 1,795 14,184 4,823 34.0 9,362 29.1 849 25,441 35.7 2013E 83,062 61,626 21,436 29.0 11,304 32,741 28.7 12,697 20,043 25.4 2,426 17,617 5,990 34.0 11,627 24.2 1,019 32,741 28.7

Income

Profits

(Rs Million)
2010 3,397 27,499 30,896 267,986 65.7 28,182 99.6 47,491 17,453 363,825 26,732 102,099 43.5
.,., .. O'l"

VIE March Equity Share Capital Reserves & Surplus Net Worth Deposits Change (%) of which CASA Dep Change (%) Borrowings Other Liabilities & Provo Total Liabilities Current Assets Investments Change (%)
I
A. .... ..,.,~

2011E 3,397 33,954 37,351 435,477 62.5 46,891 66.4 60,918 22,396 556,142 41,742 153,149 50.0
'l A 'l OO'l

2012E 3,397 42,322 45,719 609,667 40.0 75,709 61.5 74,410 28,628 758,425 60,988 210,580 37.5
A':::A 'lO"

2013E 3,397 52,757 56,154 807,809 32.5 115,308 52.3 89,824 35,851 989,639 84,709 273,754 30.0
.:::n'l7na

86

Financials: Yes bank

Ratios
Y/E March Spreads Analysis Avg. Yield-Earning Avg. Yield on loans (%) Assets 10.7 13.6 8.2 8.6 8.3 2.1 2.7 8.4 10.2 6.8 6.2 5.8 2.2 2.8 9.5 11.4 7.6 7.4 7.4 2.1 2.8 9.9 12.1 7.6 7.9 7.9 2.0 2.6 9.8 12.1 7.5 7.8 7.8 2.0 2.5 2009 2010 2011E 2012E 2013E

Avg. Yield on Investments Avg. Cost-tnt. Bear. Liab. Avg. Cost of Deposits Interest Spread Net Interest Margin Profitability RoE RoA Ratios (%)

20.6 1.5 74.6 30.5 46.2

20.3 1.6 66.7 35.0 42.2

21.2 1.6 71.0 34.5 34.5

22.5 1.4 73.6 33.5 34.7

22.8 1.3 74.2 33.0 34.5

Int. Expense/lnUncome Fee Income/Net Income Non Int. Inc.lNet Income Efficiency Ratios (%) Cost/lncome* Empl. Cost/Op. Exps. Busi. per Empl. (Rs m) NP per Empl. (Rs lac) * ex treasury Asset-Liability Profile (%) Loans/Deposit Ratio CASA Ratio Investment/Deposit Ratio G-Sec/I nvestment Ratio CAR Tier 1

44.2 52.1 96.0 11.4

36.7 51.4 127.8 15.7

36.8 53.0 133.6 15.3

37.2 54.2 154.5 15.6

38.8 55.5 177.5 16.6

76.7 8.7 44.0 65.8 16.6 9.5

82.8 10.5 38.1 66.5 20.6 12.8

79.0 10.8 35.2 73.9 16.7 9.9

76.2 12.4 34.5 72.4 14.4 8.7

74.7 14.3 33.9 73.8 12.9 8.0

Valuatuion
Book Value (Rs) Change (%) Price-BV (x) Adjusted BV (Rs) Price-ABV (x) EPS (Rs)
rh ....,.......,I.O"/~ \

54.7 22.7 5.1 53.8 5.2 10.2

C::~

91.0 66.3 3.1 90.7 3.1 14.1

'27

110.0 20.9 2.5 109.6 2.6 21.3

C::~

134.6 22.4 2.1 133.9 2.1 27.6

')0 ~

165.3 22.8 1.7 164.3 1.7 34.2

,)A ')

'2

c::

87

1. FINDINGS & CONCLUSION

Stock ICICI Bank State Bank of India Yes Bank

Target Price (Rs) 1385 3550 380

Recommendation BUY BUY BUY

Current scenario suggests, markets are on a bullish run, especially in case of Banking Industry. Analysis suggests that all the chosen stocks i.e. ICICI Bank, State Bank of India and Yes Bank are going to perform well, with huge potential of earnings for equity holders.
It is recommended to increase the investment in Banks.

Stock ICICI Bank State Bank of India Yes Bank

P/E ratio 30.48 17.46 16.71

88

BIBLIOGRAPHY
Websites Referred: www.moneycontrol.com www.myiris.com www.indiaearnings.moneycontrol.com http://finance.yahoo.com www.wikipedia.org www.reuters.com www.valuenotes.com www.icicibank.com www.investopedia.com
www.statebankofindia.com www.yesbank.in

Reports Referred: Motilal Oswal report on banking sector India Infoline report on ICICI Banks

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