A

DISSERTATION
ON

STUDY ON FINANCIAL SERVICES

MARKET IN INDIA
GROWTH OVER LAST 5 YEARS

SUBMMITTED TO:
[PG/14/104]
SUBMITTED

[ MR.SHUBHAGATA ROY ]
TULSYAN]
[SHIKHA

[ Sr. Lecturer , SMS VARANASI]

BY:
 A

DISSERTATION
ON

STUDY ON FINANCIAL SERVICES MARKET

IN INDIA
GROWTH OVER LAST 5 YEARS

PREPARED BY: SUBMMITTED TO:

SHIKHA TULSYAN MR.SHUBHAGATA ROY

PG/14/104 Sr. Lecturer
FINANCE SMS, VARANASI

2
DECLARATION

3
 DECLARATION

I hereby declare that the information presented in this dissertation is correct to the best of my
knowledge. This project report has not been published anywhere else.

Shikha Tulsyan

4
PREFACE

5
 PREFACE

The financial sector is in a process of rapid transformation. Reforms are continuing as part of

the overall structural reforms aimed at improving the productivity and efficiency of the

economy. The role of an integrated financial infrastructure is to stimulate and sustain

economic growth.

The financial services include Capital Market, Venture Capital, Mutual Fund, Banking sector,

Insurance, Shares/Stock Market and many more. The financial sector has kept pace with the

growing needs of corporate and other borrowers. Banks, capital market participants and

insurers have developed a wide range of products and services to suit varied customer

requirements. The Reserve Bank of India (RBI) has successfully introduced a regime where

interest rates are more in line with market forces.

Financial institutions have combated the reduction in interest rates and pressure on their

margins by constantly innovating and targeting attractive consumer segments. Banks and

trade financiers have also played an important role in promoting foreign trade of the country.

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ACKNOWLEDGEMENT

ACKNOWLEDGEMENT

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 “No Learning is proper and effective without
Proper Guidance”

A project cannot be accomplished singly. It involves blend of different people ideas,

suggestion, co-operation and also self-labour project involves continuous exercise of physical
and mental judgment.

Although it is very difficult to fulfill all the necessary requirement of the project I have tried
my level best to make a good and a complete project. The project could not have been
possible without the help of following people, therefore I would like thank them for all their
good support and co-operation.

I am immensely thankful to Dr. P.N.Jha (Director), SCHOOL OF MANAGEMENT

SCIENCES, VARANASI, for providing us every able opportunity to bring up our talent. I
am highly thankful to him for his constant guidance and inspiration.

I would also like to thank my Mentor Mr. Shubhagata Roy, (Sr. Lecturer.) for providing
me the opportunity for dissertation and helping me in selecting the suitable topic.

I would also like to thank here my parents who were there with me when I needed their
support and cooperation at each and every step of the project.

Shikha
Tulsyan

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 TABLE
OF
CONTENT

TABLE OF CONTENT

Certificate

9
Declaration………………………………………………………………..04

Preface...................................................................................................0
6

Acknowledgement……………………………………………………….08

• Objective of the study……………………………….…….…….…12

• Research Methodology……………………………….….……..…14

• An Overview on Financial Services Market………………….….16

• Introduction and Growth of Banking Sector………………….….26

 HDFC…………………………………………………….…...32

 SBI………………………………………………….….……...38

 ICICI…………………………………………………....…..…41

• Introduction and Growth of Mutual Fund……………………...…49

• Introduction and Growth of Insurance Sector…………………...55

• Introduction and Growth of Indian Stock Market………………..66

• Conclusion…………………………………………………………..82

• Limitation………………………………………………………….…84

Bibliography…………………………………………………………..…86

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 OBJECTIVES

OBJECTIVES

Following are the objectives of my study -

1) To study the impact of financial services market in India.

2) To analyze the current trends and growth patterns of the selected financial sector i.e.
Banking sector, Insurance, Mutual Fund and Stock Market.

3) To study the performance of financial services market in India.

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4) To depict the present and future potential of financial services

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 RESEARCH
METHODOLOGY

RESEARCH METHODOLOGY

According to Clifford woody research comprises defining and redefining problems,

formulating hypothesis or suggested solutions; collecting, organizing and evaluating data;

making deductions and reaching conclusions; and at last carefully testing the conclusions to

determine whether they fit the formulating hypothesis.

Research is, thus, an original contribution to the existing stock of knowledge making for its

advancement. It is the pursuit of truth with the help of study, observation, comparison and

experiment. In short, the search of knowledge through objectives and systematic method of

13
finding solution to a problem is research. The systematic approach concerning generalizaton

and the formulation of theory is also research.

My Research Type:

Descriptive Research: The major purpose of this research is description of the state of

affairs as it exists at present. In social science and business research we quite often use the

term Ex post facto research for descriptive research studies. The main characteristic of this

method is that the researcher has no control over the variables; he can only report what has

happened or what is happening. Most Ex post facto research projects are used for descriptive

studies in which the researcher seeks to measure such items as, for example, frequency of

shopping, preference of people, or similar data.

Data Collection Method:

Secondary Data: The secondary data are those which have already been
collected by someone else and which have already been passed through
statistical problem. The methods of collecting primary and secondary data differ
since primary data are to be originally collected while in case of secondary data
the nature of data collection work is merely that of compilation.

Sources of Data Collection:

Magazines, Newspapers, Internet.

Statistical Tools to be used:

Various test of significance such as Bar Graph, ratio analysis, line graph.

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 INTRODUCTION

As might be expected, the main impact of the global financial turmoil in India has emanated
from the significant change experienced in the capital account in 2008-09 so far, relative to
the previous year. Total net capital flows fell from US$17.3 billion in April-June 2007 to
US$13.2 billion in April-June 2008. While Foreign Direct Investment (FDI) inflows have
continued to exhibit accelerated growth (US$ 16.7 billion during April-August 2008 as
compared with US$ 8.5 billion in the corresponding period of 2007), portfolio investments by
foreign institutional investors (FIIs) witnessed a net outflow of about US$ 6.4 billion in
April-September 2008 as compared with a net inflow of US$ 15.5 billion in the
corresponding period last year.

Similarly, external commercial borrowings of the corporate sector declined from US$ 7.0
billion in April-June 2007 to US$ 1.6 billion in April-June 2008, partially in response to

15
policy measures in the face of excess flows in 2007-08, but also due to the current turmoil in
advanced economies. Whereas the real exchange rate appreciated from an index of 104.9
(base 1993-94=100) (US$1 = Rs. 46.12) in September 2006 to 115.0 (US$ 1 = Rs. 40.34) in
September 2007, it has now depreciated to a level of 101.5 (US $ 1 = Rs. 48.74) as on
October 8, 2008.

• Primary Market

Primary Market may be defined as a market for new issues. The primary market is the
pacesetter for mobilizing resources by corporate. The bull-run in the secondary market
enabled and emboldened companies to enter the market with big issues and attract investors
and traders to invest in public issues to reap high profits following their listing. The
company’s profitability performance was also good. The market, however, underwent turmoil
as soon as an FII-driven crisis developed in the secondary market and the mega crash
occurred in January second week.

There are two factors for this depressing outlook

• Continuing uncertainties; and

• Further crash of the stock prices and hesitation on the part of investors due to fall in
shares of Reliance Power as soon as they were listed. Investors lost nearly Rs 70 per
share on listing of Reliance Power.

Only 19 companies have entered the capital market in the current financial year so far,
mobilizing Rs 1,968 crore, the lowest since 2003-04. Interestingly, of these 19 public offers,
only four are trading above the issue prices while 13 are trading at discounts. Two are not yet
listed. IPO investors have become cautious as 70 per cent public offers made last financial
year are currently trading at a discount.

Following this poor show of public offers and a slippery secondary market, several Indian
promoters have withdrawn their plans to raise funds through public offers. The Securities and
Exchange Board of India (SEBI) data show that 24 promoters, who were planning to raise Rs

16
21,300 crore, have either put their plans on hold or have withdrawn their offer documents
after submitting the red-herring prospectus.

According to Prime Database, four companies, collectively planning to raise Rs 4,517 crore,
have withdrawn their offer documents since April 2008. This includes JSW Energy (Rs 4,000
crore), RNS Infrastructure (Rs 300 crore), Cellebrum Technologies (Rs 200 crore) and
Elysium Pharmaceuticals (Rs 17 crore).

Many real estate and financial services sector companies have postponed or cancelled their
IPO plans after stocks from these sectors reported more than 50 per cent erosion in their
market value. Promoters of Emaar MGF Land, Wockhardt Hospitals and SVEC
Constructions pulled out their IPOs, amounting to Rs 1,317 crore, due to low response from
retail investors. There are over 100 companies such as Essar Power, GMR Energy, ICICI
Securities, Lodha Builders, Sterlite Energy and SRL Ranbaxy, which had announced their
IPO intentions but have now stalled their plans.

• Secondary Market

The sensex climbed at a rapid rate, touching record heights in 2007 -2008. The average
Indian investor who traditionally has been a very conservative investor became more
confident and started investing heavily in the stock market. The stock market grew in leaps
and bounds and its growth in the last five years itself has been a phenomenal twenty five per
cent.

The BSE Sensex increased significantly from a level of 13,072 as at end-March 2007 to its
peak of 20,873 on January 8, 2008 in the presence of heavy portfolio flows responding to the
high growth performance of the Indian corporate sector. With portfolio flows reversing in
2008, partly because of the international market turmoil, the Sensex has now dropped to a
level of 11,328 on October 8, 2008, in line with similar large declines in other major stock
markets.

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Against this backdrop the unthinkable happened, the stock market Of the United states of
America or Wall street stock exchange crashed due to a crisis in the housing finance sector of
its leading banks, caused due to delinquency and non-repayment of housing loans. This
resulted in a panic in the world market including India. The Foreign Investment also came
down heavily due to a liquidity crunch in the major companies. The banks stopped lending to
the bankers and in effect the market came to a sudden stop. The Indian investor panicked
again and started selling like crazy. Major companies started making announcements like job
layoffs to minimize their losses.

• Money Markets

Money markets are the markets for short-term, highly liquid debt securities. Examples of
these include bankers acceptances, repos, negotiable certificates of deposit, and Treasury
Bills with maturity of one year or less and often 30 days or less. Money market securities are
generally very safe investments, which return relatively, low interest rate that is most
appropriate for temporary cash storage or short term time needs. Whereas capital markets are
the markets for intermediate, long-term debt and corporate stocks. The National Stock
Exchange, where the stocks of the largest Indian. Corporations are traded, is a prime example
of a capital primary market.

Impact on money market

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Money Market is actually an inter-bank market where banks borrow and lend money among
them to meet short-term need for funds. Banks usually never hold the exact amount of cash
that they need to disburse as credit. The ‘inter-bank’ market performs this critical role of
bringing cash-surplus and cash-deficit banks together and lubricates the process of credit
delivery to companies (for working capital and capacity creation) and consumers (for buying
cars, white goods etc). As the housing loan crisis intensified, banks grew increasingly
suspicious about each other’s solvency and ability to honor commitments. The inter-bank
market shrank as a result and this began to hurt the flow of funds to the ‘real’ economy. Panic
begets panic and as the loan market went into a tailspin, it sucked other markets into its
centrifuge.

The liquidity crunch in the banks has resulted in a tight situation where it has become
extremely difficult even for top companies to take loans for their needs. A sense of disbelief
and extreme precaution is prevailing in the banking sectors. The global investment
community has become extremely risk-averse. They are pulling out of assets that are even
remotely considered risky and buying things traditionally considered safe-gold, government
bonds and bank deposits (in banks that are still considered solvent).

As such this financial crisis is the culmination of the above-mentioned problems in the global
banking system. Inter-bank markets across the world have frozen over. The meltdown in
stock markets across the world is a victim of this contagion. Governments and central banks
(like Fed in US) are trying every trick in the book to stabilize the markets. They have pumped
hundreds of billions of dollars into their money markets to try and unfreeze their inter-bank
and credit markets. Large financial entities have been nationalized. The US government has
set aside $700 billion to buy the ‘toxic’ assets like CDOs that sparked off the crisis. Central
banks have got together to co-ordinate cuts in interest rates. None of this has stabilized the
global markets so far. However, it is hoped that proper monitoring and controlling of the
money market will eventually control the situation.

• Reasons for this turmoil

The turmoil in the international financial markets of advanced economies that started around
mid-2007 has exacerbated substantially since August 2008. The financial market crisis has
led to the collapse of major financial institutions and is now beginning to impact the real

19
economy in the advanced economies. As this crisis is unfolding, credit markets appear to be
drying up in the developed world.

• Why did this huge fall happen?

The global crisis can be said to be a fault of the Federal Bank of USA. One, there is a change
in the global investment climate. One of the primary triggers is the huge fear of the United
States' economy going into a recession with foreign institutional investors trying to reallocate
their funds from risky emerging markets to stable developed markets. Analysts are now
expecting a cut in US interest rates.

• Bad lending policies

In 2005-07 the property markets were on a high growth path. The property prices kept
increasing. A sense of complacency had set in the real estate markets. It was assumed that the
residential property prices would keep increasing forever. Mortgage lenders relaxed lending
standards. Billions of dollars of sub-prime loans were to given borrowers with the sketchiest
credit histories on recommendations of mortgage brokers who were more interested in their
commission.
Loans were structured very innovatively. Some gave borrowers the ability to skip repayments
and some had interest rates that rose over the life of the loan. Lenders were not worried about
repayments as defaults if any, on loans, could be recouped from the property itself. Contrary
to this assumption, the property bubble burst leading to sharp depreciation in property prices.
As loans were given to people who could not repay it in the best of time, mortgage
repayments defaults kept increasing, triggering off a chain of events that led to the
bankruptcies of the hallowed institutions of Wall Street. The rise in default rates in the sub-
prime market is essentially due to two things.
Most borrowers got into adjustable rate mortgages where the interest rates were reset
periodically. Second, as the US Fed relentlessly hiked policy rates (17 times between 2004
and 2006), mortgage rates rose as much as 40 per cent. Sub-prime borrowers, characterized
by low and often volatile incomes, found that they could not service their loans any longer.
The result is the large default across the board, which plagues the markets. Therefore, the Fed
has to shoulder at least part of the blame for the current mess.

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Perhaps the US central bank could have been a little more prescient and figured out that the
series of rate hikes had the potential to trigger a crisis of this kind. The existence of the large
quantum of sub-prime assets and the impact of mortgage rate resets should have figured more
actively in their monetary policy discussions much earlier. Finally, if the Fed had felt that the
excess liquidity was whipping up too much froth in the housing market, it should have
excised the problem much earlier than allowing festering. As growth slows in the U.S. and
Europe, emerging economies' exports to them will slow. In the past, a 1 percent decline in
U.S. growth has led to a decline in growth in emerging economies by 0.5 to 1 percent,
depending on trade and financial links with the United States.

The present crisis is the result of a perfect storm: a macroeconomic environment with a
prolonged period of low interest rates, high liquidity and low volatility, which led financial
institutions to underestimate risks, a breakdown of credit and risk management practices in
many financial institutions, and shortcomings in financial regulation and supervision.

• This environment both fueled a U.S. housing boom and encouraged banks and other
institutions to take on excessive leverage to generate high returns.

• Financial institutions weakened their lending standards and took on excessive risk.
The most obvious example is the US sub-prime mortgage market, but the holders of these
risks were not only in the United States, and problems may also surface in other kinds of
lending—for example leveraged loans and consumer credit—or other countries. Nor is
the problem confined to industrial countries. For example loose credit in some emerging
economies may lead to problems down the road.

• A bleaker economic outlook would in turn make it more difficult to get out of the
financial crisis, because it worsens the prospects of businesses and individuals. This is
one reason that equity markets have fallen as the risks of a U.S. recession and a global
downturn have grown

• Are Foreign Investors Responsible for this crisis

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FII (Foreign Institutional Investors) is used to denote an investor, it is mostly of the form of a
institution or entity which invests money in the financial markets of a country. The term FII
is most commonly used in India to refer to companies that are established or incorporated
outside India, and is investing in the financial markets of India. These investors must register
with the Securities & Exchange Board of India (SEBI) to take part in the market.

• Influence of FIIs on Indian Stock Market

The current investments of FIIs is Rs. 2,55,464.40 Crores. This is almost 9% of the total
market capitalization.

• They increased depth and breadth of the market.

• They played major role in expanding securities business.
• Their policy on focusing on fundamentals of the shares had caused efficient pricing of
shares.

These impacts made the Indian stock market more attractive to FIIs and also domestic
investors, which involve the other major player MF (Mutual Funds). The impact of FIIs is so
high that whenever FIIs tend to withdraw the money from market, the domestic investors
become fearful and they also withdraw from market.

• Major Collapses in BSE Sensex

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Just to show the impact, we analyze below the 10 biggest falls of stock market

Day (Points Loss in Gross Purchases (Rs. Gross Sales (Rs. Net Investments (Rs.
Sensex) Crores) Crores) Crores)
21/01/2008 (1408) 3062.00 1060.30 2001.80
22/01/2008 (875) 2813.30 1618.20 1195.10
18/05/2006 (856) 761.80 527.40 234.40
17/12/2007 (826) 670.00 869.00 -199.00
18/10/2007 (717) 1107.00 1372.50 -265.50
18/01/2008 (687) 1077.20 1348.40 -271.20
21/11/2007 (678) 640.70 791.80 -151.10
16/08/2007 (643) 989.50 750.30 239.20
02/08/2007 (617) 534.50 542.00 -7.50
01/08/2007 (615) 809.40 956.90 -147.50

From this table, we can see that the major falls are accompanied by the withdrawal of
investments by FIIs. Take the case on January 18, 2008, the Sensex lost almost 687 points.
Here, the net sales by FIIs was Rs. 1348.40 Crores. This is a major contributor to the fall on
that day. But contrary to that day, take the case on January 21, 2008, the Sensex lost 1408
points and the gross sales was Rs. 1060.30 Crores and the purchases were Rs. 3062.00
Crores. So this can be concluded that after the fall of market, FIIs had invested again into the
market. From this, we can see the effect of FIIs.

• Net Investments of FII from 2003-08

Year Net Investment

2003 30458.7
2004 38965.1
2005 47181.2
2006 36539.7
2007 71486.5
2008 (10/08/08) -29169

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From this, we can see that there is an increase in net investments till 2005 and there was
small decrease in investments in the year 2006. But there was a steep increase in the year
2007-08. This was the best period in Indian stock market where stock prices were increased
and the market was in good mood.

When we take the investments in 2008, the net investments are negative. And we know the
market is volatile in this year. So we find that there is direct relation between net investments
and movement of stock market.

From all the above discussions and data analysis, we conclude that FII has a major impact in
Indian stock market. Particularly, the fall on October 17, 2007, in which just a peculation
about governments plan to control P-Notes had caused the biggest fall in Indian stock market,
even market had to be closed for one hour without trade. The impact is that even the domestic
players and MFs also follow a close look on FIIs. So if FIIs are confident in Indian markets,
there is a general perception that market is on a song.

Furthermore, Depreciation in rupee value has added to the worries of FIIs. Depreciation in
currency leads to losses (in dollar terms) for the FIIs, as they have to periodically represent to
market value of their investments overseas. Many analysts fear the rupee may depreciate even
more against the dollar. If that happens, FIIs will have to report huge losses on the currency
account, and hence are pulling out from the domestic markets.

Also, Analysts are projecting a slowdown in the economic growth here due to
macroeconomic issues. The RBI has also downgraded the growth projections to below eight
percent this year, based on the interim data released last month. Although inflation is looking
flattened out at around 12 percent, the depreciation in the rupee value will again give an
upward push to it.

The softening crude oil prices has provided a bit of relief, but the rupee value depreciation is
a very big issue as it is countering a large portion of savings resulting from lower crude oil
prices.

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It has also been found that the major (almost 50%) of FIIs' investments are from P-Notes. So
it implies that major forces behind the FII investments are anonymous. This has a negative
impact on stock market. Because money launders and even terrorists use this facility to pump
money to Indian market and their sudden withdrawal causes volatility in markets.

BANKING SECTOR

The recent trends in India’s banking industry

India’s banking industry is one of the major beneficiaries of the country’s ascendant
economic power. Improving consumer purchasing power, coupled with more liberal attitudes
toward personal debt, is fueling India’s explosive banking segment. Bank asset growth
between 1998 and 2003 places India favorably among a sampling of the developing
economies in China, Hungary, Indonesia, Poland and South Korea. For the period, total bank
assets in India rose from US$187.2 billion to US$373.8 billion, a 14.8 percent CAGR. Even
though the brisk rate of growth in the Indian banking sector is expected to level off, it should
remain solid through 2007.

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Source: Reserve Bank of India.

While the absolute growth of India’s overall banking market is impressive (Figure 2), global
banks should be encouraged further by the relatively underpenetrated status of the country’s
various retail lending segments. The retail market for mortgages, credit cards, automobile
loans and other consumer loans is expected to jump from its 1999 total of US$9.7 billion to
US$36.7 billion in 2004.

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Source: Reserve Bank of India.

Even with this strong performance, significant opportunities for continued retail
lending growth remain. Evidence suggests that India’s traditionally fiscally conservative
consumers are becoming more receptive toward holding debt. The forecasted total debt of
US$36.7 billion in 2004 represents just 5.8 percent of India’s expected GDP, up from 2.2
percent in 1999. Still, these retail lending figures lag India’s regional peers. Taking another
view, India’s consumer borrowing represented just 2 percent of household income in 2002,
sharply less than the totals of Singapore (176 percent), Malaysia (75 percent) and Thailand
(39 percent).

Unlike most rapidly expanding, emerging markets, India’s banking sector has exhibited
financial stability and a trend toward improved governance under the management of its
central bank, the Reserve Bank of India (RBI). One challenge the RBI had to contend with
was the legacy of policy-directed, corporate lending by the state-owned banks that had
produced high levels of nonperforming assets (NPAs). Through structural reform, remedial
legislative actions, and favorable returns from the fixed income Treasury Markets, Indian
banks have cut gross NPA levels from 15.7 percent in 1997 to 8.8 percent in 2003.
Fortunately, new entrants to the market are not subjected to the same mandatory lending
requirements as domestic banks and can therefore "cherry-pick" the most desirable clients,

27
allowing them to lower their own risk of NPAs through more rigorous risk management
strategies.

Global banks in India: Gaining a foothold

The competitive environment in India presents both challenges and opportunities to global
banks seeking market entry. Entrenched domestic competitors and restrictive equity
ownership ceilings imposed by the government create obstacles for banks establishing a
foothold in India. Primary challenges include tough competition and government ceilings on
foreign equity ownership. Opportunities exist because global banks often have technological
advantages, well-honed, efficient processes and appealing products and services.

The strongest competition facing global banks in India comes primarily from the public
sector (the State Bank and Nationalized Bank groups) and the New Private Bank groups.
State dominance of the banking sector dates back to the inception of the RBI in 1935. When
the RBI commenced operations, the state controlled 100 percent of the banking institutions.
Since the 1990’s, India’s reform-driven policies have promoted the gradual deregulation and
modernization of the banking sector. The formation of the Old Private Bank group and then
the New Private bank group opened the marketplace to greater competition. Gradually, the
grip of public sector banks has loosened, as evidenced by that group’s drop in total asset
share, from 89.1 percent in 1990 to 75.7 percent in 2003.

However, state-backed institutions remain formidable, possessing expansive channel reach

and huge customer bases, controlling not only three-quarters of total assets, but also three-
quarters of income. In 2003, the Foreign Bank group controlled less than seven percent of
total industry assets and less than nine percent of total income.

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Source: Reserve Bank of India.

The other key competitors for global banks are the banks of the New Private Bank group –
this set of institutions has proven more nimble than other domestic players. Since its
formation in the 1990s, this group leveraged its strong domestic branding and above-average
operational capabilities to aggressively win market share from state-backed incumbents.
From 1998 to 2003, the New Private Banks had a 47.4 percent CAGR in total assets,
compared to 14.7 percent CAGR for the State Bank group and 12.2 percent CAGR for
Nationalized Banks.

Asset and income market share in 2003 remained highly concentrated among top banking
institutions. The top 15 banks operating in India controlled 67.7 percent of total assets – only
two are not public sector banks. A slightly different top 15 group controlled 65.7 percent of
total income in 2003 – of this group, 12 are public sector banks.
Many domestic banks are ill-equipped to compete with global banks from an operational
perspective. Faced with this concentrated and entrenched competitive landscape, global banks
in India have achieved mixed results during the last five years.

On the “plus side,” global banks have improved margins by focusing on cost, customer
service and better risk management – with employee productivity and profitability metrics
that outperform other banking groups. These banks have achieved higher margins from

29
leveraging technology, as well as efficient, standardized processes. Global banks’ strong
brand cache often allows them to justify premium pricing strategies relative to their domestic
competitors, further cushioning margins. Profitability per employee for the Foreign Bank
group reached US$32,375 in 2003, and the New Private Bank group held a distant second
place with US$8514 for the same measure (Figure 6).

Source: Reserve Bank of India.

On the negative side, the Foreign Bank group’s share of total assets and banking income has
declined annually since 1998 (see Figure 7),32 and the number of global banks in India fell
from 44 in FY1999 to 36 in FY2003.33 A combination of regulatory and strategic
developments influenced this retrenchment from India. On the regulatory front, certain banks
exited India due to the restrictive policies governing branch expansion and equity ownership.
Other banks divested their Indian interests in accordance with broader global strategies
stemming from the global economic downturn.

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Source: Reserve Bank of India.

For the most part, global banks must execute on an organic growth strategy to expand their
footprint in India. Merger and acquisition activity in the banking sector remains limited by
government regulation. On July 2, 2004, the RBI proposed new restrictions for all private
banks. Banks already operating in India would be limited to 5 percent ownership in other
banks, with groups of investors limited to 10 percent ownership; those with larger holdings
would have to reduce ownership over three years.

Generally, this proposal to limit or reduce portfolio investment is viewed as an attempt to

keep the Indian banking sector from becoming a speculative market while continuing to
allow operating investments in the sector. This is difficult news for global banks that have
relied on acquisitions as a market entry or expansion strategy. Unless the government shifts
its posture on foreign equity ownership, global banks will have to rely on organic growth to
expand their presence in India.

COMPANY ANALYSIS

31
HDFC BANK

HDFC was incorporated in 1977 with the primary objective of meeting a social need – that of
promoting home ownership by providing long-term finance to households for their housing
needs. HDFC was promoted with an initial share capital of Rs. 100 million.

Business Objectives

The primary objective of HDFC is to enhance residential housing stock in the country
through the provision of housing finance in a systematic and professional manner, and to
promote home ownership. Another objective is to increase the flow of resources to the
housing sector by integrating the housing finance sector with the overall domestic financial
markets.

Organizational Goals

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HDFC’s main goals are to- a) develop close relationships with individual households, b)
maintain its position as the premier housing finance institution in the country, c) transform
ideas into viable and creative solutions, d) provide consistently high returns to shareholders,
and e) to grow through diversification by leveraging off the existing client base.

Over the past two decades, HDFC has been making inroads into varied spheres of
development, while retaining a focus on low-income housing and related issues. During this
year, HDFC further consolidated its operations as a wholesaler in micro-finance and weaker
section housing. In addition, HDFC has been engaged in some specific micro-finance
initiatives involving for e.g. policy frameworks and developing case studies; these have been
captured in a separate section below.

HDFC BANK LIMITED FINANCIAL RESULTS

FOR THE YEAR ENDED MARCH 31, 2007

The Board of Directors of HDFC Bank Limited approved the annual audited (Indian GAAP)
accounts for the year ended March 31, 2007 at their meeting held in Mumbai on Wednesday,
April 11, 2007. The Board also reviewed the unaudited US GAAP income statement for the
year ended March 31, 2007.

Financial Performance (Indian GAAP):

Full year ended March 31, 2007:

The overall operating and financial performance for the financial year 2006-07
remained healthy. Total net revenues (net interest income plus other income) at Rs.2429.3
crores, increased by 33.6% over Rs.1817.9 crores in 2005-06. The revenue growth was a
result of an increase of 32.9% in net interest income and of 35.7% in other income (non-
funded revenues). The net interest income growth was driven by an increase in the average
balance sheet size by 28.9% and a marginally higher net interest margin at 3.9%.

The other income (non-interest revenue) had three main components: Commissions,
Profit/Income from foreign exchange & derivatives and Profit/(Loss) on sale of investments.
In 2006-07, Commission income increased by 88.8% to Rs.605.0 crores, with key growth

33
drivers being commissions from distribution of third party mutual funds & insurance, retail
banking fees on debit/credit cards & point-of-sale (POS) terminals and transactional
charges/fees on deposit and depository accounts. Losses on sale of investments (net of
revaluation gains) were at Rs.65.8 crores in 2006-07 against profits of Rs.26.9 crores during
2005-06. This was due to the increase in yields on government securities and includes the
mark-to-market impact on transfer of around Rs.3000 crores of SLR (for Statutory Liquidity
Ratio) securities from the “Available for Sale” (AFS) to the “Held to Maturity” (HTM)
category in September 2006, as permitted by the new RBI guidelines. Foreign exchange and
derivatives revenues were Rs.111.6 crores in 2006-07, consisting of Rs.91.2 crores in
revenues from foreign exchange and Rs.20.4 crores as derivatives revenues. Operating (non
interest) expenses increased from Rs.810.0 crores in 2005-06 to Rs.1085.4 crores in 2006-07.

Despite a significant increase in infrastructure investments, including a 50% increase in the

branch network, a 26% increase in number of ATMs, expansion in the geographical spread of
retail loan and card products, etc., operating expenses as a proportion of net revenues,
remained almost stable at 44.7% in 2006-07 against 44.6% in 2005-06. Loan loss provisions
for the year were Rs.176.2 crores (Rs.178.3 crores in 2005-06) primarily consisting of
specific and general loan loss provisions for retail asset products. Provisions for amortisation
of investments were Rs.188.1 crores in 2006-07 as against Rs.93.2 crores in 2006-07,
principally due to higher amortisation of premium on investments due to the higher
proportion of SLR securities now held in the HTM category.

Profit Before Tax for 2006-07 was up 36.2% to Rs.978.9 crores. Net profit increased by
30.6% from Rs.509.5 crores in 2005-06 to Rs.665.6 crores in 2006-07. Return on average
networth was 20.4%, against the previous year figure of 20.1% despite the expansion in the
capital base in January 2007 consequent to the Bank’s add-on ADS issue. The bank’s basic
earnings per share increased from Rs.17.95 to Rs.22.92 per equity share.

March 31, 2007 - Balance Sheet:

34
During 2006-07, the Bank’s total balance sheet size increased by 21.6% to Rs.51429 crores.
Total Deposits increased by 19.6% from Rs.30409 crores (as of March 31, 2006) to Rs.36354
crores (as of March 31, 2007). Savings account deposits, which reflect the strength of the
retail liabilities franchise and are an important source of stable, low-cost funds, increased by
46.3% from Rs.7804 crores to Rs.11418 crores as of March 31, 2007. During 2006-07, net
Advances grew by 44.1% to Rs.25566 crores. This was driven by a growth of 47.5% in retail
advances to Rs.11696 crores (including car loans, personal loans, commercial vehicle loans,
two-wheeler loans, credit cards, etc., net of sale of retail loans of about Rs.4800 crores during
the year), and an increase of 41.3% in wholesale advances to Rs.13870 crores.

The bank’s core customer assets (advances plus credit substitutes like commercial paper,
corporate debentures, preference shares, etc.) increased by 38.0% from Rs.19494 crores in
March 2006 to Rs.26902 crores in March 2005. In addition, the bank held Rs.3061 crores of
investments brought in through the securitisation route where the underlying assets were
primarily commercial vehicle/car loans and mortgage receivables. Total customer assets
(including securitisation investments) were therefore Rs.29963 crores as of March 31, 2007.

Quarter ended March 31, 2007:

For the quarter ended March 31, 2007, net revenues were Rs.733.6 crores, up by 46.4% from
Rs.501.1 crores in the corresponding quarter ended March 31, 2006. Net interest income
increased by 42.4% to Rs.513.6 crores, driven by balance sheet growth, a marginal
improvement in spreads and profit on sale of retail loans. Other income (non-funded
revenues) grew by 56.6% to Rs.220.1 crores, primarily consisting of commissions of
Rs.176.8 crores, profit on sale of investments of Rs.20.5 crores and foreign exchange &
derivatives revenues of Rs.25.5 crores, as against Rs.100.0 crores, Rs.(8.2) crores (loss) and
Rs.48.0 crores respectively, for the corresponding quarter ended March 31, 2006. Operating
expenses for the quarter increased from Rs.216.7 crores (for the quarter ended March 31,
2006) to Rs.328.7 crores (for the quarter ended March 31, 2007).

After providing for loan loss provisions of Rs.55.1 crores (Q4 2005-06 of Rs.42.0 crores)
and provisions for amortisation of premia on investments in the “Held to Maturity” (HTM)
category of Rs.59.6 crores (Q4 2005-06 of Rs.30.4 crores), Profit Before Tax (PBT) for the

35
quarter was Rs.297.9 crores, up 40.2% from the corresponding quarter ended March 2006.
Net profit for the quarter at Rs.202.4 crores, represents a 30.8% increase over the
corresponding quarter ended March 2006 and a 18.4% increase over the immediate preceding
quarter ended December, 2006.

USGAAP:

Net Profit computed in accordance with US GAAP (unaudited) for the year ended March 31,
2007, showed a healthy growth of 39.0% from Rs.475.5 crores in 2006-07 to Rs.661.0 crores
in 2006-07. The net difference between profits computed in accordance with Indian GAAP
and US GAAP is primarily due to differences in accounting treatment for amortisation of
premium on investments held in the “Available for Sale” category, loan loss provisions,
deferred stock compensation expense and amortisation of acquisition costs on retail loans.

Dividend:

The Board of Directors recommended an enhanced dividend of 45% for the year ended
March 31, 2007 (including a special one-time dividend of 5% on the occasion of the Bank
completing 10 years of operations), as against 35% for the previous year. This would be
subject to approval by the shareholders at the next annual general meeting.

Additional Capital:

The Bank raised capital in the form of add-on American Depository Shares (ADS), which
were listed on the New York Stock Exchange on January 21, 2007 at a price of US$39.26 per
ADS. Each ADS represents 3 equity shares. The issue size was US$261 million plus a green
shoe option of US$39 million, which was exercised. Net of issue expenses, the Bank received
US$291 million. Consequent to this issue, the share capital of the Bank has increased by
Rs.22.9 crores and the reserves of the Bank have increased by Rs.1251.8 crores as share
premium after charging off issue related expenses.

Capital Adequacy Ratio:

As a result of the add-on ADS issue and retention of current year profits, the Bank’s total
Capital Adequacy Ratio (CAR) as at March 31, 2007 stood at a healthy 12.2%, well above

36
the regulatory minimum of 9%. Tier I CAR was 9.6%. These CAR ratios are after taking into
account the higher risk weights specified by RBI for consumer loan (from 100% to 125%)
and for mortgages / MBS (from 50% to 75%), as well as the capital requirement for market
risk on the trading book.

Business Update:

The Retail Banking business continued to be the fastest growing of the bank’s businesses in
2006-07. Expansion in the distribution network was stepped up with the number of branches
(including extension counters) increasing from 312 (in 163 cities) to 467 (in 211 cities) and
the size of the bank’s ATM network expanding from 910 to 1147. The bank’s credit card
business continued to be on a healthy growth trajectory with the total number of cards issued
crossing 1.25 million as of March 31, 2007. The bank further expanded its presence in the
“merchant acquiring” business with the total number of point-of-sale (POS) terminals
installed by the bank at over 41,000, up from 26,000 in the previous year.

The bank also achieved strong growth in its distribution of third party insurance and mutual
funds. The bank further consolidated its position as a leading Depository Participant with
over 700,000 retail investor accounts. During FY 2006-07, growth in the wholesale banking
business continued to be driven by new customer acquisition and higher cross sell with a
focus on optimizing yields and increasing product penetration. The Bank’s commercial
banking business, focused primarily at the top end of the corporate sector, has been
supplemented by currently small, but growing SME and agri-based lending businesses. The
bank’s customized supply chain management solutions which combine electronic banking,
cash management and vendor & distributor finance products, remained an important
contributor to the growth in the corporate banking business. In the transactional banking
segments, the bank has consolidated its position as a leading player in cash management and
correspondent banking services as well as a provider of cash settlement services to stock and
commodity exchanges. The Bank also remained a leading provider of foreign exchange and
derivatives products to its corporate customers.
STATE BANK OF INDIA
The origin of the State Bank of India goes back to the first decade of the nineteenth century
with the establishment of the Bank of Calcutta in Calcutta on 2 June 1806. Three years later
the bank received its charter and was re-designed as the Bank of Bengal (2 January 1809). A

37
unique institution, it was the first joint-stock bank of British India sponsored by the
Government of Bengal. The Bank of Bombay (15 April 1840) and the Bank of Madras (1
July 1843) followed the Bank of Bengal. These three banks remained at the apex of modern
banking in India till their amalgamation as the Imperial Bank of India on 27 January 1921.

STATE BANK OF INDIA

WORKING RESULTS FOR THE QUARTER/ 9 MONTHS ENDED 31st
DECEMBER 2006

HIGHLIGHTS (Q-3)

The Bank posted a Net Profit of Rs. 1099.35 cr for the quarter ended 31st December 2006
compared to Rs.919.44 cr. in quarter ended 31st December 2005, registering a growth of
19.57% The Operating Profit for Q-3 of 2006-07, at Rs. 3389.97 cr, recorded an impressive
growth of 88.30% over Q-3 of 2005-07. Net Interest Income recorded a growth of 31.99%
during this quarter over the corresponding quarter last year due to higher level of Advances
and lower cost of deposits. Profit from Sale of investment during the quarter stood at Rs
947.64 cr.

HIGHLIGHTS (9 months)
Net Profit for the 9- month period ended 31st December 2006 stood at Rs. 3239.64 cr as
compared to Rs. 2808.54 cr. in the 9-month period ended 31st December 2005, registering a
growth of 15.35%. The Operating Profit for the 9-month period ended 31st December 2006 at

38
Rs. 8066.28 cr recorded a growth of 12.22% over Rs.7188.14 cr in the 9-month period ended
31st December 2005. The growth in Operating Profit was achieved due to increase in both
Net Interest Income and Other Income (excluding profit on Sale of Investments). The growth
in Net Profit was achieved due to the increase in Operating Profit, despite larger provisions
being made during the 9 month period on considerations of prudence.

ANALYSIS OF PERFORMANCE

Net Interest Income of the Bank went up by 26.94% to Rs 9993.97cr in the 9-month period
ended 31st December 2006 as against Rs. 7872.72 cr in the 9-month period ended 31st
December 2005.

 Advances grew to Rs 195565 cr as at the end of December, 2006,from Rs.151629 crs

as at the end of December 2005 (last Friday) i.e. a growth of Rs 43936 crs (28.98%)
on year- to- year basis. Average yield on advances declined to 7.75% from 8.32 %
due to declining interest rates.
 Average resources deployed in treasury operations in India went up by Rs. 7892 cr
recording a growth of 3.77% as compared to 9 month period ended 31 st December
2005. The average yield in resource operations was lower at 7.94% as compared to
8.62% in the corresponding period last year due to declining interest rates.
 Deposits grew to Rs. 350630 cr as at the end of December, 2006 from Rs.302344 crs
as at the end of December, 2005 (last Friday), i.e. a growth of Rs. 48286 cr (15.97%)
on year-to-year basis. Domestic Deposits (excluding IMDs) recorded a growth of
16.84% as compared to a growth of 14.37 % up to Q-3 of 2005-06.
 The cost of deposits (excluding India Millennium Deposit) declined from 5.65% in 9
month period ended 31st December 2005 to 4.74% in 9 month period ended 31st
December 2006, a reduction of 91 basis points.

Other Income other than profit on sale of Investment grew by 25.28% as compared to 9
month period ended 31st December 2005. The Other Operating Expenses of the Bank
registered an increase of 21.65% mainly on account of technology drive initiated by the
Bank. Staff Cost registered an increase of 16.96%

39
Total provisions made for the 9 month period ended 31st December 2006 amounted to Rs.
4826.64 cr as compared to Rs.4379.60 cr made in 9 month period ended 31st December, 2005
on account of the following:

 Provision for NPAs at Rs 1300.00 cr for the 9 month period ended 31 st December
2006 (Rs 2660.32 cr in 9M 2005-06)
 Higher Provision for investment depreciation at Rs. 907.75 cr (Rs 222.57 cr in 9M
2005-06)
 Higher provision for Tax (including deferred tax) at Rs. 2030.05 cr (Rs. 1368.44 cr in
9M 2005-06)
 Provision for Wage Revision Rs. 500.00 cr (Nil in 9M 2005-06)

Other Highlights:

During April-December 2006, the retail advances in personal segment have grown by Rs.
10431 crores. The outstanding personal segment advances aggregate Rs. 43,581 crores at the
end of December 2006. The Bank continues to perform well in housing finance. During 9
months of 2006-07, housing advances have grown by Rs.6235 crores and the total
outstanding as at the end of December 2006 was Rs. 23317 crores. Retail advances grew by
31.46% over March 2006 and it constituted 25.17% of Bank’s Gross Domestic Advances as
on last Friday of December 2006 as against 22.07% as on last Friday of December 2005.
Housing Loans constitute 53.50% of our Retail Advances as on December 2006. Agricultural
Advances grew to Rs 17830 cr as at the end of December 2006 from Rs13665 cr as at the end
of December 2005(last Friday) i.e. a growth of Rs 4165 cr (30.48%) on year-to year basis.

ICICI Bank

40
Performance Review – Year ended March 31, 2007: 22% year-on-year growth in profit after
tax. The Board of Directors of ICICI Bank Limited (NYSE: IBN) at its meeting held at
Mumbai today, approved the audited Indian GAAP accounts of the Bank for the financial
year ended March 31, 2007 (FY2005). The Board also approved the audited consolidated
Indian GAAP accounts and the US GAAP accounts for the period.

Highlights

41
  Profit after tax for FY2007 increased 22% to Rs. 2,007 crore (US$ 460 million) from
Rs. 1,637 crore (US$ 375 million) for the financial year ended March 31, 2006
(FY2006).
 Profit after tax for the quarter ended March 31, 2007 (Q4-2007) increased 35% to Rs.
615 crore (US$ 141 million) from Rs. 455 crore (US$ 104 million) for the quarter
ended March 31, 2006 (Q4-2006).
 Net interest income increased 43% to Rs. 2,839 crore (US$ 651 million) for FY2005
from Rs. 1,987 crore (US$ 456 million) for FY2006.
 Fee income increased 79% to Rs. 2,098 crore (US$ 481 million) for FY2007 from Rs.
1,175 crore (US$ 269 million) for FY2006.
 Retail assets increased 68% to Rs. 56,133 crore (US$ 12.87 billion) at March 31, 2007
from Rs. 33,424 crore (US$ 7.66 billion) at March 31, 2006. The Bank now has the
largest retail portfolio in India.
 Deposits increased 47% to Rs. 99,819 crore (US$ 22.88 billion) at March 31, 2007
from Rs. 68,109 crore (US$ 15.61 billion) at March 31, 2006.
 At March 31, 2007, the Bank’s net non-performing assets constituted 2.0% of
customer assets.

Dividend on equity shares

The Board has recommended a dividend of 75% for FY2007 and a special dividend of 10%
to mark the completion of 50 years in finance by the ICICI group. The declaration and
payment of dividend is subject to requisite approvals.

Operating review:
Credit growth

The Bank’s total advances increased 46% to Rs. 91,405 crore (US$ 20.95 billion) at March
31, 2007 compared to Rs. 62,648 crore (US$ 14.36 billion) at March 31, 2006. The Bank
maintained its growth momentum in the retail segment. The Bank strengthened its leadership
in home loans with disbursements of Rs. 18,873 crore (US$ 4.33 billion) in FY2007.

The Bank strengthened its leadership in the credit card business and had a credit card base of
about 3.3 million cards at March 31, 2007. Retail assets constituted 61% of advances and

42
58% of customer assets. The Bank’s net customer assets at March 31, 2007 were Rs. 96,917
crore (US$ 22.22 billion). While retail loans have been a major driver of banking sector
credit growth, there are indications of a pickup in industrial credit as well. The Bank is
focusing on credit origination in both the corporate and retail segments and on growth in non-
fund based products.

Funding
The Bank’s deposits increased 47% to Rs. 99,819 crore (US$ 22.88 billion) at March 31,
2007 from Rs. 68,109 crore (US$ 15.61 billion) at March 31, 2006, compared to the banking
system deposit growth of 14%. During this period, the Bank repaid about Rs. 9,000 crore
(US$ 2.06 billion) of erstwhile ICICI’s liabilities as they fell due in accordance with their
terms of repayment. At March 31, 2007, erstwhile ICICI’s liabilities constituted only 14% of
the Bank’s funding compared to 26% at March 31, 2006.

International Initiative

ICICI Bank continued to build on its existing presence in various geographies as well as enter
new markets. The Bank opened a representative office in Bangladesh in August 2006, an
offshore branch in Bahrain in October 2006 and a representative office in South Africa in
February 2007 and now has a presence in eight geographies. The Bank’s UK subsidiary has
achieved profitability in its first full year of operations. The Bank’s international presence
combined with its domestic balance sheet enables it to offer a wider range of credit and trade
finance solutions to Indian companies. In addition to providing credit and trade finance
solutions to Indian companies, the Bank is expanding its international retail franchise. Total
inward remittances by non-resident Indians (NRIs) through the Bank for FY2007 were over
Rs. 13,100 crore (US$ 3.00 billion).

Capital adequacy

The Bank’s capital adequacy at March 31, 2006 was 11.78% (including Tier-1 capital
adequacy of 7.59%), well above RBI’s requirement of total capital adequacy of 9.0%.

Summary Profit and Loss Statement – Indian GAAP

43
 Rs. crore
Q4- Growth over Q4- FY20 Growth over
Q4-2006 2005 2006 FY2006 07 FY2006

NII 547 790 44% 1,987 2,839 43%

Non-interest income
(excl. treasury) 534 736 38% 1,751 2,704 54%

- Fee income 374 585 56% 1,175 2,098 79%

- Lease income 103 102 (1%) 422 398 (6%)

- Ohers t 57 49 (14%) 154 208 35%

Treasury income 212 296 40% 1,314 711 (46%)

Less:

Operating expense 529 721 36% 1,999 2,517 26%

Other DMA expense 93 151 61% 293 485 65%

Lease depreciation 68 73 7% 279 297 6%

Provisions 49 80 62% 579 429 (26%)

Profit before tax 553 797 44% 1,902 2,527 33%

Less: Tax 98 182 86% 265 522 97%

Profit after tax 455 615 35% 1,637 2,005 22%

Asset quality

44
The Bank’s net restructured assets at March 31, 2007 were Rs. 6,263 crore (US$ 1.44
billion), down from Rs. 6,629 crore (US$ 1.52 billion) at March 31, 2006. At March 31,
2007, the Bank’s net non-performing assets constituted 2.0% of customer assets against 2.9%
at March 31, 2006.

US GAAP results

The US GAAP accounts show a net income (profit after tax) of Rs. 853 crore (US$ 196
million) in FY2007, an increase of 63% over the net income of Rs. 522 crore (US$ 120
million) in FY2006. ICICI Bank’s stockholders’ equity at March 31, 2007 as per US GAAP
was Rs. 12,800 crore (US$ 2.93 billion) as compared to the Indian GAAP consolidated
networth of Rs. 12,406 crore (US$ 2.84 billion).

As stated in the Bank’s press releases dated June 28, 2005 and May 22, 2006, there are
significant differences in the basis of accounting between US GAAP and Indian GAAP. In
the merger of erstwhile ICICI Limited (ICICI) with ICICI Bank, the Bank was the legal
acquirer. Under Indian GAAP, the Bank is the accounting acquirer. Under US GAAP, ICICI
is deemed to have acquired ICICI Bank. Therefore, the financial statements under US GAAP
and Indian GAAP for the Bank are not comparable and these differences are expected to
continue in future years. ICICI’s assets were fair valued while accounting for the merger
under Indian GAAP.

The primary impact of the fair valuation was the creation of additional provisions against
ICICI’s loan and investment portfolio, reflected in the Indian GAAP balance sheet at March
31, 2004. Under US GAAP, ICICI Bank’s assets were fair valued while accounting for the
merger. There is also a difference in the basis of computation of provision for restructured
loans under US GAAP, which discounts expected cash flows at contracted interest rates,
unlike Indian GAAP, under which current interest rates are used.

FINANCIAL RATIOS

45
 SBI HDFC ICICI
Interest .877 .8346 .789
income/total
income
Non interest .123 .164 .211
income/total
income
Establishment .163 .063 .060
expense/total
exp.
Operating .017 .023 .005
profit/working
fund

ASSET QUALITY

SBI HDFC ICICI

46
Gross NPA/Gross .1282 .0326 .1066
Advances
Gross NPA /total .0432 .0089 .0475
Assets
Net NPA’s/ Net .0564 .0050 .0391
advances

PROFITABLITY RATIOS

SBI HDFC ICICI

Interest on .326 .306 .283
advance /total
income
Interest in invest./ 9 .424 .452
total income
Other income/total .111 .164 .211
income
Profit margin=net .267 .309 .218
profit/total income
Net profit/working .007 .012 .002
fund
Interest income .086 .072 .021
/working funds
Non interest .410 .321 .434
income/working
fund
Interest income/ .0832 .0686 .0204
total asset

Interest expenses/ .058 .043 .015

total assets
Asset utilization= .0948 .0820 .0259

47
 total income/total
assets
Return on assets .0068 .0120 .0024
total income/total
assets

PRODUCTIVITY MEASURES

SBI HDFC ICICI

Business per .01 6.54 10.24
employee=
(advance+deposit)/n
o. of employees
Workingfund 2.15 11.79 18.58
+contingent
liability/no. of empl
Net total income .19 .54 .35
/number of emp.
Net profit/no. of emp .017 .079 .033
Working 67.591 218.229 708.224
fund/establishment
cost

STAFF DEPLOYMENT

SBI HDFC ICICI

Official/total staff .26 .40 .26
Clerk/total staff .49 .11 -
Substaff/total staff 9 - .20

48
 MUTUAL FUND
The mutual fund industry has been in India for a long time. This came into existence in 1963
with the establishment of Unit Trust of India, a joint effort by the Government of India and
the Reserve Bank of India. The next two decades from 1986 to 1993 can be termed as the
period of Public sector funds with entry of new public sector players into the mutual fund
industry namely, Life Insurance Corporation of India and General Insurance Corporation of
India.

The year of 1993 marked the beginning of a new era in the Indian mutual fund industry with
the entry of private players like Morgan Stanley, J.P Morgan, and Capital International. This
was the First time when the mutual fund regulations came into existence. SEBI (Security
Exchange Board of India) was established under which all the mutual funds in India were
required to be registered. SEBI was set up as a governing body to protect the interest of
investor. By the end of 2008, the number of players in the industry grew enormously with
462 fund houses functioning in the country. With the rise of the mutual fund industry,
establishing a mutual fund association became a prerequisite. This is when AMFI
(Association of Mutual Funds India) was set up in 1995 as a non-profit organization.

Today AMFI ensures mutual funds function in a professional and healthy manner thereby
protecting the interest of the mutual funds as well as its investors. The mutual fund industry is
considered as one of the most dominant players in the world economy and is an important
constituent of the financial sector and India is no exception. The industry has witnessed
startling growth in terms of the products and services offered, returns churned, volumes
generated and the international players who have contributed to this growth. Today the
industry offers different schemes ranging from equity and debt to fixed income and money
market. The market has graduated from offering plain vanilla and equity debt products to an
array of diverse products such as gold funds, exchange traded funds , and capital protection
Oriented funds and even thematic funds. In addition investments in overseas markets have
also been a significant step. Due credit for this evolution can be given to the regulators for
building an appropriate framework and to the fund houses for launching such different
products. All these reasons have encouraged the traditional conservative investor, from
parking fund in fixed deposits and government schemes to investing in other products giving
higher returns. It is interesting to note that the major benefits of investing in a mutual funds is
to capitalize on the opportunity of a professionally managed fund by a set of fund managers
who apply their expertise in investment. This is beneficial to the investors who may not have
the relevant knowledge and skill in investing. Besides investors have an opportunity to invest
in a diversified basket of stocks at a relatively low price. Each investor owns a portion of the
fund and hence shares the rise and fall in the value of the fund. A mutual fund may invest in
stocks, cash, and bonds or a combination of these. Mutual funds are considered as one of the
best available investment options as compare to others alternatives. They are very cost
efficient and also easy to invest in. The biggest advantage of mutual funds is they provide
diversification, by reducing risk & maximizing returns. India is ranked one of the fastest
growing economies in the world. Despite this huge progression in the industry, there still lies
huge potential and room for growth. India has a saving rate of more than 35% of GDP, with
80% of the population who save3. These savings could be channelized in the mutual funds

49
sector as it offers a wide investment option. In addition, focusing on the rapidly growing tier
II and tier III cities within India will provide a huge scope for this sector.

Further tapping rural markets in India will benefit mutual fund companies from the growth in
agriculture and allied sectors. With subsequent easing of regulations, it is estimated that the
mutual fund industry will grow at a rate of 30% - 35% in the next 3 to 5 years and reach US
300 billion by 20154. As it can be noted, there is huge growth and potential in the mutual
fund industry. The development of this sector so far has been commendable and with the
above positive factors we are looking at a more evolved industry.

What Made Mutual Funds Have A High Growth in the

Industry-

Over the last couple of years mutual funds have given impressive returns, especially equity
funds. The growth period first started during early 2005 with markets appreciating
significantly with 2006 approaching more towards 2007, markets rallied like never before.
The financial year 2007-08 was a year of reckoning for the mutual fund industry in many
ways. Most stocks were trading in green. All fund houses boasted of giving phenomenal
returns. Many funds outperformed markets. Equity markets were in the limelight. Investors
who were not exposed to equity stocks suddenly infused funds. AUM grew considerably and
fund houses were on a spree of launching new schemes. Growth funds which aim at giving
capital appreciation invest in growth stocks of the fastest growing companies. Since these
funds are more risky providing above average earnings, investors pay a premium for the
same. These funds have grown to become extensively popular in India. All the leading fund
houses offer several schemes under the growth funds today. The remarkable performance of
this industry has attracted many researchers to study and examine the growth, the
performance of funds, the players in the market and the regulators. It is interesting to learn
the growth phase of these funds over this period.

For the purpose of this study, out of 46 fund houses available in India, 21 Funds across 5
fund houses have been selected. On the basis of the highest AUM (assets under management)
these 5 fund houses were selected. All the funds selected for the study are open-ended equity
funds under the growth option. The Net Asset Values (NAV) for all the 21 funds are from
March 2004 to March 2009, which is the period of this study. Since, all these are equity
funds, the BSE Sensex (Bombay Stock Exchange Sensitive Index); which is the oldest, most
widely and commonly used benchmark index in India; has been considered as the benchmark
index.

The funds which have been evaluated for this study have been randomly selected from the
Indian fund houses like Reliance, Birla, UTI, HDFC, and ICICI. The data, which is the
weekly NAV’s (Net Asset Value), of the selected fund was collected from Reuters.

To compare the funds with a market index the BSE Sensex was selected for the only reason
that it is India’s most widely and commonly used Benchmark index. The weekly NAV’s and
the Sensex closing were collected over a period of 5 years. The NAV’s and the Sensex
closing were then divided into 32 periods with 8 weekly NAV’s (on an average) in each
group. After this the returns were calculated for both the funds and the BSE Sensex. Once the
grouping of weekly NAV’s of the funds and the BSE Sensex were done the average return,
standard deviation, and absolute returns were calculated both for Fund NAV’s and the Sensex
closing.These calculations were done for each group for all the 21 funds.
50
The list of Funds selected for the study is:

1) Birla Sun Life India Opportunities Fund –Growth

2) Birla Sun Life Advantage Fund-Growth

3) Birla Sun Life Equity Fund-Growth

4) Birla Sun Life Midcap Fund-Growth

5) Birla Sun Life Buy India Fund-Growth

6) UTI Masters hare-Income

7) UTI CCP Advantage Fund-Growth

8) UTI Master Index Fund-Growth

9) UTI Energy Fund-Income

10) UTI MNC Fund-Income

11) UTI Master Equity Plan Unit Scheme

12) ICICI Prudential Power Plan-Growth

13) ICICI Prudential Tax Plan-Growth

14) ICICI Prudential Index Fund

15) ICICI Prudential Growth Plan-Growth

16) HDFC Equity Fund-Growth

17) HDFC Long Term Advantage Fund-Growth

18) HDFC Growth Fund-Growth

19) HDFC Top 200 Fund-Dividend

20) Reliance Growth Fund-Growth Plan

21) Reliance Vision Fund-Growth

51
 Analysis of all the funds over
The
Past 5 years Performance With Their
Average Returns
(2004-2009)
Average Returns for the period ending from 14th
May, 2005 to
1 September, 2006
st

52
53
54
Absolute Returns for the period ending from 27th
September, 2006
to 13th February,
2009

55
 INSURANCE SECTOR

Insurance may be described as a social device to reduce or eliminate risk of life and property.
Under the plan of insurance, a large number of people associate themselves by sharing risk,
attached to individual. The risk, which can be insured against include fire, the peril of sea,
death, incident, & burglary. Any risk contingent upon these may be insured against at a
premium commensurate with the risk involved.

Insurance is actually a contract between 2 parties whereby one party called insurer undertakes
in exchange for a fixed sum called premium to pay the other party happening of a certain
event. Insurance is a contract whereby, in return for the payment of premium by the insured,
the insurers pay the financial losses suffered by the insured as a result of the occurrence of
unforeseen events. With the help of Insurance, large number of people exposed to a similar
risk makes contributions to a common fund out of which the losses suffered by the
unfortunate few, due to accidental events, are made good.

56
INSURANCE IN INDIA

The insurance sector in India has come a full circle from being an open competitive market to
nationalization and back to a liberalized market again. The business of life insurance in India
in its existing form started in India in the year 1818 with the establishment of the Oriental
Life Insurance Company in Calcutta, when it was introduced for English Widows. Even till
the end of the nineteenth century, Insurance Companies in India were mainly the overseas
companies investing in the insurance works in India. An interesting fact here was that higher
premiums were charged for Indian lives, as they were considered riskier for insurance cover.

Insurance is mainly of 2 types

: LIFE INSURANCE

: GENERAL INSURANCE

Under life insurance the life of an individual is covered whereby an individual or his family is
assured a particular amount. Life insurance covers only the financial losses and not the
emotional losses. India General Insurance covers almost everything related to property,
vehicle, cash, household goods, health and also one's liability towards others. The basic
difference of general insurance with the life insurance policy is that it offers protection
against contingencies.

Some of the important milestones in the life insurance business in India

are:

• 1912 - The Indian Life Assurance Companies Act enacted as the first statute to
regulate the life insurance business.

• 1928 - The Indian Insurance Companies Act enacted to enable the government to
collect statistical information about both life and non-life insurance businesses.

• 1938 - Earlier legislation consolidated and amended to by the Insurance Act with the
objective of protecting the interests of the insuring public.

• 1956 - 245 Indian and foreign insurers and provident societies taken over by the
central government and nationalized. LIC formed by an Act of Parliament, viz. LIC
Act, 1956, with a capital contribution of Rs. 5 crore from the Government of India.

57
Some of the important milestones in the general insurance business in India are:

• 1907 - The Indian Mercantile Insurance Ltd. set up, the first company to transact all
classes of general insurance business.

• 1957 - General Insurance Council, a wing of the Insurance Association of India,

frames a code of conduct for ensuring fair conduct and sound business practices.

• 1968 - The Insurance Act amended to regulate investments and set minimum solvency
margins and the Tariff Advisory Committee set up.

• 1972 - The General Insurance Business (Nationalization) Act, 1972 nationalized the
general insurance business in India with effect from 1st January 1973.

107 insurers amalgamated and grouped into four companies viz. the National Insurance
Company Ltd., the New India Assurance Company Ltd., the Oriental Insurance Company
Ltd. and the United India Insurance Company Ltd. GIC incorporated as a company. Today
Insurance Companies in India have grown manifold.

The insurance sector in India has shown immense growth potential. Even today a giant share
of Indian population nearly 80% is not under life insurance coverage, let alone health and
non-life insurance policies. This clearly indicates the potential for insurance companies to
grow their market in India. In 1999, various reforms were suggested in the insurance industry
in India. This has changed a lot of things for the insurance companies in India.

These reforms were:

 Bringing down of the government’s stake holding to 50%

 Only the private companies with a minimum capital of Rs.100 crores should be
allowed to enter the insurance sector.

 No insurance company can deal in both life and non-life insurance under the same
business entity.

 Foreign Insurance Companies can enter India only in collaboration with domestic
insurance companies.

 Interest should be paid on delays of payments by the insurance companies in case of

non settlement of insurance claims.

 And many more to bring greater freedom and a well-planned regulation to the
insurance companies in India.

58
Though, the existing rule says that a foreign partner can hold 26% equity in an insurance
company, a proposal to increase this limit to 49% is pending with the government. Since
opening up of the insurance sector in 1999, foreign investments of Rs. 8.7 billion have poured
into the Indian market and 22 private companies have been granted licenses.

The various fields covered by insurance companies in India include:

 Life Insurance: For students, children, family, individual etc.

 Health insurance: For self, for family, accidental insurance premium, medical claim
policies etc.

 Non-life insurance: Home or House Insurance and other property insurance, Auto
Insurance (for cars, motorcycle and other two-wheelers, commercial vehicles),
Infrastructure Projects Insurance, Travel Insurance, real estate insurance, mobile
insurance etc. Innovative products, smart marketing, and aggressive distribution have
enabled fledgling private insurance companies to sign up Indian customers faster
than anyone expected. Indians, who had always seen life insurance as a tax saving
device, are now suddenly turning to the private sector and snapping up the new
innovative products on offer. With the largest number of life insurance policies in
force in the world, India’s insurance sector accounted for 4.1 per cent of GDP in
2006-07, up from 1.2 per cent in 1999-2000, far ahead of China where insurance
accounts for just 1.7 per cent of the GDP and even the US where insurance
penetration stands at 4 per cent of the GDP.

One area that continues to cause concern is the number of customer grievances in insurance,
especially in a few specific classes. This calls for more transparency in designing the contract
wording and on insisting that the applicant is sufficiently informed about the coverage and
more particularly the exclusions.

In addition, the legislation itself requires to be transformed to meet the needs of the emerging
markets. The demand for health insurance covers has seen a healthy increase, and today the
sector is the fastest growing segment in the non-life insurance industry in India, which grew
at over 40% last year. It is also emerging as an increasingly significant line of business for
life insurance companies.

While this rate of growth appears to be very healthy, it is on a low base, and health insurance
penetration in the country continues to be low. Only about 25 million persons are presently
covered for health through commercial insurance, in a country of over 1.1 billion people.
Overall, the Indian health sector is still characterized by the near absence of any significant
risk protection against major health-related expenditure.

59
GROWTH OF INSURANCE SECTOR IN INDIA

India's insurance sector is zooming to show an unprecedented progressive growth of more

than 200% by the period of 2009-12. The Associated Chambers of Commerce and Industry of
India has clocked out the fact that during this period, private players in the industry will see a
growth of about 140 per cent, owing to the adoption of the aggressive marketing techniques
in comparison of the growth rate of 35 per cent-40 per cent achieved by the state owned
insurance companies.

The chamber is expected to poise the business of insurance to reach at Rs.2000 billions in
coming 2 years from the present level of Rs. 500 billion. With the result of adoption of the
intense marketing strategies by the private players, the declination has been witnessed in
respect of the share of the state owned insurance companies captured in the market.

The market share fallout has been noticed in context of such companies like GIC, LIC, which
have come down to nearly 70 per cent in the past 4-5 years from the 97 per cent. The experts
have fore casted the more severe competition in the insurance sector likely to be occurred in
the near future. Till recently, insurance sector was majority driven by the government sector
players but now many private sector multinational players have come into the picture.

Like HDFC, ICICI, Kotak, Mahindra and Birla Sunlife. Insurance sector has been
characterized as the booming sector of the Indian arena, which has shown the growth rate of
more than 15 per cent to 20 per cent. Insurance in India is put under the federal subject and is
governed by the Insurance Act, 1938, the Life Insurance Corporation Act, 1956 and General
Insurance Business (Nationalization) Act, 1972, Insurance Regulatory and Development\
Authority (IRDA) Act, 1999 and by various other acts.

60
INSURANCE COMPANIES IN INDIA

1. Life Insurance Corporation of India

2. Bajaj Allianz Life Insurance Company Limited

3. Birla Sun Life Insurance Co. Ltd

4. HDFC Standard life Insurance Co. Ltd

5. ICICI Prudential Life Insurance Co. Ltd.

6. ING Vysya Life Insurance Company Ltd.

7. Max New York Life Insurance Co. Ltd

8. Met Life India Insurance Company Ltd.

9. Kotak Mahindra Old Mutual Life Insurance Limited

10. SBI Life Insurance Co. Ltd

11. Tata AIG Life Insurance Company Limited

12. Reliance Life Insurance Company Limited.

13. Aviva Life Insurance Co. India Pvt. Ltd.

14. Sahara India Life Insurance Co, Ltd.

15. Shriram Life Insurance Co, Ltd.

16. Bharti AXA Life Insurance Company Ltd.

17. Future Generali Life Insurance Company Ltd.

18. IDBI Fortis Life Insurance Company Ltd.

19. Canara HSBC Oriental Bank of Commerce Life Insurance Co. Ltd

20. AEGON Religare Life Insurance Company Limited.

21. DLF Pramerica Life Insurance Co. Ltd.

22. Star Union Dai-ichi Life Insurance Comp. Ltd.

23. National Insurance Company Ltd.

61
PERFORMANCE OF INDIAN INSURANCE INDUSTRY

Performance up to October 2006

The performance growth rate that was 22.8 percent as at September 2006 has moved up to
23.3 percent at the end of October 2006, an improvement of significance. The total premium
at the end of October is Rs.14,628 crore as against Rs.11,855 crore. The established players
have added Rs.807 crore at a growth rate of 8.3 percent with the new players adding Rs.1966
crore at a growth rate of 62 percent. Here again, ICICI Lombard has achieved an accretion of
Rs.887 crore; whereas the total accretion of all the established players is Rs 807 crores, a
truly impressive record. New India with Rs.286 crore, closely followed by Oriental with
Rs.277 crore are the major contributors for the established players. Reliance, a late starter in
the race for premium acquisition has recorded an accretion of Rs.357 crore as against a
meagre last year renewal of Rs.89 crore. The growth path is now led by several players: with
eight out of the twelve players having achieved accretions in excess of Rs.100 crore and more
at the end of October 2006. With the imminent detariffing around the corner in January 2007,
the next two months should witness even more fierce battles for supremacy of the market
turf. A few of the new players are inching towards breaking into the big league premium
players of yesteryears and this may happen sooner than one thought. Interesting and
challenging times are certainly ahead for all the players.

Premiums Rise 163.68% over October, 2006

Individual premium:
The life insurance industry underwrote Individual Single Premium of Rs.1336610.10 lakh for
the period ended October, 2006 of which the private insurers garnered Rs.118242.78 lakh and
LIC garnered Rs.1218367.32 lakh. The corresponding numbers for the previous year were
Rs.443296.40 lakh for the industry, with private insurers underwriting Rs.64530.68 lakh and
LIC Rs.378765.72 lakh. The Individual Non-Single Premium underwritten during April-
October, 2006 was Rs.1771903.71 lakh of which the private insurers underwrote
Rs.536863.16 lakh and LIC Rs.1235040.55 lakh. The corresponding numbers for the
previous year were Rs.743586.24 lakh, Rs.260432.63 lakh and Rs.483153.61 lakh
respectively.

Group premium:
The industry underwrote Group Single Premium of Rs.467348.58 lakh of which the private
insurers underwrote Rs.30147.74 lakh and LIC Rs.437200.84 lakh. The lives covered being
7678192, 456696 and 7221496 respectively. The corresponding numbers for the previous
year were Rs.171382.70 lakh with private insurers underwriting Rs.17261.98 lakh and LIC
Rs.154120.72 lakh and the lives covered being 8547743, 397721 and 8150022 respectively.
The Group Non-Single Premium underwritten during April-October, 2006 was Rs.53221.05
lakh which was underwritten entirely by the private insurers, covering 2366084 lives. The
corresponding numbers for the previous year were Rs. 18031.15 lakh and covering 1277400
lives.

62
Segment-wise segregation:

A further segregation of the premium underwritten during the period indicates that Life,
Annuity, Pension and Health contributed Rs.2329869.52 lakh (64.24%), Rs.74006.48 lakh
(2.04%), Rs.1221904.91 lakh (33.69%) and Rs.897.90 lakh (0.02%) respectively. In respect
of LIC, the break up of life, annuity and pension categories was Rs.1677831.45 lakh
(58.04%), Rs.69437.82 lakh (2.40%) and Rs.1143339.44 lakh (39.55%) respectively. In case
of the private insurers, Rs.652038.07 lakh(88.58%), Rs.4568.66 lakh (0.62%), Rs.78565.47
lakh (10.67%) and Rs.897.90 lakh (0.12%) respectively was underwritten in the four
segments.

Unit linked and conventional premium:

Analysis of the statistics in terms of linked and non-linked premium indicates that 49.46% of
the business was underwritten in the non-linked category, and 50.54% in the linked category,
i.e., Rs.1793702.35 lakh and Rs.1832976.45 lakh respectively. In case of LIC, the linked and
non-linked premium was 41.38% and 58.62% respectively, as against which for the private
insurers taken together this stood at 86.53% and 13.47% respectively. During the
corresponding period of the previous year, linked and non-linked premium indicates that
54.74% of the business was underwritten in the non-linked category, and 45.26% in the
linked category, i.e., Rs.752509.54 lakh and Rs.622185.30 lakh respectively. In case of LIC,
the linked and non-linked premium was 33.96% and 66.04% respectively, as against which
for the private insurers taken together this stood at 77.02% and 22.98% respectively. Growth
momentum continues in October 2006 with 25.3 percent.

All-round growth :

The month of October 2006 has been the month of extraordinary growth for the nonlife
insurers with the growth rate high at 25.3 percent. This achieved rate is only slightly below
that of September of 25.8 percent. As against the monthly renewals of Rs.1772 crore in
October last year, the premium income scaled in 2006 is Rs.2220 crore. The established
players have recorded an accretion of Rs.151 crore at a growth rate of 11.3 percent. The new
players have had an accretion of Rs.297 crore at a growth rate of 63 percent. Among the
former, New India leads with an accretion of Rs.60 crore followed by Oriental with Rs.56
crore. But the stellar performances in the month have come from ICICI Lombard that has
produced a massive accretion of Rs.167 crore with Reliance adding Rs.56 crore to its meager
renewal premium of Rs.12 crore. The new players have continued to maintain a strong grip
on their market share that stands at 35 percent. Two points of interest to the market have
emerged. One is that the monthly accretion of ICICI Lombard at Rs.167 crore is higher than
the combined accretion achieved by all the established players of Rs.151 crore. This
performance should stand out as of interest to the market. The second point of market interest
is that for the first time, the October monthly premium of ICICI Lombard at Rs.310 crore has
exceeded the monthly premium performances of National Insurance and UIIC that have
accomplished premiums of Rs.305 crores and Rs.257 crore respectively. The established
players do seem to be coming under increasing pressure by the new players with their
relentless high growth rates and premium productions.

63
41 per cent growth in life insurance industry in 2006 :

New Delhi: Life insurance sector grew by 41 per cent in 2005-06 due to better performance
of country's largest life insurer, LIC, and private players like Bajaj Allianz and ICICI
Prudential. The 15 life insurance companies together collected Rs 35,898 crore in the fiscal
ended March this year, compared to Rs 25,343 crore in the previous fiscal, according to data
compiled by regulator IRDA. Life Insurance Corporation's premium income rose more than
28 per cent to Rs 25,645 crore after it sold 3.16 crore policies as against Rs 19,972 crore
collected a year ago. However, LIC's market share dipped by 6.63 per cent to 71.44 per cent
from 78.07 per cent in the year ago period due to stiff competition and aggressive marketing
of private life insurers. The 14 private players were able to steadily increase their market
share from 21.93 per cent to 28.56 per cent in a year's time by collecting Rs 10,252 crore
during the period
under review.

Private sector life insurance business jumps 90% :

In a tough battle to expand market shares the private sector life insurance industry consisting
14 life insurance companies at 26% have lost 3% of market share to the state owned Life
Insurance Corporation (LIC) in the domestic life insurance industry in 2006- 07. According
to the figures released by Insurance Regulatory & Development Authority the total premium
these 14 companies have shot up by 90% to Rs 19,471.83 crore in 2006-07 from Rs 10, 252
crore.

LIC with a total premium mobilization of Rs 55,934 crore has been able retain a market share
of 74.26 % during the reporting period. In total the life insurance industry in first year
premium has grown by 110% to Rs 75, 406 crore during 2006-07. The 2006-07 performance
has thrown a few surprises in the ranking among the private sector life insurance companies.
New entrants like Reliance Life and SBI Life had shown a huge growth of over 381% and
210% respectively during the year. Reliance Life which has become one of the top five
companies ended the year with a premium of Rs 930 crore during the year.

Though ICICI Prudential Life Insurance remained as the No 1 private sector life insurance
company during the year Bajaj Allianz overtook ICICI Prudential in terms of monthly market
share in March, for the first time ever. Bajaj's market share among private players in non-
single premium for March stood at 29.1% vs. ICICI Prudential's 23.8%. Bajaj gained 4.6
percentage point market share among private sector players for FY07. Among other private
players, SBI Life and Reliance Life continued to do well, each gaining 4% market share in
FY07. SBI Life's growth was driven by increasing contribution from ULIP premiums.
Another notable development of the 2006-07 performance has been the expansion of retail
markets by the life insurance comapnies. Bajaj Allianz Life insurance has added 20 lakh
policies while ICICI Prudential has expanded over 19 lakh policies during the year.

64
India’s Insurance Industry Likely To Jump By 500% In 2010:
ASSOCHAM :

The Associated Chambers of Commerce and Industry of India (ASSOCHAM) has projected
about 500% hike in the size of domestic insurance business which will grow to US$ 60
billion by 2010 from the current size of around US$ 10 billion as the growing competitive
age is developing a larger appetite among people for wider insurance coverage. The
projections of the Chamber are based on feedback that it received from its various
constituents, engaged in the insurance business, highlighting that India’s life insurance
premium as a percentage of GDP is currently estimated at 1.8% against 5.2% in US, 6.5%
in UK and about 8% in South Korea.

Releasing the analysis, ASSOCHAM President, Mr. Venugopal N. Dhoot said that rural and
semi-urban India will contribute US $35 billion to the Indian insurance industry by 2010,
including US $20 billion by way of life insurance and the rest US $15 billion through non-
life insurance schemes. A large part of rural India is still untapped due to poor distribution,
large distances and high costs relative to returns. Urban sector insurance is estimated to reach
US $25 billion by 2010, life insurance US $15 billion and non-life insurance US $10 billion,
added Mr. Dhoot. ASSOCHAM findings reveals that in the coming years the corporate
segment, as a whole will not be a big growth area for insurance companies. This is because
penetration is already good and companies receive good services. In both volumes and
profitability therefore, the scope for expansion is modest.

ASSOCHAM has suggested that insurer’s strategy should be to stimulate demand in areas
that are currently not served at all. Insurance companies mostly focus on manufacturing
sector; however, the services sector is taking a large and growing share of India’s GDP. This
offers immense opportunities for expansion opportunities. To understand the prospects for
insurance companies in rural India, it is very important to understand the requirements of
India's villagers, their daily lives, their peculiar needs and their occupational structures. There
are farmers, craftsmen, milkmen, weavers, casual labours, construction workers and
shopkeepers and so on. More often than not, they are into more than one profession. The rural
market offers tremendous growth opportunities for insurance companies and insurers should
develop viable and cost-effective distribution channels; build consumer awareness and
confidence. The Paper found that there are a total 124 million rural households. Nearly 20%
of all farmers in rural India own a Kissan Credit cards. The 25 million credit cards used till
date offer a huge data base and opportunity for insurance companies. An extensive rural
agent network for sale of insurance products could be established. The agent can play a major
role in creating awareness, motivating purchase and rendering insurance services. There
should be nothing to stop insurance companies from trying to pursue their own unique
policies and target whatever needs that they want to target in rural India.

ASSOCHAM suggests that insurance needs to be packaged in such a form that it appears as
an acceptable investment to the rural people. In the near future, when we will see more
innovations in agriculture in the form of corporatization or a more professional approach
from the farmer’s side, insurance will definitely be one option that the rural Indian is going to
accept. ASSOCHAM believes that insurers should enter into tie-ups or understandings with
government agencies to ensure the success of the insurance schemes. The need of the hour is
to have innovative policies that have explicit benefits for the people to observe, understand
and measure.

65
Indian Insurance Industry: New Avenues for Growth 2012 :
With an annual growth rate of 15-20% and the largest number of life insurance policies in
force, the potential of the Indian insurance industry is huge. Total value of the Indian
insurance market (2004-05) was estimated at Rs. 450 billion (US$10 billion). According to
government sources, the insurance and banking services, contribution to the country's gross
domestic product (GDP) is 7% out of which the gross premium collection forms a significant
part. The funds available with the state-owned Life Insurance Corporation (LIC) for
investments are 8% of GDP. Till date, only 20% of the total insurable population of India is
covered under various life insurance schemes, the penetration rates of health and other non-
life insurances in India is also well below the international level. These facts indicate the of
immense growth potential of the insurance sector.

The year 1999 saw a revolution in the Indian insurance sector, as major structural changes
took place with the ending of government monopoly and the passage of the Insurance
Regulatory and Development Authority (IRDA) Bill, lifting all entry restrictions for private
players and allowing foreign players to enter the market with some limits on direct foreign
ownership. Though, the existing rule says that a foreign partner can hold 26% equity in an
insurance company, a proposal to increase this limit to 49% is pending with the government.
Since opening up of the insurance sector in 1999, foreign investments of Rs. 8.7 billion have
poured into the Indian market and 21 private companies have been granted licenses.
Innovative products, smart marketing, and aggressive distribution have enabled fledgling
private insurance companies to sign up Indian customers faster than anyone expected.
Indians, who had always seen life insurance as a tax saving device, are now suddenly turning
to the private sector and snapping up the new innovative products on offer.

The life insurance industry in India grew by an impressive 36%, with premium income from
new business at Rs. 253.43 billion during the fiscal year 2004-2005, braving stiff competition
from private insurers. This report, Indian Insurance Industry: New Avenues for Growth 2012,
finds that the market share of the state behemoth, LIC, has clocked 21.87% growth in
business at Rs.197.86 billion by selling 2.4 billion new policies in 2004-05. But this was still
not enough to arrest the fall in its market share, as private players grew by 129% to mop up
Rs. 55.57 billion in 2004-05 from Rs. 24.29 billion in 2003-04. Though the total volume of
LIC's business increased in the last fiscal year (2004-2005) compared to the previous one, its
market share came down from 87.04 to 78.07%. The 14 private insurers increased their
market share from about 13% to about 22% in a year's time. The figures for the first two
months of the fiscal year 2005-06 also speak of the growing share of the private insurers.

The share of LIC for this period has further come down to 75 percent, while the private
players have grabbed over 24 percent. There are presently 12 general insurance companies
with four public sector companies and eight private insurers. According to estimates, private
insurance companies collectively have a 10% share of the non-life insurance market. Though
the focus of this market research report is on the potential growth on the Indian Insurance
Sector, it also talks about the market size, market segmentation, and key developments in the
market after 1999.

66
 Indian Stock market

Introduction:

There was a time when India was discussed as the land of snake charmers, black magic and
epidemics but the revolutionary Indian growth story changed everything. Indian economy at
its height compelled the world to change its viewpoint towards India. Out of the several
factors which changed the face of modern India, we are going to discuss the most roaring of
them i.e. our share market. The earlier reform procedures adopted by India gave India the two
most sought after world-class brands i.e. SENSEX and NIFTY. The magical figures
displayed by our market turned all the heads on India. And India became one of the most
favoured places for investment. Now we are going to deal with the ups and downs in the
share market since last two years i.e. since year 2006.our share market has went through
many phases in there 2 years. We saw the investors getting overjoyed at 21K and we saw
them crying too when it crashed. We saw how the market rewarded the undervalued shares
and how the overvalued shares fell down to demonstrate the saying “everything which rise
more than expected, has to fall.” So to analyze the saga of Indian share market, we had two
indices to follow: BSE sensex and NSE nifty.

67
Though NSE nifty is a more advanced option and has left BSE sensex far behind, still we call
BSE sensex as the barometer of our economy. That’s why we have followed the BSE sensex.
It was not possible to track each and everyday figure of the sensex since last two years. The
performance of the sensex is analyzed with the help of data and graphs collected from various
sources and some of the most talked about movements of sensex starting with the secondary
market summary of each year, firstly year 2006 and then year 2007.

Year 2006 at a glance:

In the secondary market, the uptrend continued in 2006-07 with BSE indices closing above
14000(14,015) for the first time on January 3, 2007. After a somewhat dull first half
conditions on the bourses turned buoyant during the later part of the year with large inflows
from Foreign Institutional Investors (FIIs) and larger participation of domestic investors.
During 2006, on a point-to-point basis, Sensex rose by 46.7%. The pickup in the stock
indices could be attributed to impressive growth in the profitability of Indian corporate,
overall higher growth in the economy, and other global factors such as continuation of
relatively soft interest rates and fall in the international crude prices.

BSE Sensex (top 30stocks) which was 9,398 at end-December 2005 and 10,399 at end-May
2006, after dropping to 8,929 on June 14, 2006, recovered soon thereafter to rise steadily to
13787 by end-December 2006.
According to the number of transactions, NSE continued to occupy the third position among
the world’s biggest exchanges in 2006, as in the previous three years. BSE occupied the sixth
position in 2006, slipping one position from 2005. In terms of listed companies, the BSE
ranks first in the world. In terms of volatility of weekly returns, uncertainties as depicted by
Indian indices were higher than those in outside India such as S&P 500 of United States of
America and Kospi of South Korea. The Indian indices recorded higher volatility on weekly
returns during the two-year period. January 2005 to December 2006 as compared to January
2004 to December 2005. The market valuation of Indian stocks at the end of December 2006,
with the Sensex trading at a P/E multiple of 22.76 and S&P CNX Nifty at 21.26, was higher
than those in most emerging markets of Asia, e.g. South Korea, Thailand, Malaysia and
Taiwan; and was the second highest among emerging markets.

68
The better valuation could be on account of the good fundamentals and expected future
growth in earnings of Indian corporate. Liquidity, which serves as a fuel for the price
discovery process, is one of the main criteria sought by the investor while investing in the
stock market. Market forces of demand and supply determine the price of any security at any
point of time. Impact cost quantifies the impact of a small change in such forces on prices.
Higher the liquidity, lower the impact cost.

SENSEX during 2006: (Economic Survey 2007-08)

2006 BSE
Jan 9920

Feb. 10370
Mar 11280

Apr 12043

May 10399

Jun 10609

Jul 10744
Aug 11699

Sep 12454

Oct 12962

Nov 13696

Dec 13787

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An overview of year 2006:

During December 2005, the greatest demerger of Indian history between the Ambanis paved
the way for 9000. And the sensex entered the year 2006 with a 9000 + figure. on Feb. 10th
2006, we saw two roaring figures, both sensex and sachin tendulkar crossing 10000 mark.
But the reason behind roaring sensex was not sachin’s records rather it was rallied by strong
FII inflows and robust data. The government forecasted a GDP growth of 8.1% in current
year, with manufacturing and the agriculture sectors estimated to grow at 9.4% and 2.3%
respectively. The 238-point rally was contrary to expectations as it came despite negative
news flow about a fresh tussle between Ambani brothers over transfer of ownership of the
four companies demerged from erstwhile RIL.
Sensex’s surge to 11000 points on 21st march 2006 was prompted by PM Manmohan Singh’s
announcements on Capital Account Convertibility. On Saturday, Prime Minister Manmohan
Singh hinted at moving toward a free float of the rupee and on Tuesday, the BSE responded
by crossing the 11,000 mark in a lifetime intraday high. The new trading high was reached 29
days after Sensex entered the elite 10,000 club on February 6.

70
Only Nikkei, Hang Seng and Dow Jones could boast of being above 10,000 at that time.
Since full convertibility was expected to attract more foreign money and also allow local
companies to tap foreign debt markets more easily, it was evident that the move will
encourage investors and boost the confidence of the markets. RBI said it was constituting a
panel to thrash out the contours for full convertibility. Although the index later ended lower
with investors wanting to book gains, participants said it was evident the markets had sent out
a message - that the growth story of Asia’s third largest economy is intact and that liquidity
flows into the bourses would continue to remain firm. After hitting a high of 11,017.25
points in mid-afternoon trade, Sensex lost 35.91 points to close at 10,905.20, fluctuating 153
points, with most of the volatility coming in the last hour of trading. The rise in share prices
was partly attributed to a fall in oil price. The US April crude oil prices plunged 3.7% or
$2.35, to settle at $60.42 a barrel, on the New York Mercantile Exchange due to ample US
inventories.

After falling by 307 points on 12th April 2006 on account of Heavy selling by FIIs in both
cash and futures markets and a move by stock exchanges to raise margins on share
transactions by about 250 basis points, the 131-year-old BSE on Thursday, April 20, 2006
crossed yet another milestone when it breached the 12,000-point mark, backed by strong
corporate earnings, higher liquidity and robust economic growth. The index was being driven
by the strong flow of liquidity. Earlier, it was based on the expectations that (corporate)
results would be great...and by the first few companies were more than matching those
expectations.
Although, Sensex was beaten to the 12,000 mark by various global indices, the time it took to
breach this milestone has been one of the fastest. Traders point to the fact that foreign
investors, buoyed by a booming economy, have chosen India as one of their top investment
destinations.
Now, everything was going fine, perhaps it was the lull before the storm. Suddenly the Dalal
Street experienced its worst single day crash on Thursday, 18th may 2006 as an ambiguous
Government circular on taxing investment gains prompted foreign funds to book profits,
knocking the bottom off the jittery stock market. Opening amidst weak global markets and
reports of rising US interest rates, the BSE-30 Sensex went on to close 826.38. However the
Dealers said the fall was accentuated by large-scale selling of client positions by broking
firms due to margin calls or the lack of margins. The May crash saw the Sensex shedding its
market capitalization by as much as 14% in just one month.
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Benchmark stock indices vaulted to new highs on Monday, oct 30th 2006 driven by a heady
cocktail of strong corporate earnings, a rapidly growing economy and relatively stable crude
oil prices. The Sensex ended at its highest closing level of 13024.26, a gain of 117.45 points
or 0.9%. Marauding bulls defied the weak trend globally, which was sparked off by weak US
GDP growth figure, pointing to a slowdown. Back home, the mood was upbeat even as some
expect that the RBI may raise interest rates by 25 basis points in its mid-term credit policy on
Tuesday. Market watchers said sentiment could be affected only if the hike is more than 25
basis points, which is unlikely. Higher interest rates drive up borrowing costs for corporate as
well as the retail consumer, who could then cut back on their investments and spending, in
turn causing a slack in domestic demand.
The benchmark 30-share sensex briefly crossed the psychological 14,000-mark on Tuesday,
December 5, 2006. While foreign institutional investors have been aggressive buying stocks
over the past few months, the response of domestic mutual funds has been guarded. In the last
two months alone, FIIs bought net stocks worth Rs 17,001 crore while local mutual funds
have pumped in a net Rs 638.07 crore.

Year 2007 at a glance:

In the secondary market segment, the market activity expanded further during 2007-08 with
BSE and NSE indices scaling new peaks of 21,000 and 6,300, respectively, in January 2008.
Although the indices showed some intermittent fluctuations, reflecting change in the market
sentiments, the indices maintained their north-bound trend during the year. This could be
attributed to the larger inflows from Foreign Institutional Investors (FIIs) and wider
participation of domestic investors, particularly the institutional investors. During 2007, on a
point-to-point basis, Sensex and Nifty Indices rose by 47.1 and 54.8 per cent, respectively.
The buoyant conditions in the Indian bourses were aided by, among other things, India
posting a relatively higher GDP growth amongst the emerging economies, continued uptrend
in the profitability of Indian corporate, persistence of difference in domestic and
international levels of interest rates, impressive returns on equities and a strong Indian rupee
on the back of larger capital inflows.

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The BSE Sensex (top 30 stocks) too echoed a similar trend to NSE nifty. The sell-off in
Indian bourses in August 2007 could partly be attributed to the concerns on the possible
fallout of the sub-prime crisis in the West. While the climb of BSE Sensex during 2007-08 so
far was the fastest ever, the journey of BSE Sensex from 18,000 to 19,000 mark was achieved
in just four trading sessions during October 2007. It further crossed the 20,000 mark in
December 2007 and 21,000 in an intra-day trading in January 2008. However, BSE and NSE
indices declined subsequently reflecting concerns on global developments. BSE Sensex
yielded a Compounded return of 36.5 per cent per year between 2003 and 2007. In terms of
simple average, BSE Sensex has given an annual return of more than 40 per cent during the
last three years.

Sensex during 2007: (source: Economic Survey 2007-08)

2007 BSE

Jan 14091

Feb 12938

Mar 13072

Apr 13872

May 14544

Jun 14651

Jul 15551

Aug 15319

Sep 17251

Oct 19838

Nov 19363

Dec 20287

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An overview of year 2007:

After touching 14K mark on December 5th 2006, sensex entered into 2007 with a promising
figure of 14000+, though the year started on a rather tentative note with a marked slowdown
being observed in the FII inflows into the country. The inflows received from FIIs in January
and February 2007 was 48 per cent less than what was received during the same period in
2006. The return provided by the BSE Sensex for 2007 turned into negative territory
following the 389-point tumble on Friday, February 23rd; the year-to-date return generated by
the Sensex was negative 0.97 per cent. FIIs have pressed substantial sales over those days in
contrast to an intermittent surge in inflow in February 2007. As a result, the sensex which
closed at 14091 on January 31st, closed at 12938 on February 28th.
As per provisional data FIIs were net sellers to the tune of Rs 613 crore on Friday 2 March,
the day when Sensex had lost 273 points. Their net outflow was worth Rs 3080.80 crore in
four trading sessions from 26 February to 1 March 2007. Market continued to reel under
selling pressure on 5th march 2007 taking cue from weak global markets and heavy FII sales
as a result of fall over 400 points, all the indices were in red.
On April 24th, The Sensex again crossed the 14K mark and was trading at 14,150.18 having
gained 221.85 points or 1.59%. The midcap and smallcap indices were rather moving slow
indicating that the actual movers are the large cap stocks but at the month end it finally closed
at 13872. Further we can see May and June having month end figures at 14544 and 14651
respectively.

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The benchmark BSE 30-Share Sensitive Index (Sensex) breached the 15,000-mark, to reach a
record high of 15007.22, for the first time intra-day on Friday, July 06 2007 before closing at
14964.12. Despite weak global cues, Indian stocks were in great demand, especially auto,
pharma, IT and metals stocks. On Friday, this lifted the Bombay Stock Exchange's
benchmark 30-share Sensex past the magical 15,000-mark. The Sensex took 146 sessions to
cover the 1,000 point distance from 14,000 till 15,000. This is the highest since the index
took 371 trading sessions to move up from 6,000 to 7,000.
The sensex experienced its second bigger ever fall on 2nd august 2007. The fall came in after
the Fed Reserve cut its discount interest rate at an emergency meeting and JPMorgan Chase
agreed to buy Bear Stearns for USD 2 a share. Sensex closed down 951.03 points or 6.03% at
14809.49, When FIIs were pumping money in stock market and were Net Buyers of Equity
worth Crores; the Sensex was moving Up , Up and Up on weekly basis. Many thought that
FIIs were playing blind in Indian stock market.
But when FIIs have turned Net Sellers of Equity and have started booking profit backed by
massive sell off of shares in global markets; Sensex has to go down. As expected; the Sensex
plunged by 600 Points in early trading on 16th August and most of the shares were down by
4 to 5 per cent.
But very soon the sensex surpassed the gloomy days and Stock markets on Wednesday,
September 19th, 2007 gave thumbs up to the decision of the U.S. Fed Reserve to reduce the
rates by 50 basis points, as the benchmark 30-share BSE Sensex moved up sharply by 653.63
points or 4.17 per cent at 16322.75. By staying well above the 16000-mark, it outperformed
most Asian peers and it was the biggest single day gain. This trend shows that global cues
had an influential effect on our market.
On the auspicious occasion of Ganesh chaturathi, India experienced a flow of good news. The
festive spirit did not end with the immersion of Ganapati. On Wednesday, it boiled over to
the streets of Mumbai and its financial district, the Sensex touched the magical 17,000
number. It took Dalal Street just 5 days to travel 1,000 points. Suddenly, tech stocks, which
were the whipping boys till Tuesday, became hot favourites. Why? Hopes that the rupee will
soften as a result of RBI's latest announcements to allow more outflow sparked a rally in tech
stocks, pushing the Sensex to a new high of 17,073.87 during the day. At the end of the day,
RBI's measures may not be enough to rein in the rupee. But there were no takers for this. The
bellwether index finally settled at 16,921.39.

75
On October 9th, 2007, Sensex hits a record high of 18,280 on the back of eye-popping rallies
in Reliance & Reliance. At the height of the dotcom mania in 1999-00, the easiest way to
maximize returns was to buy into any stock with the suffix ‘Software’ or ‘Technologies’.
Eight years on, the same seems to hold true for any stock with the prefix ‘Reliance’, given
their baffling run-up over the past one month. Eye-popping rallies in Reliance Industries,
Reliance Energy and Reliance Communications lifted the 30-share Sensex to a record high of
18,327.42 intra-days.

On October 15th 2007, amidst heavy buying by investors, the bull roared to breach the 19000
mark in just 4 sessions Sensex was up by 639.63 points or 3.47 per cent at 19058.67. This
rise came on the back of some strong sectors for which the macro picture is quite bright —
power, capital goods, infrastructure and telecom. Foreign Institutional Investors were
pumping in huge money in the equity market and this too was pushing up the index. Since
September, they nearly pumped in more than Rs. 30,000 crore in the cash market. After the
U.S. Federal Reserve cut interest rates by 50 basis points, a re-rating of the emerging markets
had been seen wherein liquidity flows were quite robust.

Then suddenly happened the second biggest crash the sensex ever experienced when the
sensex crashed by 1743 points on 17th October 2007 within minutes of opening, prompting
suspension of trade for hour fallout of regulator Sebi's move to curb Foreign Institutional
Investors. In a knee-jerk reaction to the cap proposed by the market regulator for the
Participatory Notes, an overseas derivative instrument (ODI), used by foreign institutional
investors (FIIs), the stock market crashed by 1743 points in intra-day, but recovered
substantially later to close with a loss of 336.04 points or 1.76 per cent at 18715.82. but it
was followed by a huge one-day gain as on October 23 when the BSE barometer rose 878.85
points after market regulator SEBI allowed sub-accounts of Foreign Institutional Investors
(FIIS) to trade.

It took the index a little over 20 years to reach the first 10,000 mark, but just a little over 20
months to double that score and the sensex made history with touching the 20000 mark on
October 29 2007. Significantly, it was the local institutions that were in the driver’s seat. As
per BSE data, foreign funds have net sold over Rs 1,100 crore worth of shares over the last
three trading sessions while local funds have net bought over Rs 2,300 crore worth of shares.
Sceptics point to the fact that there were only a handful of stocks that was driving the market
higher.
76
On 13th November, BSE Sensex registered its biggest ever gain in a single of 893.58 points
to settle at the third-highest level ever on buying by investors in bank counters and blue chip
companies such as Reliance Industries. The market gain was because of global cues. Besides,
the political development also gelled well with the sentiment. The rally was driven by short
covering, strong buying by domestic investors. However, there was not much involvement of
foreign investors.

But in December 2007, sensex again experienced a black Monday on 17th December. The
market succumbed to profit booking, that came in due to weak global cues as well as profit
booking by FIIs in the holiday season. The Sensex ended losing 769 points from the previous
close, at 19,261.

Sensex during year 2008:

After scaling new heights of 20000+, sensex entered year 2008 with rosy pictures. The trade
pundits, brokers and even investors predicted new heights for the year. And they felt their
predictions coming true when sensex touched the 21000 mark on 8th January 2008. It’s
interesting if one sees in terms of flows; the journey from 20,000 to 21,000 is dominated by
domestic institutional investors; FIIs were negative sellers, they sold in the cash market to the
tune of USD 45 billion. So if one has to take out some pointers from this journey from 20,000
to 21,000, it is the longest journey which we have seen in the last 5,000 marks, the midcaps
and small caps have been outperformers and in terms of flows, it has been domestic
institutional investors which have been really putting the money.

But the rosy picture soon turned gloomy. The skyrocketing sensex suddenly started heading
south and Sensex saw the biggest absolute fall in history, shedding 2062 points intra-day. It
closed at 17,605.35, down 1408.35 points or 7.4 per cent. It fell to a low of 16,951.50. The
fall was triggered as a result of weakness in global markets, but the impact of the global rout
was the biggest in India. The market tumbled on account of a broad based sell-off that
emerged in global equity markets. Fears over the solvency of major Western banks rattled
stocks in Asia and Europe.

77
After the worst January in the last 20 years for Indian equities, February turned out to be a
flat month with the BSE sensex down 0.4%. India finished the month as the second worst
emerging market. The underperformance can partly be attributed to the fact that Indian
markets outperformed global markets in the last two months of 2007and hence we were
seeing the lagged impact of that outperformance. In the shorter term, developments in the US
economy and US markets continued to dominate investor sentiments globally and we saw
volatility move up sharply across most markets.
The Bombay Stock Exchange (BSE) Sensex fell 4.44 percent on Monday, 31st march the last
day of the financial quarter, to end the quarter of March down 22.9 percent, its biggest
quarterly fall since the June 1992 quarter, as reports of rising inflation and global economic
slowdown dampened market sentiments. Financial stocks led the Sensex slide along with IT.
According to market analysts, IT stocks fell on worries about the health of the US economy.
Indian IT firms depend on the US clients for a major share of their revenues.

Reasons for the present slowdown (Q1, FY 08-09)

The first month of the financial year 08-09 proved to be a good one for investors with the
month ending on a positive note. The BSE sensex showed a gain of 10.5% to close at 17287
points. A combination of firming global markets and technical factors like short covering
were the main reasons for the up move in the markets. Though inflation touched a high of
7.57% against 6.68% in march 2008 as a result RBI hiked CRR by 50 bps to take the figure
to 8%, still emergence of retail investors was also seen; a fact reinforced by the strong
movement in the mid-cap and small- cap index that rose 16% and 18% respectively.
So April was the last month to close positive. Then after nobody saw a stable sensex even.
Sometimes it surged by 600+ points, but very next day it plunged by some 800 odd points
and this story is still continuing. Every prediction, every forecasting has failed. The sensex is
dancing on the music of lifetime high inflation rates, historic crude prices, tightening RBI
policies, weak industrial production data, political uncertainties and obviously the sentiments
of domestic as well as FIIs. The only relief came in the form of weakening Indian rupees
which enlightened the IT sector and most recently the UPA gaining vote of confidence.
Presently it is revolving around the figures of 14000 and no one knows what next?

78
The 30-share BSE Sensex fell 117.89 points or 0.67% at 17,373.01 on Tuesday, 6 May 2008.
The key benchmark indices ended lower as investors resorted to profit booking due to lack of
positive triggers in the market. On 30th May an imminent hike in domestic retail fuel prices
due to soaring crude oil prices weighed on the market last week. Foreign institutional
investors sold close to Rs 2204 crore in the first three trading sessions of the week which
accentuated the downfall. However better than expected Q4 gross domestic product figures
provided some relief to the bourses on Friday. IT stocks gained on slipping rupee. BSE
Sensex rose in two out of five trading sessions. In May, Indian inflation stood at 8.2%.

The market declined sharply as a hike in fuel prices by about 10% announced by the Union
government on Wednesday, 4 June 2008, triggered possibility of a surge in inflation to
double digit level. The BSE Sensex declined 843.39 points or 5.14% to 15,572.18 in the
week ended 6 June 2008. The S&P CNX Nifty fell 242.3 points or 4.97% to 4627.80 in the
week.

On 6 June 2008, local benchmark indices underperformed their global peers, hit by rumours
that the Reserve Bank of India (RBI) may hike cash reserve ratio (CRR) or interest rate later
in the day to tame runaway inflation. The 30-share BSE Sensex declined 197.54 points or
1.25% to settle at 15,572.18.

On 9th June 2008, Bombay’s Sensex index closed 506.08 points down at 15,066.10, having
earlier fallen 4.4% and slipped below 15,000 for the first time since March. Oil prices surged
to record levels, fanning fears that they will keep climbing and hurt world growth.

Central banks across the globe warned that interest rates may have to rise as they look to keep
inflation under control, despite the fact that economic growth is slowing in key nations such
as the US and UK.

On the week ending 27th June 2008 Sensex declined 769.07 points or 5.28% to 13,802.22.
The S&P CNX Nifty lost 210.90 points or 4.85% to 4136.65 in the week. Equities extended
losses for the fifth straight day on 24 June 2008 with the barometer index BSE Sensex falling
below the psychologically important 14,000 mark for the first time in 10 months since late
August 2007. On 25 June 2008, equities staged a solid rebound after touching fresh calendar
2008 lows in early trade.

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The initial jolt was caused by the Reserve Bank of India's move to hike the key lending rate.
A setback to stocks in Asia and US, sharp spurt in crude oil prices and political uncertainty
due to Indo-US nuclear deal rattled bourses on 27 June 2008.

On July 15th 2008, Indian shares fell 4.9 per cent to their lowest close in 15 months, joining a
world equities rout as investors dumped financials on concerns about the fallout from
worsening global credit turmoil. Although Indian banks have no direct exposure to the US
subprime mortgage sector, the global financial sector turmoil impacts sentiment in the local
market and raises worries of more withdrawals by foreign funds.

An 800+ point surge was experienced in the market on the day following UPA gaining vote
of confidence but the very next day market couldn’t maintain the momentum and since then
it’s in a doldrums’ position.

Presently, we can saw market plunging after the RBI announced further hikes in Repo rate as
well as CRR both increased to 9%. Also, the serial blasts at Ahmadabad and Bangalore
adding to the worries and enhancing the negative sentiments. And above all we can't see any
positive trigger that can dilute the flow of negative news.

After going through all the analysis regarding the stock market in last 2 years, we can say that
stock market touched its peak at 21000 but then crashed badly. Now it is revolving around a
14000-16000 figure. Though the sensex is a barometer and after seeing such fluctuations one
could be afraid of investing. Still we can say that people can play safe by investing the blue-
chips and undervalued shares.

During year 2006, if we keep aside that brief period of loss that the market witnessed from
may 10 2006 to June 14 2006, investors’ wealth seem to have grown double fold with the
Sensex touching the 10000, 11000, 12000, 13000 and 14000 levels in the same calendar year.
Investor wealth in terms of market capitalization has been growing in the range of 6.84-
12.41%

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And talking about year 2007, we can summarize the happenings of year 2007 as a year which
redefined the resistance levels at sensex. Strong economic data, heavy inflow of funds from
FIIs towards the close of previous calendar year and decent to highly encouraging surge in
earnings of top notch companies all pointed to a rosy 2007. The rupee's rise against the US
dollar the regulator's decision to restrict investments made through participatory notes, rising
crude oil prices, the sub-prime mortgage woes in US, concerns over a slowing down US
economy and The Left parties' opposition to the Indo-US nuclear pact, did halt the market's
progress at times. But the inherent strength of the Indian economy, fairly buoyant results
quarter after quarter, the various chops and subsidies announced by the government and
sustained efforts made by the market regulator to keep investor confidence in the system alive
kept the momentum going.

Presently the hike and seek being played by crude prices, inflation and RBI is affecting our
market to a great extent. And adding to the worries are global slowdown, political instability,
serial bomb blasts, negative public sentiments etc. It is indeed surprising that though the
epicenter of the sub-prime crisis is the US, the tremors are being felt in India. The loss of
market cap in the US is only 14 per cent vis-À-vis 38 per cent in India.

But even after analyzing the causes for downturn, we can say that India story has not ended;
else $200 billion with institutional investors would have fled for safer waters. Exports being
14 per cent of GDP, India is less vulnerable to external shocks than many other Asian
nations. Political uncertainties too have narrowed down. Savings in India have risen at a
historic rate of 35 per cent on the growing GDP base; 17 per cent of this is in gold,
commodities and real-estate while financial savings represent 18 per cent of GDP. Even this
is skewed towards deposits both banking and non-banking, while the percentage of savings in
shares and debentures is a mere 6.3 per cent. If this percentage goes to 25 per cent, it would
amount to $40 billion of incremental money being diverted to capital markets. So even after
such downturns, we can be hopeful for a positive market.

81
CONCLUSION

CONCLUSION

82
Conclusion is one of the important aspects in every field. Conclusion gives us the summary,
what we have derived from the research. In today’s context we can see a major shift in the
investment portfolio of the investors. A major portion of them has started investing in modern
investing schemes rather than the same old conventional ones. At the onset of the new era the
financial market has embarked a growth.

Thus we can conclude that the investors wish to go for investments in banking sector, mutual
fund, insurance sector, share market and many more. The private sector has started giving
better services through efficient and efficacious use of its technical and human resources. As
far as the reliability is concerned it still lies in the hands of the public sector.

With the help of this study the powered growth of various sectors as a whole can be seen. The
growing economy favors the investment opportunities. All the economic factors are showing
a positive trend and thus the investment can be profitable. The yield and safety of the
investors is insured in banking sector. An investment with a proper foresight and outlook can
turn out to be an advantage.

83
 LIMITATION

LIMITATIONS

• Sufficient data was not available as according my study.

• Due to recession , data is not relevant for conclusion

84
• Many of the areas are not analyzed due to shortage of time.

• It is solely based on secondary data collected from website and magazines.

• Lack of experience

85
 BIBLIOGRAPHY

BIBLIOGRAPHY

• www.nseindia.com
• www.bseindia.com
• www.amphi.com
• www.google.com
• http://www.icicibank.com
• http://www.hdfcbank.com
• http://www.statebankfofindia.com

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