PREFACE

As a part of M.B.A. curriculum I have to do summer training in the corporate

world for 8 weeks as partial fulfillment of degree and based on that I have to
prepare project report on it. So there is great importance for me of this
valuable training as I have to get real world learning experience.

Fortunately, I got opportunities to have my training at Anagram Securities ltd.

And I came into touch with corporate world. And learnt basic concepts of
securities market. Whatever I learnt I have also tried to apply it in my project
report and for that I selected topic “A FUNDAMENTAL STOCK
ANANLYSIS” and I have tried to understand it properly with practical
examples. With this I have also included topics about organization and its
activities, products, market analysis etc.where I have done our training so our
objectives of this report and training are as followings.

Objectives:

• To learn basic concepts of stock market..

• To find out competition in stock broking industry through competitor
analysis
• To understand the basics of fundamental stock analysis.
• And finally through this training to come to know about the corporate
environment.
• And to get maximum out of training and apply it practically in my
report.

1
 ACKNOWLEDGEMENT

An acknowledgement is something which is overlooked by many, but it forms

integral part of my project and is only means through which I could
communicate my thanks to all those who have extended their help with
selflessness in an untiring manner.

I very much thankful to our Institute (GRIMS) for giving us an opportunity of

doing my summer project at Anagram. I heartily thankful to our Director
Dr.R.S.Shah and Prof. Pankaj Patel for providing me guidance in this project.

I would like to express my gratitude to my company guide Mr. Keyur Shah

and HR Manager to giving me opportunity to have my summer project in this
well known company. I am also very thankful to Mr. Rakshit Bhatt,
Mrs.Chiragi Patel, without all of them this project would have not been
possible. It was nice learning experience to have with them.

Last but not least I am thankful to all of those who have directly or indirectly
helped me to make this project a great journey in the ocean of knowledge. I
am again very much thankful to all these persons.

Ronak Bhavsar

2
 EXECUTIVE SUMMARY

Anagram Securities Ltd established in 1993-94 owned by Lalbhai

Group. Anagram is in business of commodities, stock trading, mutual funds,
insurance and IPO etc. And providing basket of Products to satisfy customer’s
needs. Anagram has strong brand name, effective research department, and
strong RMS system and having active management team, mancom next Team
all these strengths have helped to Anagram to expand very fast in this industry.
As securities markets have created more opportunities.

Sensex touched 15000 mark all-around cheers but there is essence of

uncertainity and risk in investors mind. Whether his stock would give him to
maximum return or not, sometimes it becomes very difficult for investors to
predict the share price of the particular company in this very volatile market. It
raises questions in investor’s mind that at what price I should buy? When to
sell it... hold? So now investors are in dilemma but now a days Brokers,
analyst, have started stock Analysis to get some insight so there are two types
of analysis.

1. Technical Analysis

2. Fundamental Analysis

Technical analysis is the study of historic price movements of securities

and trading volumes. Technical analysts believe that prices of the securities
are determined largely by forces of demand and supply. Share prices move in
patterns which are easily identifiable. Crucial insights into these patterns can
be obtained by keeping track of price charts, leading to predictions that a stock
price may move up or down. The belief is that by knowing the past, future
prices can predict.

3
 While Fundamental analysis is the practice of evaluating a company’s
stock price by comparing base elements in the company’s balance sheets as
well as general market factors. The main principle of fundamental analysis is
to find profitable companies to invest in by comparing revenues, sales,
management, etc. Fundamentals include earnings report, dividends, sales,
inventories, profit margins, P/E ratio, market share, etc. And it is three Phase
analysis of Economy, Industry and Company itself. So all three factors affect
the stock movement and performance of the company as I have here prepared
fundamental analysis of SBI and ICICI Bank. To understand the concept
Thourghly.

SBI and ICICI are major players and Competitors in the industry, have
done well in terms of Business Expansion, both have found out new
opportunities and diversified their business as demand for loans, financial
products is increasing and both banks have been increased profit, deposits etc.
So their fundamentals are very strong and intact. With support of the growing
economy we hope that stock market would take it positively. And stock would
give return to its shareholder in long terms.

From the company analysis of ICICI and SBI both have good financial
position, good P/E Ratio, Return on Equity, Return on Assets, good market
share in their respective areas.

And I have also done the Competitive Analysis of the major players at
the Ahmedabad. From this analysis I can provide the information regarding
the competitors schemes run in the market and give the suggestion to
Anagram.

4
 Table of Content

Chapter Title Page

no. no.
• Preface 1

• Acknowledgement 2

• Executive Summary 3

1. Securities Market In India 6

2. Anagram Securities 11

3. SWOT Analysis 23
Competitive Analysis of Stoke Broking
4. 27
Houses
5. Stock Analysis 30

6. Technical Analysis 31

7. Fundamental Analysis 33

8. Fundamental Analysis of ICICI & SBI 40

9. • Economic Analysis 41

10. • Industry Analysis 50

11. • Company Analysis 57

12. Suggestions 70

13. Bibliography 71

5
 1. SECURITIES MARKET IN INDIA

[A] An Overview:-

It is globally recognized that the growth of the economy depends to a

large extent globally on the growth of the Securities Market as it provides the
vehicle for raising resources and managing risks. Today, the wheels of the
economy cannot move without the Securities Market. Indeed, it is a modern
marvel for accomplishing astonishing numbers in terms of economic growth.
Further, today’s Securities Markets are absolutely different from what they
were 10 years ago or will be in the next 10 years. They would remain in
transition. There would be ups and downs. Many would succeed and many
would vanish along the transformation journey.

[B] Participants:-

The securities market has essentially three categories of participants viz.

the issuer of securities, investors in securities and the intermediaries. The
issuers are the borrowers or deficit savers, who issue securities to raise funds.
The investors, who are surplus savers, deploy their savings by subscribing to
these securities. The intermediaries are the agents who match the needs of
users and suppliers of funds for a commission. These intermediaries pack and
unpack securities to help both the issuers and investors to achieve their
respective goals.

[C] Market Segments:

The securities market has two interdependent segments:

1. Primary market:

The primary market is the channel for creation of new securities. These
securities are issued by public limited companies or by government agencies.
In the primary market, the resources are mobilized either through the public
issue or through private placement route.

6
 2. Secondary Market

The secondary market enables participants who hold securities to adjust

their holdings in response to changes in their assessment of risks and returns.
The secondary market operates through two mediums, namely. Over-the-
counter (OTC) market - OTC markets are informal markets where trades are
negotiated. Exchange-traded market the stock exchange is a marketplace
where industrial securities like equity shares, preference shares, debentures
and bonds of listed public limited companies and the governments are traded.

[D] National Stock Exchange

The National Stock Exchange (NSE) is India's leading stock exchange

covering various cities and towns across the country. The National Stock
Exchange of India (NSE) was incorporated in November 1992 as a tax-paying
company. It is recognized under Securities Contracts (Regulation) Act, 1956
in 1993 as a stock exchange.

[E] Bombay Stock Exchange

Bombay Stock Exchange Limited is the oldest stock exchange in Asia with a
rich heritage. Popularly known as "BSE", it was established as "The Native
Share & Stock Brokers Association" in 1875. It is the first stock exchange in
the country to obtain permanent recognition in 1956 from the Government of
India under the Securities Contracts (Regulation) Act, 1956.

[F] Facts about Indian Securities Market

7
• Two National level exchanges and several regional stock exchanges.
• Fully electronic trading platforms and screen based trading.
• Listed companies over 7000 with market cap of about US$120 billion.
• T+2 Securities Settlement System. Move to T+1 by April 2004.
• 99.9 percent of the trades are settled in dematerialized form.
• Trade Guarantee Funds and Customer Protection Funds.
• Two national level depositories.
• About 400 schemes of mutual funds with total asset base of nearly
US$22 billion.
• Presence of over 500 Foreign Institutional Investors.
• Net Investment by FIIs as of March 31st at US$15.
• Wide product range: equities, wholesale debt, retail debt, index future,
index options, stock futures and stock options.
• One of the fastest growing markets in the equity derivatives.
• About 10000 Trading Terminals in around 400 cities.
• Consolidation of Regional Stock Exchanges.
• Approximately 20 million Investors

[G] Regulatory Framework

A brief about these legislations are as given below:

1. SEBI Act, 1992:

The SEBI Act, 1992 was enacted to empower SEBI with statutory
powers for (a) Protecting the interests of investors in securities,(b) Promoting
the development of the securities market, and (c) Regulating the securities
market.

2. Securities Contracts (Regulation) Act, 1956:

It provides for direct and indirect control of virtually all aspects of the
securities trading including the running of stock exchanges with an aim to
prevent undesirable transactions in securities.

8
3. Depositories Act, 1996:

The Depositories Act 1996 provides for the establishment of

depositories for securities to ensure transferability of securities with speed,
accuracy and security.

4. Companies Act, 1956:

It deals with issue, allotment and transfer of securities and various

aspects relating to company management. It also regulates underwriting, the
use of premium and discounts on issues, rights and bonus issues, payment of
interest and dividends, supply of annual report and other information.

[H] Reforms In Indian Securities Market

During the last decade, there have been substantial regulatory,

structural, institutional and operational changes in the securities industry.
These have been carried out with the objective of improving market
efficiency, enhancing transparency, preventing unfair trade practices and
bringing the Indian market up to international standards. The following
paragraphs list the principal reform measures undertaken in the last decade.

1. DIP Guidelines:

The guidelines aim to secure fuller disclosure of relevant information

about the issuer and the nature of the securities to be issued.

2. Screen Based Trading:

In this system a member can punch into the computer quantities of

securities and the prices at which he desires to transact and the transaction
is executed as soon as it finds a matching sale or buy order from a counter
party. Hence it cuts down on time and cost.

3. Trading Cycle:

The settlement period has been reduced progressively from T+5 to T+3
days. Currently T+2 day settlement cycle is being followed

9
4. Derivatives Trading:

To assist market participants to manage risks better through hedging,

speculation and arbitrage, Derivatives trading commenced in June 2000 in the
Indian securities market on NSE and BSE only.

5. Depositories Act:

To prevent physical certificates from sneaking into circulation, it has

been mandatory that all new securities issued should be compulsorily traded in
dematerialized form.

6. Risk Management:

With a view to avoid any kind of market failures, the regulator

exchanges have developed a comprehensive risk management system, which
is constantly monitored and upgraded. It encompasses capital adequacy of
members, adequate margin requirements, limits on exposure and turnover,
indemnity insurance, on-line position monitoring and automatic disablement,
etc.

7. Investor Protection:

SEBI specifies that the critical data should be disclosed in the specified
formats regarding all the concerned market participants. The Central
Government has established a fund called Investor Education and Protection
Fund (IEPF) in October 2001 for the promotion of awareness amongst
investors and protection of the interest of investors.

8. Globalization:

Indian companies have been permitted to raise resources from abroad

through issue of ADRs, GDRs, FCCBs and Ecs.Indian companies are
permitted to list their securities on foreign stock exchanges by sponsoring
ADR/GDR issues against block shareholding. NRIs and OCBs are allowed to
invest in Indian companies. FIIs have been permitted to invest in all types of
securities, including government securities.

10
 2. ANAGRAM

Anagram StockBroking is a firm, which is part of the Rs.2000 crore

Lalbhai Group. Anagram is a member of the National Stock Exchange
(registration number INB--230597630). Ever since its foundation in 1993,
Anagram Securities has always focused on the needs of the retail client. Last
year, billings crossed Rs.17000 crore with around 5,000 people making their
trades through Anagram. The firm has its roots in Western India especially
Gujarat where it is the biggest player. But it has expanded considerably.

Anagram Stock Broking Ltd, Anagram Securities limited, Anagram

Comtrade Limited and Enagram Online Limited (Collectively referred as
“Anagram”). Anagram Stockbroking Limited is a member of The Bombay
Stock Exchange Limited and a Depository Participant of the NSDL and
Anagram Securities limited is a member of National Stock Exchange Limited
and Anagram Comtrade Limited is a member of India's 3 premier
commodities Exchanges namely MCX, NCDEX, and NMCE) (TCM –
Trading cum Clearing Member).

11
 Moneypore is the brand name of Anagram, which represents the
investment philosophy of the company. Moneypore is that state of
consciousness which enables retail investors to make intelligent decisions.
Investors need not be rich to become a resident of Moneypore. All they need is
an open mind and a desire to take charge of their financial affairs.

Anagram is a complete service brokerage house offering the entire

spectrum of services that an equity investor would need and offer real time
offline and online trading platform on the BSE & NSE both in cash and F & O
segment. It also offers its clients online access their account and information.

Anagram does no proprietarily trading and manages no mutual funds,

nor is it interested in corporate finance. It believes in offering advice that is
completely untainted with ulterior motives.

Investment Philosophy
The investment philosophy of Anagram focuses primarily on
recommending purchases in financially sound companies at reasonable market
prices. We would also recommend sales of companies which are above the
sales price targets or whose business prospects are poor.

Anagram recognizes that every individual is unique in terms of his

investment time horizon, investment objectives, personal financial situations,
level of interest and inclination in the investment decision taking process and
last but not the least, his risk taking ability. Whilst it is hard to beat the level of
absolute customization and hand holding that a qualified personal financial
planner would provide, we have attempted to individualize, as much as
possible, model portfolios that we believe reflect the individual’s unique
investment profile.

Today, Anagram is one of India's leading corporate broking houses with

a very strong network of its own Branches and Franchisees across India. The
following areas give it a unique identity:
• Service: beyond broking
• The differentiator: Research and risk management
• Technology: the byte that works
• Personnel: Intangible asset

12
Beyond Broking

1. Retail

With a network of more than 138 odd branches and a clientele of more
than 79,000 Retail investors, Anagram is counted among the top 5 brokerages
in the retail arena.

If the first priority in business is reaching customers, the second is

keeping him satisfied. Anagram, believe in building relationship with its
customers and provide them with a whole palate of services. The relationship
management encompasses from providing the right investment strategies
based on needs and risk stances to ensuring timely payouts.

It proud for the fact that they've maintained a record of prompt payouts
to their customers, winning a reputation for reliability and transparency that is
not too common a currency in this business. And they've done this despite the
alarming- and–sudden-slumps that the stock market and the economy have
gone through over the last decade.

As far as product range goes, Anagram is steadily building up a

comprehensive portfolio of products and services apart from conventional
broking. High speed anywhere trading through the net, Online depository
services, Commodities Trading and retail debt products are increasingly areas
of special emphasis for us.

2. Institutional business

While Anagram also has its hand on the pulse of the retail client, it also
understands the needs of the demanding institutional clients. A separate
institutional sales desk services the needs of the select institutions. Anagrams
is empanelled with leading Indian institutions and keeps expanding the list.

13
Research and Risk Management
Research:

Information and research is a vital ingredient for success in an industry

that relies on information flows and where the ability of its people to
understand the markets and foresee trends is what sets a good firm apart.

Research is very important part of Anagram’s business. Its 13-member

research team is spread over two locations i.e. Ahmedabad and Mumbai. We
contribute regularly to the various TV channels, newspapers and other media.

Anagram’s research reports for the institutional clients are exhaustive

and in detail, where as for the retail segment the stress is on timeliness. It has a
battery of products that cater to the retail investor. Chinta's Call is its morning
newsletter that takes a trading call on the market and gives you a ringside view
of the overnight national and international events and how they would shape
the day's trading. The ‘Famous Five' on Monday picks 5 investment picks for
a medium term horizon.

Anagram’s Research Products:

• Daily market views and stock picks
• Sector Update Report
• Company Research Report
• Weekly Sector Outlook and
• International Market Wrap Up.

Risk Management:

Risk management is at the core of our very existence. There is no

margin for any error. With the help of modern technology and some hard nuts
in the risk management room it has been able to keep the risks of its business
to the bare minimum. Its comfort to expand geographically comes from the
fact that its risk management is clinical. Anagram’s strict adherence to systems
ensures that its clients and stakeholders can have their quota of the much-
needed peaceful sleep.

14
 Anagram has also invested in the state-of-the-art VPN (Virtual Private
Network) infrastructure that gives a robust system to ease geographical
expansion and build terminal network across the country. It also enables the
entire business applications available cutting across geographical boundaries.

Whether it is the trading engine for our website or the VSATs based
VPN we use for our connectivity or the applications that make our front office,
back office and Depository service completely seamless, we have always
settled for the best. We have the best of the breed technology partners
complemented by some of best brains in IT and connectivity working for us.

Intangible assets:

People, it is often said, are company's biggest resource. This is doubly

true in a service industry like securities business. Its success lies in the fact
that it have been able to hire, train and then retain the desired people. Anagram
is a 1000 people strong team. The average age of its team is which just the
right blend of youth and experience.

Infrastructure:

Office Network across India:

Anagram has at present more than 138 offices across India. The
addresses of the various offices are given in the enclosed annexure. Besides
this branch network Anagram has network of Sub-brokers and Franchisees.
Anagram has connectivity provided through installed Vsats, lease lines and
Bharti VPN (Virtual Private Network) through Vsats. The other CTCL
installations are over 100 at various locations.

15
Back Office Support:
Anagram has centralized Back Office, which is based at Ahmedabad.
Back Office handled by Nilesh Dakway based in Mumbai out of Bandra Kurla
Complex and supports the Back Office operation to Institutions and others
from this place.

Distribution Business:

The Distribution Business offers advisory Services of Investments into

Mutual Funds, Primary Market, Life Insurance and other small saving
products. Anagram currently operate out of 50 locations of the total 138
Anagram location and by 31st March 2008 shall cover at least 40 locations
Pan India. The distribution service adds up to its broking business and is
serviced by experts at each location. Pan India network of 14+own branches
200+ franchisees network of 2000+terminals in over 80 cities in India. And
catering to more than 75000 clientele bases.

16
Anagram -: “Vision”

To be in the distribution business across whole range of financial

products and be preferred destination for Retail, MNI’s , HNI’s, Portfolio
Investors & financial institutions investing in Indian stock & Commodities
markets by :

• Providing more focused and client specific products

• Creating customer centric distribution business ensuring complete

customer focus

• Giving personalized services in terms of quality investment advice and

real time review thereof.

Anagram -: “Mission”

“To educate and empower the individual investor to make better

investment decisions through quality advice and superior service.”

17
Corporate Family:-

Anagram was the first among one to launch online trading and website in
India.
• Aggregates volumes of over 98,000 crore across
BSE/NSE/DRIVATIVES with market share of 1.2%.
• At Anagram on an average 1,25,000+ trades are executed daily in all
over India.
Business Segments:

18
1. Equity and F&O Segment
• Retail
• Institutional - Empanelled with UTI, GIC, SBI, LIC, Principal MF,
Mutual Funds, Bonds, Insurance co’s.

2. Commodities Segment
• Retail

3. Depository Participant
• For Equity / Commodities

4. Distribution
• Asset Products –Mutual Funds
• Liability Products – Loans
• IPO / Insurance

Major functions:

• Dealing operation – terminal of NSE and BSE

• Settlement – after market process
• Depository participants (DP) – demat services
• Risk management system – margin, exposure, and limit of clients
• Accounts and finance –pay-in , pay-out, petty-cash, Bank liasioning
• Information technology –servers administration, software, network
administration
• Human resource management
• Compliance – SEBI and exchange related documentation and
compliance

 Research – advises based on fundamental and technical analysis

 Administration – Local administration

19
Management Team:

Mr.Darshan
Mehta

[CEO]

Directors Directors

Mr. Himanshu
Mr. Ajay Mr. Dhruv Mr. Mayank
Mr. Anupam Dalal
Saroagi Mukadam Mr. V.K. Shah
Sharma
Distribution
Head Gujarat Operational Legal &
Commodity business, IPO,
&North head & Baroda Research Head compliance,
business etc.
India branch HR, RMS Head

Team Of Mancom Next:

1. Keyur Mehta – Saurashtra and M.P.

2. Ashish Buch – RMS head
3. Bhadrik Shah – I.T head
4. Suren Pandya – I.T head
5. Abhijit Dikshit – Andhra Pradesh, East Maharashtra
6. Nilesh Doshi – West Maharashtra
7. S.P. Sorteingam – TamilNadu & Karnataka

20
[I] Products of Anagram:

Currently, Anagram Securities and Stock broking is offering following

product bouquet to people who wish to deal in stock market.

Offline:

Anagram offer a complete range of pre-trade, trade and post-trade

services on the BSE and the NSE. Whether you approach(go to) conveniently
located offices and trade in a dedicated environment, or issue instructions over
the phone , their highly trained team and sophisticated equipment ensure
smooth transactions and prompt service.

1. Demat Account : Rs. 600

 Rs 100 : Stamp duty
 Rs. 200 : Advance Delivery
 Rs. 300 : AMC

2. Trading Account : Rs. 200

 Rs. 100 : Stamp duty NSE
 Rs. 100 : Stamp duty BSE

21
Online (E – broking and web- based services):

Anagram was one of the FRIST to offer online trading. At site,

www.moneypore.com, high bandwidth leased lines, secure servers and a
custom- built user interface gives customer an international standard trading
experience.

Moneypore also gives them regular updates during trading hours, and
access to information, analysis and research, and a range of monitoring tools.

o Online trading account : Rs. 750

 Online trading account
 Online Software Moneypore Express

o Online package : Rs. 599 (+ Rs 5000 margin)

 Demat Account
 Online trading account
 Online Software Moneypore Express

[J] Bank affiliation:

Anagram has affiliation with 2 banks, which allows its customers to

enjoy the facility of instant credit and transfer of funds from his savings bank
account to his anagram account. The affiliated banks are as follows:

• HDFC BANK
• UTI BANK

22
 3. SWOT ANALYSIS

STRENGTHS:

• Anagram has the “Long term Customer Relationship with by providing

prompt service”.
• It has “Strong research department”, headed by V K Sharma (chinta
call).
• No needs to have any DEMAT account in Anagram itself.
• Research Department located in Ahmedabad itself.
• Excellent tips for all types investors.
• User friendly website for the ONLINE users
.

• Efficient and skilled manpower in research as well as in administration.

• Strong Risk Management System.

• Baskets of Products so enough to satisfy customer’s demand easily.

• Brand name of Anagram.

• Transparent System for the investors.

23
WEAKNESSES:

• Brand name is present of the company but many people are not properly
aware of it so, unawareness among investors.

• Anagram’s “Sales Promotion” is not effective compare to competitors.

• Less flexible in brokerage compare to other players in industry.

• Less publicity.
• No mass marketing program so accessibility to the public is null.

24
OPPORTUNITIES:

• Growing investment in capital market from retail investors.

• Development of online trading as the speed of communication has

increased.

• Tapping young investors and making them their loyal client.

• To tap the untapped market makes company and its products more
accessible to customers.

• To focus on developing a superior and powerful portal.

• To spread awareness of its Brand Name.

• To increase its Market Share.

25
THREATS:

• Competitor develops a superior portal.

• Prolonged depression and high volatility in the market so prove to be a

company which can maximize return of the customers in high risky and
volatile market.

• New player are entering in stock broking industry with strong marketing
campaign and products and services so threat of new entrants.

• Bigger players like Reliance entering market.

• Reducing brand loyalty among clients.

• Security threat in online trading.

26
 4. COMPETITIVE ANALYSIS

I have here prepared competitors analysis to find out and study various
products and scheme offered by other players in the market. and this would
also helpful to Anagram to find its place in this increasing cut throat
competition.

I have selected few companies which are having major share in their
hands and are currently major competitors for Anagram Securities.

My study of concern included the following parameters:

• Demat opening charge

• Brokerage
• Annual Maintenance Charge
• Credit Limit
• Activation Time
• Margin
• Delay payment Charge
• Software/webpage
• Schemes

27
 The comparison of brokerage firms are as under:

India India Reliance Share

Companies Religare Angel ICICI IDBI Anagram
Bulls Infoline Money Khan
Brokerage
0.05, 0.05, 0.04, 0.10, 0.05, 0.08, 0.01 per 0.05, 0.04,
(Intraday&Del
0.5 .0.5 0.4 0.75 0.5 0.4 trade 0.4 0.4
-ivery)

Registration 299, 499, 750,

660 900 750 700 550 750 800
(Rs.) 999 1000

Credit Limit
6 10 10to12 5 10 8 5 4 5
(Times)

Minimum
Margin savings
5000 1000 5000 Nil 2000 Nil Nil Nil
(Require A/C
-ment)

Slip Charges
- 6 6 - - 15 12 - 19
(Rs.)

incl
(+ 500
Online Incl. Incl. 750 Incl. Incl. Incl. Incl. 599
coupon
chg.)

Days for
15days 6 days 7days 15days 15day 5days 15days 15days 3-4 days
Registration

Interest
- 16% 18% 18% - 18% - 18% 18%
Charges

Net Banking Yes Yes Yes Yes Yes Yes Yes Yes (10) Yes

ODIN & Speed

r-ace, Web web Web Web Moneypore
Software r-acelite
angel
based based based
ODIN
based
trade
Express
anywhere 1000one

28
Finding from Competitive Analysis:

• Religare offer three schemes depend on scrips display and also

providing interests rate on the margin of clients.

• Sharekhan is providing online a/c only in Rs.500 and no annual

maintenance charge for first year.

• Reliance Money is offering no brokerage and minimum AMC with

providing unique security number that changes every 32 seconds so keep
account extra safe.

• I also found that Angel is providing more flexibility compare to other

players in the industry in terms of brokerage, margin, or any other services
so leading the industry.

• So there is great competition in stock broking industry and companies

are providing as possible as maximum service to their customers to retain
them and to attract more potential customers. And that’s why many
companies have offered attractive offers. And other new players are also
entering in the industry.

29
 5. STOCK ANALYSIS

Indian Securities markets are touching new heights as it has surpassed

15,000 marks. More and more investors are attracting towards equity
investment and trading. But this is not always the case that no one can assure
you certain returns there is always essence of uncertainty and risk in
investment and that push investors on back seats. Sometimes it becomes very
difficult for investors to predict the share price of the particular company in
this very volatile market. It raises questions in investor’s mind that
At what price I should buy? When to sell it... hold?

But as trading and investments are increasing on the markets as SEBI

had taken stern steps to disclose important information to its Shareholder and
investor. So they can get as possible as information about the companies of
which they are holding the shares or going to buy. And now-a-days brokers
and some analyst providing some future predictions of stocks price
movements. So now investment has become somewhat easy for investors.

How they get it? This is done with a Stock Analysis getting the
information about company and its price movements on stock markets and
try to predict how would behave on stock markets. So, there is great
importance of stock analysis among investors done brokers, experts, analyst,
etc.

Types of Stock Analysis:

The methods used to analyze securities and make investment

decisions fall into two very broad categories: fundamental analysis and
technical analysis

1. TECHNICAL ANALYSIS
2. FUNDAMENTAL ANALYSIS

Here I have selected a Fundamental analysis as subject of our

project so I would do it in detail with practical analysis of two companies.
And I would get only some flavor of technical analysis and then I would
understand about fundamental analysis.

30
 6. TECHNICAL ANALYSIS

[A] What Is Technical Analysis?

“Technical analysis is a method of evaluating

securities by analyzing the statistics generated by market
activity, such as past prices and volume. Technical analysts
do not attempt to measure a security's intrinsic value, but
instead use charts and other tools to identify patterns that
can suggest future activity.”

Just as there are many investment styles on the fundamental side,

there are also many different types of technical traders. Some rely on chart
patterns; others use technical indicators and oscillators, and most use some
combination of the two. In any case, technical analysts' exclusive use of
historical price and volume data is what separates them from their
fundamental counterparts. Unlike fundamental analysts, technical analysts
don't care whether a stock is undervalued - the only thing that matters is a
security's past trading data and what information this data can provide about
where the security might move in the future.

The field of technical analysis is based on three assumptions:

1. The Market discounts everything.

2. Price moves in trends.
3. History tends to repeat itself.

1. The Market Discounts Everything

A major criticism of technical analysis is that it only considers

price movement, ignoring the fundamental factors of the company. However,
technical analysis assumes that, at any given time, a stock's price reflects
everything that has or could affect the company - including fundamental
factors. Technical analysts believe that the company's fundamentals, along
with broader economic factors and market psychology, are all priced into the
stock, removing the need to actually consider these factors separately. This

31
only leaves the analysis of price movement, which technical theory views as
a product of the supply and demand for a particular stock in the market.

2. Price Moves in Trends

In technical analysis, price movements are believed to follow trends. This

means that after a trend has been established, the future price movement is
more likely to be in the same direction as the trend than to be against it. Most
technical trading strategies are based on this assumption.

3. History Tends To Repeat Itself

Another important idea in technical analysis is that history tends to repeat

itself, mainly in terms of price movement. The repetitive nature of price
movements is attributed to market psychology; in other words, market
participants tend to provide a consistent reaction to similar market stimuli
over time. Technical analysis uses chart patterns to analyze market
movements and understand trends. Although many of these charts have been
used for more than 100 years, they are still believed to be relevant because
they illustrate patterns in price movements that often repeat themselves.

[B] Other Usage:

Technical analysis can be used on any security with historical trading

data. This includes stocks, futures and commodities, fixed-income securities,
forex, etc. In this tutorial, we'll usually analyze stocks in our examples, but
keep in mind that these concepts can be applied to any type of security. In
fact, technical analysis is more frequently associated with commodities and
forex, where the participants are predominantly traders.

Now that you understand the philosophy behind technical

analysis, we'll get into explaining how it really works. One of the best ways
to understand what technical analysis is (and is not) to compare it to
fundamental analysis. We'll do this in the next section.

32
 7. FUNDAMENTAL ANALYSIS

[A] Overview:-

“Fundamental analysis is the study of economic, industry,

and company conditions in an effort to determine the value
of a company's stock. Fundamental analysis typically focuses
on key statistics in a company's financial statements to
determine if the stock price is correctly valued.”

The main principle of fundamental analysis is to find profitable

companies to invest in by comparing revenues, sales, management, etc.
Fundamentals include earnings report, dividends, sales, inventories, profit
margins, P/E ratio, market share, etc. Those looking to invest in a company
will be the most likely to use fundamental analysis. This is because the
research is used to not just look at the value of the company, but to look at
the company itself. This includes the results of its finances and its potential
to grow. The fundamentals can give a better picture the entire company, not
just a snapshot. This means that analysis is used to look at the long term of a
company not just the short term.

The basic idea is if you put a rupee into the business (in the form of
buying the stock) how much of a return can you expect. How much yield you
will likely see and / or how much growth you will experience based on the
operation, markets, competitors and costs of the business. Obviously, not all
aspects of these fundamentals can be quantified. Fundamentals are
associated with the economic health of a company, measured in terms of
revenues, earnings, assets, liabilities, Return on Equity (ROE), Return on
Assets (ROA), Return on Investments (ROI), growth prospects and cash
flows, etc. The fundamentals tell you about a company. You can say a
company is having robust fundamentals if it is growing at a nice pace,
generating a profit, has limited debts and abundant cash.

33
[B] Objectives:

There are several possible objectives:

• To calculate a company's credit risk

• To make projection on its business performance and in the bad
condition to improve the performance of company.
• To evaluate its management and make internal business decisions,
• To make the company's stock valuation and predict its probable price
evolution.
• Investors may use fundamental analysis to determine future growth
rates for buying high priced growth stocks.

[C] Approaches of Fundamental Analysis:

Investors can use either a top-down or bottom-up approach.

• The top-down investor starts his analysis with global economics,

including both international and national economic indicators, such as GDP
growth rates, inflation, interest rates, exchange rates, productivity, and
energy prices. He narrows his search down to regional/industry analysis of
total sales, price levels, the effects of competing products, foreign
competition, and entry or exit from the industry. Only then does he narrow
his search to the best business in that area.

• The bottom-up investor starts with specific businesses, regardless

of their industry/region.

34
[D] Steps to fundamental Analysis:

The most common way that fundamental analysis is done in is in three steps:
[1] Economic Analysis:-
The first step to this type of analysis includes looking at the
macroeconomic situation. This includes GDP, growth rates, inflation,
interest rates, exchange rates, productivity and energy prices.

[2] Industry Analysis: -

The next step taken in analysis in this category is looking at the
industry as a whole. This includes total sales, price levels, competition and
their effects, foreign competition as well as any entrances or exits from the
industry.

[3] Company Analysis:-

Last in this process of studying the fundamentals includes looking at
the company individually. This includes looking at unit sales, prices, new
products, earnings and any chance of debt or equity occurring.

Now we would understand each one briefly than we practically

analyze in analysis chapter.

[E] Economic Analysis:-

The purpose of analyzes economic condition of the country in

fundamental analysis to assess the general economic situation both within
the country and inter nationally.

The economy is like the tide and the various industry groups and
individual companies are like boats. When economy expands most industry
groups and companies benefits and grows. When the economy decline, most
sectors and companies usually suffer. The stock market does not operate in a
vacuum it is an integral part of ht whole economy of a country, more so in a
free economy that of United States and to some extent in mixed economy
like ours.

35
 To gain an insight into the complexities of stock market. One needs to
develop a sound economic understanding and be able to interpret the impact
of important economic indicators on stock markets.

The following are some important factors, which should be taken into
account while doing fundamental analysis

• Economic Growth
• Per capita income
• Industrial Production
• Inflation
• Interest Rates
• Foreign Exchange Reserves
• Budgetary Deficit
• Domestic Savings and Investment
• Tax Rates
• Infrastructure
• Political Situation

[F] Industry Analysis: -

The purpose of industry analysis is to review prevailing conditions

within specific industry and its segments. The company's industry obviously
influences the outlook for the company. Even the best stocks can post
mediocre returns if they are in an industry that is struggling.

“It is often said that a weak stock in a strong

industry is preferable to a strong stock in a weak
industry.”

To assess the industry group potential, an investor would want to

consider the overall growth rate, market size, and its importance to economy.
While the individual company is still important, its industry group is likely to
exert as much as, or more, influence on the stock price. When stock move
the usually move as groups; there are very few lone guns out there. An
understanding of the industry sector involved, including the maturity of the
sector and any cyclical effects that the overall economies have on it, is also
necessary.

36
The followings are some important factors, which should be considered in
Fundamental Analysis

• Growth: A growing industry gives room for profitability.

• Profitability: Average profitability of the industry should be
attractive.
• Demand-Supply: the wider demand supply gap, the better is the
industry’s fortune in the future
• Entry barrier
• Competition and Market share:
• Technology trends
• Government Policy
• Capacity Utilization
• Bargaining power of buyers

[G] Company Analysis:

The purpose of company analysis to analyze the financial and non-

financial aspects of a company to determine whether to buy, sells, or holds
onto the shares of a particular company.
After determining the economic and industry conditions, the company
itself is analyzed to determine its financial health. Studying the company’s
financial statements usually does this. From these statements a number of
useful ratios can be calculated. The ratios fall under five main categories:
profitability, price, liquidity, leverage, and efficiency. When performing ratio
analysis on a company, the ratios should be compared to other companies
within the same or similar industry to get a feel for what is considered
"normal." These are quantitative factors of company analysis; there are also
some qualitative factors, which should be considered also.

• Find out as much as possible about the company and their

products.

• Do they have any “core competency” or “fundamental strength”

that puts them ahead of all the other competing firms?

37
 • What advantage do they have over their competing firms?

• Following are some more important aspects about company Do

they have a strong market presence and market share? Or do they
constantly have to employ a large part of their profits and resources in
marketing and finding new customers and fighting for market share?

• Shareholding pattern

• Growth

• Market share

• Technology

• Expansion Plan

• Profitability

• Capital History

• Marketing Capabilities

• And most important its financial statement

After you understand the company & what they do, how they
relate to the market and their customers, you will be in a much better
position to decide whether the price of the companies stock is going to go
up or down.

So fundamental analysts use different tools and ratios to

compare all sorts of companies no matter what business they are in or
what they do!

38
[H] Fundamental vs. Technical Analysis:

Technical analysis and fundamental analysis are the two main schools
of thought in the financial markets. As we've mentioned, technical analysis
looks at the price movement of a security and uses this data to predict its
future price movements. Fundamental analysis, on the other hand, looks at
economic factors, known as fundamentals. Let's get into the details of how
these two approaches differ, the criticisms against technical analysis and how
technical and fundamental analysis can be used together to analyze
securities.

[I]The Differences

• Charts v/s. Financial Statements:

At the most basic level, a technical analyst approaches a security

from the charts, while a fundamental analyst starts with the financial
statements.

• Time Horizon:

Fundamental analysis takes a relatively long-term approach to

analyzing the market compared to technical analysis. While technical
analysis can be used on a timeframe of weeks, days or even minutes,
fundamental analysis often looks at data over a number of years.

• Trading versus Investing:

Not only is technical analysis more short term in nature that

fundamental analysis, but also the goals of a purchase (or sale) of a stock are
usually different for each approach. In general, technical analysis is used for
a trade, whereas fundamental analysis is used to make an investment.
Investors buy assets they believe can increase in value, while traders buy
assets they believe they can sell to somebody else at a greater price. The line
between a trade and an investment can be blurry, but it does characterize a
difference between the two schools.

39
 8. FUNDAMENATAL ANALYSIS OF ICICI & SBI
After getting basic theoretical knowledge now let’s apply it in
fundamental analysis. For that we have selected two companies from
banking sector ICICI Bank and State Bank of India (SBI).

I would do it step by step as I have mentioned earlier. I would try to

derive at conclusion that how the stocks of this company are going to behave
in stock market. I would cover relevant points to baking sector in three step
analysis which influence and company and industry heavily.

I have selected these two companies because both are big players in
industry in public and private sector. They are also close competitor and
most traded stock on the stock market. And financial sector is also growing
very rapidly and one of the important chapters of Indian growth story. So it
would give better understanding of the sector.

As we know that it is a three phase analysis so I would follow that and

try to gain insight into it. Following are three phases

[1] ECONOMY ANALYSIS - “INDIAN ECONOMY”

[2] INDUSTRY ANALYSIS - “BANKING INDUSTRY”

[3] COMPANY ANALYSIS - “ICICI & SBI”

So let’s start fundamental analysis step by step

40
 9. ECONOMY ANALYSIS
INDIAN ECONOMY:

[A] INTRODUCTION:

Economics experts and various studies conducted across the

globe envisage India and China to rule the world in the 21st century. For
over a century the United States has been the largest economy in the world
but major developments have taken place in the world economy since then,
leading to the shift of focus from the US and the rich countries of Europe to
the two Asian giants- India and China.

Within Asia, the rising share of China and India has more than
made up the declining global share of Japan since 1990. During the seventies
and the eighties, ASEAN countries and during the eighties South Korea,
along with China and India, contributed to the rising share of Asia in world
GDP.

According to some experts, the share of the US in world GDP is

expected to fall (from 21 per cent to 18 per cent) and that of India to rise
(from 6 per cent to 11 per cent in 2025), and hence the latter will emerge as
the third pole in the global economy after the US and China.
By 2025 the Indian economy is projected to be about 60 per cent the size of
the US economy. The transformation into a tri-polar economy will be
complete by 2035, with the Indian economy only a little smaller than the US
economy but larger than that of Western Europe. By 2035, India is likely to
be a larger growth driver than the six largest countries in the EU, though its
impact will be a little over half that of the US.
India, which is now the fourth largest economy in terms of purchasing power
parity, will overtake Japan and become third major economic power within
10 years.

41
[B] CURRENT SCENARIO:

India is one of the fast growing economies. Indian economy expanded

9.4 per cent for the financial year ended March 2007, to remain the second
fastest growing behind China among large economies
The Indian economy is going through one of its best phases of sustained
growth. Over the last four years, growth has averaged more than 8.5 per cent.
The economy has shown signs of having entered a higher growth trajectory
and the expansion appears to be more sustainable. The quality of growth has
improved when compared to similar growth phases in the past as growth is
visible in more segments.

Apart from the well documented strengths of the Indian services

sector, the country's manufacturing sector has made impressive gains and has
become more competitive in recent years. Over the last three years,
manufacturing growth has matched growth in services. Farm sector
performance continues to be highly erratic and depends heavily on monsoon
rains.

42
 Faster economic growth has also led to a steady rise in per capita
income levels in recent years. From less than $400 per year at the turn of the
century, per capita income at constant prices has increased to $555 for
financial year 2006-07 at current rupee – dollar exchange rate. The gap
between GDP growth and per capita income growth has declined
considerably in recent years. Per capita income growth has averaged over 7
per cent over the last four years when GDP growth averaged more than 8.5
per cent.

43
 Inflation continued to fall for the fifth successive week. Wholesale
inflation for the week ended May 19 declined to 5.06 per cent annually from
5.27 per cent for the previous week. Though the wholesale price index rose
0.1 per cent for the week, higher base effect led to the decline. Prices of
primary farm produce and manufactured goods saw modest increases during
the week. Within manufactured goods, prices of food products declined. The
Reserve Bank of India, the country's central bank, has set its target inflation
range for the current year at 4 per cent - 4.5 per cent.

Rupee appreciation against the US dollar did not have much impact on
exports in April. Exports of goods from the country for April were $10.58
billion, an increase of 23 per cent year-on-year. The sharp appreciation of the
rupee, which is the best performing Asian currency against the dollar this
year, is bound to affect low margin exports like textile products. However,
overall export growth is unlikely to be affected as the share of value added
products have increased in recent years.

Imports in April increased 41 per cent year-on-year to $17.64 billion

and the trade deficit widened 79 per cent to $7.06 billion. Strong domestic
growth continues to drive import growth and stronger rupee would make
imports even cheaper. The up trend in crude oil prices would push up the
import bill even further.

These evident of growing economy is pushing our stock markets

further, with general public beginning to believe in the market and
participating in the market, the total market capitalization is inching towards
1 trillion mark

The journey towards the $1-trillion mark is nothing less than

spectacular, considering that the market cap was just about $150 billion in
2004. To put in context, the total bank deposits in 2004 were $500 billion
and have crawled to about $650-700 billion in the same period.

44
[C] ISSUES AND PRIORTIES FOR INDIA:

As India prepares herself for becoming an economic superpower,

it must expedite socio-economic reforms and take steps for overcoming
institutional and infrastructure bottlenecks inherent in the system.
Availability of both physical and social infrastructure is central to
sustainable economic growth.

Since independence Indian economy has thrived hard for

improving its pace of development. Notably in the past few years the cities
in India have undergone tremendous infrastructure up gradation but the
situation in not similar in most part of rural India. Similarly in the realm of
health and education and other human development indicators India's
performance has been far from satisfactory, showing a wide range of
regional inequalities with urban areas getting most of the benefits. In order to
attain the status that currently only a few countries in the world enjoy and to
provide a more egalitarian society to its mounting population, appropriate
measures need to be taken. Currently Indian economy is facing these
challenges:

• Sustaining the growth momentum and achieving an annual average

growth of 7-8 % in the next five years.
• Simplifying procedures and relaxing entry barriers for business
activities. Checking the growth of population; India is the second highest
populated country in the world after China. However in terms of density
India exceeds China, as India's land area is almost half of China's total land.
Due to a high population growth, GNI per capita remains very poor. It was
only $ 2880 in 2003 (World Bank figures).
• Boosting agricultural growth through diversification and development
of agro processing.
• Expanding industry fast, by at least 10% per year to integrate not only
the surplus labor in agriculture but also the unprecedented number of women
and teenagers joining the labor force every year.
• Developing world-class infrastructure for sustaining growth in all the
sectors of the economy.
• Allowing foreign investment in more areas so competition among
companies can be increased.

45
• Effecting fiscal consolidation and eliminating the revenue deficit
through revenue enhancement and expenditure management.
• Empowering the population through universal education and health
care. India needs to improve its HDI rank, as at 127 it is way below many
other developing countries' performance. The UPA government is committed
to furthering economic reforms and developing basic infrastructure to
improve lives of the rural poor and boost economic performance.
Government had reduced its controls on foreign trade and investment in
some areas and has indicated more liberalization in civil aviation, telecom
and insurance sector in the future.

[D] Development Indicators:

The productivity scenario of India’s economy is experiencing a faster rate of

growth today. Some of the development indicators of the India’s economy
are as follows:

1. Economic Growth

Indian economy grew by 9.4% during 2006-07. In absolute

terms the GDP of the country at constant prices stood at Rs 2848157 crores
for 2006-07 showing an annual rise of 9.4% over the previous year. The
revised annual rise in GDP was slightly higher than the 9.2% (for 2006-07)
estimated in February 2007.

2. Inflation Trends

The overall WPI based inflation for 2006-07, averaged at 5.4% as

against the 4.4% in the 2005-06. The upper limit of the targeted inflation for
2006-07 was breached in the last quarter of 2006-07, primarily on account of
rising prices of primary articles and manufactured items. However, inflation
was found to average below the set range of 5-5.5% for 2006-07. For the
current fiscal (2007-08) RBI has kept the target inflation rate around 4.5%.
The recent counter -inflation steps taken by the government helped in
cooling the inflation rate that was soaring above 6%. Moderate rate of
inflation would help the banking sector create more demands for financial
products.

46
3. Interest Rates

A low interest rate of is a must for economic development. The

Finance minister assured the industry t6hat interest rates would be brought
down in India the target interest appears to be the inflation rate pus 3%.
Thus, if inflation settles at 5%, the interest rate should be approximately 8%.

4. Per Capita Income

Faster economic growth has also led to a steady rise in per capita
income levels in recent years. This led to more disposable income with the
people and also affected savings and investment rate. Also are from less than
$400 per year at the turn of the century, per capita income at constant prices
has increased to $555 for financial year 2006-07 at current rupee – dollar
exchange rate.

5. Infrastructure Industries

Infrastructure has been remain main challenge to support and

improve health economic growth and it has shown positive growth rate
During the year 2006-07 the six core infrastructure industries grew at a high
of 8.6% as compared to the 6.2% increase a year before. And this trend
would be helpful to all types of industry including banking to provide basic
infrastructural facilities.

6. Savings and Investment Rate

Both the savings and investment rates in the country is experiencing a

faster rate of growth recently. As to the current statistics, India’s saving rate
is 32 percent of the total Gross Domestic Product and investment is of 34
percent. Both the indicators are expected to rise very fast in the coming
years. So it would be good numbers for financial sector because investments
and saving are increasing in banking sector so it would provide momentum
to it.

47
7. Foreign Trade

Indian trade numbers available for the year 2006-07 shows Indian
exports growing at 20.9%. Indian merchandise exports was able to achieve
the targeted, USD 125 billion for 2006-07. However we saw that Indian
imports soared at 26.4% during the year, further widening trade deficit.

8. Industrial Growth

Indian industry achieved an impressive growth in the last fiscal 2006-

07. The overall industrial production grew at 11.3% in 2006-07 as against
the growth of 8.2% in the previous fiscal. The growth was more
manufacturing sector led, which grew by 12.3% in overall industrial growth
posting a high growth of 5.1% and 7.2% in 2006-07 respectively as against
the 1.0% and 5.3% growth respectively in 2005-06.an upswing in industrial
production is good for the economy.

[E] Economy and Banking Findings

• All these numbers shows good future prospects for the Indian
economy and this would bring fruits to every citizen of India.
• Whatever we have seen in Indian economy is directly or indirectly
affecting well behaving of Indian banking sector and its business. Like good
infrastructure facilities support in establishment of new business.
• And per capita income, savings and investment rate are increasing
affect the industry so these are positive indicators for banking industry.
• Services contribute to 54 per cent of the economy and will grow to 60
per cent in the next five years. Growing at 7 per cent, this sector can be
boosted with further reform in regulations. Already, the Government is
working towards increased liberalisation in retail, banking and other
segments of the services sector. Banking is going to be play crucial in this
growing economy with continuing this growth momentum.

48
• Well being of economy is positive factors for the both stocks ICICI
and SBI on stock market in long term. They are going to perform well in
future also. Because strong back up from the economy without financial
sectors growth would be crippled down.

• With this positive indicator both SENSEX and NIFTY fearlessely

moving ahead and creating new highs. As Sensex has touched 15,000 mark
now moving towards 16000. So in this environment stock markets are also
performing well so it would provide more support to the stocks of both
companies. We can expect that for long-term investment in the stock market
it is showing good prospects in the future.

• Not only banking sector but also other few like infrastructure, IT,
retail sector are good for investment in this booming period. So as economy
sowing the seed of development In the future everyone can reap the fruits of
this rapidly growing economy.

• At last we can say that the one should look at these developments
positively and they can expect good return from their investment. So
everything is favorable for every sector just your stocks properly and choose
and invest for long term.

10. INDUSTRY ANALYSIS

49
 Banking Sector in India

[A] INTRODUCTION:-

The Indian Banking Industry can be categorized into non-

scheduled banks and scheduled banks. Scheduled banks constitute of
commercial banks and co-operative banks. There are about 67,000 branches
of Scheduled banks spread across India. During the first phase of financial
reforms, there was a nationalization of 14 major banks in 1969. This crucial
step led to a shift from Class banking to Mass banking. Since then the
growth of the banking industry in India has been a continuous process.

Currently, India has 88 scheduled commercial banks (SCBs) - 28

public sector banks (that is with the Government of India holding a stake),
29 private banks (these do not have government stake; they may be publicly
listed and traded on stock exchanges) and 31 foreign banks. They have a
combined network of over 53,000 branches and 17,000 ATMs. According to
a report by ICRA Limited, a rating agency, the public sector banks hold over
75 percent of total assets of the banking industry, with the private and
foreign banks holding 18.2% and 6.5% respectively

Financial sector reforms were initiated as part of overall

economic reforms in the country and wide ranging reforms covering
industry, trade, taxation, external sector, banking and financial markets have
been carried out since mid 1991. A decade of economic and financial sector
reforms has strengthened the fundamentals of the Indian economy and
transformed the operating environment for banks and financial institutions in
the country. As pointed out in the RBI Annual Report 2001-02, GDP growth
in the 10 years after reforms i.e. 1992-93 to 2001-02 averaged 6.0%against
5.8% recorded during 1980-81 to 1989-90 in the pre-reform period. The
most significant achievement of the financial sector reforms has been the
marked improvement in the financial health of commercial banks in terms of
capital adequacy, profitability and asset quality as also greater attention to
risk management.

50
[B] CURRENT SCENARIO:-

Currently (2007), overall, banking in India is considered as fairly

mature in terms of supply, product range and reach-even though reach in
rural Ind. still remains a challenge for the private sector and foreign banks.
Even in terms of quality of assets and capital adequacy, Indian banks are
considered to have clean, strong and transparent balance sheets-as compared
to other banks in comparable economies in its region. The Reserve Bank of
India is an autonomous body, with minimal pressure from the government.
The stated policy of the Bank on the Indian Rupee is to manage volatility-
without any stated exchange rate-and this has mostly been true.

With the growth in the Indian economy expected to be strong for

quite some time-especially in its services sector, the demand for banking
services-especially retail banking, mortgages and investment services are
expected to be strong. M&As, takeovers, asset sales and much more action
(as it is unraveling in China) will happen on this front in India.

In March 2006, the Reserve Bank of India allowed Warburg

Pincus to increase its stake in Kotak Mahindra Bank (a private sector bank)
to 10%. This is the first time an investor has been allowed to hold more than
5% in a private sector bank since the RBI announced norms in 2005 that any
stake exceeding 5% in the private sector banks would need to be vetted by
them.

In sum, the processes of liberalisation fundamentally alter the

terrain of operation of the banks. Their immediate impact is visible in a shift
in the focus of bank activities away from facilitating commodity production
and investment to lubricating trade and promoting personal consumption.
Interest rates in these areas are much higher than that which could be
charged to investments in commodity production.

51
[C] Analysis of Banking Industry and Findings:

1. Growth:
Between 2000 & 2005, total banking industry assets grew from $265
billion to $520 billion, profits from $1.7 billion to $5 billion. 2010
projections- industry assets to exceed $1 trillion, with total profits pegged
between $10-$12 billion. Growth powered by retail assets, which grew from
$9 billion in 2000 to $66 billion today- projected to reach $320 billion in
2010. Services contribute to 54 per cent of the economy and will grow to 60
per cent in the next five years including banking. So no one can stop this fast
growing trend as banking service is crucial need of the time will benefits to
all players accordingly.

2. Competition:
Liberalization has brought greater competition among banks, both
domestic and foreign, as well as competition from mutual funds, NBFCs,
post office, etc. Post-WTO, competition will only get intensified, as large
global players emerge on the scene. Increasing competition is squeezing
profitability and forcing banks to work efficiently on shrinking spreads.
Positive fallout of competition is the greater choice available to consumers,
and the increased level of sophistication and technology in banks. So would
have to perform well and satisfying customers needs provide more services.

3. Demand of Products:

With the growth in the Indian economy expected to be strong for

quite some time-especially in its services sector, the demand for banking
services-especially retail banking, mortgages and investment services are
expected to be strong. And with that traditional banking service’s demand
are also increasing as investment and saving are increasing, so good
opportunities are there to attract more customers.

4. Government Policy:

52
 Currently, banks seem to be the prime targets of the government's
reforming zeal. Having encouraged foreign acquisition, consolidation and
universalisation in the banking system, the Finance Ministry's current thrust
seems to be to find a host of new areas of activity for these institutions.
Banks have also been allowed to set up Offshore Banking Units in Special
Economic Zones. So this banking friendly government and its policy would
boost the banks to achieve more out of it and to grow.

[D] Other Findings:

• Interest rate deregulation. Interest rates on deposits and lending have

been deregulated with banks enjoying greater freedom to determine their
rates. Now banks are using this flexibility to improve their business. E.g.
ICICI Bank recently has increased fixed deposit rate to attract more deposits
and other banks have also changed their rates.

• Reduction in pre-emptions – lowering of reserve requirements (SLR

and CRR), thus releasing more lendable resources which banks can deploy
profitably.

• Government equity in banks has been reduced and strong banks have
been allowed to access the capital mark raisin additional capital e.g. we have
seen FPO of ICICI Bank to raise fund from capital market for their
expansion plan and also corporation bank is bringing their IPO in short in the
markets. So there would be enough money for their expansion plan.

• Banks now enjoy greater operational freedom in terms of opening

and swapping of branches, and banks with a good track record of
profitability have greater flexibility in recruitment.

• New private sector banks have been set up and foreign banks
permitted to expand their operations in India including through subsidiaries.
Banks have also been allowed to set up Offshore Banking Units in Special
Economic Zones.

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• New areas have been opened up for bank financing: insurance, credit
cards, infrastructure financing, leasing, gold banking, besides of course
investment banking, asset management, factoring, etc. now banks have other
innovative products for every type of customers and would bring more
profitability to the all banks.

• Technology infrastructure for the payments and settlement system in

the country has been strengthened with electronic funds transfer, Centralized
Funds Management System, Structured Financial Messaging Solution,
Negotiated Dealing System and move towards Real Time Gross Settlement.
It plays a vital role in the developments of banks now banks ahs become
more efficient and system has become transparent.

[E] Challenges Ahead:

1. Improving profitability:

The most direct result of the above changes is increasing

competition and its impact on the profitability of banks. The challenge for
banks is how to manage with thinning margins while at the same time
working to improve productivity, which remains low in relation to global
standards.

2. Reinforcing technology:

Technology has thus become a strategic and integral part of banking,

driving banks to acquire and implement world-class systems that enable
them to provide products and services in large volumes at a competitive cost
with better risk management practices. The pressure to undertake extensive
computerization is very real as banks that adopt the latest in technology have
an edge over others.

3. Risk management:

Banks are upgrading their credit assessment and risk management

skills and retraining staff, developing a cadre of specialists and introducing
technology driven management information systems.

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4. Sharpening skills:

To meet increased competition and manage risks, the demand for

specialised banking functions, using IT as a competitive tool is set to go up.
Special skills in retail banking, treasury, risk management, foreign exchange,
development banking, etc., will need to be carefully nurtured and built. Thus,
the twin pillars of the banking sector i.e. human resources and IT will have
to be strengthened.

5. Greater customer orientation:

In today’s competitive environment, banks will have to strive to

attract and retain customers by introducing innovative products, enhancing
the quality of customer service and marketing a variety of products through
diverse channels targeted at specific customer groups.

6. Corporate governance:

Besides using their strengths and strategic initiatives for creating

shareholder value, banks have to be conscious of their responsibilities
towards corporate governance.

7. International standards:

Introducing internationally followed best practices and observing the

domestic financial architecture. This includes best practices in the area of
corporate governance along with full transparency in disclosures. In today’s
globalised world, focusing on the observance of standards will help smooth
integration with world financial markets.

[F] Conclusion:

55
 The face of banking is changing rapidly. Competition is going to be
tough and with financial liberalization under the WTO, banks in India will
have to benchmark themselves against the best in the world. For a strong and
resilient banking and financial system, therefore, banks need to go beyond
peripheral issues and tackle significant issues like improvements in
profitability, efficiency and technology, while achieving economies of scale
through consolidation and exploring available cost-effective solutions. These
are some of the issues that need to be addressed if banks are to succeed, not
just survive, in the changing environment.

As service industry is growing very fast Bankex on BSE is also

performing well a bank stocks’ performance has more investors towards it.
And banking sector’s reforms have helped to improve their financial
performance. As we are seeing all these momentum in the industry stocks of
ICICI Bank and SBI are looking good options for long-term investment.

At last we can say that long-term picture is looking good for the
sector and every thing is favorable. As both banks would be successful to
reap the fruits of these reforms and this fast growing economy. And as it’s
CAGR suggest lot of things that we would see in its financial analysis.

11. COMPANY ANALYSIS

56
 For fundamental analysis as we have mentioned earlier we have
selected two companies ICICI Bank and State Bank of India. we would
do detail analysis Of these two companies one by one fundamentally as well
as financially. So let’s start by State Bank of India.

ICICI BANK

Particular Amount (Rs.) 3-7-07

Current Price 966.7
52 Week High 1010
52 Week Low 435
Face Value 10.00

[A] Background:-

ICICI Bank (ICICIBK) is a commercial bank promoted by ICICI Ltd,

an Indian Financial Institution. It was incorporated in Jan.'94 and received its
banking license from Reserve Bank of India in May.'94. It is the 2nd largest
bank in India. ICICI Bank is the largest private sector bank and the second
largest bank in India with a network of 531 branches and 2030 ATMs spread
across 371 locations. The bank has a balance sheet size of ~Rs 1,89,200 cr
growing at CAGR of more than 20% in the last three years. The bank was an
early mover in most of the retail segment and was the first to develop the
concept of universal banking. The bank also has been one of the pioneers in
capitalizing on technology to reach every customer segment. After the
success in the urban areas in India the banks focus now stands on the rural
areas. The bank is eyeing the rural and agriculture credit in particular and has
planned to open at least one branch in every district in India.

[B] Key Strengths: -

57
• The Bank of Madura (BOM) got merged with ICICIBK. With this
merger ICICI Bank has become one of the largest private sector banks in
India.

• The Bank offers a wide spectrum of domestic and international

banking services to facilitate trade, investment banking, Insurance, Venture
Capital, asset management, cross border business & treasury and foreign
exchange services besides providing a full range of deposit and ancillary
services for both individuals and corporate through various delivery
Channels and specialized subsidiaries.

• It has gained favorable acceptance from its customer for its initiatives in
business-to-business and business to customer solution.

• To efficiently distribute its products and services, the bank has developed
multiple access channels comprising lean brick and mortar branches, ATMs,
call centers and Internet banking.

[C] Investment Argument:

1. Group companies adding values to business:

The bank’s group companies are expected to be a major contributor

to the company’s value going ahead. ICICI Prudential and ICICI Lombard
continue to maintain the leadership position in life insurance and general
insurance among the private sector players, and have been growing by 70-
100% p.a. The mutual fund arm of the bank, Prudential ICICI Mutual Fund
is the largest private sector mutual fund in India with asset under
management of over Rs 21,500 cr.

2. Retail credit, growth engine for the bank:

58
 ICICI Bank was amongst the first to identify the potential in retail
credit in India and now commands a leadership position in every segment of
the high yielding business The Bank’s net customer assets increased 35% to
Rs. 205,374 crore at March 31, 2007 compared to Rs. 152,049 crore (US$
35.0 billion) at March 31, 2006. The Bank’s retail advances increased by
39% to Rs. 127,689 crore at March 31, 2007 from Rs. 92,198 crore March
31, 2006. Retail assets constituted 65% of advances and 62% of customer
assets. The Bank is focusing on fee based products and services, as well as
capitalizing on opportunities presented by the domestic and international
expansion of Indian companies. The Bank’s rural portfolio increased by 37%
on a year-on-year basis to about Rs. 20,179 crore. The Bank is also
extending its reach in the small and medium enterprises segment. The retail
segment in India is still under penetrated and under served which we believe
will keep the growth momentum continue for the bank.

3. Deposit mobilization not a constraint:

Deposits increased 40% to Rs. 230,510 crore (US$ 53.0 billion) at

March 31, 2007 from Rs. 165,083 crore (US$ 38.0 billion) at March 31,
2006.

4. Fees income continues to grow:

Core fees incomes is going to be a major source of revenue for the

bank going ahead and the bank believes it has formed a strong platform for
this by expanding retail customer base. Fee income increased 45% to Rs.
5,012 crore for FY2007 from Rs. 3,447 crore for FY2006.

5. Significant improvement in asset quality:

At March 31, 2007, the Bank’s net non-performing assets constituted

0.98% of net customer assets. The net non-performing asset ratio in the
Home loan portfolio was 0.71%.

59
6. Rapid Expansion:

The Bank added 141 branches and 1,071 ATMs during the year,
taking the number of branches and extension counters to 755 and ATMs to
3,271. The Bank has also received Reserve Bank of India’s approval for
amalgamation of Sangli Bank, which will increase the Bank’s branch
network to about 950 branches.

[D] Profit & Loss A/c:

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 (Rs. crore)
Particulars 2006 2007 Change (%)
Net interest income1 4,709 6,636 41%
Non-interest income 4,243 5,914 39%
excluding treasury
- Fee income 2 3,447 5,012 45%
- Lease & other income 796 902 13%
Less:
Operating expense 3,547 4,979 40%
Expenses on direct
1,177 1,524 29%
marketing agents (DMAs)

Lease depreciation 277 188 (32)%

Core operating profit 3,951 5,859 48%
Treasury gains2 740 1,014 37%
Less: Premium amortization
802 999 25%
Operating profit 3,888 5,874 51%

Less: Specific provisions

453 1,495 230%
write-offs4
Profit before general 3,436 4,379 27%

General provisions
Profit before tax 3097 3648 18%

Less: Tax 557 538 (3%)

Profit after tax 2540 3110 22%

PEER
COMPARISION

61
 NIM (%) ROE (%) (ROA) (%)
FY05 FY06 FY07 FY05 FY06 FY07 FY05 FY06 FY07
ICICI 2.76 2.74 2.57 17.90 16.40 13.40 1.50 1.30 1.10
SBI 3.40 3.40 3.30 19.40 15.90 16.00 0.90 0.80 0.90

• Its Net interest margins (NIMs) are fluctuating and lower than
competitors due its higher cost of funds, return on assets have been declining
due to rising credit and operational costs.

• More importantly, the bank’s ROE (Return on Equity), which is a

function of ROA (Return on Assets) and leverage, has been depressed since
it has raised capital more often. Since the bank will have excess capital for
the next two years, its ROE would continue to suffer. Analysts expect the
bank to report an average ROE of 13 per cent till 2011, roughly the time
period for which the additional capital is estimated to last.

Discounted Cash Flow:

Beta 0.402256
Rf 0.07

62
Km 0.37
Ke 0.190677
Wacc 0.19

Value of firm
(Pat/wacc) 23047.37
Value of shares 256.2812
(Value of firm/no. of
shares)

Future Cash Flow: (Rs.Crore)

Sum 27750
Tax 60%
Dis PAT 11100
Current PAT 3110.22
Total PAT 14210.22
Less Debt -
Cash flow 14210.22
Wacc 0.19
Value of Equity 74790.63
(Cash flow/ Wacc) [E] Stock Valuation and
NO. Of shares (Cr.) 89.92 Conclusion:
MPS(Rs.) 831.7463
At the current market Price of 966, stock is trading and private
sector’s bank average P/E ratio is 21.90.at it is P/E ratio is 25.95 and its EPS
is 37.25. So we can expect that price would improve to industry average. We
believe that stock of ICICI would perform well on the markets because
ICICI Bank is on a strong growth path and has consistently delivered
impressive results. The banks thrust on high yielding retail loans has resulted
in significant improvement in the profitability. The penetration of retail
credit in India is still very low and the segment is still in a growth stage,
which gives the bank enough scope to expand its retail loan book, which has
already posted a 73% growth in the first two quarters of this financial year.
The bank’s rapid branch expansion will help in taping the low cost deposits.
Further as a large part of the banks high cost borrowings has been replaced
low cost deposits the incremental interest expenses will be lower which will
help in containing the margin at the present level.

63
 STATE BANK OF INDIA

Particular Amount (Rs.) 3-7-07

Current Price 1530.75
52 Week High 1617.40
52 Week Low 684.50
Face Value 10.00

[A] Background:-

State Bank of India's (SBI) origin goes back to in the first decade of
the nineteenth century with the establishment of the Bank of Calcutta in

64
Calcutta on 2 June 1806 The Imperial Bank during its existence recorded an
impressive growth in terms of offices, reserves, deposits, investments and
advances, the increases in some cases amounting to more than six-fold. The
bank had acquired very good confidence among depositors by its high
standard of integrated operations. The Bank's National Banking Group
(NBG) consists of four-business groups viz., Personal Banking, SME,
Agricultural Banking and Government Banking. NBG has 14 administrative
circles encompassing a vast network of 9177 branches, 4 sub-offices, 12
exchange bureaus, 104 satellite offices and 679 extension counters, to reach
out to customers, even in the remotest corners of the country. SBI is the
largest commercial bank in India in terms of profits, assets, deposits,
branches and employees.

[B] Key Strengths:-

• Strong brand equity.

• Largest commercial bank in terms of profits, assets, deposits, branches

and employees.

• Commands one-fifth of deposits and loans of all scheduled

commercial banks in India.

• Strong customer base and capital base.

• Extensive branch network-both domestic and international.

• Capacity to take large exposures because of high net worth.

• Low cost deposits from extensive branch network.

• Trendsetter in asset-liability management and risk management in the

country.

[C] Investment Arguments

1. Performance:

65
• SBI’s results of 06-07 are impressive its net profit has been increased
by 134 crore 3.06 % changed.it’s income of deposits, interest, forex are
also following growth path it’s total income was 45,260 crore it was increase
of 4.25% over 2006.

Particulars 2007 2006 Change (%)

Deposits (Rs. crore) 4,35,521 3,80,046 14.60
Earnings per Share (Rs.) 86.29 83.73 3.06
Return on Average Assets 0.84 0.89 (–5.62)
Return on Equity (%) 14.24 15.47 (–7.95)
Advances (Rs. crore) 3,37,336 2,61,801 28.85

• The UK-based Lloyd's, the world's leading provider of specialist

insurance services, and leading global reinsurers, Germany's Munich Re
Group and Switzerland's Swiss Re, are in talks with the State Bank of India
(SBI), the country's largest bank, for partnering in its general insurance
foray. The partner is likely to be finalised in the next two months.

• Franklin Templeton Investments (India) has inked an agreement with

State Bank of India for distribution of its products. As part of the pact, SBI
will distribute the entire range of Franklin Templeton products through some
identified branches across the country.

2. Diversification plan: -

The country's largest commercial bank, State Bank of India, is planning to

globalise its treasury to maximise its returns on money market operations.
The bank has set up a new treasury and marketing business group as a profit
centre and to explore business opportunities in new financial markets in
India and abroad.

3. Increased in Deposits Income: -

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The bank's market share in terms of deposits was 14.91%inMarch2007. SBI
has a balance sheet size of Rs 5,00,000 crore. Deposits stood at Rs 4,00,000
crore, while advances were estimated at Rs 3,00,000 crore in 2006

4. Rapid Expansion: -

The Rs 5-trillion State Bank of India (SBI) has finned up plans to raise Rs
15,000 crore in equity and debt this financial year to fund its diversified
business growth strategies amidst intense competition

5. Concerns:-

• Negative return on assets in last years financial results shows that

banks has not utilized its resources efficiently.
• Increasing competition from foreign as well as Private sectors banks
with advance Technnology and State of art are coming so ready to face
intense competition

[D] Profit & Loss A/c

(Rs.Cr.)
Particulars 2006 2007
I. INCOME :
Interest Earned + 35979.6 39491
Other Income + 7528.16 7498.94

TOTAL 43507.7 46990

II. EXPENDITURE :

Interest expended + 20390.5 23436.8

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Operating Expenses + 11759.7 13530.2
Provisions & Contingencies +6950.96 5481.69

TOTAL 39101.1 42448.7

III. PROFIT/LOSS

Net Profit for the year 4406.67 4541.31

Prior Year Adjustments + 0 0

Profit brought forward 0.34 0.34

[E] Stock Valuation and Conclusion:-

At the current market Price of 1530.75 stocks is trading and public

sector s bank average P/E ratio is 9.90 and SBI’s ratio is 11.83so at its
annualized EPS of RS. 83.29 then minimum price up to which share can
depreciate is 83.29*9.9=824.51 but in the long-term investment it would be
safe to invest.

SBI dominates the Indian banking sector with a market share of

around 20% in terms of total banking sector deposits. The increasing focus
on upgrading the technology backbone of the bank will enable it to leverage
its reach better, improve service levels, provide new delivery platforms, and
improve operating efficiency to counter the threat of competition effectively.
Once the core banking solution (CBS) is fully implemented, it will cover
over 10,000 branches and ATMs of the State Bank group, and emerge as the
strongest technology enabled distribution network in India. The increasing
integration of SBI with its associate banks (associates) and subsidiaries will

68
further strengthen its dominant position in the banking sector and position it
as the country’s largest universal bank. So all these factors are showing good
indicators for the bank but should keep in mind risk factor also.

12. SUGGESTION:

1. From the competitive analysis, I want to say to recruit in the

Marketing Department.

2. To flexible in the Brokerages for the Investors.

3. To come with new schemes.

4. To improve Sales Promotion.

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 13. BIBLIOGRAPHY

To make my report fruitful and effective I have used carious sources as

followings:

www.moneypore.com
www.nseindia.com
www.bse.com
www.capitalmarekt.com
www.economicstimes.com
www.etintelligence.com
www.investopedia.com
www.twonahalf.com
www.rbi.in

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And I have also referred followings books.

 “Stock Market Analysis” by N.J.Yasaswi

 Dalal Street Jouranal

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