Report on EQUITY Market

7/29/2019 Report on EQUITY Market

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AREPORT

ON

FACTORS AFFECTING INDIAN EQUITY

MARKET (BANKING SECTOR)


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Abstract

Banking Sector in India is one of the growing sectors with great dynamics.There are various factors which affect the share prices of Banking Companies. Thisreport is all about how various factors (Internal and External) affect the Banking SectorShare Prices. In this report a detailed analysis of the factors affecting the share prices iscarried on and a model is developed to study the effect of various factors on the shareprices.

Here, various internal factors factors (Banks Profitability, Income, Expensesand News about the Bank) and external factors (Government policies, CRR, Repo Rate,Reverse Repo Rate, Rules and Regulations) are considered which affect the prices of theshares of Bank Datas are collected for all the quantifiable factors and for the rest factorstheoretical explanations is given in detail. Using SPSS a model is developed which shows

the regression and correlation co-efficient between the share prices and various factorsaffecting the same.


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INTRODUCTION

MARKETS DEFINED

STOCK MARKET IN INDIA

The Indian security market has become one of the most dynamic andefficient security markets in Asia today. The Indian market now conforms toInternational Standards in terms of operating efficiency.

During the latter half of 19thcentury, shares of companies used to be floatedin India occasionally. There were share brokers in Bombay who assisted in thefloatation of shares of companies. A small group of stock brokers in Bombay joinedtogether in 1875 to form an association called Native Share & Stockbrokers Association.The association drew up codes of conduct for brokerage business and mobilizesprivate funds for investment in the corporate sector. It was this association which laterbecame the Bombay Stock Exchange, Mumbai or BSE.

Later on in 1894 the brokers of Ahmedabad formed the AhmedabadStock Exchange, the second stock exchange of the country. During the 1900s Kolkatabecame another major centre of share trading and as a result Kolkata Stock Exchangewas formed in 1908. Later on Chennai Stock Exchange was started in 1920. However,by 1923, it ceased to exist. Then the Madras Stock Exchange was started in 1937. Threemore stock exchanges were established before independence, at Indore in 1930, atHyderabad in 1943 and at Delhi in 1947.

Thus along with the increase in number of stock exchanges, the number oflisted companies and the capital of listed companies grown tremendously after1985which results into growth and development of stock market in India.


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ABOUT BSE SENSEXBSE SENSEX or Bombay Stock Exchange Sensitive Index is a value-

weightedindexcomposed of 30 stocks started in 01 of January, 1986. It consists of the30 largest and most actively traded stocks, representative of various sectors, on theBombay Stock Exchange.These companies account for around one-fifth of the marketof t he BSE. The base value of the SENSEX is 100 on April 1,1979, and the baseyear of BSE-SENSEX is 1978-79.

At irregular intervals, the Bombay Stock Exchange (BSE) authoritiesreview and modify its composition to make sure it reflects current market conditions.The index is calculated based on a free-float capitalization method; a variation of themarket cap method. Instead of using a company's outstanding shares it uses its float, orshares that are readily available for trading. The free-float method, therefore, does notinclude restricted stocks, such as those held by company insiders.

The index has increased by over ten times from June 1990 to the present.Using information from April 1979 onwards, the long-run rate of return on theBSESENSEX works out to be 18.6% per annum, which translates to roughly 9% perannum after compensating for inflation. There are five major indices in BSE, thirteensector specific indices and a BSE Doller Index for dollar prices and movements.
http://en.wikipedia.org/wiki/Stock_market_indexhttp://en.wikipedia.org/wiki/Stock_market_indexhttp://en.wikipedia.org/wiki/Stock_market_indexhttp://en.wikipedia.org/wiki/Stock_market_indexhttp://en.wikipedia.org/wiki/Stock_market_indexhttp://en.wikipedia.org/wiki/Bombay_Stock_Exchangehttp://en.wikipedia.org/wiki/Bombay_Stock_Exchangehttp://en.wikipedia.org/wiki/Inflationhttp://en.wikipedia.org/wiki/Inflationhttp://en.wikipedia.org/wiki/Inflationhttp://en.wikipedia.org/wiki/Bombay_Stock_Exchangehttp://en.wikipedia.org/wiki/Stock_market_indexhttp://en.wikipedia.org/wiki/Stock_market_indexhttp://en.wikipedia.org/wiki/Stock_market_index


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ABOUT NSE AND NIFTY 50

The National Stock Exchange of India Limited (NSE) is a Mumbai based stock

exchange. It is the largest stock exchange in India interms of daily turnover and number

of trades, for both equities and derivative trading. Through a number of otherexchanges exist, NSE and the Bombay Stock Exchange are the two most significant stock

exchanges in India and between them are responsible for the vast majority of share

transactions. The NSEs key index is the S&P CNX Nifty, known as the Nifty, an index of

fifty stocks weighted by market capitalization.

NSE is mutually owned by a set of leading financial institutions, banks,

insurance companies and other financial intermediaries in India but its ownership and

management operate as separate entities. There are at least 2 foreign investors NYSE

Euro next and Goldman Sachs who have taken a stake in the NSE. As of 2006, the NSE

VSAT terminals, 2799 in total, cover more than 1500 cities across India. In October

2007, the equity market capitalization of the companies listed on the NSE was US $1.46

trillion, making it the second largest stock exchange in South Asia. NSE is the largest

Stock Exchange in the world interms of the number of trades in equities. It is the second

fastest growing stock exchange in the world with a recorded growth of 16.6%.

The Standard & Poors CRISILNSE Index 50 or S&P CNX Nifty nicknamed Nifty

50 or simply Nifty, is the leading index for large companies on the National Stock

Exchange of India. The Nifty is a well diversified 50 stock index accounting for 22

sectors of the economy. It is used for a variety of purposes such as bench marking fundportfolios, index based derivatives and index funds. There are seven major Indices in

NSE and fifteen sector specific Indices. CNX BANK INDEX or BANKNIFTY is the index

which has 17 banks listed on it and is a separate index to look upon price upon price

movements of banks share prices. A brief account of the same is given below.


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CNX Bank Index

The Indian banking Industry has been undergoing major changes, reflecting a

number of underlying developments. Advancement in communication and informationtechnology has facilitated growth in internet-banking, ATM Network, Electronic transfer

of funds and quick dissemination of information. Structural reforms in the banking

sector have improved the health of the banking sector. There forms recently introduced

include the enactment of the Securitization Act to step up loan recoveries, establishment

of asset reconstruction companies, initiatives on improving recoveries from Non-

performing Assets (NPAs) and change in the basis of income recognition has raised

transparency and efficiency in the banking system. Spurt in treasury income andimprovement in loan recoveries has helped Indian Banks to record better profitability.

In order to have a good benchmark of the Indian banking sector, India Index Service and

Product Limited (IISL) has developed the CNX Bank Index..

CNX Bank Index is an index comprised of the most liquid and large

capitalized Indian Banking stocks. It provides investors and market intermediaries with

a benchmark that captures the capital market performance of Indian Banks. The index

will have 12 stocks from the banking sector which trade on the National StockExchange.

The average total traded value for the last six months of CNX Bank represent

Index stocks is approximately 95.85% of the traded value of the banking sector. CNX

Bank Index stocks about 86.06% of the total market capitalization of the banking sector

as on January 30, 2009.The average total traded value for the last six months of all the

CNX Bank Index constituents is approximately 14.86% of the traded value of all stocks

on the NSE.CNX Bank Index constituents represent about 8.63% of the total marketcapitalization on January 30, 2009.


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OBJECTIVE OF THE STUDY

The objective of the project is to identify, understand and analyze the impact

of various factors that affect the Indian Equity Market (BANKING SECTOR). The main

focus will be on understanding, analyzing and providing a valid explanation both

theoretically and technically, that how various factors affect the share prices of

BNAKING SECTOR. By undertaking this study I would like to keep my first step in the

field of research. This project will help me in enhancing my analytical skills and will give

me a better understanding of how things move on and are to be studied. At the same

time with this study I will be providing the organization a list of factors that affect the

market, so that they can keep a watch on the same and use the same for the benefit of

clients and company and also increase their accuracy and profits. This will be my

contribution to this huge company.


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PURPOSE, SCOPE AND LIMITATIONS

PURPOSE

The Purposeof the report is to analyze how various factors affect the prices of abanks share. The share prices are highly affected by various internal and externalfactors. It is of great importance to understand, learn and analyze the same. Thus, thisreport is a move in path of understanding those factors and analyzing the impact ofthe same..

Banks are a major part of any economic system. They provide a strong base to

Indian economy too. Even in share markets, the performance of bank shares is of greatimportance. This is justified by the proof that in both BSE and NSE we have separateindex for Banking Sector Shares. But for our study we have taken only Bank Nifty whichis a part of NSE. Thus, the performance of share market, the rise and the fall of market isgreatly affected by the performance of Banking Sector Shares and this report revolvesaround all those factors, their understanding and a theoretical and technical analysis ofthe same.

SCOPE OF STUDY

It gave me an opportunity to study the banking sector in a detailed manner. I got knowledge of prevailing Market Scenario. It helped me in learning the market dynamics, study the movement of share

prices and to give a proper justification for the same, theoretically and

technically.

It helped me in understanding and learning the corporate culture And above all, the concerned organization can get some valuable

recommendations, which can definitely improve the performance of the

organization.


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LIMITATIONS OF THE STUDY

Though the resources seem sufficient enough to achieve high standard for this

research, still we foresee the following limitations of study.

The Sector is very vast and it was not possible to cover every nook and cornerof this sector.

The variability and availability of data was also a limitation. The data were linear and possessed multi co linearity, so each and every data

was not considered for analysis.

The objective which we want to fulfil in this project is really good, but the majordemerit to our study is the availability of time for our search and analysis, but

then also, I have tried my level best to show a glimpse of my Research in tune

with the objectives.


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SOURCES AND METHODS OF COLLECTING DATA

To meet the objective of the project, a lot of data was required to be collected

from varied sources. For the technical analysis, the data was required in respect

of Interest Income, Advances, Various rates, Share Prices, etc. For this, the data was

obtained from Balance Sheets, Quarterly results, Websites, News Papers, etc. A list of

same is provided in the references.


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REPORT ORGANIZATION

COMPANY PROFILE

India Info line Securities Pvt. Ltd.

Knowledge is power and power brings security. Risk is a very relative term

and changes with every individual and situation. Financial management is not just about

managing risk but also managing knowledge and finally deriving answers that generate

wealth, security and trust.

VISION

Vision is to be the most respected company in the financial services space. To

be the premier provider of investment advisory and financial planning services in India.

PUNCH LINE:

IT S ALL ABOUT MONEY, HONEY!


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HISTORY IN BRIEF:

In 1995, a group of professionals formed a company called Probity Research&Services Pvt. Ltd. The name was later changed to India Infoline Ltd. The objective wasto provide unbiased and independent information to market intermediaries andinvestors. The quality of research was so good that soon it caught the imagination of allmajor participants in the financial marketing. In a very short period they startedproviding research report to consulting firms like Mckinsey, companies like HUL, bankslike Citibank etc.

In 1999, the company made all the research report free on the web and as aresult the number of user increases from mere a thousand to lacks in a very shortperiod of time. The company got the financial support from venture capitalists andprivate equity investors. They raised US $ 1 million in first round and in March 2000again US $5 Million.

In 2001, the company faced the worst situation. The dot com suffix, which wassexiest to them suddenly, became the worst stigma. The company was planning to setup a TV channel but circumstances forced them to jettison the plan. IIL decided tonarrow its focus on businesses where it could leverage its core competencies to themaximum. The key business lines that emerged were mutual funds, life insurance and e-broking.

The company became heavily dependent on its e-broking businesses for survival.

The odds were against them. There was no money available from the private equityinvestor at any valuation. All competitors were backed by institution or had abundantcapital. The core promoters of the company had little experience of broking. To add to it,the market was hit by a scam. They also had their share of price to pay and lessons tolearn. It was difficult to retain people. Although devastating for morale but notsurprising, the most market observers had written them off.

There was a core group who never lost hope. They cut all possible costs andworked on a bare bones structure. They survived against all odds started capturingmarket share. Not broking alone but mutual fund life insurance business also grewstrongly. The company rose from strength to become the leading corporate agent in lifeinsurance and among top retail players in mutual fund and broking space. In 2005, IIL

came with an IPO and raised Rs. 75 crores from the market. The issue price was Rs.76.The IPO was 7.22 times oversubscribed. The company after that never looked backand started entire gamut of investments products from risk free RBI bonds to high-risk,high rewards equities and also mutual funds and life insurance. They also forayed intoportfolio management services and commodities broking, again leveraging upon theircore competencies in research and technology. In the last ten years, India Infoline hasfaced numerous ups and downs, but has never compromised on integrity. They continueto ensure highest standards of corporate governance.


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BUSINESS DESCRIPTION

The India Infoline group, comprising the holding company, India Infoline Limited

and its wholly-owned subsidiaries, straddle the entire financial services space with

offerings ranging from Equity research, Equities and derivatives trading, Commodities

trading, Portfolio Management Services, Mutual Funds, Life Insurance, Fixed deposits,

Gold, bonds and other small savings instruments to loan products and Investment

banking. India Infoline also owns and manages the websites www.indiainfoline.com and

www.5paisa.com. The company has a network of 596 branches spread across 345 cities

and towns. It has more than 500,000 customers.

MAIN TEXT

Companies raise funds by issuing equity shares to the public. We have a well

developed equity market in our country for secondary dealing in various securities of

various denominations. We basically have BSE and NSE to see the dealings and the price

fluctuations of these securities. There are several factors like interest rates, companys

internal factors, profitability of company, any news about company, major events of the

company, country scenario, political factors, economical factors, social factors,

international events, trends in international market, investors own mentality,

predictions and approach etc.. Which affect the market price of these securities.

Thus, my project basically revolves around how all these factors affect the equity

market. The project is based on a descriptive study of various factors that affect the

Indian equity market in various aspects.
http://www.5paisa.com/http://www.5paisa.com/http://www.5paisa.com/


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FACTORS AFFECTING BANKING SECTOR

Starting off with the project, in the initial phase of SIP, I learnt the basics of the

stock market. As I had to work here in this market for 3.5 months this was the basicnecessity. In that phase I had nice exposure of how to deal with clients, how to handle

the queries of the investors, it was a practical exposure to learn the working of the

market, how the market moves and all about the corporate culture. Also I had learnt

what factors basically affect the equity market. Then I decided to limit my project to just

Banking Sector, because it is one of the most dynamic sector and also availability of time

was not permitting me to go beyond this.

There are N numbers of factors which affect the share prices. They can bebroadly classified into two:

INTERNAL FACTORS EXTERNAL FACTORS

INTERNAL FACTORS

As the name suggests, Internal Factors are those which affect the share pricesinternally, i.e. they are internal to the company or more specifically bank. Some of themajor internal factors that affect the share prices of a bank are as follows:

EARNINGS OF THE COMPANY:

How much Profit a company earns acts as a significant factor in pricemovements. If the quarterly results are good for a bank, then the price goes up, and ifthe results are not good, the investors show no interest in such banks share and thusprice falls. Investors invest money in the companies who earn well and in turn give goodreturn on investment. Thus, a wealthy and a profitable company have good investors

and thus have positive price movements. Price/Earnings Ratio also gives us idea aboutthe same.

MARKET CAPITALIZATION:Generally we commit one mistake that we guess the companys worth from the

price of its stock. It is the market capitalization of the company, rather than the stockprice, that is more important when it comes to determining the worth of the company.We need to multiply the stock price with the total number of outstanding Stocks in

the market to get the market capitalization of a company andthat are the worth of thecompany. Thus, a company or bank with high Market Capitalization turns out to be


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more popular among investors. For example, HDFCBANK, ICICI BANK and SBI are morepopular among investors than other banks because they have huge market share andmarket capitalization. As market capitalization increases, the share price tends toincrease and as market capitalization decreases, the share price tends to decrease.

PRICE/EARNINGS RATIO:

Price/Earnings ratio or the P/E ratio gives us a fair idea of how a company'sshare price compares to its earnings. If the price of the share is too much lower than theearning of the company, the stock is undervalued and it has the potential to rise in thenear future. On the other hand, if the price is way too much higher than the actualearning of the company and then the stock is said to overvalued and the price can fall atany point. The earnings also have a direct relation with price which is already explainedabove.

INTERNAL AFFAIRS OF THE COMPANY:

Any happening inside the company or any internal news does affect its shareprice. For example any key person moving out of the company, acquisition or takeoveror merger news, share split, employee strike and any other thing internal to the affairsof the bank affects the share price. A positive note from the internal affairs takes theprice to new highs and a negative does vice versa.

INTERST RATES:

Interest rates play a major role in determining stock market trends. Bullmarkets (those in an upward market) are usually associated with low interest rates andhigh Capital Gains, and bear markets (those in a downward trend) with high interestrates and low Capital gains. Interest rates are determined by the demand for capital pushes them up and normally indicates that the economy is thriving and that sharesprobably expensive. Low interest indicate low demand for capital, thus liquidity buildsup on the economy, driving share price down. Other interest rates like that of onDeposits and Borrowings also have impact on share prices.

OTHER FACTORS:

Other factors like Growth of the company, figures of deposits, advances,balance sheet, Profit and Loss Account, etc... Also affect the share prices drastically. Adiscussion for the same is done in later part of the report.

EXTERNAL FACTORS

Studying the internal factors, lets take alook at some External Factors whichaffect the Share Prices.

SENTIMENTS:


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Investor sentiment is almost impossible to predict and can be infuriating if, for

example, you have bought shares in a company that you think is a good buy but theprice remains flat. Investor sentiment is influenced by a wide variety of factors. Shareprices can, for example, be flat during the summer simply because so many major

investors are on holiday or attending major sporting events such as Royal Ascot andWimbledon, hence the adage sell in May and go away. Investor sentiment can lead toirrational buying or selling of shares and result in bull and bear markets. A bull marketis when share prices rise while a bear market is when they fall. In the technology boomof the late 1990s, for example, investors paid extremely high prices for shares andignored traditional valuation measures, such as P/E ratios. This carried on until 2000when investors belatedly realized these shares has risen too far and resulted in a threeyear bear market in shares. Thus, Sentiments of investors affect the share prices a lotand this is something unpredictable and immeasurable factor, but still the mostimportant one.

COMPANY NEWS & OTHER NEWS:The way investors interpret news coming out of companies is also a major

influence on share prices. If, for example, a company puts out a warning that businessconditions are tough, shares will often drop in value. If, however, a director buys sharesin the firm, it may be a signal that the companys prospects are improving. Companiesput out a great deal of news and most of the major announcements are covered by thefinancial press. But some announcements not regarded as so important and sometimes,particularly among smaller firms that are monitored less by investors and financialjournalists, indicators of the company health can be missed. Takeovers or evenrumours of takeovers also have a big influence on prices. This is because investorsexpect the bidder to pay a premium to shareholders.Also any other news or speculation about factors like change in Repo Rate, Cash ReserveRatio, Reverse Repo Rate, any change or likely change in the policies of government orRBI or SEBI, any new guidelines issued by the concerned authority, etc. affect the priceof the share. A positive news in any of these respects leads to a rise in price and anegative takes it to the other side.

Thus, news in any respect is undoubtedly a huge factor when it comes tostock price. Positive news about a company can increase buying interest in the market

while a negative press release can ruin the prospect of a stock. Having said that, wemust always remember that often times, despite amazingly good news, a stock can showleast movement. It is the overall performance of the company that matters more thannews. It is always wise to take a wait and watch policy in a volatile market or whenthere is mixed reaction about a particular stock.

DEMAND AND SUPPLY:

This fundamental rule of economics holds good for the equity market as well.The price is directly affected by the trend of stock market trading. When more people

are buying a certain stock, the price of that stock increases and when more people areselling the stock, the price of that particular stock falls. Now it is difficult to predict the


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trend. Thus, we should be very careful while dealing in stocks as buying or sellingpressure may lead to steep rise or fall in price of the shares.

ANALYSTSREPORTS:

Reports produced by independent analysts also influence share prices. If ananalyst changes their recommendation from sell to buy, for example, the shares willoften rise in value. Analysts reports are produced primarily by investment banks forprofessional investors, although some stockbrokers will make their research availableto private investors. We may find summaries of some reports published on financialnews websites or in newspapers and magazines. Some investment banks also publishtheir reports on their websites for free. We should remember that the recommendationan analyst puts on a company will affect its share price very quickly and can becomeirrelevant within hours. This is because the analyst will usually say a stock is a buywithin a particular price range. If the price moves above their targets the improvementsthe analyst expects may be priced in and so the shares are not worth buying . Butanalysts reports are always worth reading, even if the recommendation is out of date.The reports usually contain a great deal of useful information on the company and howits business is developing. They also often look at how the company rates against itscompetitors.

THE ECONOMY:

The health of the global economy has a fundamental influence on share pricesbecause it is ultimately responsible for driving company profits. Broadly speaking, if the

economy is growing, company profits improve and shares will become more highlyvalued. If the economy is weakening, company profits will fall and share prices will godown. Investors look at a vast amount of data to try and work out what is going tohappen to the economy and shift their portfolios before the events occur. This is why wewill often see markets move well ahead of an actual event occurring. For example, wecould get little reaction from the stock market when interest rates rise. This is becauseinvestors have already anticipated the shift months in advance andadjusted theirportfolios beforehand.We can usually assume that the stock market will anticipatemoves in the economyby around six to nine months. So if we want to stay ahead of thegame we need tofollow economic data as closely as the professionals.The kind

of information we need to play close attention to is: employment data, thereports putout by the Monetary Policy Committee (to get an idea where interestrates are headed),trade with other countries, retail sales and manufacturing. Sentiment surveys producedby trade bodies such as the Confederation of British Industry are also importantindicators of where the economy is heading.It is not only news about the US and UKeconomy that will impact on share prices.The signals coming out of other majoreconomies, particularly the US and UKs major trading partners, such as the Europe andAsia will also affect US and UK shares as what happens in these economies will have animpact on our own.

When looking at economic data, we need to think not only how the widereconomy will be affected but whether certain areas will be more affected than others. A

rise in interest rates is, for example, often bad news for house builders as people feelessconfident about taking on debt. Retailers are often badly affected too as people spend


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less. Pharmaceutical companies are, however, usually unaffected as peoples demand fordrugs is not influenced by the state of the economy. Companies whose profits areclosely tied to the health of the economy are known as cyclical stocks. Thosebusinesses that arent too affected by the economy arecalled defensive stocks. Ifeconomic conditions deteriorate you will often seeinvestors shift from cyclical stocks to

defensives. Thus, the economic health of an Economy affects the Share Prices.

PRESS & BROKING HOUSE RECOMMENDATIONS:

The financial pages of most national newspapers and investment magazinesusually contain share tips. Like analysts reports these tips can have a major influence onshare prices. If a journalist recommends a share, the price will usuallyrise and if theywrite a negative story the price will fall. These moves usuallyhappen very quickly so ifwe follow the recommendation it often makes sense todo so as soon as possible.

The Broking House also recommends BUY or SELL for particular shares basedontheir own research analysis. They display these recommendations in leadingmediasuch as Television and News Papers. Thus, these recommendations affect thepriceof shares and lead the market in the direction these recommendations take.

TECHNICAL INFLUENCES:

Share prices can rise and fall for a variety of technical reasons that may havenothing to do with the actual outlook for an individual company or the outlook for themarket. It is, for example, a common occurrence for share prices to drop back after astrong rally. This happens because investors take profits on some of the shares thathave risen in value, protecting their gains just in case the shares start to slip back.Investors often refer to this as market consolidation.

Another technical reason for share prices to rise or fall is the quarterlyadjustment in the FTSE 100 index. Shares that are expected to enter the FTSE 100may experience a sharper rise than one would expect in the weeks beforehand whileshares that leave the index can fall more sharply. This happens because funds thatsimply tracks the index have to match the composition of the index. Some professional

fund managers who hold the affected stocks also adjust their portfolios as they do notwant their holding to be too far above or below theCompanys weighting in the index..

Share prices can also be affected by investors who use technical analysis to drivetheir investment techniques. Technical analysis, also known as Chartism, is simply thestudy of past share price movements and stock market index trends, which are thenused to forecast how shares and stock markets will behave in future.

Market makers can also influence prices. If they, for example, do not own enoughshares to balance their books they will have to buy more. Market makers also influenceprices if the market is looking flat, reducing prices to attract buyers.Thus, technical

reasons can also be a cause for the rise or fall in the prices of shares.


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OTHER FACTORS:

Some other factors which influence share prices are as follows:

Change in Rates by RBI:

Looking at the changing scenario, RBI keeps unchanging rates like Repo Rate,Reverse Repo Rate and Cash Reserve Ratio. These rates have a direct relation with theBanks performance and in turn the share prices are linked with Banks Performance.Thus, a change in these rates or even a speculation of change in these rates affects shareprices.

Global Changes:

Any change in the global economy or in other words global changes also affectsIndian economy. Thus, the performance of an economy and its banks is affected by theseglobal changes. For example: The recession was first observed in the USA and later on itcaught its lead in other countries too. When it entered India, the share market crashedliterally. So, a careful and logical investor always keeps this in mind that what globalchanges affect the market and thus leads to rise or fall in share prices.Change in Government Policies:

Keeping in mind progress and well wishes about the country, the government

takes desired steps and keeps on reviewing its policies, rules and regulations and

procedures. A change in FDI and FII inflow restrictions, entry exit barriers for foreign

banks in India, EXIM regulations, change in Basel Norms, etc form part of important

government policies. Thus, a change in these in the policies affects the market scenario.

For example if government allows entry of foreign Banks in India, then the competition

would rise and it might happen that those foreign Banks may out perform and leave our

own banks far behind. Then in this case, the investors would be interested in investing

in those foreign Banks and a government would ever like that the funds are invested in

some foreign banks rather than our own banks. Thus, some restriction would follow and

this will definitely affect the share prices.


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THE MODEL

All the above stated factors are more or less for a theoretical explanation.There has to be some practical or numerical aspect to understand the impact of factorson share prices. Thus, to give a technical view to the analysis I developed a MODEL. Thedetails of this are as follows.

What the MODEL is all about?

The MODEL is all about a relation between the Share Prices and various otherfactors which affect it. As I have already stated that the Banking Sector is affected by Nnumber of factors. A comprehensive explanation we have already discussed earlier.Now, here I have tried to provide a technical view to the relation between Share pricesand the factors affecting it by developing a technical MODEL using SPSS.

MethodologyTo develop a MODEL, the first and the foremost requirement was to decide the

boundaries of study. As in this short time period a full fledged Analysis of whole marketwas not possible so I chose to limit my project to certain boundaries. Firstly, I decidedon the sector to be studied and for that I chose BANKINGSECTOR. The reason being thatthe Bank stocks have out-performed the Sensex and Nifty in this fiscal year. This out-performance can be attributed to favourable macroeconomic conditions and bankingsector specific development like quarterly results and passing of the SBI AmendmentBill that paved the way for its subsidiaries to list in stock markets. Bank credits havegrown at an average of 30percent in the past three years led by housing and retailsectors. Thus, on thus basis I chose Banking Sector.

For a proper, detailed and valid study, I have chosen top three banks in theBanking Sector viz. HDFC BANK, ICICI BANK and STATE BANK OF INDIA. The reasonbehind choosing these 3 banks is their huge turnover in the stock market, they havebeen given the highest weightage and they serve as top leading banks in the sector. Asmall report of Market Capitalization for 31st March, 2009 is also shown here.

Index /Exchange Company Name Close Price Mkt. Cap. In RsMn WeightageCNX BANKINDEX

Axis Bank Ltd 414.95 148969.17 6.65

CNX BANKINDEX

Bank of Baroda 234.35 85365.83 3.81

CNX BANKINDEX

Bank of India 219.4 115222.91 5.14

CNX BANKINDEX

Canara Bank 165.7 67937 3.03

CNX BANKINDEX

HDFC Bank Ltd 973.4 414062.52 18.47

CNX BANKINDEX

ICICI Bank Ltd 332.8 370343.67 16.52

CNX BANKINDEX

IDBI Bank Ltd 45.4 32902.6 1.47


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CNX BANKINDEX

KotakMahendra BankLtd

282.2 97547.75 4.35

CNX BANK

INDEX

Oriental Bank

of Commerce

110.1 2758442 1.23

CNX BANKINDEX

PunjabNational Bank

411.45 129731.21 5.79

CNX BANKINDEX

State Bank ofIndia

1067.1 677480.68 30.23

CNX BANKINDEX

Union Bank ofIndia

1468.5 7417656 3.31

Total 2241324.34 100

Sources and Data CollectionTo carry out the analysis, I drilled down on the data part. As all the factors are

not quantifiable i.e. cannot be converted into numerical terms and an analysis cannot bedone on non-numerical data, thus I chose some specific factors which were intonumerical terms. For a proper analysis I chose factors like Share Price, Interest Income,Advances, Operating Profit, Net Profit, Repo Rate, Reverse Repo Rate, Cash ReserveRatio, Close of Nifty, Close of Bank Nifty, Borrowings, Deposits, Average Return and aDummy variable to adjust for Acquisitions and mergers.

All these data were collected from the financial year 2001-02 till 2008-09.

Again these data were converted into Quarterly figures to make the study logical andvalid. These data were collected form varied sources like from the websitesof respective bank, some other websites, websites of NSE and BSE, News Papers, etc.

Tool and Techniques

For the analysis I used two tools MS Excel and SPSS. Using these two tools, Icompiled the data and conducted the analysis. First of all the whole data was collectedand compiled in Excel. The Excel sheet is also attached here with. Then I imported the

data into SPSS and conducted the analysis. MULTIPLEREGRESSION was the techniquewhich best suited the analysis and gave best results, so I used the same and conductedthe research analysis.

Analysis Excel Sheet

For using MULTIPLE REGRESSION, the basic conditions are that the datashould be on same time frame, should be Linear and should not possess correlationbetween them. The first condition was fulfilled by all the data as the data was collectedon the same time frame. The next condition is that the data should be linear, but this

condition was not fulfilled by the factors like Repo Rate, Reverse Repo Rate and CashReserve Ratio. So these factors were dropped for the analysis as they were not linear.


23/41

Again the factors like Operating Profit and Net Profit, Close of Nifty and Close of BankNifty and Borrowings and Deposits possessed correlation between them. Thus,Operating Profit, Close of Nifty and Borrowings were dropped for the analysis part andNet Profit, Close of Bank Nifty and Deposits were taken for the analysis. ThoughBorrowings is used in ICICI BANK analysis as it did not possess correlation there. The

sheets of correlation are also provided separately.

There are some technical terms which are frequently used in the all the threeanalysis. These are explained in the Appendix.


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MODEL

Now using the AVERAGE SHARE PRICE as DEPENDENT VARIABLE and takingINTEREST INCOME, ADVANCES, NET PROFIT, CLOSE OF BANKNIFTY, DEPOSITS ANDDUMMY VARIABLE as INDEPENDENTVARIABLES I applied MULTIPLE REGRESSION onthe data for all the three BANKS. Thus, I got the regression coefficient from the analysis.Now let us talk about the analysis for all the three BANKS separately.

The Hypothesis:

The hypothesis can be stated as follows

H0: Various Factors affect the Share PricesH1: Various Factors do not affect the Share Prices.

Thus, we will conduct all the analysis keeping in mind the hypothesis and will tryto reach a conclusion whether or not to accept the Hypothesis.


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HDFC BANK

To begin with the analysis of HDFC BANK, I have taken AVERAGEPRICE as DEPENDENT VARIABLE and INTREST INCOME, ADVANCES,

NETPROFIT, CLOSE OF BANK NIFTY and DEPOSIT as INDEPENDENTVARIABLES and have applied MULTIPLE PROGRESSION to it.

The output summary tables are shown below:

Model Summary

Model R RSquareAdjusted RSquare

Standarderror oftheEstimate Change StatisticsRSquareChange

F Change Df1Df2 Sig. FChange

1 .9952 .991 .989 43.03165 .991 565.170 5 26 .000

a. Predictors: (Constant), Deposits, Close of Bank Nifty, Net Profit, Advances,Interest Income

ANOVAb

Model Sum ofSquares Df Mean Square F Sig.1 Regression

ResidualTotal

5232693.18848144.7935280837.981

52631

1046538.6381851.723

565.170 .0002

a. Predictors: (Constant), Deposits, Close of Bank Nifty, Net Profit, Advances,Interest Income

b. Dependent Variable: Average Price.


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Coefficient2

Model Un-

Standardized

Coefficients

Stan

dard

ized

Coeffici

ents

t Sig. 95%

Confidence

Interval for B

Correlations Collinearity

Statistics

B Std.

Error

Bet

a

Low

er

Bou

nd

Upper

Boun

d

Zer

o-

Or

der

Parti

al

Part Tol

era

nce

Std.

Error

1 (Constant)

Intrest

Income

Advances

Net Profit

Close of

Bank

Nifty

Deposits

44.448

.003

.003

-.001

.165

-.010

22.549

.001

.003

.004

.007

.004

.931

.196

-.035

.923

- .964

1.971

3.825

.882

-.225

22.333

-2.713

.059

.001

.386

.824

.000

.012

-1.902

.001

-.004

-.009

.149

-.017

90.798

.005

.009

.007

.180

-.002

.825

.853

.860

.985

.854

.600

.170

-.044

.975

-.470

.072

.017

-.004

.418

-.051

.006

.007

.015

.205

.003

168.785

140.492

68.385

4.875

359.858

a. Dependent Variable: Average Price

MODEL FIT

Now, when we have applied MULTIPLE REGRESSION on the data, the time is

to explain the output after each summary table that what does the output says and what

can we infer and interpet from it. While applying MULTIPLE REGRESSION, we first took

the DEPENDENT and INDEPENDENT variable and then from the statistics option I close

Estimate, Confidence Intervals Covariance Matrix, Model Fit, R Squared Change,

Descriptives, part and Partial Correlations and Co linearity Diagnostics. So we got the

desired analysis. From all the output tables coming out of the analysis only three are of

major importance which we need to understand and interpet from.

MODEL SUMMARY

First of all the MODEL SUMMARY. Here we can see that in this case of HDFC

BANK the value of R is .995. This shows that the Predictors have 99.5% influences on

the output.

In this case the value of R2 is .991 this means that the predictors account for

99.1% variation in the Average Price of the shares.


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Here the difference is 0.002(.991-.989) which is very small. This shrinkage

means that if model is derived from the population rater than a sample it would account

for approximately 0.2% less variance in the Outcome.

We can see here that the R square change is .991. This is used for calculating

the F-ratio. Thus, the change in amount of variance that can be explained gives rise to an

F-ratio of 565.170, which is significant (p


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Advances (b=.003): This value indicates that as the Advances are increases byRs.1 crore, the Average Price increases by Rs. 0.003. This interpretation is onlytrue the effect of other predictors is held constant.

Net Profit (b= -.001): This value indicates that as the Net Profit is i increases byRs.1 crore, the Average Price decreases by Rs. 0.001. This interpretation is onlytrue if the effect of other predictors is held constant.

Close of Bank Nifty (b=.165): This value indicates that as the Close of BankNifty increases by 1 point the Average Price increases by Rs.0.165 . Thisinterpretation is only true if the effect of other predictors is held constant.

Deposits (b= -.010): This value indicates that as the Deposits are increases by Rs.1crore, the Average Price decreases by Rs. 0.010. This interpretation is only true

if the effect of other predictors is held constant.

For this model the value of t-statistic for different variables and their Sig.

can be seen from the above table. .

From the magnitude of t-statistics we can see that the Sig. Value for

INTEREST INCOME (0.001


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Close of Bank Nifty (=.923): This value indicates that as the Close ofBank Nifty increases by 1 Standard Deviation (2314.74), the Average Price

increases by .923 Standard Deviation. As the Standard Deviation for Average

Price is 412.734, thus, a change of 1 Standard Deviation would bring a

change of .923 in the price. This interpretation is only true if the effect ofother predictors is held constant.

Deposits (=-.964): This value indicates that as the Deposits are increases by 1Standard Deviation (40435.96), the Average Price increases by -.964 StandardDeviation. As the Standard Deviation for Average Price is 412.734, thus, achange of 1 Standard Deviation would bring a change of -.964 in the price.T his interpretation is only true if the effect of other predictors is heldconstant.

Now talking about the rest of the table, we have got zero-order

correlations which are nothing but simple Pearson Correlation Coefficients.The Partial Correlations represent the relationship between each predictor andthe outcome Variable, controlling for the effect of other predictors. The PartCorrelations represent the relationship between each predictor and theoutcome Variable, controlling for the effect of other predictors on theoutcome. In effect, these Part Correlations represent the unique relationshipthat each predictor has with the outcome.


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ICICI BANK

Starting off with the analysis part of ICICI BANK, I have taken AVERAGESHAREPRICE as DEPENDENT VARIABLE and INTEREST INCOME, ADVANCES, NET PROFIT,CLOSE OF BANK NIFTY, DEPOSITS and BORROWINGS as INDEPENDENT VARIABLESand have applied MULTIPLEREGRESSION to it.


Model Summary

Model R R

Square

Adjusted

R

Square

Std. Error

of

Estimate Change Statistics

RSquare

Change

FChange

Df1 Df2 Sig. FChange

1 .862(a) .744 .682 158.4107 .744 12.096 6 25 .000

a. Predictors: (Constant), Borrowings, Close of Bank Nifty, Net Profit, Deposits,Interest, Advances

ANOVAb

Model Sum ofSquares

Df MeanSquare

F Sig.

1 RegressionResidualTotal

1821275.597627348.5622448624.159

62531

303545.93325093.942

12.096 .000(a)

a. Predictors: (Constant), Borrowings, Close of Bank Nifty, Net Profit, Deposits,Interest, Advances

b. Dependent Variable: Average Price


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Coefficientsa

Model Un-

Standardized

Coefficients

Stan

dardi

zedCoef

ficie

nts

T Sig. 95%

Confidence

Interval for B


Statistics

B Std.

Error

Beta Lower

Bound

Upper

Boun

d

Zer

o-

Or

der

Parti

al

Part Tol

era

nce

VIF

1 (Constant)

Interest

Advances

Net Profit

Close of

Bank Nifty

Deposits

Borrowings

.

.079

.005

-.272

.009

-.002

-.016

.

.080

.004

.263

.041

.004

.007

.738

1.413

-.325

.077

-.446

- .839

.

.995

1.185

-1.034

.226

-.434

-2.415

.

.329

.247

.311

.823

.668

.023

.

-.085

-.004

-.815

-.076

-.009

-.030

.

.244

.015

.270

.094

.006

-.002

.746

.774

.709

.787

.805

.443

.195

.231

-.203

.045

-.086

-.435

.101

.120

-.105

.023

-.044

-.244

.019

.007

.104

.089

.010

.085

53.781

138.882

9.618

11.275

103.437

11.775


MODEL FIT

First of all the MODEL SUMMARY. In this case of ICICI BANK the value of R is.862. This shows that the Predictors have 86.2% influence on the output.

In this case the value of R2is .744 this means that the predictors account for74.4%variation in the Average Price of the shares.

Here the difference between value of R2and the Adjusted R2is 0.062 (.744-.682) which is small. This shrinkage means that if model is derived from the populationrather than a sample it would account for approximately 6.2% less variance in theOutcome.

We can see here that the R Square Change is .744. This is used for calculatingthe F-ratio. Thus, the change in amount of variance that can be explained gives rise to anF-ratio of 12.096, which is significant (p


32/41

MODEL PARAMETERS: COEFFICIENTS

This part of model is concerned with the parameters of the model. TheCoefficient stable shows us the parameters. We can define the equation here as follows:

Average Price = b0+ b1 (Interest Income) + b2(Advances) + b3(Net profit) + b4(Close ofBank Nifty) + b5(Deposits) + b6(Borrowings)Average Price = 472.069 + .079 (Interest Income) + .005 (Advances) + (-.272) (Netprofit) + .009 (Close of Bank Nifty) +(-.002) (Deposits) + (-.016) (Borrowings)

The B values tell us to what degree each predictor affects the outcome if theeffects of all other predictors are held constant. Here is the analysis.

Interest Income (b=.079): This value indicates that as the interest income increases byRs. 1 crore, the Average Price increases by Rs. 0.079.Thisinterpretation is only true ifthe effect of other predictors is held constant.

Advances (b=.005): This value indicates that as the Advances are increases by Rs.1crore, the Average Price increases by Rs. 0.005.This interpretation is only true if theeffect of other predictors is held constant.

Net Profit (b=-.272): This value indicates that as the Net Profit is increases by Rs.1crore, the Average Price decreases by Rs. 0.272. This interpretation is only true if theeffect of other predictors is held constant.

Close of Bank Nifty (b=.009): This value indicates that as the Close of Bank Niftyincreases by 1 point the Average Price increases by Rs.0.009 .This interpretation is onlytrue if the effect of other predictors is held constant.

Deposits (b=-.002): This value indicates that as the Depositsare increases by Rs. 1crore,the Average Price decreases by Rs. 0.002.This interpretation is only true if the effect ofother predictors is held constant.

Borrowings (b=-.016): This value indicates that as the Borrowingsare increases by Rs. 1crore, the Average Price decreases by Rs. 0.016 .This interpretation is only true if theeffect of other predictors is held constant .

For this model the value of t-statistic for different variables and their Sig. can beseen from the above table.

From the magnitude of t-statistics we can see that the t-statistics for Borrowings(.0230.05), CLOSE OF BANK NIFTY(.823>0.05), DEPOSITS (.668>0.05), ADVANCES (.247>0.05) and NET PROFIT(.311>0.05) is more than 0.05, thus, they dont have a significant contribution to themodel. We also look for t-values, which if are above +2 and below -2. Here in this case

only Borrowings match the criteria, thus, it has a significant contribution in the Model.


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The Standardized Beta Values as shown in the above table can be interpretedas follows:

Interest Income (=.738):This value indicates that as the interest income increases by 1Standard Deviation (2612.99), the Average Price increases by 0.738Standard Deviation.

As the Standard Deviation for Average Price is 281.0478, thus, a change of 1 StandardDeviation would bring a change of .738 in the price. This interpretation is only true ifthe effect of other predictors is held constant.

Advances (=1.413): This value indicates that as the Advances are increases by1Standard Deviation (74660.49), the Average Price increases by 1.413 StandardDeviation. As the Standard Deviation for Average Price is 281.0478, thus, a change of 1Standard Deviation would bring a change of 1.413 in the price. This interpretation isonly true if the effect of other predictors is held constant.

Net Profit (=-.325): This value indicates that as the Net Profit is increases by 1StandardDeviation (335.05), the Average Price increases by -.325 Standard Deviation . As theStandard Deviation for Average Price is 281.0478, thus, a change of 1 StandardDeviation would bring a change of -.325 in the price. This interpretation is only true ifthe effect of other predictors is held constant.

Close of Bank Nifty (=.077): This value indicates that as the Close of bank Niftyincreases by 1 Standard Deviation (2314.74), the Average Price increases by.077Standard Deviation. As the Standard Deviation for Average Price is281.0478, thus, achange of 1 Standard Deviation would bring a change of .077 in the price. Thisinterpretation is only true if the effect of other predictors is held constant.

Deposits (=-.446): This value indicates that as the Depositsare increases by 1StandardDeviation (81172.88), the Average Price increases by -.446 Standard Deviation. As theStandard Deviation for Average Price is 281.0478, thus, a change of 1 StandardDeviation would bring a change of -.446 in the price. This interpretation is only true ifthe effect of other predictors is held constant.

Borrowings (=-.839): This value indicates that as the Borrowings are increases by1 Standard Deviation (14793.88), the Average Price increases by -.839StandardDeviation. As the Standard Deviation for Average Price is 281.0478, thus, a change of 1Standard Deviation would bring a change of -.839 in the price. This interpretation isonly true if the effect of other predictors is held constant.

Now talking about the rest of the table, we have got zero-order correlationswhich are nothing but simple Pearson Correlation Coefficients. The Partial Correlationsrepresent the relationship between each predictor and the outcome Variable,controlling for the effect of other predictors. The Part Correlations represent therelationship between each predictor and the outcome Variable, controlling for the effectof other predictors on the outcome. In effect, these Part Correlations represent theunique relationship that each predictor has with the outcome.


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STATE BANK OF INDIA

Now coming to the analysis part of SBI, I have taken AVERAGE SHARE PRICEas DEPENDENT VARIABLE and INTEREST INCOME, ADVANCES, NETPROFIT, CLOSE OFBANK NIFTY and DEPOSITS as INDEPENDENTVARIABLES and have applied MULTIPLEREGRESSION to it.


Model Summary

Model R R

Square

Adjusted

R

Square

Std. Error

of

Estimate Change StatisticsR

Square

Change

F

Change

Df1 Df2 Sig. F

Change

1 .991(a) .983 .979 79.93108 .983 293.337 5 26 .000

a. Predictors: (Constant), Deposits, Interest, Close of Bank Nifty, Net Profit,Advances

ANOVAb

Model Sum ofSquares

Df Mean Square F Sig.

1 RegressionResidualTotal

9370611.027166113.4139536724.440

52631

1874122.2056388.977

293.337 .000(a)

b. Predictors: (Constant), Borrowings, Close of Bank Nifty, Net Profit, Advancesc. Dependent Variable: Average Price


35/41

Coefficientsa

Model Un-

Standardized

Coefficients

Stan

dardi

zedCoef

ficie

nts

t Sig. 95%

Confidence

Interval for B


Statistics

B Std.

Error

Beta Lower

Bound

Upper

Boun

d

Zer

o-

Or

der

Parti

al

Part Tol

era

nce

VIF

1 (Constant)

Advances

Net Profit

Interest

Close of

Bank Nifty

Deposits

.

.001

.054

.047

.195

-.001

.

.001

.104

.032

.012

.001

.348

.050

.057

.812

-.219

.

2.836

.520

1.482

15.96

-1.521

.

.009

.607

.150

.000

.140

- .

.000

-.160

-.018

.170

-.003

.

.003

.269

.113

.220

.000

.877

.808

.629

.979

.889

.496

.101

.279

.953

-.286

.073

.013

.038

.413

-.039

.044

.072

.446

.259

.032

22.474

13.847

2.242

3.866

30.798


MODEL FIT

First of all the MODEL SUMMARY. In this case of STATE BANK OF INDIA thevalue of R is .991. This shows that the Predictors have 99.1% influence on the output.

In this case the value of R2is .983 this means that the predictors account for98.3%variation in the Average Price of the shares.

Here the difference between value of R2and the Adjusted R2is 0.004 (.983-.979)which is significantly small. This shrinkage means that if model is derived from the

population rather than a sample it would account for approximately 0.4% less variancein the Outcome.

We can see here that the R Square Change is .983. This is used for calculatingthe F-ratio. Thus, the change in amount of variance that can be explained gives rise to anF-ratio of 293.337, which is significant (p


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ANOVA

The next table here shows the output, which contains an Analysis of Variance(ANOVA). The Sum of Squares here is 9370611; the value of Residual Sum of Squares is166113.4 and the value of F which is 293.337. Here we can conclude that the value of Fis highly significant and our ability to predict the Outcome Variable is much better.

MODEL PARAMETERS: COEFFICIENTS

This part of model is concerned with the parameters of the model. TheCoefficient stable shows us the parameters. We can define the equation here as follows:

Average Price= b0+ b1(Interest Income)+b2(Advances)+b3(Net profit)+b4(Close of BankNifty)+b5(Deposits)Average Price= 69.512 + .047 (Interest Income) + .001 (Advances) + (.054) (Net profit)+ .195 (Close of Bank Nifty) + (-.001) (Deposits)The B values tell us to what degree each predictor affects the outcome if the

effects of all other predictors are held constant. Here is the analysis.

Interest Income (b=.047): This value indicates that as the interest income increases byRs. 1 crore, the Average Price increases by Rs. 0.047.Thisinterpretation is only true ifthe effect of other predictors is held constant.

Advances (b=.001):This value indicates that as the Advances are increases by Rs.1crore, the Average Price increases by Rs. 0.001.This interpretation is only true if theeffect of other predictors is held constant.

Net Profit (b=.054): This value indicates that as the Net Profit is increases by Rs.1 crore,the Average Price increases by Rs. 0.054. This interpretation is only true if the effect ofother predictors is held constant.

Close of Bank Nifty (b=.195):This value indicates that as the Close of Bank Niftyincreases by 1 point the Average Price increases by Rs.0.195 .This interpretation isonlytrue if the effect of other predictors is held constant.

Deposits (b=-.001):This value indicates that as the Deposits are increases by Rs. 1crore,the Average Price decreases by Rs. 0.001.This interpretation is only true if the effect ofother predictors is held constant.

For this model the value of t-statistic for different variables and their Sig. can be seenfrom the above table.

From the magnitude of t-statistics we can see that the t-statistics for ADVANCES(.0090.05), and NET PROFIT (.607>0.05) is more than 0.05,thus, they dont have a significant contribution to the model. We also look for t-values,


37/41

which if are above +2 and below -2. Here in this case Advances and Close of Bank Niftymatch the criteria, thus, they have a significant contribution in the Model.

The Standardized Beta Values as shown in the above table can be interpreted as follows:

Interest Income (=.057): This value indicates that as the interest income increases by 1Standard Deviation (674.73), the Average Price increases by 0.057Standard Deviation.As the Standard Deviation for Average Price is 554.65, thus, a change of 1 StandardDeviation would bring a change of .057 in the price. This interpretation is only true ifthe effect of other predictors is held constant.

Advances (=.348): This value indicates that as the Advances are increases by 1Standard Deviation (131343.342), the Average Price increases by .348 StandardDeviation. As the Standard Deviation for Average Price is 554.65, thus, a change of 1Standard Deviation would bring a change of .348 in the price.This interpretation is onlytrue if the effect of other predictors is held constant.

Net Profit (=.050): This value indicates that as the Net Profit is increases by 1StandardDeviation (511.46), the Average Price increases by .050 Standard Deviation . As theStandard Deviation for Average Price is 554.65, thus, a change of 1 Standard Deviationwould bring a change of .050 in the price. This interpretation is only true if the effect ofother predictors is held constant.

Close of Bank Nifty (=.812): This value indicates that as the Close ofBank Niftyincreases by 1 Standard Deviation (2314.74), the Average Price increasesby.812 Standard Deviation. As the Standard Deviation for Average Price is 554.65, thus,a change of 1 Standard Deviation would bring a change of .812 in the price.This interpretation is only true if the effect of other predictors is held constant.

Deposits (=-.219): This value indicates that as the Depositsare increases by 1StandardDeviation (98847.83), the Average Price increases by -.219 Standard Deviation. As theStandard Deviation for Average Price is 554.65, thus, a change of 1 Standard Deviationwould bring a change of -.219 in the price of 1 Standard Deviation would bring a changeof -.219 in the price. This interpretation is only true if the effect of other predictors isheld constant.

Now talking about the rest of the table, we have got zero-order correlations which arenothing but simple Pearson Correlation Coefficients. The Partial Correlations representthe relationship between each predictor and the outcome Variable, controlling for theeffect of other predictors. The Part Correlations represent the relationship betweeneach predictor and the outcome Variable, controlling for the effect of other predictorson the outcome. In effect, these Part Correlations represent the unique relationship thateach predictor has with the outcome.


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FINDINGS AND CONCLUSION

The analysis of all the various factors affecting the Indian Banking Sector leads us tosome findings and conclusion. While I was doing the project I came across so manyinvestors, I studied their behaviour, their reactions, I studied various research reports,news articles, and from all that I could find out that each and every thing, whether aminute one or a big one, affects the Investors decision and thus affects the share prices. Ihave listed some factors in the report which affect the share prices, also I have done atechnical analysis for the same, but what comes out at the end is that there are still somany unnoticed factors which affect the share prices. This list is not exhaustive; stillthere is so much which needs to be studied and I tried to cover as much as I could.From the analysis, I could find out and conclude that, the Share Prices are affected byeach and every factor in varying degree. The analysis shows that there is a very smallimpact of Interest Income, Advances, Deposits, Borrowings and a slightly more impactof Bank Nifty Index on Share Prices. It is so because there are N numbers of factors and

it was not possible to quantify each one of them and conduct the analysis, there weresome technical difficulties also which turn out to be the limitation of the project. But atthe end of the analysis we can ACCEPT THEHYPOTHESIS, as most of the factors, doaffect the Share Prices in some or other manner.From the three and half month training at India Infoline, I could get that INVESTORSSENTIMENTS work out most for the market dynamics, this is the most significant factorwhich affect Share Prices drastically in either of the direction. A latest example I canquote is the post election result session on Monday, 18 May, 2009, when Investors werehappy that UPA government was back into power and the market jumped thousandpoints up.

Talking about the investors, what I can suggest them from my study is that they shouldbe very careful while investing in the Stock Market. The market is simplyUNPREDICTABLE. One should do a proper and detailed analysis before investing instocks. Banks shares are pretty safe, as I could find from the analysis. The BankingSector is ever growing and thus money invested in it would always give you goodreturns. But still one should beware of the Markets unpredictable upsand downs.

This report is of great help to the company and investors. They can use the analysis anddraw conclusions. Also they can do their own analysis if they want keeping this Analysisas a base. They can use the tools and techniques to take decision and play safe in the

market.

To conclude my report I would say that what I was able to do in these three and halfmonths, I did, but still, time was always a limitation and it restricted my work to certainboundations.


39/41

APPENDIX

TECHNICAL TERMINOLOGY

Some technical terms are frequently used in the all the three analysis.

First of all the MODEL SUMMARY TABLE. This table tells us the whole story aboutthe relationship of DEPENDENT Variable and INDEPENDENT variable.

In the MODEL SUMMARY TABLE we can find one column labelled R which is thevalue of Multiple Correlation Coefficient between the Predictors and theOutcome.

In the next column we haveR2, which is a measure of how much variability in theOutcome is accounted for by the Predictors.

The Adjusted R2 gives some idea of how well the model generalizes and ideallywe would like its value to be the same, or very close to, the value of R2.

The Change Statistics tells us whether the change in the R2 is significant or not.The significance of R2 can actually be tested usingF-ratio.

The R Square Change is used for calculating the F-ratio. The second table contains an Analysis of Variance (ANOVA) that tests whether

the model is significantly better at predicting the outcome than using the meanas a best guess.

F-ratio represents the ratio of the improvement in the Prediction that resultsfrom fitting the model, relative to the inaccuracy that still exists in the model.

The Sum of Squares represents the improvement in prediction resulting fromfitting a regression line to the data rather than using mean as an estimate of the

Outcome. The value ofResidual Sum of Squares represents the total difference between

the model and observed data.

The B values tell us about the relationship between Average Price and eachPredictor. If the value is Positive we can tell that there is a positive relationshipbetween the predictor and the outcome whereas if the value is Negative than wecan say that there is a negative relationship between the predictor and theoutcome.

Each of the Beta values has an associated Standard Error indicating to whatextent these values would vary across different samples, and these Standard

Errors are used to determine whether or not the b-value is significantly differentfrom zero.

The t-values are also given to test whether a b-value is significantly differentfrom zero.

The t-test is a measure of whether the predictor is making significantcontribution to the model. Therefore, if the t-test associated with a b-value issignificant (if the value in the column labelled SIG. is less than .05) then thepredictor is making a significant contribution to the model.

The smaller the value of Sig. the greater the contribution of the predictor. The b-values and their significance are important statistics to look at; however,

the Standardized versions of the b-values are in many ways easier to interpret.


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The Standardized values are provided here under label BETA (), and they tell usthe number of Standard Deviations that outcome will change as a result ofone Standard Deviation change in the Predictor.

The Standardized Beta Values are measured in Standard Deviation units and soare directly comparable; therefore, they provide a better insight into importance

of a Predictor in the Model.


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Bibliography:

The following articles from internet have been used for the study purpose:

a. www.nseindia.com

b. www.bseindia.com

c. www.sharegyan.com

d. www.moneycontrol.com

e. www.statebankofindia.com

f. www.hdfcbank.com

g. www.icicibank.com

h. www.economictimes.indiatime.com

i. www.business-standard.com

j. www.wikipedia.com

k. Guidance from company mentor Mr. Chintan Shah
http://www.nseindia.com/http://www.nseindia.com/http://www.bseindia.com/http://www.bseindia.com/http://www.sharegyan.com/http://www.sharegyan.com/http://www.moneycontrol.com/http://www.moneycontrol.com/http://www.statebankofindia.com/http://www.statebankofindia.com/http://www.hdfcbank.com/http://www.hdfcbank.com/http://www.icicibank.com/http://www.icicibank.com/http://www.economictimes.indiatime.com/http://www.economictimes.indiatime.com/http://www.business-standard.com/http://www.business-standard.com/http://www.wikipedia.com/http://www.wikipedia.com/http://www.wikipedia.com/http://www.business-standard.com/http://www.economictimes.indiatime.com/http://www.icicibank.com/http://www.hdfcbank.com/http://www.statebankofindia.com/http://www.moneycontrol.com/http://www.sharegyan.com/http://www.bseindia.com/http://www.nseindia.com/

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