Prajakta Project

TECHNICAL ANALYSIS IN INDIAN FINANCIAL MARKET 2018-19
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CHAPTER 1
INTRODUCTION OF THE
STUDY
CONTENTS
1.1 INTRODUCTION
1.2 HISTORY
1.3 DEFINITION
1.4 CHARACTERISTICS
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4.1 INTRODUCTION
Capital markets are markets where people, companies, and governments with more
funds than they need (because they save some of their income) transfer those funds
to people, companies, or governments who have a shortage of funds (because they
spend more than their income). Stock and bond markets are two major capital
markets. Capital markets promote economic efficiency by channelling money from
those who do not have an immediate productive use for it to those who do.
Capital markets carry out the desirable economic function of directing capital to
productive uses. The savers (governments, businesses, and people who save some
portion of their income) invest their money in capital markets like stocks and bonds.
The borrowers (governments, businesses, and people who spend more than their
income) borrow the savers' investments that have been entrusted to the capital
markets.
For example, suppose A and B make Rs. 50,000 in one year, but they only spend
Rs.40,000 that year. They can invest the 10,000 - their savings - in a mutual fund
investing in stocks and bonds all over the world. They know that making such an
investment is riskier than keeping the 10,000 at home or in a savings account. But
they hope that over the long-term the investment will yield greater returns than cash
holdings or interest on a savings account. The borrowers in this example are the
companies that issued the stocks or bonds that are part of the mutual fund portfolio.
Because the companies have spending needs that exceeds their income, they finance
their spending needs by issuing securities in the capital markets.
Indian Capital Market since liberalization has undergone tremendous changes and
ha s evolved as a vibrant system of investment flows. A dynamic capital market is
an important segment of the financial system of any country as it plays a
significant role in mobilizing savings and channeling them for productive
purposes. The efficient fund allocation depends on the stock market efficiency in
pricing the different securities traded in it.
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The project has been divided into two parts- fundamental analysis and technical
analysis. This has been done because it has often been said that an ideal trading
system would be to use both fundamental and technical analysis in tandem prior to
making an investment.
The first part of the project deals with fundamental analysis and certain key
macroeconomic variables that are important prior to making an investment. The
first of these ratios is the market capitalization to GDP ratio which indicates the
overall condition of the market. It is a ratio that is used to find out if the market is
undervalued or overvalued. The second important ratio is the price to earnings ratio
of Sensex, which indicates how much the investor is willing to pay per rupee
earning of the company. The next part of fundamental analysis deals with
Maslow‟s hierarchy of needs and its importance in making investment decisions.
This part of the project deals specifically with the Indian population and where
they lie on the Maslow‟s hierarchy of needs level.
The second part of the project deals with technical analysis and its importance to
generate buy and sell signals at key points. A One year study of 15 scrips is done
using an important technical indicator i.e., Exponential Moving Averages through
two different strategies to generate delivery based calls. Similarly, a one year study
is done on Nifty 50 scrips to generate long and short calls for Delivery trading.
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1.2 HISTORY
The second most populated country in the world (1.11 billion), India currently has
the fourth largest economy in PPP terms, and is closing in at the heels of the third
largest economy, Japan. At independence from the British in 1947, India inherited
one of the world‟s poorest economies (the manufacturing sector accounted for
only onetenth of the national product), but also one with arguably the best formal
financial markets in the developing world, with four functioning stock exchanges
(the oldest one predating the
Tokyo Stock Exchange) and clearly defined rules governing listing, trading and
settlements; a well-developed equity culture if only among the urban rich; a
banking system with clear lending norms and recovery procedures; and better
corporate laws than most other erstwhile colonies. The 1956 Indian Companies
Act, as well as other corporate laws and laws protecting the investors‟ rights, were
built on this foundation.
After independence, a decades-long turn towards socialism put in place a regime
and culture of licensing, protection and widespread red-tape breeding corruption.
In 1990-91 India faced a severe balance of payments crisis ushering in an era of
reforms comprising deregulation, liberalization of the external sector and partial
privatization of some of the state sector enterprises. For about three decades after
independence, India grew at an average rate of 3.5% (infamously labeled “the
Hindu rate of growth”) and then accelerated to an average of about 5.6% since the
1980‟s. The growth surge actually started in the mid-1970s except for a disastrous
single year, 1979-80. As we have seen in Table 1.1, the annual GDP growth rate
(based on inflation adjusted, constant prices) of 5.9% during 1990-2005 is the
second highest among the world‟s largest economies, behind only China‟s 10.1%.
In 2004, 52% of India‟s GDP was generated in the services sector, while
manufacturing (agriculture) produced 26% (22%) of GDP. In terms of
employment, however, agriculture still accounts for about two-thirds of the half a
billion labor force, indicating both poor productivity and widespread
underemployment. Over 90% of the labor force works in the “unorganized sector.”
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1.3 DEFINITION
Technical analysis is a trading discipline employed to evaluate investments

and identify trading opportunities by analyzing statistical trends gathered from
trading activity, such as price movement and volume. Unlike fundamental
analysts, who attempt to evaluate a security's intrinsic value, technical
analysts focus on patterns of price movements, trading signals and various other
analytical charting tools to evaluate a security's strength or weakness.
Technical analysis can be used on any security with historical trading data. This
includes stocks, futures, commodities, fixed-income, currencies, and other
securities. 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 far more prevalent in commodities and forex markets
where traders focus on short-term price movements.
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1.4 CHARACTERISTICS
Indian capital market in various ways acts as an institution to fulfill following

functions, aims and objectives.
1. Mobilization of Savings and Acceleration of Capital Formation
The capital market provides various instruments and types of securities which help
mobilize savings from various sections of the population. Reasonable return and
liquidity provided by the market are definite incentives to the people to invest in
securities. This reduces the gap between demand for and supply of money and
ultimately, accelerates capital formation in the country.
2. Promotion of Industrial Growth
The capital market is a market through which resources are transferred to the
industrial sector in particular and to the economy in general. Institutional structure
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of capital market provides ways for investment in more productive channels
rather than unproductive sectors. This stimulates industrial growth and further
leads to economic development of the country.
3. Raising Long Term Capital
Share capital reused by the companies through the capital market becomes a
permanent source of finance for them. This source of finance has a characteristic
feature of not being repayable except in case of winding up of the company. The
capital market thus provides a long term capital to the corporate.
4. P rovision of a Variety of Services
The financial institutions of the capital market provide a number of services to the
investors as well as to the corporate. It provides long term and medium term loans
to the enterprise to enable it to establish, expand or modernize business units,
Provision of underwriters which enables the raising of unsubscribed portion of
issued capital, 3. Assistance in the promotion of companies, 4. Participation of
equity market, and 5. Expert advice on management of investment in industrial
securities.
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5. Governance and Regulation
The capital market in India is known as a developed and organized market. The
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legislations for the market are as follows;-
The SEBI Act, 1992, The Companies Act, 1956,

The Securities Contract (Regulation) Act, 1956, The Depository Act, 1996
Apart from the above laws, there is a regulation on the capital markets by the
following authorities
-Ministry of Company Affairs
-Department of Economic Affairs
-SEBI and RBI
There has been recently an introduction of clause relating to „corporate
governance‟ which helps the corporate keep their records clean which ultimately
promotes confidence of the investors.
6. Greater Reliance on Debt Instruments
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The demand for the funds in India is largely satisfied by debt instruments rather
than equity. Borrowing from financial institution, issue of debentures particularly
convertible debentures show that there has been greater reliance on debt
instruments.
7. Floatation of Mega Issues
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Floatation of mega issues for the purpose of takeover, amalgamation etc. and
avoidance of borrowing from financial institutions for the fear of their discipline
and conversion clause by the bigger companies, has now become optional.
8Growth of Mutual Funds, Insurance Companies
Mutual funds also provide a platform for the investors to invest their money.
Especially those investors, who are reluctant to invest in the stock markets due to
the risk involved in it, prefer to go for mutual fund as a weapon to minimize the
risk. Similarly, insurance companies have come out with some new and innovative
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schemes which also provide some benefits to the policyholder to have investment
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benefits apart from being insured. This has resulted in indirect way of investment
in the capital market.
9. Potential for Development/Low Base
The population which is currently actively engaged in the capital market is very
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low in India. At present, only 3 to 4% of household savings in financial form is
mobilized and channelized into the capital market. The shareholding population in
India constitutes only 4 to 5% of the total population. Now, with the financial
deregulation since last two decades, gradually there has been more deepening and
widening of the base of the capital market in India.
10. High Volatility
The volatility in the market is rising consistently over the period due to opening of
the economy and adoption of flexible exchange rate. The international flow of hot
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money is flowing overnight and causing volatility in the market. This makes a
small investor more instable and leads to less presence of small and individual
investors.
11. Dominance of Foreign Institutional Investors (FIIs)
Indian market, recently, has been dominated largely by few institutional investors,
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especially FIIs. India is looked as an attractive destination by the FIIs .
Especially, after the saturation and low growth potential in the US and European
markets, emerging markets like India, Brazil and China are the hot favourites for
FIIs. But due to this, there is greater instability also. Whenever these FIIs change
their strategy, it would have impact on Indian markets because of their
quantitative presence in the market. It also adversely hampers the domestic and
individual investors. But, FIIs, were, in the recent past, instrumental in taking the
Indian markets to the new highs.
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12. Grievance Redressal
Timely redressal of investors‟ grievances fully and satisfactorily is at present a

matter of major concern among the regulators in India. There are not only investor
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redressal cells at various stock exchanges but also at regulator‟s level at SEBI.
As far as possible, grievances of investors are settled administratively and in cases
where it is not possible to do so, efficient conciliation and arbitration machineries
are made available. If conciliation efforts by independent conciliators fail, then
only recourse to arbitration by independent arbitrators comes into operation.
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CHAPTER 2
RESEARCH METHODOLOGY
CONTENT
2.1 OBJECTIVES OF THE STUDY
2.2 HYPOTHESIS
2.3 SCOPE OF THE STUDY
2.4 LIMITATIONS OF THE STUDY
2.5 SIGNIFICANCE OF THE STUDY
2.6 METHOD OF COLLECTION OF DATA
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2.1 OBJECTIVES OF THE STUDY
Primary objective

To examine the performance of four selected banks
listed in NSE using fundamental and technical analysis.

Find out THE BEST among these four banks and rank them in order
of buy.
Secondary objective

To understand the current economic scenario.

To have a general awareness about banking industry.

To match the financial theory with practice.

To explore the financial position of the four scrip banks.

To understand the share practice movement with the help of technical analysis.

To understand the fundamental analysis.
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2.1 HYPOTHESIS
Efficient market hypothesis traces its origin back in 1960s by its founders Paul
A.Samuelson and Eugene F. Fama who provided perspectives regarding the stock
prices of financial securities that the market prices provide all the information that
is available. Samuelson came up with the notion that if all market player‟s
information and expectations are put into consideration then there will be an
informational efficient market (Brown, 2012). This would mean that price
fluctuations must be unforecastable if they are properly anticipated. On the other
hand Fama empirical analysis of efficient markets contributed to the deep focus on
test concerning both single factor and multi factor linear asset pricing models,
events study and empirical regularities and anomalies in stock, bond, currency and
commodity markets. His argument was based on providing a way forward in
distinction between technical analysis that involves the use of geometric patterns in
price movements and volume charts to predict future price movements of a security
and fundamental analysis that sought to determine a security‟s fail value with the
help of accounting and economic data (Brown, 2012).
These concepts proved very helpful in ensuring that significant profits were
generated due to the use of statistical properties of stock prices this was
characterized by random walk hypothesis. However to develop these
methodological and empirical research Fama used digital computes in finance
especially in the mathematical formulations.
An efficient market was characterized by competition and a large group of investors

aimed at getting huge returns from investment in the market securities by using
prediction mechanisms with each potential investor searching for the relevant
information that enabled real prices at every point in time represent very good
estimates of intrinsic values (Burton, and Shah, 2017). In addition he went ahead
and expounded more on his theory efficient markets and categorized them into
distinct levels of strong efficiency, semi-strong and weak efficiency. The three
levels were based on the extent of the availability of information whereby for a
strong market the prices depict information available to those who form the market
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or where the investment managers acquire as much information they can get by
paying for it. In addition a semi-strong market involves the easily accessible
information concerning the public in connection with stock splits and
announcements by media sources and other reports (Brown, 2012).
The behavior as a results of these announcements are then tested with the help of
capital asset pricing model A weak efficient market however requires any
available information which is mirrored by price to be obtained especially one
relating to the past and it requires random walk hypothesis. Based on past
knowledge of price changes a weak form efficiency tests raises concern that the
investor may consistently obtain returns that are of higher level than the normal
ones. However the strong market efficiency proved irrational and could not be
relied upon due to the fact that the corporate managers had the opportunity to
acquire non-public information that they used for their advantage. In addition
through payment for privileged information by market makers they were exposed to
profit opportunity that served as an open door to their best interests at hand. Those
who did not have the means to acquire the public information were left vulnerable
and faced high uncertainty on their investments (Guerrien, and Gun, 2011)
Despite the accolades given the efficient market hypothesis, some authors have
argued that some inefficiency may exist in the market from time to time. The
perfection of market efficiency would render the gathering of information unhelpful
since profit is not being reflected. In addition such inefficiencies would mean that
investors are willing to dig deeper into their pockets in search of information and
trading. This is expected to be reflected in the numerous profit opportunities as a
result of those few individuals who pretend to have information to trade but they
only get the economic rents. This would mean that an investor my find himself
having information concerning market inefficiency and would require a higher
return. However some tests may imply efficiency or inefficiency depending the
trend in the price fluctuations and the pattern depicted. It goes without saying that
market efficiency cannot be fully denied except a situation where an individual is
certain that the right model has been chosen for that market in case of normal
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2.3 SCOPE OF THE STUDY
The main purpose of this study is to conduct Fundamental and Technical

Analysis. In my project the scope is limited to the four securities from the
Banking sector. But this will provide an overall picture of the economy and
the banking industry. The scrip I have selected are:
 AXIS BANK
 HDFC BANK
 YES BANK
 ICICI BANK
The global economy, Indian economy, Banking Industry and the financial
analysis of the above scrip are analyzed.
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2.4 IMITATIONS OF THE STUDY
 The project depends entirely on the secondary data.

 Fundamental analysis is done on the CAMELS framework only.
 Technical analysis involves usage of four tools only.
 Since annual reports give the condition of the banks on an annual basis, these
may not reflect the current positions of the bank.
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2.5 SIGNIFICANCE OF THE STUDY
The study is entitled to evaluate the performance of four scrip in banking

sector wise and to find the optimal scrip in the industry. The study is
conducted also to find out the direction and magnitude of banking industry.
The analysis of the past performance will help to predict the future behavior
of the scrip. This study may help the investors to take decisions regarding
investments. The study also helps the trends in economic market.
Stock selection criteria is a strategy in which an analyst or investor uses a

systematic form of analysis to determine if a particular stock constitutes a
good investment which should be added to their portfolio. There are many
different ways to value stocks. The key is to take each approach into
account while formulating an overall opinion of the stock. The objective of
stock selection criteria is maximizing total return on investment for the
target holding period, subject to limiting risk to acceptable level, and
maintaining a targeted degree of portfolio diversification.
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2.6 METHOD OF COLLECTION OF DATA
1. PRIMARY DATA
These include the survey or questionnaire method, telephonic interview as well as
the personal interview methods of data collection
2. SECONDARY DATA
The secondary data as it has always been important for the completion of any report
provides a reliable, suitable, adequate and specific knowledge. The standard cost
reports, working sheets provide the knowledge and information regarding the
relevant subjects.
Secondary data is a data, which is collected from various sources. Secondary data is
not a fresh data so it has its own limitations like: Time Constraints, Accuracy and
Applicability.
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CHAPTER 3
LITERATURE REVIEW
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There has been a wide range of studies concerning financial sector reforms in
general, and capital market reforms in particular, since mid 1980s in India. This
section highlights certain important studies that are context relevant. Several
studies such as Sahni (1985), Kothari (1986), Mookerjee (1988), Lal (1990),
Chandra (1990), Franscis (1991), Ramesh Gupta (1991,1992), Raghunathan
(1991), Varma (1991), Gupta (1992), and Sinha (1993) comment upon the
Indian capital market in general and trading systems in the stock exchanges in
particular and suggest that the systems therein are rather antiquated and
inefficient, and suffer from major weakness and malpractices. According to
most of these studies, significant reforms are required if the stock exchanges
are to be geared up to the envisaged growth in the Indian capital market.
Barua et al (1994) undertakes a comprehensive assessment of the private

corporate debt market, the public sector bond market, the govt. securities
market, the housing finance and other debt markets in India. This provides a
diagnostic study of
the state of the Indian debt market, recommending necessary measures for the
development of the secondary market for debt. It highlights the need to
integrate the regulated debt market with the free debt market, the necessity for
market making for financing and hedging options and interest rate derivatives,
and tax reforms.
Cho (1998) points out the reasons for which reforms were made in Indian
capital market stating the after reform developments. Shah (1999) describes the
financial sector reforms in India as an attempt at developing financial markets
as an alternative vehicle determining the allocation of capital in the economy.
Shah and Thomas (2003) review the changes which took place on India‟s
equity and debt markets in the decade of the 1990s. This has focused on the
importance of crises as a mechanism for obtaining reforms.
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Mohan (2004) provides the rationale of financial sector reforms in India, policy
reforms in the financial sector, and the outcomes of the financial sector reform
process in some detail.
Shirai (2004) examines the impact of financial and capital market reforms on
corporate finance in India. India‟s financial and capital market reforms since
the early 1990s have had a positive impact on both the banking sector and
capital markets. Nevertheless, the capital markets remain shallow, particularly
when it comes to differentiating high-quality firms from low-quality ones (and
thus lowering capital costs for the former compared with the latter). While
some high-quality firms (e.g., large firms) have substituted bond finance for
bank loans, this has not occurred to any significant degree for many other types
of firms (e.g., old, export-oriented and commercial paper-issuing ones). This
reflects the fact that most bonds are privately placed, exempting issuers from
the stringent accounting and disclosure requirements necessary for public
issues. As a result, banks remain major financiers for both high-and low-quality
firms. The paper argues that India should build an infrastructure that will foster
sound capital markets and strengthen banks‟ incentives for better risk
management.
Chakrabarti and Mohanty (2005) discuss how capital market in India is evolved
in the reform period. Thomas (2005) explains the financial sector reforms in
India with stories of success as well as failure.
Bajpai (2006) concludes that the capital market in India has gone through
various stages of liberalization, bringing about fundamental and structural
changes in the market design and operation, resulting in broader investment
choices, drastic reduction in transaction costs, and efficiency, transparency and
safety as also increased integration with the global markets. The opening up of
the economy for investment and trade, the dismantling of administered interest
and exchange rates regimes and setting up of sound regulatory institutions have
enabled time.
Gurumurthy (2006) arrives at the conclusion that the achievements in the

financial sector indicate that the financial sector could become competitive
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without involving unhealthy competition, within the constraints imposed by the

macro-economic policy stance.
Mohan (2007) reviews India‟s approach to financial sector reforms that set in
process since early 1990s. Allen, Chakrabarti, and De (2007) concludes that
with recent growth rates among large countries second only to China‟s, India
has experienced nothing short of an economic transformation since the
liberalisation process began in the early 1990s.
Chhaochharia (2008) arrives at the conclusion that India has a more modern
financial and banking system than China that allocates capital in a more
efficient manner. However, the study is skeptical about who would emerge
with the stronger capital market, as both the country is facing challenges
regarding their capital markets.
Prasad and Rajan (2008) argues that the time has come to make a more
concerted push toward the next generation of financial reforms. The study
advocates that a growing and increasingly complex market-oriented economy
and its greater integration with global trade and finance will require deeper,
more efficient, and well-regulated financial markets.
The survey and review of literature about the financial sector reforms in India
reveals that the reforms have been pursued vigorously and the results of the
reforms have brought about improved efficiency and transparency in the
financial sector. The reforms also brought into inter-linkage of financial
markets across the globe leading to new product development and sophisticated
risk management tools. Derivatives in general perform as an instrument to
hedge the risk arising from movement in prices not only in commodity markets
but also in securities market.
Bose, Suchismita conducted research on (2006) found that Derivatives

products provide certain important economic benefits such as risk management
or redistribution of risk away from risk-averse investors towards those more
willing and able to bear risk. Derivatives also help price discovery, i.e. the
process of determining the price level for any asset based on supply and
demand. These functions of derivatives help in efficient capital allocation in
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the economy. At the same time their misuse also poses threat to the stability of
the financial sector and the overall economy.
Routledge, Bryan and Zin, Stanley E of Carnegie Mellon University conducted

research on “Model Uncertainty and Liquidity” in year 2001. Extreme market
outcomes are often followed by a lack of liquidity and a lack of trade. This
market collapse seems particularly acute for markets where traders rely heavily
on a specific empirical model such as in derivative markets.
Sen Shankar Som and Ghosh Santanu Kumar (2006) studied the relationship
between stock market liquidity and volatility and risk. The paper also deals
with time series data by applying “Cochrane Orchutt two step procedures”. An
effort has been made to establish a relation between liquidity and volatility in
their paper. It has been found that there is a statistically significant negative
relationship between risk and stock market liquidity. Finally it is concluded that
there is no significant relationship between liquidity and trading activity in
terms of turnover.
Shenbagraman (2004) reviewed the role of some non-price variables such as

open interests, trading volume and other factors, in the stock option market for
determining the price of underlying shares in cash market. The study covered
stock option contracts for four months from Nov. 2002 to Feb. 2003 consisting
77 trading
days. The study concluded that net open interest of stock option is one of the
significant variables in determining future spot price of underlying share. The
results clearly indicated that open interest based predictors are statistically more
significant than volume based predictors in Indian context.
All the existing studies found that the Equity return has a significant and
positive impact on the FII (Agarwal, 1997; Chakrabarti, 2001; and Trivedi &
Nair, 2003). But given the huge volume of investments, foreign investors could
play a role of market makers and book their profits i.e., they can buy financial
assets when the prices are declining thereby jacking-up the asset prices and sell
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when the asset prices are increasing (Gordon & Gupta, 2003). Hence, there is a
possibility of bi-directional relationship between FII and the equity returns.
Masih AM, Masih R, (2007), had studied “Global Stock Futures: A Diagstinoc
Analysis of a Selected Emerging and Developed Markets with Special
Reference to India”, by using tools correlation coefficients , granger‟s causality
test, augmented Dicky Fuller test (ADF), Elliott, Rothenberg and Stock point
optimal test. The Authors, through this paper, have tried to find out what kind
of relationship exists between emerging and developed futures markets of
selected countries.
Kumar, R. and Chandra, A. (2000), had studied that Individuals often invest in
securities based on approximate rule of thumb, not strictly in tune with market
conditions. Their emotions drive their trading behavior, which in turn drives
asset (stock) prices. Investors fall prey to their own mistakes and sometimes
other‟s mistakes, referred to as herd behavior. Markets are efficient,
increasingly proving a theoretical concept as in practice they hardly move
efficiently. The purely rational approach is being subsumed by a broader
approach based upon the trading sentiments of investors. The present paper
documents the role of emotional biases towards investment (or disinvestment)
decisions of individuals, which in turn force stock prices to move.
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CHAPTER 4
DATA ANALYSIS,
INTERPRETATION AND
PRESENTATION
CONTENTS
4.1 ECONOMIC ANALYSIS
4.2 INDUSTRIAL ANALYSIS
4.3 MARKET RISK
4.4 TECHNICAL ANALYSIS
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\Technical analysis is the study of market action, primarily through the use of
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charts, for the purpose of forecasting future price trends. It is a method of
predicting price movements and future market trends. Technical analysis proposes
that all information about the market price and its future fluctuation is contained in
a price chain. All the factors that have some influence on the price, be it
economical, political or psychological has already been considered and included in
the price of that stock.
Moving Average
Moving average is an indicator which is used in technical analysis which shows the
average value of securities prices over a number of days. Moving averages smooth
the price data and filter out the fluctuations to form a trend following indicator.
Shorter length moving averages are more sensitive and it catches the trend earlier
but is not much reliable, whereas longer moving averages are more reliable, it
catches up the big trend but are less responsive.
There are basically two types of Moving Average-

Simple Moving Average: It is formed by calculating the average price of a
security of a specific number of periods

Exponential Moving Average: It is calculated by putting more weight to
recent prices.
Exponential Moving averages are more sensitive to recent prices and recent price
changes.
Therefore Exponential Moving average will turn and change before Simple Moving
Average.
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Trend Indicators:
An upward momentum is considered when a short run moving average crosses over
a long run moving average predicting a bullish market. A downward momentum is
considered when a short run moving average crosses below a long run moving
average predicting a bearish market. Moreover for a bullish market there should be
a plenty of space in between the moving average and both the moving averages
should be sloping upward. Moving Averages are also used to find out the support
and resistance level of a securities price over a specific period.
The Structure of Capital Markets
Primary Market-
The primary market is that part of the capital markets that deals with the issuance of
new securities. Companies' governments or public sector institutions can obtain
funding through the sale of a new stock or bond issue. This is typically done
through a syndicate of securities dealers. The process of selling new issues to
investors is called underwriting. In the case of a new stock issue this sale is an
initial public offering (IPO). Dealers earn a commission that is built into the price of
the security offering; through it can be found in the prospectus. In simple word The
Primary Market is where financial instruments are sold from the issuer to investors
Benefits of Primary Market-
1. Manipulation of price is smaller so invest in primary market is safer.

2. No need to time the market the investors get the share at the same price.
3. It is secure because of primary research data is collected directly by the
organization that deploys the research
4. The company receives the money and issue new security certificates to the
investors
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Secondary Markets-
The secondary market is the financial market for trading of securities that have
already been issued in an initial private or public offering. Alternatively secondary
market can refer to the market for any kind of used goods. The market that exists in
a new security just after the new issue is often referred to as the aftermarket. Once a
newly issued stock is listed on a stock exchange, investors and speculators can
easily trade on the exchange, as market markers provide bids and offers in the new
stock. In short The Secondary Market is where financial instruments are sold from
investor to investor.
Benefits of Secondary Market-
1. The investors can recover their investments to a certain extent, provided

their economic status undergoes a change.
2. In such cases the investors may refrain from making long term
investments.
Investor can get large interest by invest for a longer period of time.
HISTORICAL BACKGROUND OF THE PROBLEM
Internationalization of Capital Markets in the Late 1990s
One of the most important developments since the 1970s has been the
internationalization, and now globalization, of capital markets. Let's look at some of
the basic elements of the international capital markets.
1. The International Capital Market of the Late 1990s was composed of a

Number of Closely Integrated Markets with an International Dimension:
Basically, the international capital market includes any transaction with an

international dimension. It is not really a single market but a number of closely
integrated markets that include some type of international component.
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The foreign exchange market was a very important part of the international capital
market during the late 1990s. Internationally traded stocks and bonds have also
been part of the international capital market. Since the late 1990s, sophisticated
communications systems have allowed people all over the world to conduct
business from wherever they are. The major world financial centres include Hong
Kong, Singapore, Tokyo, London, New York, and Paris, among others.
Foreign bonds are a typical example of an international security. A bond sold by a

Korean company in Mexico denominated in Mexican pesos is a foreign bond.
Eurobonds are another example.
2. The Need to Reduce Risk Through Portfolio Diversification Explains in Part

the Importance of the International Capital Market During the Late 1990s:
A major benefit of the internationalization of capital markets is the diversification

of risk. Individual investors, major corporations, and individual countries all usually
try to diversify the risks of their financial portfolios. The reason is that people are
generally risk-averse. They would rather get returns on investments that are in a
relatively narrow band than investments that have wild fluctuations year-to-year.
All portfolio investors look at the risk of their portfolios versus their returns. Higher
risk investments generally have the potential to yield higher returns, but there is
much more variability.
Here is an example:
Suppose Corporation XYZ in 1996 had the following portfolio:
 1000 shares of Japanese utility company stock;
 1000 shares of Mexican petroleum company stock;
 German government bonds valued at 8000 deutsche marks (today called

“euros”);
29
 1000 shares of a Moroccan mutual fund;
 Canadian municipal bonds valued at 8000 Canadian dollars.
Suppose Corporation ABC in 1996 had the following portfolio:
 10,000 shares of Swedish steel company.
If the steel company in Sweden has a poor year for sales and profits, its stock value
decreases. Corporation ABC, which has not diversified, will have a terrible return
on its portfolio. The next year, the steel company may have a great year, so ABC
will have a terrific portfolio return.
Corporation XYZ, with a diversified portfolio, can overcome a single poor return
and still have a good overall return on the portfolio. If utilities in Japan have a poor
year, but Morocco is experiencing strong economic growth, the Moroccan gain can
offset the Japanese stock loss. Then, the next year, perhaps the reverse would occur
(Morocco experiences a slowdown while the Japanese utility realizes higher profits
than anticipated). The year-to-year return would fluctuate much less for Corporation
XYZ than for ABC.
3. The Principal Actors in the International Capital Markets of the Late 1990s
were Banks, Non-Bank Financial Institutions, Corporations, and Government
Agencies:
Commercial banks powered their way to a place of considerable influence in

international markets during the late 1990s. Commercial banks undertook a broad
array of financial activities during the late 1990s. They granted loans to
corporations and governments, were active in the bond market, and held deposits
with maturities of varying lengths. Special asset transactions, like underwriting
were undertaken by commercial banks.
Non-bank financial institutions became another fast-rising force in international

markets during the late 1990s. Insurance companies, pension and trust funds, and
mutual funds from many countries began to diversify into international markets in
30
the 1990s. Together, portfolio enhancement and a widespread increase in fund

contributors have accounted for the strength these funds had in the international
marketplace.
Government agencies, including central banks, were also major players in the
international marketplace during the late 1990s. Central banks and other
government agencies borrowed funds from abroad. Governments of developing
countries borrowed from commercial banks, and state-run enterprises also obtained
loans from foreign commercial banks.
4. Changes in the International Marketplace Resulted in a New Era of Global

Capital Markets during the Late 1990s, which were Critical to Development.
Many observers say we entered an era of global capital markets in the 1990s. The
process was attributable to the existence of offshore markets, which came into
existence decades prior because corporations and investors wanted to escape
domestic regulation. The existence of offshore markets in turn forced countries to
liberalize their domestic markets (for competitive reasons). This dynamic created
greater internationalization of the capital markets. Three primary reasons account
for this phenomenon.
First, citizens around the world (and especially the Japanese) began to increase their
personal savings. Second, many governments further deregulated their capital
markets since 1980. This allowed domestic companies more opportunities abroad,
and foreign companies had the opportunity to invest in the deregulated countries.
Finally, technological advances made it easier to access global markets. Information
could be retrieved quicker, easier, and cheaper than ever before.
Developing countries, like all countries, must encourage productive investments to

promote economic growth. Thus, foreign savings, which many people simply call
foreign investment, can benefit developing countries.
31
4.1 ECONOMIC ANALYSIS
GDP
Economic analysis deals with forces operating in the economy which influences the
banking sector. Any economy is best described by its GDP. Indian economy is the
second fastest growing economy in the world. From 2004 until 2010, India's
average quarterly GDP Growth was 8.40 percent reaching an historical high of
10.10 percent in September of 2006 and a record low of 5.50 percent in December
of 2004. India's diverse economy encompasses traditional village farming, modern
agriculture, handicrafts, a wide range of modern industries, and a multitude of
services. Services are the major source of economic growth, accounting for more
than half of India's output with less than one third of its labor force. This service
industry is dependent on the banking sector to provide capital. Banking industry is
the heart of the economy which is pumping the liquidity in the economy. Banking
sector held an important position in India‟s service sector. The growth of the
economy directly affects the banking industry.
6
Chart 1: Deposit/GDP
32
Interpretation:
Deposits constitute a major source of funds for banks in India. As seen in the chart,
7
the deposit of private, public and foreign banks has grown as the GDP has grown
over the years. This figure also shows the confidence of the customers in banking
system of India as the deposit in the bank is a considerable percentage of the GDP.
On running a regression between GDP at market price and deposits in banks

(public, private and foreign banks combined). Here Deposits in bank in considered
as a dependent factor which depends on the GDP at market prices. The period taken
for analysis is after the reform; from 1991 to 2010.
INFLATION
Inflation refers a general increase in the prices measured against a general level of
the power to purchase. To control inflation, RBI uses tools like, CRR (Cash
Reserve Ratio), Repo (Repurchase) Rate and Reverse Repo Rate.
CRR is the amount of Cash that the banks have to keep with RBI. This Ratio is
basically to secure solvency of the bank and to drain out the excessive money from
the banks. To control increase in inflation rate RBI decides to increase the percent
of this, so that the available amount with the banks comes down.
Repo rate is the rate at which the RBI lends shot-term money to the banks. To
control inflation RBI increases repo rate, which makes borrowing form RBI more
expensive. Reverse Repo rate is the rate at which banks park their short-term excess
liquidity with the RBI. The RBI uses this tool when it feels there is too much money
floating in the banking system. An increase in the reverse repo rate means that the
RBI will borrow money from the banks at a higher rate of interest. As a result,
banks would prefer to keep their money with the RBI.
33
Note: in this analysis Wholesale Price Index (WPI) is taken as a proxy for inflation.
The monthly inflation rate in calculated by subtracting the current WPI from WPI
of same month, a year before and dividing by the current WPI.
8
Chart 2: Inflation, CRR, Repo Rate and Reverse Repo Rate:
Interpretation:
Chart shows that the rates under consideration have been increased only when the
rate of inflation has crossed the 7.5 mark. The inflation rate crossed the 7.5 mark in
April 2008 and
again in January 2010 and both the time first the CRR rate was increased, followed
by Repo rate and Reverse rate respectively. It is also observed that whenever there
was rapid increase in the inflation rate, CRR as a tool has been used by the RBI, to
cool off the inflation. This is seen in the way that CRR was increased considerably
both between April till July 2008 and again in January till April 2010. In 2009,
when the inflation rate was under control and was decreasing the CRR rate was
fixed at 5, repo rate at 4.75 and reverse repo rate at 3.25. In 2010, the CRR was
increased to 6 in order to reduce the rapid increase in the inflation rate, whereas
further correction in the inflation rate was done by varying the repo and reverse
repo rate.
34
4.2 INDUSTRIAL ANALYSIS
Banks in India can be categorized into non-scheduled banks and scheduled banks.
Scheduled banks constitute of commercial banks and co-operative banks. There are
88 scheduled commercial banks. Among these, 27 banks are public sector banks in
which government has the major stake. There are 31 private and 38 foreign sector
banks operating in India. The commercial banks in India have an extensive network
of branches all across the country. Nearly 78% of the banking industry asset is with
the public sector bank.
a) Bargaining power suppliers: It is high in the periods when there is tight liquidity. Being a
service sector, human capital is one of the most important supplies to the sector. Public
sector banks in India have big trade unions which are having high bargaining power.
Establishment of well functioning capital market in India has given a choice to the
depositors to invest instead of saving. Moreover, with the deregulation of the interest rate
suppliers bargaining power has considerably increased.
b) Bargaining power of customers: With large number of banks operating in India, the
bargaining power of creditworthy borrowers is high. Development of capital markets in
India has given an additional option to the businesses in India to source their funds.
c) Threat of substitute products: With development well functioning capital market in India,
investors have an opportunity to direct their savings into investment opportunities
whenever they decide so. Even Corporates have an option of raising their capital through
public issues, than for taking debt from banking companies.
d) Threat of new entrant: After changes made in the regulation of the banks, many new
private are coming up and foreign banks are considering entering India. Now RBI is
coming up with new guidelines for NBFC‟s who wishes to start commercial banking
operations.
35
e) Competition Rivalry: Competition in banking sector is high due to

presence of public sector, private sector banks and foreign banks along with non
banking financial companies.
Interpretation:
By the end of March 2010, in rural India, the public sector banks were having nearly
20000 branches, where as private sector banks have only 1000 branches. Foreign sector
banks have yet to expand in the rural areas. The number of branches of foreign and
private sector bank increases as we
This is because, private and public sector banks follow the class banking
philosophy. They provide quality services to people who do large transactions.
Whereas the number of branches of public sector banks depends on the population
it covers. This is why, the number of branches of public sector banks decreases as
me move from rural to semi-urban to urban and metropolitan areas.
Still large population of the country is still left to be covered by the banking sector.
ICICI, a private sector bank has extensively started its operation in the rural areas.
Similarly foreign sector banks are spending heavily to increase their operations in
India.
36
Note: The figure shows the year on year growth average of 28 banks in India. The
banks included are; Allahabad Bank, Andhra Bank, Bank of Maharashtra, Bank of
Rajasthan, Bank of Baroda, Bank of India, Canara Bank, Corporation Bank, City
Union Bank, Deena Bank, Dhan
Laxmi Bank, Federal Bank, State Bank of India, Punjab National Bank, HDFC,
IDBI, INDUSDIN, J&K Bank, Indian Oversees Bank, Karur Vasya Bank, Bank of
Karnataka, Oriental Bank, South India Bank, Syndicate Bank, Union Bank, Axis
Bank, ING Vasya Bank and Yes Bank.
Interpretation:
The figure clearly depicts the phenomenal growth rate that banking industry has
achieved over the years. Growth rate in PAT of nearly 30% shows that Banking
Industry is still in its growth phase of life cycle in India. It is opposed to what the
general perception of the people had about Indian Banking Industry to be in mature
phase with very little opportunity of growth.
RETURN ON ASSETS
Return on Assets measures a bank‟s profits compared to its entire investment. It is

an indicator of how profitable a bank is relative to its total assets. ROA gives an
idea as to how efficient management is at using its assets to generate earnings. It is
calculate as:
= Net Income/ Total Asset
Chart 5: Return on Assets
37
Interpretation:
Public and Foreign sector banks saw a fall in their returns on assets in the financial
year ended March 31, 2010 as a decrease in funding costs was unable to offset a fall
in the interest rates charged to customers. The RBI has set the trigger point for RoA
if it goes below .25% mark. With RoA still near 1% mark, it can be said that banks
are
doing well inspite of tough competition over interest rates.
RISK INVOLVED IN THE BANKING SECTOR
The risks associated with providing banking services differ by the type of service
rendered. Risk is the danger of an adverse deviation in the actual result from an
expected result. High returns are said to also accompany high risk. So the risks
involved in the banking sector are:
CREDIT RISK
MARKET RISK
OPERATIONAL RISK
LIQUIDITY RISK
OTHER RISKS
38
CREDIT RISK
Credit risk is defined as the potential that a bank borrower or counterparty
will fail to meet its obligations in accordance with agreed terms. It is the negative
consequence associated with the defaults or non- fulfillment of concluded contracts
in lending operations due to deterioration in the counterparty‟s credit quality. The
goal of credit risk management is to maximize a bank's risk-adjusted rate of return
by maintaining credit risk exposure within acceptable parameters. Banks need to
manage the credit risk inherent in the entire portfolio as well as the risk in
individual credits or transactions. Banks should also consider the relationships
between credit risk and other risks. The effective management of credit risk is a
critical component of a comprehensive approach to risk management and essential
to the long-term success of any banking organization. It consists of:
a. Counterparty default risk: this refers to the possibility that the other party in contract
in an agreement will default.
b) Securitization risk: in recent world crisis that led to global recession was started
due to improper management of the securitization risks. Securitization is a process
of distributing risk by aggregating debt instruments in a pool and then issuing new
securities backed by the pool. There are two type of securitizations viz.,
„traditional‟ and „synthetic‟ securitizations. A „traditional‟ securitization is one in
which an originating bank transfers a pool of assets that it owns to an arm‟s length
special purpose vehicle. Conversely, a „synthetic‟ securitization is one in which an
originating bank transfers only the credit risk associated with underlying pool of
assets through the use of credit-linked notes or credit derivatives while retaining the
legal ownership of the pool of assets.
d) Concentration risk: it is any single exposure or group of exposures with the potential
to produce losses large enough (relative to bank‟s capital, total assets, or overall risk
level) to threaten a bank‟s health or ability to maintain its core operations.
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4.3 MARKET RISK

Market risk is the risk of possible losses in, on- balance sheet and off balance sheet
positions, due to movement in the market prices. The market risk positions, subject
to capital charge requirement, are:
a. Interest Rate Risk (IRR): The risks pertaining to interest rate related instruments and
equities in the trading book. IRR is defined as the change in bank‟s portfolio value due to
interest rate fluctuations. The IRR management in concerned with measurement and
control of risk exposures, both in trading book (i.e. assets that are regularly traded and are
liquid in nature) and the banking book (i.e. assets that are usually held till maturity
and rarely traded).
b. Equity Price Risk: the risk arising due to fluctuation in market prices of equity due to
general-market related operations.
c. Foreign exchange risk throughout the bank. The risk arises due to fluctuation in the
exchange rate.
OPERATIONAL RISK
Operational risk is defined as the risk to loss resulting from inadequate or failed
internal processes, people and systems or external events. This does not include
strategic and reputational risk. Some of the factors for operational risk could be lack
of competent management or proper planning and controls, incompetent staff,
indiscipline, involvement of staff in frauds, outdated systems, non-compliance,
programming errors, failure of computer systems, increased competition, deficiency
in loan documentation etc.
LIQUIDITY RISK
Liquidity risk arises from the bank‟s inability to meet its obligation when they
come due. The various types of liquidity risks are:
a. Term Liquidity Risk: this risk arises due to unexpected prolongation of the capital
commitment period in lending transactions. It is the unexpected delay in the repayment.
40
b. Withdrawal/Call Risk: it is the risk that more deposits will be withdrawn than expected.
When large amount of deposits are taken away from the bank in a relatively span of time,
it raises the risk that bank will not be able to meet all its obligations.
c. Structural Liquidity Risk: it is the risk that rises when the necessary funding transactions
cannot be carried out. The risk is sometime also called as funding liquidity risk.
d. Contingent Liquidity Risk: it is the risk associated with funding additional funds or
replacing maturing liabilities under potential, future stressed market conditions.
e. Market Liquidity Risk: this is a risk which arises when positions cannot be sold within
desired time period or could only be sold at a discount. This is especially the case with
securities/derivatives in illiquid markets, or when bank hold such a large positions that
they cannot be easily sold.
OTHER RISKS
a. Strategic Risk: it refers to the negative impact on capital and earnings due to business
policy decisions, changes in the macro economic environment, insufficient
implementation of decisions or failure to adopt in the changing economic environmental
conditions.
b. Reputation Risk: it is the potential adverse effect that a bank can have if its reputation
deviates negatively from its expected position. A bank‟s reputation refers to its image in
the eyes of interested public; the stakeholders.
c. Capital Risk: it is the imbalance in the internal capital structure in relation to the nature
and size of the bank, or from difficulties associated with raising additional risk coverage
capital quickly, if necessary.
d. Earnings Risk: this risk arises due to inadequate diversification of bank‟s earnings or its
inability to attain sufficient and lasting profitability.
CAPITAL TO RISK WEIGHTED ASSETS RATIO

To overcome the risk involved in the banking sector, banks have to maintain a
minimum amount of capital base. The ratio of this capital base with respect to the
credit, market and operational risk is known as Capital to Risk Weighted Assets
Ratio and is calculated as follows: Total Eligible Capital Fund/ Risk Weighted
Asset
41
Chart 6: CRAR
Interpretation:
The minimum required CRAR for public bank is 9% and for private and foreign
banks is 10%. If we look at the CRAR of public, private and foreign banks over the
years we see that the ratio has always been above 12%, well above the requirement.
By 2010 the public and
42
private sector banks were having CRAR of more than 17% which shows that the
banks in India are very safe.
NET NON PERFORMING ASSETS RATIO
Talking about the risk involved in the banking sector, one need to measure it. One
of the indicators used to determine risk in the banking system is to look at the non
performing assets of the banks. Non performing assets are those assets of banks on
investment of which banks are not getting any returns. These are percentage of the
loans distributed by banks, which have not been returned back. Banks usually treat
assets as non-performing if they are not serviced for some time. If payments are late
for a short time a loan is classified as past due. Once a payment becomes really late
(usually 90 days) the loan classified as non-performing. Chart 7: Net NPA Ratio
Interpretation:
If we look at the average of the net non performing assets of the 33 Indian banks,
we find the ratio is bellow 1.2% mark. As per RBI guidelines the NPA of any bank
should be less than 10%. So the NPA level of Indian banks is well below danger
level. This means that banks
operate at a very safe level.
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4.4 COMPANY ANALYSIS

For analysis of banking companies, six banking were selected. The selection of
these companies
was on the basis of the unique shareholding pattern of those companies. The
shareholders in a
banking company are divided into seven groups. These are Indian Government and
RBI, Indian
Financial Institutions, Foreign Financial Institutions, Other Indian Corporate,
Other Foreign
Corporate, Individual Indian Residents and Individual Foreign Residents.
Chart 8: Shareholding Pattern:
Interpretation:
The banking companies selected for the analysis are; Canara Bank, Axis Bank,
HDFC Bank, ICICI Bank, Yes Bank and Standard Chartered Bank.
The major shareholder of Canara Bank is the Government and RBI, hence it could
be considered as a bank run by Government.
ICICI bank can be said to be run by the

Foreign Financial Institutions as they have nearly 66% stake in the bank.
Axis Bank can be said to be a collaboration of Indian and Foreign Financial

Institution. They are having 46% and 42% stake in the bank respectively.
HDFC Bank can be said as bank run by Corporate. Both Indian and Foreign
Corporates are major shareholder of this bank.
44
Yes Bank is unique in a manner that a quarter of its shares are held by Indian
individuals.
Standard Chartered is a foreign bank operating in India and hence taken for
analysis.
Chart 9: CRAR
Chart 10: DEBT EQUITY RATIO
45
CAPITAL ADEQUACY RATIO
Interpretation:
It can be seen that private banks such as HDFC and ICICI have stored a large
amount of capital in 2009 and 2010 to safeguard them from any financial shocks.
Canara bank on the other has maintained its CRAR to a safe around 13.5% level.
Axis bank too is maintaining more than the
required CRAR. It has raised its reserve capital from 11.57% in 2007 to nearly 16%
in 2010. Yes Bank being a new entrant in the banking sector is maintaining the
highest level of required capital compared to its risk weighted assets. Standard
Chartered bank being a foreign bank operating in India is maintaining, just
sufficient level of CRAR.
Interpretation:
Banks in India has an average of Debt to Equity ratio of 1. Banks like HDFC,
Canara and Standard Chartered can raise more capital when required as their ratio is
less than 1. On the other hand ICICI, Axis and Yes bank will have
problem in borrowing the money as they are highly leveraged.
46
Chart 11: Advances to Total Assets
Interpretation:
All the banks except Canara Bank and Standard Chartered have maintained their
Advances to Asset ratio to around 50%. Since Canara Bank was very slow to
changes in the Banking sector it‟s Advances to Asset ratio was very less in 2007
and 2008. But from
2009 onwards it has increased the amount of advances with respect to the total
assets. Standard Chartered wholesale banking saw decrease in 2009 due to
unfavorable economic conditions. This greatly affected the advances of the bank
and a decrease in the advances to total asset ratio.
ASSET QUALITY
Chart 12: Gross NPA to Total Loan
47
Interpretation:
Compared to the peers in the banking sector the gross NPA to advances ratio of Yes
and AXIS bank are very high. This is due to the aggressive policies they adopt
while sanctioning the advances. Axis bank gross NPA has reached
alarming level, but the bank has increased provisions for non performing assets.
Standard Chartered Bank has faced huge losses due to Non Performing Assets in
India. Nearly 70% of all
Chart 13: Net NPA TO Total Advances:
48
the loans and advances by Standard Chartered bank are of short tenure (less than a
year), which has increased the probability of non performance of the loans and
advances.
Interpretation:
Net Non Performing Assets to total advances of each bank is well within the trigger
level of RBI. Canara Bank being most conservative player in the field is having the
lowest value of the amount of provision has managed
to lower the net Non Performing Assets to total advances to acceptable level.
Standard Chartered credit policy of giving short term loan is mainly responsible for
its high Net NPA to total advances ratio.
MANAGEMENT EFFICIENCY
Chart 14: Total Advances to Deposit Ratio
Interpretation:
Advances to deposit ratio of nearly all the banks in banking sector has gradually
increased from around 60% to 75%. ICIC Bank and Standard Chartered Bank
which have aggressive management policy from the beginning itself has given large
amount of advances with
respect to their deposits.
49
hart 15: Profit per Employee
Interpretation:
Canara Bank being a public sector bank, very resistive to changes has a very low
profit per employee ratio among its peers. HDFC bank is yet to fully establish itself
also has a very low profit per employee ratio. Axis bank is having a good profit per
employee ratio which shows good management efficiency of the bank. Yes
Bank‟s management policy gives great importance to its human capital. Its HR
policies involve great precaution in selection process. Hence Yes Bank has the
highest Profit per Employee ratio.
EARNING QUALITY
Chart 16: ROAA
50
Interpretation:
Return on average asset of Axis bank and HDFC bank is very high. Since ICICI
bank is expanding its base in the rural areas, its return on average asset is
maintained around 1%. Canara Bank too has managed to increase its return on
average asset to around 1.3%. Standard Chartered bank being a foreign bank, has
presence only in metropolitan cities, hence with small assets it has been able to
generate comparatively large profit.
Chart 18: EPS
Interpretation:
Most of the banks in the banking sector have earning per share of around Rs 30 to
Rs 40. Yes bank being new in the banking sector is still in its formative years,
hence earning per share of this bank is low. HDFC has the best earning per share
value among its peers in the banking sector.
51
LIQUIDITY
Chart 19: Credit Deposit Ratio (in %)
Interpretation:
With boom in the economy all the banks has increased their credit to deposit ratio to
around 70%. ICICI again being an aggressive bank has the highest value for the
credit deposit ratio. HDFC bank on the other hand has not increased its credit
deposit ratio.
Chart 20: Cash to Deposit Ratio (in %)
52
Interpretation:
On an average Banks in India maintains 0.50% cash in hand to the deposit that they
have. Canara, Yes and Axis Bank are keeping less cash compared to their deposit
compared to the industrial average.
SENSITIVITY TO MARKET RISK

Note: For calculating the beta, systematic and unsystematic risk of the banking
companies, share price data of 8 banking companies are taken on a monthly basis
from January 2006 to April 2011. All of these banks are listed in the National Stock
Exchange. Their return is compared with S&P CNX Nifty return, which is taken as
a proxy for market return. It consists of stocks of 50 companies over 23 sectors, and
hence is a diversified portfolio, reflecting the overall trend of the market. The data
for Yes Bank is taken from March 2008.
53
Chart 21: BETA
Interpretation:
Axis, HDFC, ICICI, Yes Bank shows greater fluctuation than the market and hence
are more risky than market portfolio. On the other hand Canara and Standard
Chartered bank have less volatility than the market portfolio and hence are less
risky. If we compare the risk with the return, we find that banks with high risk have
also given high returns. But ICICI bank, though being perceived risky has given
comparatively small yearly return.
Interpretation:
The total score out of hundred shows that among the banks selected for the analysis
and the methodology adopted for the analysis, HDFC, a bank solely run by
corporates is the best bank, followed by Canara Bank, in which the majority
shareholder is Government and RBI.
54
4.4 TECHNICAL ANALYSIS

Technical analysis is the study of market action, primarily through the use of charts,
14
for the purpose of forecasting future price trends. It is a method of predicting
price movements and future market trends. Technical analysis proposes that all
information about the market price and its future fluctuation is contained in a price
chain. All the factors that have some influence on the price, be it economical,
political or psychological has already been considered and included in the price of
that stock.
3.1 Moving Average
Moving average is an indicator which is used in technical analysis which shows the
average value of securities prices over a number of days. Moving averages smooth
the price data and filter out the fluctuations to form a trend following indicator.
Shorter length moving averages are more sensitive and it catches the trend earlier
but is not much reliable, whereas longer moving averages are more reliable, it
catches up the big trend but are less responsive.
There are basically two types of Moving Average-

Simple Moving Average: It is formed by calculating the average price of a
security of a specific number of periods

Exponential Moving Average: It is calculated by putting more weight to recent
prices.
55
Exponential Moving averages are more sensitive to recent prices and recent price
changes.
Therefore Exponential Moving average will turn and change before Simple Moving
Average.
Trend Indicators:
An upward momentum is considered when a short run moving average crosses over
a long run moving average predicting a bullish market. A downward momentum is
considered when a short run moving average crosses below a long run moving
average predicting a bearish market. Moreover for a bullish market there should be
a plenty of space in between the moving average and both the moving averages
should be sloping upward. Moving Averages are also used to find out the support
and resistance level of a securities price over a specific period.
3.2 BOLLINGER BANDS:
Bollinger bands developed by John Bollinger are one of the important technical
indicators in measuring price action volatility. The major signals from the Bollinger
Bands are:

The squeeze

The expansion
The bands automatically widens when the volatility increases and contracts when
the volatility decreases. Bollinger band limits indicate whether an individual stock
is overbought or oversold.
Bollinger band consists of a middle band and two outer bands. The middle band is a
Simple Moving average usually set at 20 periods. The outer two bands are usually
set at a standard deviation of 2 above and below the middle band.
56

M-Tops
W-Bottoms: This is formed during a downtrend and it involves two reaction lows in
which the second low is lower than the lower band but it remains above the first
low. The stages of formation of W-Bottoms are-First a reaction low is formed then
the prices shoots upward towards the middle band and then the prices declines
below the first low but it remains above the lower band. This indicates that the
weakness of the stock is reducing and then the prices shoots upward and it generally
breaks the resistance level.
M-Tops: An M-Top is formed during an up-trend. The stages of formation of it are

Firstly the price breaks the resistance level and overshoots the upper band then the
price is pulled backward towards the middle band again the price moves upward
and it overshoots the previous high but it fails to reach the upper band. The failure
of the price to reach the upper band is usually a signal that the trend is going to be
reversed. Finally the price moves in a downward trend indicating a bearish market
sign.
3.3 Relative Strength Index
Relative strength index was developed by J.Welles Wilder. RSI is an extremely

popular momentum indicator. RSI is a momentum oscillator that measures the
speed and change of price movements. RSI oscillates between zero and 100. Here
RSI is calculated on 14 days basis. Traditionally the stock is considered to be
overbought when RSI is above 70 and oversold when RSI is below 30.
RSI Signals:
When the RSI crosses over 70 marks the stock is considered to be oversold and hence it
is overvalued. So it is high time to sell the stock so as to make profits.
undervalued. So it is high time to buy the stock.
57
An RSI reading over 50 indicates a bullish signal and below 50 indicates a bearish signal
3.4 Rate of Change (ROC):
The Rate-of-Change (ROC) indicator, which is also referred to as simply

Momentum, is a pure momentum oscillator that measures the percent change in
price from one period to the next. The value of ROC oscillates around a central
zero-point level. To calculate ROC 12 days period is used to compare with today‟s
price.
ROC Indicators:
A movement toward the zero line indicates that the existing trend is losing momentum.
ROC moving from above zero to below zero level is an indication of sell while ROC
moving from below zero to above zero level is an indication of buy.
58
15 th th
3.5 Analysis : Charts taken under study are from 8 February to 6 May 2011.
ICICI BANK
Chart 24: EMA 50 and EMA 20
Interpretation:
EMA 20 was above EMA 50 from March till May 2 but the two EMAs are coming
close together and is also downward trend along with the price so bearish trend is
indicative of that and hence
SELL signal is generated.
Chart 25: Bollinger Band
59
Interpretation:
From this it can be seen that M-tops are formed during March 28 when the prices
have overshot the upper band again in April 4 the price has crossed the previous
high but is unable to touch the upper
band which indicates that the share price is weakning and hence a downward trend
prevails thereafter. But a price have crossed the lower band in May 2-6 which
indiactes the possibility of formation of W-bottoms and rising of share prices in
future but the bands have contracted indicating a bearish market trend. For a long
run, this indicates a HOLD signal.
Chart 26: ROC

Interpretation:
The ROC line shows that it has
crossed below 0 point indicating
a bearish momentum and hence it is time to SELL the stock.But it is upward
sloping at the end indicating that the stock is gaining strength. The chance of
upward movement of share generates a HOLD signal.
60
Chart 27: RSI
Interpretation:
The RSI line shows that the trend
line has crossed below 30 mark
and hence it is overbought and reversal of trend is indicative of that and it has
touched 50 mark
indicating a bullish market is on the way. This indicates a BUY signal.
AXIS BANK
Interpretation:
From the graph it is seen that EMA20 crossed below EMA 50 and both are
downward sloping and the share price is also below the EMAs indicating a bearish
trend and hence it is time to SELL the
stock.
61
Interpretation:
W-bottom is formed during
April-May indicating that the
weakness of the stock is getting
reduced and the bands have also
expanded indicating that a
bullish market trend is on its
way. This gives a signal to
BUY.
62
Chart 30: ROC

Interpretation:
Since ROC line is below 0 point and downward sloping so it is
time to SELL the stock.
Chart 31: RSI

Interpretation:
The RSI line indicates that the it

has touched 30 mark indicating
overbought and hence reversal of trend is indicative of that and also the line is
upward sloping so
bullish market trend is on its way. So this generate a BUY signal.
63
CANARA BANK
Interpretation:
From the graph it is seen the EMA 20 has crossed below EMA 50 and share price is
also below the EMA‟s indicating a bearish signal. Hence it is time to SELL the
stock.

Interpretation:
From the graph it is seen that M top was formed in the month of April. Again we
can see that share price has crossed below the lower band, which indicates the
formation of W Bottom. This indicates that the weakness of the stock is getting
reduced and the bands have also expanded
indicating that a bullish market trend is on its way. This gives a signal to BUY.
Chart 34: ROC

Interpretation:
The ROC line shows that it has crossed below 0 point indicating a
64
bearish momentum and hence it is time to SELL the stock.But it is upward sloping
at the end indicating that the stock is gaining strength. The chance of upward
movement of share generates a HOLD signal.
65
Chart 35: RSI

Interpretation:
The RSI line indicates that the it
has touched 30 mark indicating
overbought and hence reversal of trend is indicative of that and also the line is
upward sloping so
bullish market trend is on its way. So this generate a BUY signal.
STANDARD CHARTERED
Interpretation:
The EMA 20 line is moving below the EMA 50 line for the past three months. Also
the current shareprice is below the EMAs lines. This indicates a bearish market and
is time to SELL the shares.
66
Interpretation:
The graph shows the formation of a M Top from April 4 to May 3. The shareprice
has crossed above the top band on April 4 and came below the middle band on
April 18. Again we can see that share price has crossed below the lower band,
which indicates the formation of W
Bottom. This indicates that the weakness of the stock is getting reduced. The bands
have started to expand indicating a reversal in trend. For the moment this generates
a HOLD signal.
67
CHAPTER 5
CONCLUSION
68
` A study has been made which shows the relationship between different economic
variables and the market variables and the interrelationship between them. Thus it
has been observed that there is not a single factor that affects the movement in the
stock market but a number of variables like GDP, P/E, etc. influence a market to a
great extent. Any investor before making an investment should analyze the general
economic conditions prevailing in the economy and should make a suitable
framework for investment decisions. In the Maslow‟s hierarchy we learnt that
before a company goes for overseas expansion it tries to study in which state of
Maslow‟s hierarchy the desired country(India) is in. This makes the prediction of
the various variables accurate to some extent.
Along with the fundamental analysis mentioned above an educated investor would
always emphasize the importance of technical analysis as a tool to maximize
profits and minimize risk. It is a common view of experts that fundamental or
technical analysis by itself are strong indicators to use before investing, however,
an educated investor should always use technical and fundamental analysis in
tandem before making an investment. This would give the investor a holistic view
and hence a more informed view of the investment.
A study of capital markets significantly involves a study of problems which

emerged in various phases of development of capital market in India. This chapter
has presented these problems in a phased manner. Apart from this, an attempt has
also been made to analyze the frauds which have taken place during last one and
half century. The problems experienced in the Indian capital markets as well as the
scams were significant as they proved to be hindrances in the smooth functioning of
capital markets. Due to these hindrances a genuine investor has remained aloof
from the market while more and more speculators and institutional investors
continued to dominate the capital markets in India. This has also resulted into
increased volatility in the Indian capital market. When the financial sector reforms
were initiated, it was also emphasized to have a strong regulator for the Indian
capital market. This task of regulation is being shouldered by SEBI to a great extent
along with other regulators like RBI, Department of Company Affairs et
69
CHAPTER 6
BIBLIOGRAPHY
70
BOOKS & AUTHORS
SR. NO. NAME OF BOOK AUTHORS NAME PUBLICATION

1 Indian Banking Khan M.Y. and Jain Tata McGraw Hill.
Industry P.K (2001)
2 Quantitative Kothari, C. R. Vikas Publishing
Technique (1978), House Pvt. Limited
3 International Kozak Y.G. Wiley & Sons
Taxation
WEBSITES
1  http://www.moneycontrol.com
2  http://www.sebi.com/
3 http://en.wikipedia.org/wiki/Investment
4  http://www.investopedia.com/terms/p/price-
earningsratio.asp
71

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TECHNICAL ANALYSIS IN INDIAN FINANCIAL MARKET 2018-19

Technical analysis is a trading discipline employed to evaluate investments

Indian capital market in various ways acts as an institution to fulfill following

1. Mobilization of Savings and Acceleration of Capital Formation

3. Raising Long Term Capital

4. P rovision of a Variety of Services

5. Governance and Regulation

The SEBI Act, 1992, The Companies Act, 1956,

6. Greater Reliance on Debt Instruments

7. Floatation of Mega Issues

8Growth of Mutual Funds, Insurance Companies

9. Potential for Development/Low Base

10. High Volatility

11. Dominance of Foreign Institutional Investors (FIIs)

12. Grievance Redressal

Timely redressal of investors‟ grievances fully and satisfactorily is at present a

2.1 OBJECTIVES OF THE STUDY

2.3 SCOPE OF THE STUDY

2.4 LIMITATIONS OF THE STUDY

2.5 SIGNIFICANCE OF THE STUDY

2.6 METHOD OF COLLECTION OF DATA

2.1 OBJECTIVES OF THE STUDY

An efficient market was characterized by competition and a large group of investors

2.3 SCOPE OF THE STUDY

The main purpose of this study is to conduct Fundamental and Technical

2.4 IMITATIONS OF THE STUDY

 The project depends entirely on the secondary data.

2.5 SIGNIFICANCE OF THE STUDY

The study is entitled to evaluate the performance of four scrip in banking

Stock selection criteria is a strategy in which an analyst or investor uses a

2.6 METHOD OF COLLECTION OF DATA

Barua et al (1994) undertakes a comprehensive assessment of the private

Gurumurthy (2006) arrives at the conclusion that the achievements in the

without involving unhealthy competition, within the constraints imposed by the

Bose, Suchismita conducted research on (2006) found that Derivatives

Routledge, Bryan and Zin, Stanley E of Carnegie Mellon University conducted

Shenbagraman (2004) reviewed the role of some non-price variables such as

4.1 ECONOMIC ANALYSIS

4.2 INDUSTRIAL ANALYSIS

4.3 MARKET RISK

4.4 TECHNICAL ANALYSIS

There are basically two types of Moving Average-

The Structure of Capital Markets

Benefits of Primary Market-

1. Manipulation of price is smaller so invest in primary market is safer.

Benefits of Secondary Market-

1. The investors can recover their investments to a certain extent, provided

HISTORICAL BACKGROUND OF THE PROBLEM

Internationalization of Capital Markets in the Late 1990s

1. The International Capital Market of the Late 1990s was composed of a

Basically, the international capital market includes any transaction with an

Foreign bonds are a typical example of an international security. A bond sold by a

2. The Need to Reduce Risk Through Portfolio Diversification Explains in Part

A major benefit of the internationalization of capital markets is the diversification

Suppose Corporation XYZ in 1996 had the following portfolio:

 1000 shares of Japanese utility company stock;

 1000 shares of Mexican petroleum company stock;

 German government bonds valued at 8000 deutsche marks (today called