A PROJECT ON
EQUITY RESEARCH- BANKING SECTOR (ICICI Bank, SBI and Yes Bank)
SUBMITTED BY MR. VIKAS RAGHUNATH WAGHMARE
IN FULLFILLMENT OF REQUIREMENT FOR MASTERS OF MANAGEMENT STUDES OF UNIVERSITY OF MUMBAI (2009-2011)
RAJEEV GANDHI COLLEGE OF MANAGEMENT STUDIES 1
CERTIFICATE
This is to certify that Mr. student of Mr. VIKAS RAGHUNATH WAGHMARE student secon second d year Maste Rajeev Gand Gandhi hi Masters rs of Manage Managemen mentt Studie Studiess (MM (MMS) S) of Rajeev college of Management Studies has successfully completed the project work titled “Equit ulfill llme ment nt for the the degr degree ee of Mast Master erss of “Equityy Resear Research” ch” in fulfi Management Studies Studies of University of Mumbai.
This project is the record of authentic work carried out during the academic year 2009-2011.
Date: _________________
Prof. Brijesh Sharma
(Internal Project Guide)
Menon Shridharan
(Director)
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DECLARATION
I hereby declare that the project entitle “Equity Research” Is submitted in fulfillment of Masters of Management Studies degree of University of Mumbai in the academic year 2009-2011 was carried with
sincere intension. To the best of my knowledge it is an original piece of work done by me and it has neither been submitted to any other organization nor published at anywhere before.
(Vikas Raghunath Waghmare)
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ACKNOWLEDGEMENT
By the grace of God who has provided me with the skills and abilities to be able to complete this report and present a clear picture of what I have been doing during the course of my internship. I would firstly like to thank the Department Department of Capital Capital Market, for making making this learning learning experience experience a part of our education and specifically thank Prof. Brijesh Sharma for his advice and assistance in helping us avail this opportunity. Lastly I would like to express my deepest and utmost thanks to my parents, who have made me whatever I am today.
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TABLE OF CONTENTS CHAPTER NO.
TITLE
PAGE NO.
1
INTRODUCTION
1
2
3
4
5
6
1.1 Introduction to the Topic
2
1.2 Rationale of the study
3
1.3 Investment decision making
4
1.4 Changing Role of Equity Research
6
1.5 Role of Equity Research analyst
10
1.6 Objective of the study
12
1.7 Research Methodology & Design
13
TECHNICAL ANALYSIS
14
2.1 Introduction
15
2.2 Support & Resistance
19
2.3 Charts & Chart Patterns
22
2.4 Theories
29
2.5 Moving Average
32
2.6 Indicators
36
FUNDAMENTAL ANALYSIS
41
3.1 Introduction
42
3.2 Economy analysis
42
3.3 Industry
42
3.4 Company
43
BANKING SECTOR
49
4.1 Introduction to the Banking
50
4.2 Banking structure
55
RESEARCH & ANAYSIS
58
5.1 ICICI Bank
59
5.2 State Bank of India
65
5.3 YES Bank
71
FINDINGS & CONCLUSION
77 5
7
BIBLIOGRAPHY
78
EXECUTIVE SUMMARY The field of equity research is very vast and one has to look into vari vario ous aspe aspect cts s of the func functtion ioning ing of the com company pany to get to any any conclusion about the possible performance of the company in the market. Investors like warren buffet made a fortune out of investments in the stock market, which is quiet impossible without proper research about the companies. The field of equity research is full of challenges. It is your door to fame, fortune and, above all, professional challenge. In a world that that is shrink shrinking ing in size size due to inform informat ation ion techn technol ology ogy and blurri blurring ng boundaries between nations, the stock market (or the equities market), which is considered to be in its infant stage, is all set to grow in size. The project on “Equity Research” was carried out by self study. This is limited learning and devoting time towards equity research but it also prov provid ided ed an insi insigh ghtt on what what vari variou ous s serv servic ices es such such brok brokin ing g hous houses es provide and what efforts are required to manage such organizations.
The reason behind choosing this project is that it provides hands on experience with what goes on in the stock market on a day-to-day basis. Some Some value value invest investors ors only only look look at presen presentt assets assets/ea /earni rnings ngs and don't don't place any value on future growth. Other value investors base strategies comp comple lete tely ly arou around nd the the esti estima mati tion on of futu future re grow growth th and and cash cash flow flows. s. Despite the different methodologies, it all comes back to trying to buy something for less than its worth.
The projec projectt initi initiate ated d with with unders understan tandin ding g the the manne manneris risms ms of the the stock market trading followed by the dynamics of the banking sector. Some of the major players in Banking sector were then chosen for further 6
analysis. These companies were further studied in detail with respect to thei their r fina financ ncia ials ls and and the the mana manage geme ment nt’s ’s futu future re plan plans s rega regard rdin ing g the the funct function ioning ing of the the compan company, y, their their ex expan pansio sion n plans plans,, and vario various us news news about these companies and their global forays.
Based Based on the comple complete te study study of the the compa compani nies es and sector sector wise wise anal analys ysis is of bank banks, s, lead leadin ing g bank banks s in priv privat ate e and and publ public ic sect sector or –ICI –ICICI CI Bank ,SBI Bank, YES Bank and also giving recommendation on the for “Buy or Sell or Hold” by analyzing the fundamental and technical’s of the company.
LITERATURE REVIEW
Stoc Stocks ks & Mark Market ets s are are anal analyz yzed ed by us usin ing g vari variou ous s meth method ods s by the the lear learne ned d Researchers & Analysts. All these methods can be broadly classified into three categories - Fundamental Analysis, Technical Analysis & Techno-Fundamental (Tech-Funda) Analysis.
FUNDAMENTAL ANALYSIS Fundamental Analysis aims at determining the intrinsic (in-built) worth of the stock or financial security & comparing it with the market price to identify as to whether it is overpriced or under priced. A Fundamentalist would buy a stock or financial security if it is under priced & sell if it is over priced. Fundamentalists firmly believe that sooner or later, market price will be equal to the intrinsic worth of the stock or financial security. Global Market Analysis, Economic Analysis, Industry Analysis & Corporate Analysis - are the levels at which Fundamental Analysis is carried out. Balance Sheet Analysis, Profit & Loss Account Analysis by using various ratios like EPS, PE, CR, IRRI etc are only the
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basic fundamentals used at the Corporate level Analysis, which are considered by many as the basic indicators. Foreign Institutional Investors (FII), Banks, Mutual Funds etc. have their teams of researchers & trained fundamental analysts who are capable of carrying out deta detail iled ed fund fundam amen enta tall anal analys ysis is with with the the help help of soph sophis isti ticat cated ed info inform rmati ation on systems. Similarly, these institutions have 5 to 15 years of long term investment strategies. Therefore fundamental analysis is more suitable for them. Indivi Individual dual invest investor ors s are not capabl capable e of carryi carrying ng out Global Global Market Market Analys Analysis, is, Econom Economic ic Analys Analysis, is, Indust Industry ry Analy Analysis sis & Corpor Corporate ate Analys Analysis is in detail details s due to limited resources. Similarly, individual investors can not wait for earning returns after after 5 to 15 year years. s. Ther Theref efor ore, e, fund fundam amen enta tall anal analys ysis is has has limi limite ted d use for for individual & common investors.
TECHNICAL ANALYSIS Technical Analysis aims at analyzing the Markets, Stocks & Financial Securities by considering only two factors - Prices & Volume (Number of stocks / securities bought & sold). Technical Analysis is more of an Art than a Science of Analyzing Charts of the securities for identifying prevailing Trends. Institutions create the trends (tides) because of their voluminous investments & technicians (Technical Analysts) ride those tides, at the earliest, to make profits. "Ride the tides to make profits and skip off the tides when there is a slide", is the modus operendi of Technical Analysts. The The beaut beauty y of Tech Techni nica call An Anal alys ysis is is in its its simp simpli lici city ty & effe effect ctiv iven enes ess. s. An Any y individual of even average educational background can learn Technical Analysis. Technical Analysis is effective in analyzing ana lyzing stock markets, commodities markets, debt markets, derivatives market & foreign markets. In the globalized urban 8
scenario, every intelligent investor must at least have working, if not expert, knowledge of Technical Analysis. Technical Analysis is not a flaw less Art of taking investment decisions. One of the major drawbacks of this Art is delayed decisions. Unless the trend gets established, a technician cannot take decision but one must admit that these decisions are more reliable with exact entry & exit levels, which is not possible with with fund fundam amen ental tal anal analys ysis is.. Timi Timing ng the the entr entry y & exit exit is the the real real stre streng ngth th of technical analysis. For short and medium term trading and investment, there is no substitute to Technical Analysis. For long term investments, Techno-Fundamental Analysis is best suited for the common and individual investors.
TECH-FUNDA ANALYSIS This approach is by far the best & more suitable to the common individual investors, having long term perspective. In this approach, stocks or securities are identified by using technicals but before taking the investment decisions a few select selected ed fundam fundament entals als are checke checked. d. The fundam fundament entals als such such as size size of equity, owner's equity holding, institutional holding, floating stock, dividend and bonu bonus s hist histor ory, y, oper operat atin ing g & net net prof profit it tren trend, d, posi positi tion on of free free rese reserv rves es are are considered. When technical’s are favorable and so are these fundamentals, the investors can invest with conviction for long term. The primary objective of equity research is to analyze the earnings persistence. Some key aspects that affect the earnings persistence can be summarized as follows: - The stability of the equity under consideration - The predictability of the value of the given equity under the given circumstances
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- The variability of the given equity, given the various variance factors The general market trend influencing the market value of the given equity - The earnings management - And the accounting methods in use Two ways in which you can facilitate the assessment of the earnings persistence are by either recasting the income statement or adjusting the same. Objectives of recasting include: - Ensuring that the given earnings and their components are suitably recasted to facilitate stable, consistent and maintainable elements. These elements are composed of earnings. These earnings are distinctly separable from any random, abnormal or unique elements. - Whatever elements have been recast, and at the same time have also been included as part of the current earnings, must subsequently get included within the operating results of one or more of an earlier period. - Determining the earning power Objectives of adjusting include: - Allocating the earnings component to the most appropriate period On the other hand, the primary objectives of stock valuation include an understanding of: - The benefits and drawbacks of common stock. Here the common stock is considered to be an investment, in addition to being a source of funds
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- The characteristics, the legal implications, the rights and the privileges if any, in holding common stocks - The different types of common stock existent - The comprehension of various types of transactions or markets where common stock is prevalent - The valuation process used for common stock - The conditions that lead up to a state of stock market equilibrium - The efficient market hypothesis - The general characteristics of a preferred stock - The pre-requisites of a preferred stock or the conditions that a preferred stock must satisfy, in order to be considered as an investment or a source of funds - The legal implications and rights as well as the privileges of being a preferred stock holder - The valuation process of a preferred stock Thus, you are now aware of the objectives behind the process of equity analysis and stock valuation. These objectives have also made you aware of the goals to be achieved or the results that are expected from a given equity analysis and stock valuation process.
- Arrnica Dayannandan
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OBJECTIVES OF THE STUDY
Primary Objective:
To understand the basics of equity research
Sub-Objectives:
a) To justify the current investment in the chosen securities. b) To understand the movement and performance of stocks.
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c) To recommend increase/decrease of investment in a particular security.
RESEARCH METHODOLOGY & DESIGN
TYPE OF STUDY
The research has been based on secondary data analysis. The study has been exploratory as it aims at examining examining the secondary secondary data for analyzing analyzing the previous previous researches researches that have been done in the area of technical technical and fundamental fundamental analysis analysis of stocks. The knowledge knowledge thus gained from this preliminary preliminary study forms the basis for the further detailed Descriptive research. In the exploratory study, the various technical technical indicators indicators that are important for analyzing analyzing stock were actually identified identified and important important ones short listed.
SAMPLE DESIGN
The sample of the stocks for the purpose of collecting secondary data has been selected on the basis of Random Sampling. The stocks are chosen in an unbiased manner and each stock is chosen independent of the other stocks chosen. The stocks are chosen from the Banking Sector.
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SAMPLE SIZE
The sample size for the number of stocks is taken as 3 for technical analysis and fundamental analysis of stocks as fundamental analysis is very exhaustive and requires detailed study.
SCOPE OF THE STUDY
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The The scope scope of this this projec projectt is limite limited d to only only one sector sector i.e. i.e. Bankin Banking g sector sector.. This This project is concerned with only one sector of companies in the stock market. The project does not extend its scope to any other sector of companies.
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Also, the project is concerned with only three banks among the major players in the Banking sector i.e ICICI bank, State Bank India bank, YES bank
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CHAPTER- 1 INTRODUCTION
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1.1 INTRODUCTION Investing, like marriage, isn't something that should be entered into lightly. Investing in equities gives high returns but they correspondingly have higher risk also. Before we invest in a company, there are more than a few things we need to know about it. Securities Analysis
An analysis of securities and the organization and operation of their markets. The determination of the risk reward structure of equity and debt securities and their valuation. Special emphasis on common stocks. Other topics include options, mutual fluids and technical analysis. Technical analysis is a method of predicting price movements and future market trends by studying charts of past market action which take into account price of instruments, volume of trading and, where applicable, open interest in the instruments. Fundamental Fundamental analysis analysis is a method method of forecasting forecasting the future price movements movements of a financial financial instrument instrument based on economic, political, environmental and other relevant factors and statistics that will affect the basic supply and demand of whatever underlies the financial instrument. Main differences between the two types of analysis: ana lysis:
Fundamental an analysis
Technical an analysis
Focuses on what ought to happen Focuses on what actually happens in a market Factors
involved
in a market in
price Charts are based on market action
analysis:
involving:
1.Sup 1.Suppl ply y and and dema demand nd
1.Price
2.Seasonalcycles
2.Volume
3.Weather
3.Open 3.Open intere interest st (futur (futures es
4.Government policy
only)
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1.2 RATIONALE FOR THE STUDY In an industry plagued with skepticism and a stock market increasingly difficult to predict and contend with, if one looks hard enough there may still be a genuine aid for the Day Trader and Short Term Investor. The price of a security represents a consensus. It is the price at which one person agrees to buy and another agrees to sell. The price at which an investor is willing to buy or sell depends primarily on his expectations. If he expects the security's price to rise, he will buy it; if the investor expects the price to fall, he will sell it. These simple statements are the cause of a major challenge in forecasting security prices, because they refer to human expectations. As we all know firsthand, humans expectations are neither easily quantifiable nor predictable. If prices prices are based based on invest investor or expecta expectatio tions, ns, then then kno knowin wing g what what a securi security ty should should sell for (i.e., (i.e., fundamental fundamental analysis) analysis) becomes less important important than knowing what other investors investors expect it to sell for. That's not to say that knowing what a security should sell for isn't important--it is. But there is usually a fairly strong consensus of a stock's future earnings that the average investor cannot disprove Fundamental analysis and technical analysis can co-exist in peace and complement each other. Since all the investors in the stock market want to make the maximum profits possible, they just cannot afford to ignore either fundamental or technical analysis.
1.3 INVESTMENT DECISION MAKING: APPROACHES As investors we would have diverse investment strategies with the primary aim to achieve superior performance, which would also mean a higher rate of return on our investments. All investment strategies can be broadly classified under 4 approaches, which are explained below. conce rned with the intrinsic value of the Fundamental approach: In this approach the investor is concerned investment instrument. Given below are the basic rules followed by the fundamental investor.
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There is an intrinsic value of a security, which in turn is dependent on the underlying economic factors. This intrinsic value can be ascertained by b y an in-depth analysis of the fundamental or economic eco nomic factors related to an economy, industry and company. At any point in time, many securities have current market prices, which are different from their intrinsic values. However, sometime in the future the current market price would become the same as its intrinsic value. We as fundamental investors can achieve superior results by buying undervalued securities and selling overvalued securities. Psychological approach: The psychological investor would base his investment decision on the
premise that stock prices are guided by emotions an d not reason. This would imply that the stock prices are influenced by the prevalent mood of the investors. This mood would swing and oscillate between the two extremes of “greed” and “fear”. When “greed” has the lead stock prices tend to achieve dizzy heights. And when “fear” takes over stock prices get depressed to lower than lower levels. As psychic values seem to be more important than intrinsic values, it is suggested that it would be more profitable to analyze investor behaviour as the market is swept by optimism and pessimism. Which seem to alternate one after the other. This approach is also called “Castle-in-the-air” theory. In this approach the investor uses some tools of technical analysis, with a view to study the internal market data, towards developing trading rules to make profits. In technical analysis the basic premise is that price movement of stocks have certain persistent and recurring patterns, which can be derived from market trading data. Technical analysts use many tools like bar charts, point and figure charts, moving average analysis, market breadth analysis amongst others. Academic approach: Over the years, the academics have studied many aspects of the securities market
and have developed advanced methods of analysis. The basic rules are: The stock markets are efficient and react rationally and fast to the information flow over time. So, the current market price would reflect its intrinsic value at all times. This would mean "Current market price = Intrinsic value".
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Stock prices behave in a random fashion and successive price changes are independent of each other. Thus, present price behavior can not n ot predict future price behavior. In the securities market there is a positive and linear relationship between risk and return. That is the expected return from a security has a linear relationship with the systemic or non-diversifiable risk of the market. Eclectic approach: This approach draws upon all the 3 approaches discussed above. The basic rules of
this approach are: 1. Fundamental analysis would help us in establishing standards and benchmarks. 2. Technical analysis would help us gauge the current investor mood and the relative strength of demand and supply. 3. The market is neither well ordered nor speculative. The market has imperfections, but reacts reasonably well to the flow of information. Although some securities would be mispriced, there is a positive correlation between risk and return.
1.4 THE CHANGING ROLE OF EQUITY RESEARCH In this interactive discussion of equity research, we will review the role of this research and how it is impacted by bull and bear markets. We will also discuss fee-based research and its growing importance. Your responses to the questions at the end of this article will be the basis for the last part of this article, where you can observe what investors think is the role of equity research in today's market.
Research and the Stock Market Actually, the title of this article is a bit misleading because the role of research has not changed since the first trade occurred under the Buttonwood Tree on Manhattan Island. What has changed chang ed is the environments (bull and bear and bear markets) markets) that influence research.
The role of research is to provide information to the market. An efficient market relies on information: a 19
lack of information creates inefficiencies that result in stocks being misrepresented (over or un der valued). Analysts use their expertise and spend a lot of time analyzing a stock, its industry and peer p eer group to provide earnings and valuation estimates. Research is valuable because it fills information gaps so that each individual investor does not no t need to analyze every stock. This division of labor makes the market more efficient.
Research in Bull and Bear Markets If the role of research has always been so "noble", why is it currently in such a state of ill-repute? There are two reasons: firstly the current bear market gives us a ne w perspective to evaluate the excesses ex cesses of the last bull market; secondly investors need to blame somebody.
In every bull market there are excesses that become apparent only in the bear market that follows. Whether it is tulips or transistors, each age has its mania that distorts the normal functioning of the market. In the rush to make money, rationality is the first casualty. Investors rush to jump on the bandwagon and the market over-allocates capital to the "hot" sector(s). The most recent examples being web-based grocery companies, online pet stores and fiber-optic capacity. This herd mentality is the reason why bull markets have funded so many "me-too" ideas throughout history.
Research is a function of the market and is influenced by these swings. In a bull market investment bankers, bankers, the media and investors pressure analysts to focus on the hot sectors. Some analysts morph into promoters as they ride the market. Those analysts that remain rational p ractitioners are ignored, and their research reports go unread. During the late 1990s the business media catered to the audience's demands and gave the spotlight to the famous talking heads that are now under investigation.
Research in Today's Market To discuss the role of research in today's market, we need to differentiate between Wall Street research and other research. Wall Street research is provided by the major brokerage firms (both on and off Wall Street). Other research is produced by independent research firms and small boutique brokerage firms.
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This differentiation is important. First, Wall Street research has become focused on big on big cap, very liquid stocks and ignores the majority (over 60% based on our research) of publicly-traded stocks. This myopic focus on a small number of stocks is the result of deregulation and industry consolidation. In order to remain profitable, Wall Street firms have focused on big-cap stocks to generate highly lucrative investment banking deals and trading profits.
Those companies that are likely to provide the research firms with a sizable investment banking deals are the stocks that are determined worth being followed by the market. The stock's long-term investment potential is secondary. The second reason to distinguish Wall Street from other research is that most of the blame for the excesses of the last bull market is rightfully placed on Wall Street.
Other research is filling the information gap created by Wall Street. Indep endent research firms and boutique brokerage firms are providing research on the stocks that have been orphaned by Wall Street. Investors, now educated in the benefits of electronic trading, may not be willing to suppo rt boutique brokerage firms for their research by opening an account a ccount and paying higher commissions.
Who Pays for Research? Big Investors Do! The ironic thing is that while research has proven to be valuable, individual investors do not seem to want to pay for it. This may be because, beca use, under the traditional system, brokerage houses provided research in order to gain and keep clients. Investors just had to ask their brokers for a report and retained it at no charge. What seems to have gone unrealized is that the commissions pay for that research.
A good indicator of the value of research is the amount institutional investors are willing to pay for it. Institutional investors hire their own analysts to gain a competitive edge o ver other investors. They also pay (often handsomely) independent research firms for additional research. Institutions also pay for the sell-side research they receive (either with dollars or by giving the supplying brokerage firm trades to execute). All this amounts to big money, but the institutions realize that research is integral to making successful investment decisions.
If investors are unwilling to buy research how will the market correct the imbalance caused by the lack 21
of coverage? The solution may be found by looking at the issue a slightly different way.
The Growing Role of Fee-Based Research Fee-based research increases market efficiency and bridges the gap between investors who want research (without paying) and companies who realize that Wall Street is not likely to provide research on their stock. Fee-based research provides information to the widest possible audience at no charge to the reader because the subject company has funded the research.
It is important to differentiate between objective fee-based research and research that is promotional. Objective fee-based research is analogous to the role of your physician. You pay a physician not to tell you that you feel good but to give you his or her professional and truthful opinion of your condition. Legitimate fee-based research is a professional and objective analysis and opinion of a company's investment potential. Promotional research is short on analysis and full of hype. An example is the fax and email reports about the penny stocks that will supposedly triple in a short time.
Legitimate fee-based research firms have the following characteristics:
1. They provide analytical not promotional services. 2. They are paid a set annual fee in cash; they do not accept any form of equity, which may cause conflicts of interest. 3. They provide full and clear disclosure of the relationship between the company and the research firm so investors can evaluate objectivity.
Companies who engage a legitimate fee-based research firm to analyze their stock are trying to get information to investors and improve market efficiency. Such a company is making the following important statements:
1. That it believes its shares are undervalued because investor are not aware of the company. 2. That it is aware that Wall Street is no n o longer an option. 3. That it believes that its investment potential can withstand objective analysis. 22
Perhaps more importantly, the reputations/credibility of the company and the research firm depends on the efforts they make to inform investors. A company does not want to be tarnished by being be ing associated with disreputable research. Similarly, a research firm will only want to analyze companies that have strong fundamentals and long-term investment potential.
Fee-based research has had to fight the stereotype of promotional research, but the market is starting to realize that fee-based research is a viable source of information. The National The National Investor Relations Institute (NIRI) was probably the first group to recognize the need for fee-based research. In January 2002 NIRI issued a letter emphasizing the need n eed for small-cap companies to find alternatives to Wall Street research in order to get their information to investors. More recently, the NIRI is conducting a survey on research alternatives and will possibly have a session on this topic at their national conference this year.
1.5 ROLE OF AN EQUITY RESEARCH ANALYST Equity research analysts study the movements of the stock market, especially specific business stocks. Companies constantly produce large amounts of information regarding their financial status, their success in business in business markets and their current investments. Much of this information is required for legal for legal purposes, but it also provides necessary data for the stock market. Most investors do not have the time or resources to follow this massive amount of company information. Equity research analysts work to compile this data, along with relevant market information, to provide investors with useful recommendations. Definition
In stock market terms, "equity" refers to ownership of a business, which a business can sell as shares to interested investors. An equity research analyst specializes in examining what shares are for sale, what shares are selling well and what companies appear ap pear to be growing and will be worthwhile investments. Equity research analysts also track which stocks are falling so they can point out trends and provide useful information to brokers and investors.
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Process
Analysts spend much of their time analyzing individual stocks, especially stocks that have earned a lot of interest due to changing value. They look at the company that issued the stock and its history, then analyze the company's industry as a whole and a nd what major changes are influencing it. The analyst will then look at businesses similar to the company they are studying to find information about overall value and average earnings for that kind of business.
Common Tasks
Equity research analysts have many different jobs. Once they have compiled information, many use basic formulas and programs to create financial models of specific companies and industries, or ratios that show important facts about a business's financial standing. Many follow up these models by writing reports for investors summarizing their findings. Some may tap into independent sources and contacts to keep up on recent events. All research analysts must ensure they use only publicly available knowledge and not illegal, insider information. Market Influence
Equity research analysts tend to be influenced by current events, and many tend to make recommendations based on market activity. This means that as the market changes, analysts' attitudes also change to mirror current interest. This can create c reate a tendency for some analysts to become myopic, only reporting on popular news and backing certain stocks because they are trendy in the short term.
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CHAPTER- 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW
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TECHNICAL ANALYSIS 2.2 INTRODUCTION
What is Technical Analysis? We can define Technical Analysis as a study of the stock market considering factors related to the supply and demand of stocks. Technical Analysis doesn’t look at underlying earnings potential of a company while evaluating stocks {unlike fundamental Analysis}. It uses charts and computer programs to study the stock’s trading volume and price movements in the hope of identifying a trend. In fact the decision made on the basis of technical analysis is done only after inferring a trend and judging the future movement of the stock on the basis b asis of the trend. Technical Analysis assumes that the market is efficient and the price has h as already taken into consideration the other factors related to the company and the industry. It is because of this assumption that many think technical analysis is a tool, which is effective for short-term investing.
History of Technical Analysis : Technical Analysis as a tool of investment for the average investor thrived in the late nineteenth century when Charles Dow, then editor of the Wall Street Journal, proposed the Dow theory. He recognized that the movement is caused by the action/reaction of the people dealing in stocks rather than the news in itself. Walter Deemer was one of the technical analysts of that time. He started at Merrill Lynch in New York as a member of Bob Farrell's department. Then when the legendary Gerry Tsai moved from Fidelity to found the Manhattan Fund in 1966, Deemer joined him. Tsai used to consult him before every major block trade, at the start of a time when large volume institutional trading became the norm and the meal ticket for brokers. Deemer, could recreate market history on his charts and cite statistics. He maintained contact with the group of other pros around then, who shared their insights with each other in a collegial confidence worthy of the priesthood.
A technical analysis is based on three axioms: 26
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. factors. Technical analysts believe that the company's fundamentals, a long with broader economic factors and market psychology, psychology, are all priced into the stock, removing the need to actually consider these factors separately. This only leaves the analysis of price movement, which technical theory views as a product of the supply and demand for a particular stock in the market.
2. Price Moves in Trends
In technical analysis, price movements are believed to follow trends. This means that after a trend has been established, the future price movement is more likely to be in the same direction as the trend than to be against it. Most technical trading strategies are b ased on this assumption.
3. History Tends To Repeat Itself
Another important idea in technical analysis is that history tends to repeat itself, mainly in terms of price movement. The repetitive nature of price movements is attributed to market psychology; in other words, market participants tend to provide a consistent reaction to similar market stimuli over time. Technical analysis uses chart patterns to analyze market movements and understand trends. Although many of these charts have been used for more than 100 years, they are still believed to be relevant because they illustrate patterns in price movements that often repeat themselves.
Technical Analysis: The Use Of Trend One of the most important concepts in technical analysis is that of trend. The meaning in finance isn't all that different from the general definition of the term - a trend is really nothing more than the general direction in which a security or market is headed. hea ded. Types of Trend
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•
Uptrend’s
•
Downtrends
•
Sideways/Horizontal Sideways/Horizontal
Trend Lengths
Along with these three trend directions, there are three trend classifications. A trend of any direction can be classified as a long-term trend, intermediate trend or a short-term trend. In terms of the stock market, a major trend is generally categorized as one lasting longer than a year. An A n intermediate trend is considered to last between one and three months and a near-term trend is anything less than a month. A long-term trend is composed of several intermediate trends, which often move against the direction of the major trend. If the major trend is upward and there is a downward correction in price movement followed by a continuation of the uptrend, the correction is considered to be an intermediate trend. The short-term trends are components of both major and intermediate trends. Take a look a Figure to get a sense of how how these three trend lengths might might look.
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When analyzing trends, it is important that the chart is constructed to best reflect the type of trend being analyzed. To help identify long-term trends, weekly charts or daily charts spanning a five-year period are used by chartists to get a better idea of the long-term trend. Daily data charts ch arts are best used when analyzing both intermediate and short-term trends. It is also important to remember that the longer the trend, the more important it is; for example, a one-month trend is not as significant as a five-year trend.
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Trendlines
A trendline is a simple charting technique that adds a line to a chart to represent the trend in the market or a stock. Drawing a trendline is as simple as drawing a straight line that follows a general trend. These lines are used to clearly show the trend and are also used in the identification of trend reversals. As you can see in Figure 5, an upward trendline is drawn at the lows of an upward trend. This line represents the support the stock has every time it moves from a high to a low. Notice how ho w the price is propped up by b y this support. This type of trendline helps traders to anticipate the point at which a stock's price will begin moving upwards again. Similarly, a downward trendline is drawn at the highs of the downward trend. This line represents the resistance level that a stock faces every time the price moves from a low to a high.
Figure 5 Channels
A channel, channel, or channel lines, is the addition of two parallel trendlines that act as strong areas of support and resistance. The upper trendline connects a series of highs, while the lower trendline connects a series of lows. A channel can slope upward, upward, downward or sideways or sideways but, regardless of the direction, the interpretation remains the same. Traders will expect a given security to trade between the two levels of support suppo rt and resistance until it breaks beyond one of the levels, in which case traders can expect a sharp move in the direction of the break. Along with clearly displaying the trend, channels are mainly used to illustrate important areas of support and resistance.
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2.2 SUPPORT AND RESISTANCE nce you understand the concept of a trend, the next major concept is that of support and resistance. You'll often hear technical analysts talk about the ongoing battle between the bulls and the bears the bears,, or the struggle between buyers (demand) and sellers (supply). This is revealed by the prices a security seldom moves above (resistance) or below (support).
Figure 1 As you can see in Figure 1, support is the price level through which a stock or market seldom falls (illustrated by the blue arrows). Resistance, on the other hand , is the price level that a stock or market 30
seldom surpasses (illustrated by the red arrows).
Why Does it Happen?
These support and resistance levels are seen as important in terms of market psychology and supply and demand. Support and resistance levels are the levels at which a lot of traders are willing to buy the stock (in the case of a support) or sell it (in the case of resistance). When these trend lines are broken, the supply and demand and the psychology behind the stock's movements is thought to have h ave shifted, in which case new levels of support and resistance will likely be established.
Role Reversal
Once a resistance or support level is broken, its role is reversed. If the price falls below a support level, that level will become resistance. If the price rises above a resistance level, it will often become support. As the price moves past a level of support or resistance, it is thought that supply and demand has shifted, causing the breached level to reverse its role. For a true reversal to occur, however, it is important that the price make a strong move through either the support or resistance. (For further reading, see Retracement Or Reversal: Know The Difference.)
Figure 2 For example, as you can see in Figure 2, the dotted line is shown as a level of o f resistance that has prevented the price from heading higher on two previous occasions (Points 1 and 2). However, once the resistance is broken, it becomes a level of support (shown by Points 3 and 4) by propping up the price and preventing it from heading lower again.
Many traders who begin using technical analysis a nalysis find this concept hard to believe and don't realize that this phenomenon occurs rather frequently, even with some of the most well-known companies. For 31
example, as you can see in Figure 3, this phenomenon is evident on the Wal-Mart Stores Inc. (WMT) chart between 2003 and 2006. Notice how the role of the $51 level changes from a strong level of support to a level of resistance.
Figure 3 In almost every case, a stock will have both a level of support and an d a level of resistance and will trade in this range as it bounces between these levels. This is most often seen when a stock is trading in a generally sideways manner as the price moves through successive peaks and troughs, testing resistance and support.
The Importance of Support and Resistance
Support and resistance analysis is an important part of trends because it can be used to make trading decisions and identify when a trend is reversing. For F or example, if a trader identifies an important level of resistance that has been tested several times but never broken, he or she may decide to take profits as the security moves toward this point because it is unlikely that it will move past this level. Support and resistance levels both test and confirm trends and need to be monitored by anyone who uses technical analysis. As long as the price of the share remains between these levels of support and resistance, the trend is likely to continue. It is important to note, however, that a break beyond a level of support or resistance does not always have to be a reversal. For example, if prices moved above the resistance levels of an upward trending channel, the trend has accelerated, not reversed. This means that the price appreciation is expected to be faster than it was in the channel.
2.3 CHARTS AND CHART PATEERNS 32
There are main types of charts used in technical analysis: •
Line charts
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Bar charts
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Candlestick charts
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Point and figure charts
A chart pattern is a distinct formation on a stock chart that creates a trading signal, or a sign of future price movements. Chartists use these patterns to identify current trends and trend reversals an d to trigger buy and sell signals. In the first section of this tutorial, we talked about the three assumptions of technical analysis, the third of which was that in technical analysis, history repeats itself. The theory behind chart patters is based on this assumption. The idea is that certain patterns are seen many times, and that these patterns signal a certain high probability move in a stock. Based on the historic trend of a chart pattern setting up a certain price movement, chartists look for these patterns to identify trading op portunities.
Head and Shoulders This is one of the most popular and reliable chart patterns in technical analysis. Head and shoulders is a reversal chart pattern that when formed, signals that the security is likely to move against the previous trend. As you can see in Figure 1, there are two versions of the head and shoulders chart pattern. Head and shoulders top (shown on the left) is a chart pattern that is formed at the high of an upward movement and signals that the upward trend is about to end. Head and shoulders bottom, also known as inverse head and shoulders (shown on the right) is the lesser known of the two, but is used to signal a reversal in a downtrend.
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Figure 1: Head and shoulders top is shown on the left. Head and shoulders bottom, or inverse head and shoulders, is on the right. Both of these head and shoulders patterns are similar in that there are four main parts: two shoulders, a head and a neckline. neckline. Also, each individual head and shoulder is comprised of a high and a low. For example, in the head and shoulders top image shown on the left side in Figure 1, the left shoulder is made up of a high h igh followed by a low. In this pattern, the neckline is a level of support supp ort or resistance. Remember that an upward trend is a period of successive rising highs and rising lows. The head and shoulders chart pattern, therefore, illustrates a weakening in a trend by showing the deterioration in the successive movements of the highs and lows.
Cup and Handle A cup and handle chart is a bullish continuation pattern in which wh ich the upward trend has paused but will continue in an upward direction once the pattern is confirmed.
Figure 2 As you can see in Figure 2, this price pattern forms what looks like a cup, which is preceded by an upward trend. The handle follows the cup formation and is formed by a generally downward/sideways movement in the security's price. Once the price movement pushes above the resistance lines formed in the handle, the upward trend can continue. There is a wide ranging time frame for this type of pattern, with the span ranging from several months to more than a year.
Double Tops and Bottoms 34
This chart pattern is another well-known pattern that signals a trend reversal - it is considered to be one o ne of the most reliable and is commonly used. These patterns are formed after a sustained trend and signal to chartists that the trend is about to reverse. The pattern is created when a price p rice movement tests support or resistance levels twice and is unable to break through. This pattern is often used to signal intermediate and long-term trend reversals.
Figure 3: A double top pattern is shown on the left, while a double d ouble bottom pattern is shown on the right. In the case of the double top pattern in Figure 3, the price movement has twice tried to move above a certain price level. After two unsuccessful attempts at pushing the price higher, the trend reverses and the price heads lower. In the case of a double bottom (shown on the right), the price movement has tried to go lower twice, but has found support each time. After the second bounce bo unce off of the support, the security enters a new trend and heads upward.
Triangles Triangles are some of the most well-known chart patterns used in technical analysis. The three types of triangles, which vary in construct and implication, are the symmetrical triangle, triangle, ascending and descending triangle. triangle. These chart patterns are considered to last anywhere from a couple of weeks to several months.
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Figure 4 The symmetrical triangle in Figure 4 is a pattern in which two trendlines converge toward each other. This pattern is neutral in that a breakout to the upside or downside is a confirmation of a trend in that direction. In an ascending triangle, the upper trendline is flat, while the bottom trendline is upward sloping. This is generally thought of as a bullish b ullish pattern in which chartists look for an upside breakou t. In a descending triangle, the lower trendline is flat and the upper trendline is descending. de scending. This is generally seen as a bearish pattern where chartists look for a downside breakout.
Flag and Pennant
These two short-term chart patterns are continuation patterns that are formed when there is a sharp price movement followed by a generally sideways price movement. This pattern is then completed upon another sharp price movement in the same direction as the move that started the trend. The patterns are generally thought to last from one to three weeks.
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Figure 5 As you can see in Figure 5, there is little difference between a pennant a pennant and a flag. flag. The main difference between these price movements can be seen in the middle section of the chart pattern. In a pennant, the middle section is characterized by converging trend lines, much like what is seen in a symmetrical triangle. The middle section on the flag pattern, on the other hand, shows a channel pattern, with no convergence between the trendlines. In both cases, the trend is expected to continue when the price moves above the upper trendline.
Wedge The wedge chart pattern can be either a continuation or reversal pattern. It is similar to a symmetrical triangle except that the wedge pattern slants in an upward or downward direction, while the symmetrical triangle generally shows a sideways movement. The other difference is that wedges tend to form over longer periods, usually between three and six months.
Figure 6 The fact that wedges are classified as both continuation and reversal patterns can make reading signals confusing. However, at the most basic level, a falling wedge is bullish and a rising wedge is bearish. In Figure 6, we have a falling wedge in which two trendlines are converging in a downward direction. If 37
the price was to rise above the upper trendline, it would form a continuation pattern, while a move below the lower trendline would signal a reversal pattern.
Gaps A gap in a chart is an empty space between a trading period and the following trading period. This occurs when there is a large difference in prices between two sequential trading periods. F or example, if the trading range in one period is between $25 and $30 and the next trading period opens at $40, there will be a large gap on the chart between these two periods. Gap price movements can be found on bar charts and candlestick charts but will not be found on point and figure or basic line charts. Gaps generally show that something of significance has happened in the security, such as a better-thanexpected earnings announcement.
There are three main types of gaps, breakaway gaps, breakaway,, runaway (measuring) and exhaustion. A breakaway gap forms at the start of a trend, a runaway runaw ay gap forms during the middle of a trend and an exhaustion gap forms near the end of a trend.
Triple Tops and Bottoms Triple tops and triple bottoms are another type of reversal chart pattern in chart analysis. These are not as prevalent in charts as head and shoulders and double tops and bottoms, but they act in a similar fashion. These two chart patterns are formed when the price movement tests a level of support or resistance three times and is unable to break through; this signals a reversal of the prior trend.
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Confusion can form with triple tops and bottoms during the formation of the pattern because they can look similar to other chart patterns. After the first two support/resistance tests are formed in the price movement, the pattern will look like a double top or bottom, which could lead a chartist to enter a reversal position too soon.
Rounding Bottom A rounding bottom, also referred to as a saucer bottom, bottom, is a long-term reversal pattern that signals a shift from a downward trend to an upward upwa rd trend. This pattern is traditionally thought to last anywhere from several months to several years.
Figure 8 A rounding bottom chart pattern looks similar to a cup and handle pattern but without the handle. The long-term nature of this pattern and the lack of a confirmation trigger, such as the handle han dle in the cup and
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handle, makes it a difficult pattern to trade.
2.4 THEORIES
DOW THEORY– TRENDS:
The ideas of Charles Dow, the first editor of the Wall Street Journal, form the basis of technical analysis. The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages. Dow created the Industrial Average, of top blue chip stocks, and a second average of top railroad stocks (now the Transport Average). He believed that the behavior of the averages reflected the hopes and fears of the entire market. The behavior patterns p atterns that he observed apply to markets throughout the world. Three Movements
Markets fluctuate in more than one time frame at the same time: Nothing is more certain than that the market has three well defined movements which fit into each other. •
The first is the daily variation due to local causes cau ses and the balance of buying and selling at that particular time.
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The secondary movement covers a period ranging from ten days to sixty days, averaging probably between thirty and forty days.
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The third move is the great swing covering from four to six years.
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Bull markets are broad upward movements of o f the market that may last several years, interrupted by secondary reactions. Bear markets are long declines interrupted by secondary rallies. These movements are referred to as the primary trend.
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Secondary movements normally retrace from one third to two thirds of the primary trend since the previous secondary movement.
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Daily fluctuations are important for short-term trading, but are unimportant in analysis of broad market movements.
Various cycles have subsequently been identified within these broad categories. Primary Movements have Three Phases
The general conditions in the market: Bull markets •
Bull markets commence with reviving confidence as business conditions improve.
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Prices rise as the market responds to improved earnings
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Rampant speculation dominates the market and price advances are based on hopes and expectations rather than actual results.
Bear markets •
Bear markets start with abandonment of the hopes h opes and expectations that sustained inflated prices.
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Prices decline in response to disappointing earnings.
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Distress selling follows as speculators attempt to close out their positions and securities are sold without regard to their true value.
Trends Bull Trends
A bull trend is identified by a series of rallies where each rally exceeds the highest point of the previous rally. The decline, between rallies, ends above abo ve the lowest point of the previous decline. d ecline. Successive higher highs and higher lows .
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The start of an up trend is signaled when price makes a higher h igher low (trough), followed by a rally above the previous high (peak):
Start = higher Low + break above previous High .
The end is signaled by a lower high (peak), followed by a decline below the previous low (trough):
End = lower High + break below previous Low .
A bear trend starts at the end of a bull trend: when a rally ends with a lower peak and then retreats below the previous low. The end of a bear trend is identical to the start of a bull trend.
ELLIOT WAVES THEORY BASICS
TRENDLINES
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Breaking through support or resistance levels results in a ch ange of traders’ expectations (which causes supply/demand lines to shift). An Uptrend is defined by successively higher low-prices. A rising trend can be thought of as a rising support level: the bulls are in control and are pushing prices higher. A Downtrend is defined by successively lower high-prices. A falling trend can be thought of as a falling resistance level: the bears are in control and are pushing prices lower.
2.5 MOVING AVERAGES Most chart patterns show a lot of variation in price movement. This can make it difficult for traders to get an idea of a security's overall trend. One simple method traders use to combat this is to apply moving averages. averages. A moving average is the average price of a security over a set amount of time. By plotting a security's average price, the price movement is smoothed out. Once the day-to-day fluctuations are removed, traders are better able to identify the true trend and increase the probability that it will work in their favor.There are a number of different types of moving averages that vary in the way they are calculated, but how each average is interpreted remains the same. The calculations only differ in regards to the weighting that they place on the price data, shifting from equal weighting of each price point to more weight being placed on recent data. The three most common types of moving averages are simple, simple, linear and exponential. exponential. Simple Moving Average (SMA)
This is the most common method used to calculate the moving average of prices. It simply takes the sum of all of the past closing prices over ov er the time period and divides the result by the number of prices 43
used in the calculation. For example, in a 10-day moving average, the last 10 closing prices are added together and then divided by 10. As you can
Linear Weighted Average
This moving average indicator is the least common out of the three and is used to address the problem of the equal weighting. The linear weighted moving average is calculated by taking the sum of all the closing prices over a certain time period and multiplying them by the position of the data point and then dividing by the sum of the number of periods. For example, in a five-day linear weighted average, today's closing price is multiplied by five, yesterday's by four and so on until the first day in the period range is reached. These numbers nu mbers are then added together and a nd divided by the sum of the multipliers.
Exponential Moving Average (EMA)
This moving average calculation uses a smoothing factor to place a higher weight on recent data points and is regarded as much more efficient than the linear weighted average. Having an understanding of the calculation is not generally required for most traders because most charting packages do the calculation for you. The most important thing to remember about the exponential moving average is that it is more responsive to new information relative to the simple moving average.
Major Uses of Moving Averages Moving averages are used to identify current trends and trend reversals as well as to set up support and resistance levels. Moving averages can be used to quickly identify whether a security is moving in an uptrend or a downtrend depending on the direction of the moving average. As you can see in Figure 3, when a moving average is heading upward and the price is above it, the security is in an uptrend. Conversely, a downward sloping moving average with the price below can be used to signal a downtrend.
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Figure 3 Another method of determining momentum is to look at the order of a pair of moving averages. When a short-term average is above a longer-term average, the trend is up. On the other hand, a long-term average above a shorter-term average signals a downward movement in the trend. Moving average trend reversals are formed in two main ways: when the price moves through a moving average and when it moves through moving average crossovers. The first common signal is when the price moves through an important moving average. For example, when the price of a security that was in an uptrend falls below a 50-period moving average, like in Figure 4, it is a sign that the uptrend may be reversing.
Figure 4 The other signal of a trend reversal is when one moving average crosses through another. For example, as you can see in Figure 5, if the 15-day moving average crosses above the 50-day moving average, it is a positive sign that the price will start to increase.
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Figure 5 If the periods used in the calculation are relatively short, for example 15 and 35, 35 , this could signal a short-term trend reversal. On the other hand, when two averages with relatively long time frames cross over (50 and 200, for example), this is used to suggest a long-term shift in trend. Another major way moving averages are used is to identify support and resistance levels. It is not uncommon to see a stock that has been falling stop its decline and an d reverse direction once it hits the support of a major moving average. A move through a major moving average is often used as a signal by technical traders that the trend is reversing. For example, if the price breaks through the 200-day moving average in a downward direction, it is a signal that the uptrend is reversing.
Figure 6 Moving averages are a powerful tool for analyzing the trend in a security. They provide p rovide useful support and resistance points and are very easy to use. The most common time frames that are used when creating moving averages are the 200-day, 100-day, 50-day, 20-day and 10-day. The 200-day average is thought to be a good measure of a trading year, a 100-day average of a half a year, a 50-day average of a quarter of a year, a 20-day average of a month and 10-day average of two weeks.
2.6 INDICATORS 46
Accumulation/Distribution Line
The accumulation/distribution line is one of the more popular volume indicators that measures money flows in a security. This indicator attempts to measure the ratio of b uying to selling by comparing the price movement of a period to the volume of that period. Calculated:
Acc/Dist = ((Close - Low) - (High - Close)) / (High - Low) * Period's Volume
This is a non-bounded indicator that simply keeps a running sum over the period p eriod of the security. Traders look for trends in this indicator to gain insight on the amount of purchasing compared to selling of a security. If a security has an accumulation/distribution line that is trending upward, it is a sign that there is more buying than selling.
Average Directional Index (ADX)
The average directional index (ADX) is a trend indicator that is used to measure the strength of a current trend. The indicator is seldom used to identify the direction of the current trend, but can identify the momentum behind trends. The ADX is a combination of two price movement measures: the positive the positive directional indicator (+DI) indicator (+DI) and the negative directional indicator (-DI). indicator (-DI). The ADX measures the strength of a trend but not the direction. The +DI measures the strength of the upward up ward trend while the -DI measures the strength of the downward trend. These two measures are also plotted along with the ADX line. Measured on a scale between zero and 100, readings below 20 signal a weak trend while readings above 40 signal a strong trend.
Moving Average Convergence Divergence (MACD)
The moving average convergence divergence (MACD) is one of the most well known and used indicators in technical analysis. This indicator is comprised of two exponential moving averages, which help to measure momentum in the security. The MACD is simply the difference between these two moving averages plotted against a centerline. The centerline is the point at which the two moving 47
averages are equal. Along with the MACD and the centerline, an exponential moving average of the MACD itself is plotted on the chart. The idea behind this momentum indicator is to measure short-term momentum compared to longer term momentum to help signal the current direction of momentum.
MACD= shorter term moving average - longer term moving average
When the MACD is positive, it signals that the shorter term moving average is above the longer term moving average and suggests upward momentum. The opposite holds true when the MACD is negative - this signals that the shorter term is below the longer and suggest downward momentum. When the MACD line crosses over the centerline, it signals a crossing in the moving averages. The most common co mmon moving average values used in the calculation are the 26-day and 12-day exponential moving averages. The signal line is commonly created by using a nine-day exponential moving average of the MACD values. These values can be adjusted to meet the needs of the technician and the security. For more volatile securities, shorter term averages are used while less volatile securities should have longer averages. As you can see in Figure 2, one of the most common co mmon buy signals is generated when the MACD crosses above the signal line (blue dotted do tted line), while sell signals often occur when the MACD crosses below the signal.
Figure 2 The relative strength index (RSI) is another one of the most used and well-known momentum indicators in technical analysis. RSI helps to signal overbought and oversold conditions in a security. The indicator 48
is plotted in a range between zero and 100. A reading above 70 is used to suggest that a security is overbought, while a reading below 30 is used to suggest that it is oversold. o versold. This indicator helps traders to identify whether a security’s price has been unreasonably pushed to current levels and whether a reversal may be on the way.
Figure 3 The standard calculation for RSI uses 14 trading days as the basis, which can be adjusted to meet the needs of the user. If the trading period is adjusted to use fewer days, the RSI will be more volatile and will be used for shorter term trades.
On-Balance Volume
The on-balance volume (OBV) indicator is a well-known technical indicator that reflect movements in volume. It is also one of the simplest volume indicators to compute and understand. The OBV is calculated by taking the total volume for the trading period and assigning it a positive or negative value depending on whether the price is up or down during the trading period. When price is up during the trading period, the volume is assigned a positive value, while a negative value is assigned when the price is down for the period. The positive or negative volume total for the period is then added to a total that is accumulated from the start of the measure. It is important to focus on the trend in the OBV - this is more important than the actual value of the OBV measure. This measure expands on the basic volume measure by combining volume and price movement
Stochastic Oscillator
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The stochastic oscillator is oscillator is one of the most recognized momentum indicators used in technical analysis. The idea behind this indicator is that in an uptrend, the price should be closing near the highs of the trading range, signaling upward momentum in the security. In downtrends, the price should be closing near the lows of the trading range, signaling downward momentum. The stochastic oscillator is plotted within a range of ze ro and 100 and signals overbought conditions above 80 and oversold conditions below 20. The stochastic oscillator contains two lines. The first line is the %K, which is essentially the raw measure used to formulate the idea of momentum behind the oscillator. The second line is the %D, which is simply a moving average of the %K. The %D line is considered to be the more important of the two lines as it is seen to produce p roduce better signals. The stochastic oscillator generally uses the past 14 trading periods in its calculation but can be adjusted to meet the needs of the user.
Figure 4
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CHAPTER- 3 FUNDAMENTAL FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW
FUNDAMENTALANALYSIS
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Fundamental analysis refers to the study of the core underlying elements that influence the economy
of a particular entity. It is a method of study that attempts to predict price action and market trends by analyzing economic indicators, government policy and societal factors (to name just a few elements) within a business cycle framework.
I. ECONOMIC ANALYSIS:
POLITICO-ECONOMIC ANALYSIS: No industry or company can exist in isolation. It may hav e splendid managers and a tremendous product. However, its sales and its costs are affected by factors, some of which are beyond its control the world economy, price inflation, taxes and a host of others. It is important, therefore, to have an appreciation of the politico-economic factors that affect an industry and a company.
II. INDUSTRY ANALYSIS
The importance of industry analysis is now dawning on the Indian investor as never before.
1. BARRIER TO ENTRY
New entrants increase the capacity in an industry and the inflow of funds. The question that arises is how easy is it to enter an industry ? There are some barriers to entry: a) Economies of scale b) Product differentiation c) Capital requirement d) Government policy
2. THE THREAT OF SUBSTITUTION
New inventions are always taking place and new and better products replace existing ones. An industry that can be replaced by substitutes or is threatened by substitutes is normally an industry one must be careful of investing in. An industry where this occurs constantly is the packaging industry -bottles 52
replaced by cans, cans replaced by plastic bottles, and the like. To ward off the threat of substitution, companies often have to spend large sums of money in advertising and promotion. p romotion.
3. BARGAINING POWER OF THE BUYERS
In an industry where buyers have control, i.e. in a buyer's market, buyers are constantly forcing prices down, demanding better services or higher quality and this often erodes profitability.
4. BARGAINING POWER FOR THE SUPPLIERS
An industry unduly controlled by its suppliers is also under threat.
5. RIVALRY AMONG COMPETITORS
Rivalry among competitors can cause an industry great harm. This occurs mainly by price cuts, heavy advertising, additional high cost services or offers, and the like.
III. COMPANY ANALYSIS: At the final stage of fundamental analysis, the investor analyzes the company. This analysis has two thrusts: How has the company performed vis-à-vis other similar companies and How has the company performed in comparison to earlier years It is imperative that one completes the politico econ omic analysis and the industry analysis before a company is analyzed because the company's performance at a period of time is to an extent a reflection of the economy, the political situation and the industry. What does one look at when analyzing a company? The different issues regarding a company that should be examined are: The Management The Company The Annual Report Ratios
THE MANAGEMENT: 53
The single most important factor one should consider when investing in a company and one often never considered is its management. In India management can be broadly divided in two types: Family Management Professional Management
THE COMPANY:
An aspect not necessarily examined during an analysis of fundamentals is the company. A company may have made losses consecutively for two years or more and one may not wish to touch its shares yet it may be a good company c ompany and worth purchasing into. There are several factors one should look at.
1. How a company is perceived by its competitors?
One of the key factors to ascertain is how h ow a company is perceived by b y its competitors. It is held in high regard. Its management may be known for its its maturity, maturity, vision, competence and aggressiveness. The investor must ascertain the reason and then determine whether the reason will continue into the foreseeable future.
2. Whether the company is the market leader in its products or in its segment
Another aspect that should be ascertained is whether the company is the market leader in its products or in its segment. When you invest in market leaders, the risk is less. The shares of market leaders do not fall as quickly as those of other companies. There is a magic to their name that would make individuals prefer p refer to buy their products as opposed to others.
3. Company Policies
The policy a company follows is also important. What is its plans for growth? What is its vision? Every company has a life. If it is allowed to live a normal life it will grow upto a point and then begin to level out and eventually die. It is at the point of leveling out that it must be given new life. This can give it renewed vigour and a new lease of life.
THE ANNUAL REPORT : 54
The primary and most important source of information about a company is its Annual Report. By law, this is prepared every year and distributed to the shareholders. Annual Reports are usually very well presented. A tremendous amount of data is given about the performance of a company over a period of time. The Annual Report is broken down do wn into the following specific parts: A) The Director's Report, B) The Auditor's Report, C) The Financial Statements, and D) The Schedules and Notes to the Accounts.
A. THE DIRECTOR’S REPORT
The Director’s Report is a report submitted by the directors of a company to its shareholders, advising them of the performance of the company c ompany under their stewardship. 1. It enunciates the opinion of o f the directors on the state of the economy ec onomy and the political situation vis-àvis the company. 2. Explains the performance and the financial results of the company in the period under review. This is an extremely important part. The results and operations of the various separate divisions are usually detailed and investors can determine the reasons for their good or bad performance. p erformance. 3. The Director’s Report details the company's plans for modernization, expansion and diversification. Without these, a company will remain static and eventually decline. 4. Discusses the profit earned in the period under review and the dividend. Recommended by the directors. This paragraph should normally be read with some skep ticism, as the directors will always argue that the performance was satisfactory. If adverse economic conditions are usually at fault. 5. Elaborates on the directors' views of the company's prospects in the future. 6. Discusses plans for for new acquisition and investments. An investor must intelligently intelligently evaluate the issues raised in a Director’s Report. Industry conditions and the management's knowledge of the business must be considered.
B. THE AUDITOR'S REPORT
The auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company compan y by its directors. Auditors are required to report whether the 55
financial statements presented do, in fact, present a true and fair view of the state of the company. Investors must remember that the auditors are their representatives and that they are required by law to point out if the financial statements are not true and fair..
C. FINANCIAL STATEMENTS
The published financial statements of a company in an Annual Report consist of its Balance Sheet as at the end of the accounting period detailing the financing condition of the company at that date, and the Profit and Loss Account or Income Statement summarizing the activities of the company for the accounting period.
Balance sheet
The Balance Sheet details the financial position of a company on a particular date; of the company's assets (that which the company owns), and liabilities (that which the company owes), grouped logically under specific heads. It must h owever, be noted that the Balance Sheet details the financial position on a particular day and an d that the position can be materially different on the next day or the day after.
SOURCES OF FUNDS Shareholders Funds Share Capital
(i) Private Placement (ii) Public Issue iii) Rights issues RESERVES
i) Capital Reserves ii) Revenue Reserves LOAN FUNDS
i) Secured loans: ii) Unsecured loans FIXED ASSETS Investments 56
Stock Or Inventories
i) Raw materials ii) Work in progress iii) Finished goods Cash And Bank Balances Loans And Advances
PROFIT AND LOSS ACCOUNT
The Profit and Loss account summarizes the activities of a company during an accounting period which may be a month, a quarter, six months, a year or longer, and the result achieved by the company. It details the income earned by the company, its cost and the resulting profit or loss. It is, in effect, the performance appraisal not only of the company but also of its management- its competence, foresight and ability to lead. RATIOS:
Ratios express mathematically the relationship between performance figures and/or assets/liabilities in a form that can be easily understood and interpreted. No single ratio tells the complete story
Ratios can be broken down into four broad categories: (A) Profit and Loss Ratios
These show the relationship between two items or groups of items in a profit and loss account or income statement. The more common of these ratios are: (B) Balance Sheet Ratios
These deal with the relationship in the balance sheet such as : 1. Current assets to current liabilities. 2. Liabilities to net worth. (C) Balance Sheet and Profit and Loss Account Ratios.
These relate an item on the balance sheet to another in the profit and loss account such as: 1. Earnings to shareholder's funds. 2. Net income to assets employed. (D) Financial Statements and Market Ratios
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These are normally known as market ratios and are arrived at by relative financial figures to market prices: 1. Market value to earnings and 2. Book value to market value. (a) Market value (b) Earnings (c) Profitability The major ratios that are considered:
(i) Market value (ii) Price- earnings ratio (iii) Market-to-book ratio (iv) Earnings (v) Earnings per share (vi) Dividend per share
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CHAPTER- 4
BANKING SECTOR
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4.1 BANKING IN INDIA
The Indian banking scenario witnessed a significant development in the recent years with the entry of private banks and their focus on retail banking and convergence of services. The business models of the leading players are adapting to this impending change as banks widen the spectrum of savings and loan products they offer. Private Banks are the best positioned to acquire market share in the emerging scenario: A change is expected to make mergers between banks and Foreign Institutional Investors possible, which will. Benefit large private bank group(s).
Nationalization A significant milestone in Indian Banking happened in the late 1960s when the then Indira Gandhi governm government ent nation nationali alized, zed, on 19th 19th July, July, 196 1969, 9, 14 major major commer commercia ciall Indian Indian banks, banks, follow followed ed by nationalization of 6 more commercial Indian banks in 1980. The stated reason for the nationalization was more control of credit delivery. After this, until the 1990s, the nationalized banks grew at a leisurely pace of around 4%-also called as the Hindu growth of the Indian economy. econo my. After the amalgamation of New Bank of India with Punjab National Bank, currently there are 59 nationalized banks in India.
Liberalization In the early 1990s the then Narasimha Rao government embarked on a policy of liberalization and gave licenses to a small number of private banks, which came to be known as New Generation tech-savvy banks, which included banks like ICICI Bank and HDFC Bank. This move along with the rapid growth in the economy of India, kick started the banking sector in India, which has seen rapid growth with strong contribution from all the three sectors of banks, namely, government banks, private banks and foreign banks. However there had been a few hiccups for these new banks with many either being taken over like Global Trust Bank while others like Centurion Bank have found the going tough.
The next stage for the Indian banking has been setup with the proposed relaxation in the norms for Foreign Direct Investment, where all Foreign Investors in banks may be given voting rights which could exceed the present cap of 10%.
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4.2 CURRENT SCENARIO The growth growth in the the Indian Indian Banki Banking ng Indust Industry ry has been been more more qualit qualitati ative ve than quantitative and it is expected to remain the same in the coming years. Based on the projections made in the "India Vision 2020" prepared by the Planning Commission and the Draft 10th Plan, the report forecasts that the pace of expansion in the balance-sheets of banks is likely to decelerate. The total assets of all scheduled commercial banks by endMarch 2010 is estimated at Rs 40,90,000 crores. That will comprise about 65 per cent of GDP at current market prices as compared to 67 per cent in 2002-03. Bank assets are expected to grow at an annual composite rate of 13.4 per cent during the rest of the decade as against the growth rate of 16.7 per cent that existed between 1994-95 and 2002-03. It is expe ex pect cted ed that that ther there e will will be larg large e addi additi tion ons s to the the capi capita tall base base and and reserves on the liability side. The The Indi Indian an Bank Bankin ing g Indu Indust stry ry can can be cate catego gori rize zed d into into non-s non-sch ched edul uled ed banks and scheduled banks. Scheduled banks constitute of commercial bank banks s and and co-o co-ope pera rati tive ve bank banks. s. Ther There e are are abou aboutt 67,0 67,000 00 bran branch ches es of Scheduled banks spread across India. As far as the present scenario is concerned the Banking Industry in India is going through a transitional phase. The Public Sector Banks(PSBs), which are the base of the Banking sector in India account for more than 78 per cent of the total banking industry assets. Unfortunately they are burdened with excessive Non Performing assets (NPAs), massive manpower and lack of modern technology. On the other hand the Private Sector Banks are making tremendous progress. They are leaders in Internet banking, mobile banking, phone banking, ATMs. As far as foreign banks are concerned they are likely to succeed in the
In
Indian
the
Indian
Banking
Banking
Industry
some
Industry.
of
the Private
Sector
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Bank Banks s oper operat atin ing g
are are IDBI
Bank, ING
Vyasa
Commer erci cial al Bank ,SBI Comm
and and
International Bank Ltd, Bank of Rajasthan Ltd. and banks from the Public Sector Sector include include Punjab Punjab Nationa Nationall bank, bank, Vijaya Vijaya Bank, UCO Bank, Oriental Oriental Bank, Allahabad Bank among others. ANZ Grindlays Bank, ABN-AMRO Bank, Amer Americ ican an Ex Expr pres ess s Bank Bank Ltd, Ltd, Citi Citiba bank nk are are so some me of the the fo fore reig ign n bank banks s operating in the India
FUTURE OUTLOOK
•
Total banking assets are expected to double and grow to $915 billion by 2015 - a CAGR of 15%
•
$70 billion additional equity needed for growth plus Basel II compliance
•
Mutual Funds: Assets Under Management (AUM) are expected to grow by 15% till 2015
•
Retail Finance is expected to grow at an annual rate of 18%, from $27.6 billion in 2003-04 to $64.2 billion by 2011-12
4.3 FUTURE POTENTIALS
Loan growth of ~20%, operating leverage and fall in credit cost will drive banking sector's profitability over FY12 and FY13. Margins, even with some moderation from their peaks in 3QFY11, would be above/near the average level of FY04-09. Higher recoveries could provide positive surprise to earning estimates (write-offs were aggressive over FY09 and FY10 to keep reported GNPAs lower). We expect banks to report 20%+ earnings growth on an aggregate basis and return ratios to be healthy with RoA of 1.1%+ and RoE of ~18%. Valuations at P/E of 8x and P/BV of 1.3x for PSU banks and P/E of 16x and P/BV of 2.3x for private banks are at the five-year average multiples, despite strong core operating performance expected.
Margins robust; to remain above/near FY04-09 average levels
•
Downward deposit re-pricing, fall in excess liquidity on the balance sheet, better
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pricing power (led by a liquidity crunch and a higher CD ratio) and stronger CASA growth led to a sharp improvement in margins in 9MFY11. Overall, FY11 blended margins are expected to be ~50bp higher YoY, driving core operating profits. •
Given the tight liquidity and rising rates scenario, margins are unlikely to fall in a hurry, and gradual moderations have been factored in estimates. As FY11 is amongst the best year of margins for Indian banks, we expect margins to moderate 1020bp (bank specific), but to remain above/near the average margins of FY04-09.
•
Banks that reported higher slippages over the past two years are likely to have lower margin compression because of expected improvement in asset quality.
•
Our sensitivity analysis suggests that for every 5bp change in margins, profits will be impacted by ~3%. With a 1% fall in CASA ratio and a 1% fall in CD ratio, margins are likely to compress by 5bp and 7bp, respectively.
Asset quality improvement; lower credit cost to drive earnings growth •
Banks added higher stressed assets over FY09-11 due to fall out of the financial crisis and moderation in economic growth. However, incremental trends on asset quality are positive. Over the last two quarters, the slippage ratio has been coming down and we expect the trend to continue in 4QFY11 and FY12. In our view, large corporate and retail delinquencies and slippages from restructured loans have peaked.
•
Private banks are well placed in terms of asset quality as retail delinquencies have peaked and due to conservative restructuring policy adopted in the past.
•
Banks like SBI, PNB and Union Bank, which posted higher slippages, slippages, can surprise surprise positively positively with a fall in slippages, higher up gradation and recoveries.
•
Lower slippages, higher up gradations and recoveries should reduce credit costs and drive earnings growth. Risk to our call is slowdown in industrial growth led by possible shocks on crude oil prices and delay in project implementation. Technical slippages on account of CBS implementation can also lead to negative ne gative surprise for PSU banks.
Operating leverage - a key driver for RoA improvement
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•
PSU banks' operating cost growth will peak in FY11 as full pension provisions for retired employees and wage revision will be provided for. On a higher base, we expect opex growth to be limited to 15%, providing banks with strong operating leverage.
•
Private banks’ operating expenses will rise with wage and rental inflation, and large scale branch expansion. However, due to strong core operating income, we expect C/I ratio to remain stable.
Valuations at five-year average multiples; inflation remains a key risk •
Banks' core operating performance is likely to be strong led by improving asset quality and operating leverage. We believe valuations are attractive with stocks trading at five-year average multiples.
•
Correction in valuations from their peaks largely discount some of the macro headwinds such as tight tight liquid liquidit ity, y, a sharp sharp increa increase se in intere interest st rates, rates, high high inflat inflation ion and mixed mixed key econom economic ic indicators like IIP.
•
Net market borrowing of Rs3.6t for FY12 (including T Bills of Rs150b) is below the market estimates of Rs3.8t+. Lower-than-expected fiscal deficit is positive for domestic liquidity and will allay fears of crowding out for private players.
•
Food inflat inflation ion,, which which is showin showing g a decele decelerat rating ing trend, trend, gives gives confid confidence ence of modera moderati tion on in inflation. However, turmoil in the MENA region and its resultant impact on oil prices and inflation is a key risk.
•
Some of the key regulatory headwinds, such as savings bank deregulation and change in the status of certain loans granted by banks to NBFCs as priority sector loans (PSL) etc, are specific risks.
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4.4 BANKING STRUCTURE IN INDIA The banking institutions in the organized sector, commercial banks are the oldest institutions, some them having their genesis in the nineteenth century. Initially they were set up in large numbers, mostly as corporate bodies with shareholding with private individuals. In the sixties of the 20th century a large number of smaller and weaker banks emerged in the country. Subsequently there has been a drift towards state ownership and control. Today 27 banks constitute a strong Public Sector in Indian Commercial Banking.
Commercial Banks operating in India fall under the different sub categories on the basis of their ownership and control over management.
Publicc Sect Sector or Bank Bankss emer emerge ged d in Indi Indiaa in thre threee stag stages es.. Firs Firstt the the Public Sect Sector or Banks: Banks: Publi 1. Public conversion of the then existing Imperial Bank of India into State Bank of India in 1955, follow followed ed by the taking taking over of the seven associ associate ated d banks banks as its subsidia subsidiary ry.. Second Second the nationalization of 14 major commercial banks in 1969and last the nationalization of 6 more commercial Bank in 1980. Thus 27 banks constitute the Public Sector Banks.
2. New Private Sector Banks: after the nationalization of the major banks in the private sector in
1969 and 1980, no new bank could be setup in India for about two decades, though there was no lega legall bar bar to that that effe effect ct.. Th Thee Nara Narasi simh mham am Comm Commit itte teee on fina financ ncial ial sect sector or refo reform rmss recommended the establishment of new banks of India. RBI thereafter issued guidelines for setting up of new private sector banks in India in January 1993.
These guidelines aim at ensuring that new banks are financially viable and technologically up to date from the start. start. They have to work in a professiona professionall
manner, manner, so as to improve improve the
image of commercial banking system and to win the confidence of the
public.
Eight private sector banks have been establishe established d including including banks sector by financiall financially y institut institutions ions like IDBI, ICICI, and UTI etc.
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Fig 1: Banking Structure in India
66
established as public limited companies companies in the private 3. Local Area Banks: Such Banks can be established sector and can be promoted by individuals, companies, trusts and societies. The minimum paid up capital of such banks would be 5 crores with promoters contribution at least Rs. 2 crores. They are to be set up in district towns and the area of their operations would be limited to a maximum of 3 districts. At present, four local area banks are functional, one each in Punjab, Gujarat, Maharashtra and Andhra Pradesh.
4. Foreign Foreign Banks: foreign commercial banks are the branches in India of the joint stock banks
incorporated abroad. . 5. Cooperative Banks: Besides the commercial banks, there exists in India another set of banking
institutions called cooperative credit institutions. These have been made in existence in India since since long. They They undertake undertake the business business of banking banking both in urban urban and rural rural areas on the princ principl iplee of cooperat cooperation ion..
They They have have served served a useful useful role role in spreadin spreading g the banking banking habit
throughout the country. Yet, there financial position is not sound and a majority of cooperative banks has yet to achieve financial viability on a sustainable basis.
The cooperative cooperative banks have been set up under various various Cooperative Cooperative Societies Societies Acts enacted enacted State Governments. Hence the State Governments regulate these banks. In regulate regulate their activitie activitiess to ensure ensure their soundness soundness and to protect protect the
by
1966, need was felt to
interests interests
of
depositors depositors..
Consequently, certain provisions of the Banking Regulation Act 1949 were made applicable to the cooperative cooperative Banks as well. These Banks have thus State Government and tat of the RBI which
fallen fallen under dual control control viz., that of the
exercises control over them so far as their banking
Operations are concerned.
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CHAPTER- 4
ANALYSIS
SBI
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Brief Company Profile: ICICI BANK
ICICI Bank is India's second-largest bank with total assets of Rs. 3,634. 00 billion (US$ 81 billion) at March 31, 2010 and profit after tax Rs. 40.25 billion (US$ 896 million) for the year ended March 31, 2010. The Bank has a network of 2,529 branches and 6,102 ATMs in India, and has a presence in 19 countries, including India. ICICI Bank offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery d elivery channels and through its specialized subsidiaries in the areas of investment banking, life and non-life insurance, venture capital and asset management. The Bank currently has subsidiaries in the United Kingdo m, Russia and Canada, branches in United States, Singapore, Bahrain, Hong Kong, Sri Lanka, Qatar and Dubai International Finance Centre and representative offices in United Arab Emirates, China, South Africa, Bang ladesh, Thailand, Malaysia and Indonesia. Our UK subsidiary has established branches in Belgium and Germany.
Key Executives Mr. Kundapur Vaman Kamath Chairman
Smt. Vishakha Mulye Chief Financial Officer
Mrs. Chanda Kochhar Managing Director & CEO
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Brief Company Profile: STATE BANK OF INDIA
country’s largest largest commercia commerciall Bank in terms of profits, profits, assets, assets, deposits, deposits, State Bank of India , the country’s branches and employees, welcomes you to its ‘Investors Relations’ Section. SBI, with its heritage dating back to the year 1806, strives to continuously provide latest and upto date information on its financial financial performa performance nce.. It is our endeavor endeavor to walk walk on the path of transp transpare arency ncy and allow allow comple complete te acc access ess to all the stakeh stakehold olders ers enabli enabling ng total total awaren awareness ess about about the Bank. Bank. The Bank Bank commun communica icates tes with with the stakeh stakehold olders ers throug through h a variet variety y of chann channels els,, such such as throug through h e-mail e-mail,, websit website, e, confer conferenc ence e call, call, one-on one-on-on -one e meetin meeting, g, analys analysts’ ts’ meet meet and attend attendanc ance e at Invest Investor or Conference throughout the world Please find below Bank’s financial results, analysis of performance and other highlights which will be of interest to Investors, Fund Managers and Analysts. SBI has always been fundamentally strong in its core business which is mirrored in its results – year after year.
Key Executives Mr. O. P. Bhatt Chairman
Mr.R. Shridharan Managing director
Mr.Dileep Choksi Director
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Brief Company Profile: YES BANK
YES BANK is a state-of-the-art high quality, customer centric, service driven, private Indian Bank catering to the “Future Businesses of India”, and is an outcome of the professional & entrepreneurial commitment of Rana Kapoor, Founder, Managing Director & CEO. As the Professionals’ Bank of India, YES BANK has exemplified ‘creating and sharing value’ for all its stakeholders, and has created a differentiated Banking Paradigm. Since inception, YES BANK has tried to play a catalytic role in bridging the infrastructure and knowledge gap in various Sunrise sectors of the economy. As part of the differentiated strategy, YES BANK has had a strong focus on Development Banking, and has h as tried to play a catalytic role in bridging the infrastructure and knowledge gap in Sunrise sectors of the economy, asis evident from cutting-edge work that the Bank has done in the area of Food & Agribusiness, in most cases first-of-its kind in India, Infrastructure, Microfinance, and Sustainability. Our focus onGovernanceand Good Corporate Citizenship, actualized through YES BANK’s Responsible Banking approach, stands evidence of YES BANK’s strategic vision.
Key Executives Mr. Rana Kapoor
Managing director& CEO
Mr. Sipko Schat
Vice Chairman Mr. Bharat Patel
Independent Director
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1. FINDI FINDINGS NGS & CONC CONCLU LUSIO SION N
Stock
Target Price (Rs)
Recommendation
ICICI Bank
1385
BUY
State Bank of India
3550
BUY
Yes Bank
380
BUY
Current scenario suggests, markets are on a bullish run, especially in case of Banking Industry . Analysis suggests that all the chosen stocks i.e. ICICI Bank, State Bank of India and Yes Bank are going to perform well, with huge potential of earnings for equity holders.
It is recommended to increase the investment in Banks.
Stock
P/E ratio
ICICI Bank
30.48
State Bank of India
17.46
Yes Bank
16.71
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BIBLIOGRAPHY
Websites Referred:
www.moneycontrol.com www.myiris.com www.indiaearnings.moneycontrol.com http://finance.yahoo.com www.wikipedia.org www.reuters.com www.valuenotes.com www.icicibank.com www.investopedia.com www.statebankofindia.com www.yesbank.in
Reports Referred:
Motilal Oswal report on banking sector India Infoline report on ICICI Bank’s
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