PROJECT REPORT on Risk and Return (1)

A study on risk and return on banking securities 2011

PROJECT REPORT

ON

A STUDY ON RISK AND RETURN ON BANKING SECURITIES By Parveen kumari A Project Report submitted in partial fulfilment of the requirements for the award of the bachelor of business administration 2010-2011. By

Govt.College for Women,KARNAL DECEMBER-2011

Project guide: Ms.manika bhatra

Submitted by: Parveen kumari BBA Final Year

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DECLARATION

I, Parveen Kumari a student of Govt.College For Women Karnal BBA Final Year hereby declare that the project on tha topic entitled “A STUDY ON RISK AND RETURN ON BANKING SECURITIES” is an original work and the same hasn’t been submitted elsewhere for any purpose. The feasible suggestions have been incorporated in consultation with the project guide.

Signature of the candidate

(Parveen Kumari) Countersigned: Signature of the project guide

(Ms. Manika Bhatra)

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Acknowledgement

First of all, we thank the almighty for giving this precious gift of life so that we can learn and keep learning.

A project report is never the sole product of a person whose name appears on the cover. There is always the help, guidance and suggestions of many in preparation of such a report. So, I have indebted to several people who have helped me in completing my project.

I wish to express my sincere thanks to Lech. Ms. Manika Bhatra , Govt,College For Women Karnal for his co-operation, motivation, invaluable guidance, sympathetic and encouraging attitude at every stage of preparation of this project His keen interest, timely and constant encouragement and generous cooperation gave me confidence and strength to progress this report. His valuable advice, constructive criticism and suggestion during course of my study really helped me a lot.

I would also place on record my gratitude to all my teachers who have taught me during the course for their constant encouragement. I am thankful to my friends who help me a lot to complete my project.

I express my sincere thanks to all those who directly or indirectly helped me in the successful completion of this project.

Finally, I am thankful to my parents and God for their blessings and showing me the right way at all moments.

(Parveen Kumari)

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PREFACE

Portfolio management or investment helps investors in effective and efficient management of their investment to achieve this goal an effective portfolio has to be maintained which will maximize the returns and minimize the risks by diversifying the investments into various segments of securities.

The rapid growth of capital markets in India has opened up new investment avenues for investors, who like to see better returns on their investments and investible funds and are looking for better ways of investing their surplus funds. The increase in the number of investment opportunities has led to portfolio management gaining lot of significance and the latest scientific methods are adopted to find out the right combination of securities which will result in capital appreciation in the long run and a better yield on return for the invested funds of the investors.

The stock markets have become attractive investment options for the common man. But the need is to be able to effectively and efficiently manage investments in order to keep maximum returns with minimum risk. The study focuses on an in depth analysis of an effective portfolio management and investment system which will help the investor in achieving his goal of wealth maximization.

Hence this study on risk and return in banking securities is to examine the role, process and merits of effective investment management and decision making. The study is very much important for the investors as it is based on today’s scenario and will very helpful in investments in banking securities.

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TABLE OF CONTENTS

Chapter No.

Content

Page no.

1

Introduction to the research topic

07

2

Industry Pofile

10

3

Risk and return on banking securities

26

4

Research design

39

5

Findings, conclusions and recommendations

48

6

Data analysis,interpretation and presentation

55

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CHAPTER: I INTRODUCTION TO THE RESERCH TOPIC 1.1 INTRODUCTION Before 1990’s the main area of investment were bank deposits, gold, property and such other forms of tangible assets but for the past few years we had been witnessing a lot of investment opportunities coming up in the form of primary and secondary market since the globalization which had its inception during 90’s foreign capital flowing to India. New multinational entered the market and a lot of investment opportunities were opened to the people who kept their saving in bank and other kind of fixed assets. The topic analysis of risk and return in the banking had been selected because a lot of investors are making investment in the shares of banking co. The investors have to be aware of the risk involved in making the investment .so the investors have to calculate the variance and the beta value to know the present condition of the Company to know whether there is any risk in investing in the particular company and does the company offer good returns. The banks which I have been selected for research having different growth strategies and difference in revenue, profitability and market capitalization. Currently (2010), overall, banking in India is considered as fairly mature in terms of supply, product range and reach-even though reach in rural India still remains a challenge for the private sector and foreign banks. Even in terms of quality of assets and capital adequacy, Indian banks are considered to have clean, strong and transparent balance sheets-as compared to other banks in comparable economies in its region. The Reserve Bank of India is an autonomous body, with minimal pressure from the government.

The data collected is mainly secondary in nature and no questionnaire has been formulated for the research. The data (that is the stock price and BSE index) has been collected from various websites and has been analyzed and interpreted in order to find out the spread of return with the help of standard deviation and beta.

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1.2 REASON FOR SELECTION OF THIS TOPIC The financial sector is one of the booming and increasing sectors in India. The Personal Banker are one of the most powerful, efficient and effective channel through which the company sales itsvarious types of financial products and company takes operational work also. It is really difficultto convince customers and sell a single product and accomplish operational work. Whereas inmy entire project work I found my interest in working in a team, dealing with customers and finally convincing them to buy a product.

1.3 IMPORTANCE TO THE COMPANY The ultimate purpose of giving me this topic was to know about the customer’s perceptionsa b o u t t h e d i f f e r e n t p r o d u c t s o f t h e b a n k , a n d t o k n o w a b o u t o p e r a t i o n a l p r o c e s s . h o w t h e s e products can attract them and how the company can generate maximum profit by convincing them through personal banker and to better understand customer requirement and to understandoperational methodology.

1.4 LEARNING FROM THE STUDY The process of bank related transaction, bank related various terms, work environment of HDFCBank. Different products and services provided by the bank. Customers’ perception about thedifferent products. The brand image of the bank. What are the problems faced by customer ondaily basis. How to communicate with the customers. Different techniques of dealing with the customers. How to convince and convert a customer into a real customer. and at the last how to better response to the customer problem.

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1.5 SUBJECT BACKGROUND OF THE RESEARCH TOPIC A company, which has a high intrinsic worth, is not necessarily the best stock to buy .it may have no growth prospects or it may be overpriced .similarly a company that performs well during any one year may not be the best to buy. On the contrary, a company which has been badly for sometime might have turn the corner and it may be the best to buy, as its shares may be under prices and it has good prospects of growth hence an analysis of risk or return guides an investor in proper profitable investment.

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CHAPTER 2- INDUSTRY PROFILE 2.1 BANKING SECTOR Banking in India originated in the first decade of 18th century with The General Bank of India coming into existence in 1786. This was followed by Bank of Hindustan. Both these banks are now defunct. The oldest bank in existence in India is the State Bank of India being established as "The Bank of Bengal" in Calcutta in June 1806. A couple of decades later, foreign banks like Credit Lyonnais started their Calcutta operations in the 1850s. At that point of time, Calcutta was the most active trading port, mainly due to the trade of the British Empire, and due to which banking activity took roots there and prospered. The first fully Indian owned bank was the Allahabad Bank, which was established in 1865. By the 1900s, the market expanded with the establishment of banks such as Punjab National Bank, in 1895 in Lahore and Bank of India, in 1906, in Mumbai - both of which were founded under private ownership. The Reserve Bank of India formally took on the responsibility of regulating the Indian banking sector from 1935. After India's independence in 1947, the Reserve Bank was nationalized and given broader powers. 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 such as UTI Bank (the first of such new generation banks to be set up), 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. 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% at present it has gone up to 49% with some restrictions. The new policy shook the Banking sector in India completely. Bankers, till this time, were used to the 4-6-4 method (Borrow at 4%; Lend at 6%; Go home at 4) of functioning.

The new wave ushered in a modern outlook and tech-savvy methods of working for traditional banks. All this led to the retail boom in India. People not just demanded more from their banks but also received more.

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Currently (2007), overall, banking in India is considered as fairly mature in terms of supply, product range and reach-even though reach in rural India still remains a challenge for the

private sector and foreign banks. Even in terms of quality of assets and capital adequacy, Indian banks are considered to have clean, strong and transparent balance sheets-as compared to other banks in comparable economies in its region.

The Reserve Bank of India is an autonomous body, with minimal pressure from the government. The stated policy of the Bank on the Indian Rupee is to manage volatilitywithout any stated exchange rate-and this has mostly been true. With the growth in the Indian economy expected to be strong for quite some time-especially in its services sector, the demand for banking services-especially retail banking, mortgages and investment services are expected to be strong. M&A’s, takeovers, asset sales and much more action will happen on this front in India.

In March 2006, the Reserve Bank of India allowed Warburg Pincus to increase its stake in Kotak Mahindra Bank (a private sector bank) to 10%. This is the first time an investor has been allowed to hold more than 5% in a private sector bank since the RBI announced norms in 2005 that any stake exceeding 5% in the private sector banks would need to be vetted by them.

Currently, India has 88 scheduled commercial banks (SCBs) - 28 public sector banks (that is with the Government of India holding a stake), 29 private banks (these do not have government stake; they may be publicly listed and traded on stock exchanges) and 31 foreign banks.

They have a combined network of over 53,000 branches and 17,000 ATMs. According to a report by ICRA Limited, a rating agency, the public sector banks hold over 75 percent of total assets of the banking industry, with the private and foreign banks.

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2.2 HDFC BANK PROFILE HDFC is India's premier housing finance company and enjoys an impeccable track record in India as well as in international markets. Since its inception in 1977, the Corporation has maintained a consistent and healthy growth in its operations to remain the market leader in mortgages. Its outstanding loan portfolio covers well over a million dwelling units. HDFC has developed significant expertise in retail mortgage loans to different market segments and also has a large corporate client base for its housing related credit facilities. With its experience in the financial markets, a strong market reputation, large shareholder base and unique consumer franchise, HDFC was ideally positioned to promote a bank in the Indian environment. The Housing Development Finance Corporation Limited (HDFC) was amongst the first to receive an 'in principle' approval from the Reserve Bank of India (RBI) to set up a bank in the private sector, as part of the RBI's liberalization of the Indian Banking Industry in 1994.

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A study on risk and return on banking securities 2011 The bank was incorporated in August 1994 in the name of 'HDFC Bank Limited', with its registered office in Mumbai, India. HDFC Bank commenced operations as a Scheduled Commercial Bank in January 1995. The authorized capital of HDFC Bank is Rs.450 crore (Rs.4.5 billion). The paid- up capital is Rs.311.9 crore (Rs.3.1 billion). The HDFC Group holds 22.1% of the bank's equity and about 19.4% of the equity is held by the ADS Depository (in respect of the bank's American Depository Shares (ADS) Issue). Roughly 31.3% of the equity is held by Foreign Institutional Investors (FIIs) and the bank has about 190,000 shareholders. The shares are listed on the Stock Exchange, Mumbai and the National Stock Exchange. The bank's American Depository Shares are listed on the New York Stock Exchange (NYSE) under the symbol "HDB". Currently (2007), HDFC Bank has over 600 branches located in over 300 cities of India, and all branches of the bank are linked on an online real-time basis. The bank offers many innovative products & services to individuals, corporate, trusts, governments, partnerships, financial institutions, currently (2007).

Name of the Board of Directors Chairman

Mr. Jagdish Capoor,

Managing Director

Mr. Aditya Puri,

Executive Director

Mr. Harish Engineer,

Executive Director

Mr. Paresh Sukthankar,

Directors : Mr Keki Mistry Mr. Vineet Jain Mrs.Renu Karnad Mr. Arvind Pande Mr. Ashim Samanta Mr. C. M. Vasudev Mr. Gautam Divan Dr. Pandit Palande Mr. Sanjay Dongre, Executive Vice President (Legal) & Company Secretary 13


2.3 HDFC BANK HISTORY Housing Development Finance Corporation Limited, more popularly known as HDFC Bank Ltd, was established in the year 1994, as a part of the liberalization of the Indian Banking Industry by Reserve Bank of India (RBI). It was one of the first banks to receive an 'in principle' approval from RBI, for setting up a bank in the private sector. The bank was incorporated with the name 'HDFC Bank Limited', with its registered office in Mumbai. The following year, it started its operations as a Scheduled Commercial Bank. Today, the bank boasts of as many as 1412 branches and over 3275 ATMs across India.

Amalgamations In 2002, HDFC Bank witnessed its merger with Times Bank Limited (a private sector bank promoted by Bennett, Coleman & Co. / Times Group). With this, HDFC and Times became the first two private banks in the New Generation Private Sector Banks to have gone through a merger. In 2008, RBI approved the amalgamation of Centurion Bank of Punjab with HDFC Bank. With this, the Deposits of the merged entity became Rs. 1,22,000 crore, while the Advances were Rs. 89,000 crore and Balance Sheet size was Rs. 1,63,000 crore.

Tech-Savvy HDFC Bank has always prided itself on a highly automated environment, be it in terms of information technology or communication systems. All the braches of the bank boast of online connectivity with the other, ensuring speedy funds transfer for the clients. At the same time, the bank's branch network and Automated Teller Machines (ATMs) allow multibranch access to retail clients. The bank makes use of its up-to-date technology, along with market position and expertise, to create a competitive advantage and build market share.

Capital

Structure

At present, HDFC Bank boasts of an authorized capital of Rs 550 crore (Rs5.5 billion), of this the paid-up amount is Rs 424.6 crore (Rs.4.2 billion). In terms of equity share, the HDFC Group holds 19.4%. Foreign Institutional Investors (FIIs) have around 28% of the equity and about 17.6% is held by the ADS Depository (in respect of the bank's American Depository Shares (ADS) Issue). The bank has about 570,000 shareholders. Its shares find a listing on the Stock Exchange, Mumbai and National Stock Exchange, while its American Depository Shares are listed on the New York Stock Exchange (NYSE), under the symbol 'HDB'.

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Products

&

Services

Personal Banking                   

Savings Accounts Salary Accounts Current Accounts Fixed Deposits Demat Account Safe Deposit Lockers Loans Credit Cards Debit Cards Prepaid Cards Investments & Insurance Forex Services Payment Services NetBanking InstaAlerts MobileBanking InstaQuery ATM PhoneBanking

NRI Banking              

Rupee Savings Accounts Rupee Current Accounts Rupee Fixed Deposits Foreign Currency Deposits Accounts for Returning Indians Quickremit (North America, UK, Europe, Southeast Asia) IndiaLink (Middle East, Africa) Cheque LockBox Telegraphic / Wire Transfer Funds Transfer through Cheques / DDs / TCs Mutual Funds Private Banking Portfolio Investment Schemes Loans 15

A study on risk and return on banking securities 2011       

Payment Services NetBanking InstaAlerts MobileBanking InstaQuery ATM PhoneBanking

PROMOTER HDFC is India's premier housing finance company and enjoys an impeccable track record inI n d i a a s w e l l a s i n i n t e r n a t i o n a l m a r k e t s . S i n c e i t s i n c e p t i o n i n 1 9 7 7 , t h e C o r p o r a t i o n h a s maintained a consistent and healthy growth in its operations to remain the market lea der inmortgages. Its Outstanding loan portfolio covers well over a million dwelling units. HDFC hasdeveloped significant expertise in retail mortgage loans to different market segments and alsohas a large corporate client base for its housing related credit facilities. With its experienceinthef i n a n c i a l m a r k e t s , a s t r o n g m a r k e t r e p u t a t i o n , l a r g e s h a r e h o l d e r b a s e a n d u n i q u e c o n s u m e r franchise, HDFC was ideally positioned to promote a bank in the Indian environment.

BUSNESS FOCUSI HDFC Bank's mission is to be aWorld-Class Indian Bank . The objective is to build soundcustomer franchises across distinct businesses so as to be the preferred provider of bankingservices for target retail and wholesale customer segments, and to achieve healthy growth in profitability, consistent with the bank's risk appetite. The bank is committed to maintain thehighest level of ethical standards, professional integrity, corporate governance and regulatorycompliance. HDFC Bank's business philosophy is based on four core values - OperationalExcellence, Customer Focus, Product Leadership and People.

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FIVE “S” PART OF KAIZEN Focus on effective work place organization believe in “Small changes lead to large improvement” Every successful organization have their own strategy to win the race in the competitive market.They use some technique and methodology for smooth running of business. HDFC BANK alsoa c q u i r e d t h e J a p a n e s e t e c h n i q u e f o r s m o o t h r u n n i n g o f w o r k a n d e f f e c t i v e w o r k p l a c e organization. Five ‘S’Part of Kaizen is the technique which is used in the bank for easy and systematic work place and eliminating unnecessary things from the work place.

BENEFIT OF FIVE “S” •It can be started immediately. •Every one has to participate. •Five “S” is an entirely people driven initiatives. •Brings in concept of ownership. •All wastage are made visible.

MANAGEMENT Mr. Jagdish Capoor took over as the bank's Chairman in July 2001. Prior to this, Mr. Capoor wasa Deputy Governor of the Reserve Bank of India. The Managing Director, Mr. Aditya Puri, has b e e n a p r o f e s s i o n a l b a n k e r f o r o v e r 2 5 y e a r s a n d b e f o r e j o i n i n g HDFC Bank in 1994 washeading Citibank's operations in Malaysia. The Bank's Board of Dire c t o r s i s c o m p o s e d o f eminent individuals with a wealth of experience in public policy, administration, industry andc o m m e r c i a l b a n k i n g . S e n i o r e x e c u t i v e s r e p r e s e n t i n g H D F C a r e a l s o o n t h e B o a r d . S e n i o r banking professionals with substantial experience in India and abroad head various businesses a n d f u n c t i o n s a n d r e p o r t t o t h e M a n a g i n g D i r e c t o r . G i v e n t h e p r o f e s s i o n a l e x p e r t i s e o f t h e management 17

A study on risk and return on banking securities 2011 team and the overall focus on recruiting and retaining the best talent in the industry,the bank believes that its people are a significant competitive strength

HDFC BANK business strategy emphasizes the following: Increase market share in India’s expanding banking and financial services indust ry byfollowing a disciplined growth strategy focusing on quality and not on quantity and deliveringhigh quality customer service. Leverage our technology platform and open scaleable systems todeliver more products to more customers and to control operating costs. Maintain current highstandards for asset quality through disciplined credit risk manag ement.Develope innovative products and services that attract the targeted customers and address inefficiencies in the Indianfinancial sector. Continue to develop products and services that reduce bank’s cost of funds.Focus on high earnings growth with low volatility.

2.4 PRODUCT SCOPE: HDFC Bank offers a bunch of products and services to meet the every need of the people. Thecompany cares for both, individuals as well as corporate and small and medium enterprises. For individuals, the company has a range accounts, investment, and pension scheme, different typesof loans and cards that assist the customers. The customers can choose the suitable one from a range of products which will suit their

life-stage and needs. For organizations the company has ah o s t o f c u s t o m i z e d solutions that range from funded services, Non-funded services, V a l u e addition services, Mutual fund etc. These affordable plans apart from providing long term valueto the employees help in enhancing goodwill of the company. The products of the company arecategorized into various sections which are as follows: •Accounts and deposits. •Loans. •Investments and Insurance. •Forex and payment services. •Cards. •Customer center. 18


2.5 PRODUCTS AND SERVICES AT A GLANCE 1. PERSONAL BANKING SERVICESA . A c c o u n t s & D e p o s i t s Savings Account •Regular Savings Account •Savings Plus Account •Savings Max Account •Senior Citizens Account • No Frills Account •Institutional Savings Account •Payroll Salary Account •Classic Salary Account •Regular Salary Account •Premium Salary Account •Defence Salary Account •Kid's Advantage Account •Pension Saving Bank Account •Family Savings Account •Kisan No Frills Savings Account •Kisan Club Savings Account

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Current Account •Plus Current Account •Trade Current Account •Premium Current Account •Regular Current Account •Apex Current Account •Max Current Account •Reimbursement Current Account

Fixed Deposit •Regular Fixed Deposit •Super Saver Account •Sweep-in Account

Recurring Deposit Demat Account Safe Deposit LockerB. Loans •Personal Loans •Home Loans •Two Wheeler Loans •New Car Loans •Used Car Loans •Overdraft against Car •Express Loans •Loan against Securities •Loan against Property 20

A study on risk and return on banking securities 2011 •Commercial Vehicle Finance •Working Capital Finance •Construction Equipment Finance

C. Investments & Insurance •Mutual Funds •Insurance •Bonds •Financial Planning •Knowledge Centre •Equities & Derivatives •Mudra Gold Bar

D. Forex Services •Trade Finance •Traveler’s Cheques •Foreign Currency Cash •Foreign Currency Drafts •Foreign Currency Cheque Deposits •Foreign Currency Remittances •Forex Plus Card

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E. Payment Services • Net Safe •Prepaid Refill •Bill Pay •Direct Pay •Visa Money Transfer •E-Monies Electronic Funds Transfer •Excise & Service Tax Payment

F. Access Your Bank - One View •Insta Alerts •Mobile Banking •ATM

•Phone Banking •Branch Network

G. Cards •Silver Credit Card •Gold Credit Card •Woman's Gold Credit Card •Platinum plus Credit Card •Titanium Credit Card •Value plus Credit Card 22


•Health plus Credit Card •HDFC Bank Idea Silver Card •HDFC Bank Idea Gold Card

2. WHOLE SALE BANKING SERVICES •Funded Services • Non Funded Services •Value Added Services •Internet Banking •Clearing Sub-Membership •RTGS – sub membership •Fund Transfer •ATM Tie-ups •Corporate Salary a/c •Tax Collection •Financial Institutions •Mutual Funds •Stock Brokers •Insurance Companies •Commodities Business •Trusts

3. NRI BANKING SERVICES •Rupee Saving a/c 23

A study on risk and return on banking securities 2011 •Rupee Current a/c •Rupee Fixed Deposits •Foreign Currency Deposits •Accounts for Returning Indians

•Payment Services • Net Safe •Bill Pay •Insta Pay •Direct Pay •Visa Money •Online Donation •Remittance

2.6 QUALITY POLICY SECURITY: The bank provides long term financial security to their policy. The bank does this by offering life insurance and pension products. TRUST: The bank appreciates the trust placed by their policy holders in the bank. Hence, it willaim to manage their investments very carefully and live up to this trust. INNOVATION: Recognizing the different needs of our customers, the bank offers a range of innovative products to meet these needs.I N T E G R I T Y C U S T O M E R C E N T R I C P E O P L E C A R E “ O N E F O R A L L A N D A L L F O R ONE” TEAM WORK JOY AND SIMPLICIT.

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CHAPTER -3

RISK AND RETURN ON BANKING SECURITIES

RETURN Return is the primary motivating force that drives investment .it represents the reward for undertaking investment .since the game of investing is about returns, measurement of realized return is necessary to assess how well the investment manager has done. In addition historical return is often used as an important input on estimating future return.

THE COMPONENT OF RETURN The return of an investment consist of two component Current return the component that often comes to mind when one is thinking about return is the periodic cash flow such as dividend or interest generated by the investment .current return is measured as the periodic income in relation to the beginning price of the investment. Capital return the second component of return is reflected in the price change called the capital return .it is simply the price appreciation (or depreciation) divided by the beginning price of the assets. Thus total return =current return + capital return

RISK Risk refers to the possibility that the actual outcome of an investment will differ from its expected outcome .more specifically, most investors are concerned about the actual outcome being less than the expected outcome .the wider the range of possible outcomes the greater the risk.

RISK CONSIDERATIONS How Assured Can I be Of Getting My Full Investment Back? Company Fixed Deposits are unsecured instruments, i.e., there are no assets backing them up. Therefore, in case the company/HDFC goes under, chances are that you may not get your principal sum back. It depends on the strength of the company and its ability to pay back your deposit at the time of its maturity. While investing in an NBFC, always remember to first check out its credit rating. Also,beware of HDFCs offering ridiculously high rates of interest.

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How Assured Is My Income? Not at all secured. Some NBFCs have known to default on their interest and principal payments. You must check out the liquidity position and its revenue plan before investing in an HDFC. Are Their any Risks Unique to Company Fixed Deposits? If the Company/NBFC goes under, there is no assurance of your principal amount. Moreover, there is no guarantee of your receiving the regular-interval income from the company. Inflation and interest rate movements are one of the major factors affecting the decision to invest in a Company/NBFC Fixed Deposit. Also, you must keep the safety considerations and the company/NBFC’s credit rating and credibility in mind before investing in one. Are Company/NBFC Deposits rated for their credit Quality? Yes, Company/NBFC Fixed Deposits are rated by credit rating agencies like CARE, CRISIL and ICRA. A company rated lower by credit rating agency is likely to offer a higher rate of interest and vice-versa. An AAA rating signifies highest safety, and D or FD means the company is in default.

DIFFERENT TYPE OF RISK Forces that contribute to variance in return-price or dividend-constitute the element of risk .some influence are external to the organization cannot be controlled other influence are internal to the organization that are controllable to a large extent .in an investment decision those factors which is uncontrollable is called systematic risk .on the other hand those factors are controllable and internal to the organization are called unsystematic risk these are the two broad categories of risk. 1. SYSTEMATIC RISK. MARKET RISK This is the most familiar of all risks. Also referred to as volatility, market risk is the day-today fluctuation in a stock's price. Market risk applies mainly to stocks and options. As a whole, stocks tend to perform well during a bull market and poorly during a bear market volatility is not so much a cause but an effect of certain market forces. Volatility is a measure of risk because it refers to the behaviour, or "temperament", of your investment rather than the reason for this behaviour. Because market movement is the reason why people can make money from stocks, volatility is essential for returns, and the more unstable the investment the more chance there is that it will experience a dramatic change in either direction. Market risk is caused by investors’ reaction to the tangible as well as intangible events. expectation of lower corporate profile in general may cause the larger body of common stocks to fall in price .investors are expressing their judgment that too much is being paid for 26

A study on risk and return on banking securities 2011 earning in the light of anticipated events .the basis for the reaction is a set of real, tangible, events – political, social or economic.

INTEREST RATE RISK Interest rate risk is the risk that an investment's value will change as a result of a change in interest rates. This risk affects the value of bonds more directly than stocks. the root cause of interest rate risk lies in the fact that, if the RBI increase or decrease the interest rate (repo rate) the interest on government securities rise or fall, the rate of return demanded on alternative investment vehicle, such as stocks and bonds issued in the private sector ,rise or fall .in other words as the cost of money changes for nearly risk free securities, the cost of money to more risk prone issues will also change.

INFLATION RISK (PURCHASING POWER RISK) The loss of purchasing power due to the effects of inflation. When inflation is present, the currency loses its value due to the rising price level in the economy. The higher the inflation rate, the faster the money loses its value.

LIQUIDITY RISK The uncertainty associated with the ability to sell an asset on short notice without loss of value. A highly liquid asset can be sold for fair value on short notice. This is because there are many interested buyers and sellers in the market. An illiquid asset is hard to sell because there few interested buyers. This type of risk is important in some project investment decisions but is discussed extensively in Investment courses.

FOREIGN EXCHANGE RISKS Uncertainty that is associated with potential changes in the foreign exchange value of a currency. There are two major types: translation risk and transaction risks.

TRANSLATION RISKS Uncertainty associated with the translation of foreign currency denominated accounting statements into the home currency. This risk is extensively discussed in Multinational Financial Management courses.

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2. UNSYSTEMATIC RISK Unsystematic risk are those risk which is firm specific or peculiar to a firm or industry the different type of unsystematic risk are discussing below.

BUSINESS RISK The uncertainty associated with a business firm's operating environment and reflected in the variability of earnings before interest and taxes (EBIT). Since this earnings measure has not had financing expenses removed, it reflects the risk associated with business operations rather than methods of debt financing. This risk is often discussed in General Business Management courses. Business risk can be divided into two board categories: external and internal .internal business risk is largely associated with the efficiency with which a firm conduct its operation within the border operating environment imposed upon it .each firm has it s on internal risk, and the degree to which it is successful in coping with them is reflected in operating efficiency.

FINANCIAL RISK The uncertainty brought about by the choice of a firm’s financing methods and reflected in the variability of earnings before taxes (EBT), a measure of earnings that has been adjusted for and is influenced by the cost of debt financing. This risk is often discussed within the context of the Capital Structure topics. By Engaging in debt financing the firm changes the characteristics of the earning stream available to the common stock holders, specifically, the reliance in debt financing ,called financial leverage ,has at least three important effect on common stock holders . 1) Increase the variability of their return 2) Effect their expectation concerning to the return 3) Increase the risk of being ruined.

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When the investor want to invest his money at a higher rate of return there is a higher factor of risk. As we would be exposing our money to the markets (equity, debt, etc.) and their associated risks. Further, the higher the risk taken, the higher is the expected return. In the bank the money is exposed to no risk, so the return is just at about the inflation rate. In contrast the risk in equity markets is the highest, and the expected returns would also be the highest. Before exposing ourselves to the markets, we can apply common sense and our learning to reduce this risk to acceptable levels. There are 5 economic factors that affect equity returns: 1. Unanticipated changes in default risk; 2. Unanticipated changes in the term structure of interest rates; 3. Unanticipated changes in the inflation rate; 4. Unanticipated changes in the long-run growth rate of profits for the economy; and 5. Residual market risk. Which can be classified under the 4 types of investment risk, namely; Business risk, Inflation risk, Interest rate risk and Market risk. Statistical techniques can be developed to measure each of the above risk factors. When the investor want to invest his money at a higher rate of return there is a higher factor of risk. As we would be exposing our money to the markets (equity, debt, etc.) and their associated risks. Further, the higher the risk taken, the higher is the expected return. In the bank the money is exposed to no risk, so the return is just at about the inflation rate. In contrast the risk in equity markets is the highest, and the expected returns would also be the highest. Before exposing ourselves to the markets, we can apply common sense and our learning to reduce this risk to acceptable levels. There are 5 economic factors that affect equity returns: 1. Unanticipated changes in default risk; 2. Unanticipated changes in the term structure of interest rates; 3. Unanticipated changes in the inflation rate; 4. Unanticipated changes in the long-run growth rate of profits for the economy; and 5. Residual market risk. Which can be classified under the 4 types of investment risk, namely; Business risk, Inflation risk, Interest rate risk and Market risk.Statistical techniques can be developed to measure each of the above risk factors.The key insight offered by Dr. Markowitz's work is that risk of any security, as measured by its standard deviation of return, is not what is important. Instead, it is the correlation or covariance of the security's return within a diversified portfolio that will determine its risk.

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Thus, while the expected return of a portfolio is the market weighted average expected return of the securities comprising the portfolio, the risk of the portfolio is not a linear function of the standard deviation of the risk of the individual security. By combining securities in a portfolio with characteristics similar to the market, the efficiency of the market would be captured. The risk of a security as measured by the standard deviation of return can be partitioned into 2 components, namely non-diversifiable and diversifiable. Nondiversifiable risk are factors common to and affecting all securities. The impact of these factors on a portfolio cannot be avoided. This type of risk is also called market or systemic risk. Once an investor is in the market he cannot avoid it. Diversifiable risk is the unsystemic risk, which is unique to an individual security. Like a long strike in a factory, which would affect its earnings and profitability. This risk can be avoided by diversifying the portfolio of securities. By holding a portfolio of 10-12 different stocks, an investor can diversify away all unsystemic risk. In this situation of a well-diversified portfolio the only risk is the non-diversifiable or market risk (which in any case cannot be avoided when an investor enters the market). The Sharpe-Lintner-Mossin analysis states that market risk can be measured by the product of the standard deviation of the return on the market and the 'beta' of the security. This beta is estimated using historical data, measures the sensitivity of the return on the security to changes in the market as measured by some market index such as the Nifty or Sensex. Now, the standard deviation of the market is common to all securities, thus the beta of the security is a proxy for relative systemic risk. Given that the investor should be compensated for the market risk, the beta is a relative measure of market risk. Expected return = Risk free rate + beta × (expected market return − risk free rate). This is also called the capital asset pricing model or CAPM and states that the expected return from a security should equal the risk free rate of return plus a risk premium. Prof. Stephen Ross went on to develop the arbitrage pricing theory or APT. This model allows for more than one factor to systemically affect the prices of all securities. Investors in this case would also want to be compensated for accepting each of these different systemic risks or factors effecting the market. Here: Expected return = risk free return + beta1× (risk premium for factor1) + beta2 × (risk premium for factor2) + ...+ beta k × (risk premium for factor k) In this case the investor's expected return is a composite of the compensation for each of the risks. In both the models above the expected return is not determined by unsystemic risk but the systemic risk. Now, to make it simple for you it would be a good idea to study the following: Expected rate of return = [Annual Income + (Ending price − Beginning price)] ÷ Beginning price Where: Annual income = Dividend; Ending price = selling price and Beginning price = cost or purchase price.

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When we talk about diversification, it also implies not to put all our eggs in one basket. Which means that we would be fool hardy to deploy all our savings into the equity market. We must give due consideration to our life, and look at it from a larger perspective. Then we would sensibly hold assets from various asset classes in our portfolio, to reduce or minimize the various risks listed above.

Abstrct This paper studies the implications of securities activities on bank safety and soundness by comparing the ex-post returns between banking firms' Section 20 subsidiaries -- subsidiaries that were authorized by the Federal Reserve to conduct bank-ineligible securities activities - and their commercial bank affiliates. I found that securities subsidiaries that are primary dealers of government securities, their higher risk partially comes from their higher leverage, whereas for those that are not primary dealers, despite having lower leverage, they tend to be riskier than their bank affiliates partly because of their aggressive trading behavior. Nevertheless, securities subsidiaries appear to provide diversification benefits to bank holding companies, as evidenced by the low return correlation between bank subsidiaries and securities subsidiaries. Within the class of securities activities, I found that securities trading tends to be more profitable and riskier than banking activities. Trading activities engaged by primary dealer securities subsidiaries tend to provide strong diversification benefits to banking activities, reducing the banking organization's overall risk. For non-primary dealers, due to their aggressive trading behavior, their trading activities were found to increase the firm's total risk. On the other hand, securities underwriting is found to be riskier, and in the case of non-primary dealers also less profitable, than banking activities. Nevertheless, its return exhibits low correlation with banking return and trading return, suggesting that securities underwriting provides potential diversification benefits to both banking and trading activities.

STOCK MARKET Stock market is place where the stocks or shares are purchased and sold .stock exchange is an organized market where securities are traded .these securities are issued by the government, semi-government, public sector undertakings and companies for borrowing funds and raising resources. securities are defined as any monetary claims and includes stock ,shares, debentures, bonds etc .if these securities are marketable as in the case of government stocks; they are transferable by endorsement and are like moveable property. They are tradable on the stock exchange. Exchanges are located all over the world with the most famous one being the New York stock exchange. The NYSE annually traded almost 14 trillion dollars worth of capital. Thousands of stocks are listed on this exchange. when you buy a stock you will need to learn which exchanges list it other than locating quote in the news paper with online trading and the automation of order system ,there is very little reason to determine where the stock trades from the customers viewpoint. 31

A study on risk and return on banking securities 2011 There are 22 stock exchanges in India, the first being the Bombay Stock Exchange (BSE), which began formal trading in 1875, making it one of the oldest in Asia. Over the last few years, there has been a rapid change in the Indian securities market, especially in the secondary market. Advanced technology and online-based transactions have modernized the stock exchanges. In terms of the number of companies listed and total market capitalization, the Indian equity market is considered large relative to the country’s stage of economic development. The number of listed companies increased from 5,968 in March 1990 to about 20,000 by May 2006 and market Capitalization has grown almost 11 times during the same period. The debt market, however, is almost nonexistent. BOMBAY STOCK EXCHANGE LIMITED (BSE) Bombay Stock Exchange Limited is the oldest stock exchange in Asia with a rich heritage. Popularly known as "BSE", it was established as "The Native Share & Stock Brokers Association" in 1875. It is the first stock exchange in the country to obtain permanent

recognition in 1956 from the Government of India under the Securities Contracts (Regulation) Act, 1956.The Exchange's pivotal and pre-eminent role in the development of the Indian capital market is widely recognized and its index, SENSEX, is tracked worldwide. Earlier an Association of Persons (AOP), the Exchange is now a demutualised and corporatized entity incorporated under the provisions of the Companies Act, 1956, pursuant to the BSE (Corporatisation and Demutualization) Scheme, 2005 notified by the Securities and Exchange Board of India (SEBI).With demutualization, the trading rights and ownership rights have been de-linked effectively addressing concerns regarding perceived and real conflicts of interest. The Exchange is professionally managed under the overall direction of the Board of Directors. The Board comprises eminent professionals, representatives of Trading Members and the Managing Director of the Exchange. The Board is inclusive and is designed to benefit from the participation of market intermediaries. In terms of organization structure, the Board formulates larger policy issues and exercises over-all control. The committees constituted by the Board are broad-based. The day-to-day operations of the Exchange are managed by the Managing Director and a management team of professionals. The Exchange has a nation-wide reach with a presence in 417 cities and towns of India. The systems and processes of the Exchange are designed to safeguard market integrity and enhance transparency in operations. During the year 2004-2005, the trading volumes on the Exchange showed robust growth. The Exchange provides an efficient and transparent market for trading in equity, debt instruments and derivatives.

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The BSE's On Line Trading System (BOLT) is a proprietary system of the Exchange and is BS 7799-2-2002 certified. The surveillance and clearing & settlement functions of the Exchange are ISO 9001:2000 certified.

THE NATIONAL STOCK EXCHANGE OF INDIA LIMITED (NSE) The National Stock Exchange of India Limited has genesis in the report of the High Powered Study Group on Establishment of New Stock Exchanges, which recommended promotion of a National Stock Exchange by financial institutions (FIs) to provide access to investors from all across the country on an equal footing. Based on the recommendations NSE was promoted by leading Financial Institutions at the behest of the Government of India and was incorporated in November 1992 as a tax-paying company unlike other stock exchanges in the country. On its recognition as a stock exchange under the Securities Contracts (Regulation) Act, 1956 in April 1993, NSE commenced operations in the Wholesale Debt Market (WDM) segment in June 1994. The Capital Market (Equities) segment commenced operations in November 1994 and operations in Derivatives segment commenced in June 2000 It is the largest stock exchange in India and the third largest in the world in terms of volume of transactions.

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.

As of 2006, the NSE VSAT terminals, 2799 in total, cover more than 1500 cities across India. In March 2006, the NSE had a total market capitalization of 4,380,774 crore INR making it the second-largest stock market in South Asia in terms of market-capitalization.

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TYPES OF STOCKS 1. BLUE CHIP STOCKS The term ‘blue chip’ comes from poker, where the blue chip carries the highest value. Large established firms with a long record of profit growth, dividend payout and a reputation for quality management, products and service are referred to as blue chip companies. These firms are generally leaders in their industries and are considered likely candidates for long term growth .because blue chip companies are held in such high esteem, they often set the standard by which other companies in their field are measured .well known blue chip Companies include IBM, Coco-Cola, general electric and McDonald. 2. PENNY STOCKS Penny stocks are low priced speculative stock, that are very risky .companies with a short or erratic history of revenues and earnings issue them .they are the lowest of the low in price and many stock exchanges choose not trade them. 3. INCOME STOCKS Income stocks are those stocks that pay higher than average dividend over a sustained period. these above average dividend tends to be paid by large, established companies with

stable earnings. Income stocks are popular with investors who want steady income for a long time and who do not need much growth in their stocks value.

4) VALUE STOCK A value stock is a stock that is currently selling at a low price .companies that have good earning and growth potential but whose stock price do not reflect this are considered value companies .both the market and investors are largely ignoring their stocks. Investors who buy value stocks believe that thes3e stocks are only temporarily out of favor and will soon experience great growth .factors such as new management, a new product or operation that are more efficient may make a value stock grow quickly.

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INVESTMENT Investment is the employment of the fund with aim of achieving additional growth in value. An investment is a sacrifice of current money or other resources for future benefits .it is the allocation of monetary resources to assets that are expected to yield gain or positive return over a given periods of time .it involves the commitment of resources which have saved or put away from current consumption in the hope that some benefits will accrue in future.

INVESTMENT OBJECTIVES Are Company Fixed Deposits Suitable for an Increase in My Investment? A Company/HDFC Fixed Deposit provides for faster appreciation in the principal amount than bank fixed deposits and post-office schemes. However, the increase in the interest rate is essentially due to the fact that it entails more risk as compared to banks and post-office schemes. Are Company Fixed Deposits Suitable for Income? Yes, Company/HDFC Fixed Deposits are suitable for regular income with the option to receive monthly, quarterly, half-yearly, and annual interest income. Moreover, the interest rates offered are higher than banks. To What Extent Does a Company Deposit Protect Me Against Inflation? A Company/HDFC Fixed Deposit provides you with limited protection against inflation, with comparatively higher returns than other assured return options.

The three key aspects of any investment are time capital gain and risk the sacrifice takes place now and is certain. The benefits are expected in the future and tend to be uncertain. Risk: investment is considered to involve limited risk and is confined to those avenues where the principle is safe. No investments are completely risk free Capital gain: If purchase of securities is preceded by proper investigation and analysis and review to receive a stable return over a period of time it is termed as investment. Time: A longer time, fund allocation is termed as investment. The investor constantly evaluates the work of a security. There has to be a constant review of securities to find out whether it is a suitable investment. The investment is an attempt to carefully plan, evaluate and allocate funds in various investments which offer safety of principal, moderate and continuous return and long term commitment. 35


INVESTMENT DECISION In stock market parlance investment decision refers to making a decision regarding the buy and sell orders. As we know economic analysis or factors play in any investment decision which is made for making a gain and better returns. Economic analysis and forecasting company performance and of returns is necessary for making investment. Any investment is risky and such investment decision is difficult to make. It is based on availability of money and information on economy industry and company, share prices are ruled by expectation of the market and the market sentiments. As we know these decisions are influenced by availability of money and flow of information. What to buy and sell also depends on the fair value of shares and the extent of over valuation and under valuation. For making such a decision the common investors have to depend more up on a study of fundamental rather than technical, although technical are also important.

PRIMARY AND SECONDARY CAPITAL MARKET Primary market is the market for issue of new securities. It therefore essentially consists of the companies issuing securities, his public subscribing to these securities, his regulatory agencies like SEBI and the government, merchant bankers and bank who underwrite the issues and help in collecting subscription money from the public. Secondary Market refers to a market where securities are traded after being initially offered to the public in the primary market and/or listed on the Stock Exchange. Majority of the trading is done in the secondary market. Secondary market comprises of equity markets and the debt markets. For the general investor, the secondary market provides an efficient platform for trading of his securities. For the management of the company, Secondary equity markets serve as a monitoring and control conduit—by facilitating value-enhancing control activities, enabling implementation of incentive-based management contracts, and aggregating information (via price discovery) that guides management decisions.

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CHAPTER 4: RESEARCH DESIGN 4.1 TITLE OF THE DISSERTATION The title of the dissertation is “A study of risk and return in banking securities”.

4.2 STATEMENT OF THE PROBLEM Security analysis is built around the idea that investors are concerned with two principal properties inherent in securities: the return that can be expected from holding a security, and risk that the return that is achieved will be less than the return that was expected. The primary purpose of this dissertation is to focus upon return and risk and how they are measured. Investors want to maximize expected returns subjected to their tolerance for risk. Return is the motivating force and the principle reward in the investment process and it is the key method available to investors in comparing alternative investment. Measuring historical return allows investors to assess how well have done, and it plays a part in the estimation of future unknown returns. Making the money only the half of the battle safeguarding the hard earned money is the top most concern for many investors, simply investing somewhere and waiting for the blessings of the goddess of luck doesn’t make any sense proper analysis of risk and the expected return is very important to become an efficient investor. Keeping this point in mind dissertation titled ‘risk and return analysis’ has been chosen to analyze three different banking companies. The share price and market price for two consecutive month starting from January 2010 to February 2010 were selected for analysis. This study is conducted to find out how the expected return is calculated from an investment and risk associated with that investment by measuring beta (D) and standard deviation. .

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A study on risk and return on banking securities 2011 4.3 REVIEW OF LITERATURE In the area of risk and return analysis two well known economist made effort to study the relation between risk and return and they are the people who quantify the risk and return aspects of an instrument .they are Harry Markowitz and William Sharpe. Very broadly the investment process consists of two tasks. The first task is security analysis which focuses on assessing the risk and return characteristics of the available investment alternatives. The second task is portfolio selection which involves choosing the best possible portfolio from the set of feasible portfolio. Portfolio theory, originally proposed by Harry Markowitz in the 1950’s was the first formal attempt to quantify the risk of portfolio and develop a methodology for determining the optimal portfolio .prior to the development of portfolio theory ,investors dealt with the concept of return and risk somewhat loosely .Harry Markowitz was the first person to show quantitatively why and how diversification reduce risk .in recognition of his seminal contribution in this field he was awarded the Nobel prize in economics in 1990. Harry Markowitz developed an approach that helps the investors to achieve his optimal portfolio position .in this contest William Sharpe and others try to find out an answer for a question, what is the relationship between risk and return and they developed capital asset pricing theory (CAPM). The CAPM, in essence, predicts the relationship between the risk of an asset and its expected return .this relationship is very useful in two important ways .first, it produces a bench mark for evaluating various instrument .second it helps us to make an informal guess about the return that can be expected from an assets that has not yet been traded in the market. De Bundt and Thayer study the price in relation to book value in a universe of all NYSE and American Stock Exchange equity issue. It has explained the relation between the market price and book value, with stock being assigned in quintiles from lowest price to book ratios. The earning yields effect on stock return is significantly positive only in January for the sub period.

Piotroski investigates whether fundamental analysis can be used to provide abnormal returns, and right shift the returns spectrum earned by a value investor. He focused on high book to market securities, and show that the mean return earned by a high book to market investor can be shifted to the right by at least 7.5% annually.

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The authors developed portfolio based on four fundamental conditions namely: Single Value P/E, Market Price
4.4 SIGNIFICANCE OF THE STUDY Indian security market moving to newer heights since from the last few years and the investors also getting reasonable income, that some times more than expected but the next day the price would be crumbling down like a glass house this is the picture of Indian stock market, means market is highly volatile and is still in the hands of speculators and gamblers. In this chaos where is the common investor who investing their hard earned money expecting a regular income and security of his investment so here it’s come the importance of risk and return analysis. Compare different investment option in terms of risk and return .the popular conception is if the risk is high the return one can expect would be high and vice versa. Risk and return analysis would help the investor to park his money in most appropriate investment avenue. The investors are two type risk taker and risk averter. If someone wants to invest highly volatile stock with the expectation of high return he can go for that, another type of investor want regular income at the same time safety. Risk and return analysis would help the investors to properly diversify his portfolio of securities. The measurement of beta will help the investor to quantify the systematic risk and unsystematic risk associated with the particular investment.

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Investor can make portfolio revision at the right time with minimum cost by analyzing the risk and return of securities. Portfolio revision is an inevitable part of an investment decision. To make estimation on the amount of income one can expect from an investment impossible by analyzing the historical return of a particular stock. To quantify the systematic (non-diversifiable) and unsystematic (diversifiable) risk the expected return from an investment option.

4.5 OBJECTIVES OF THE STUDY 

To analyze the risk and return of the companies.



To measure actual return and expected returns with the help of standard Deviation and beta.



To study the volatility of companies in comparison with the market.

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To guide the investors of various investment opportunities

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To find out the risk less companies to invest in using beta values.

4.6 SCOPE OF THE STUDY In the national stock exchange (NSE)there are 1185 companies are listed so far out of this fifty companies are very important ,which form the S&P CNX Nifty index .From this fifty companies fifteen companies have been selected were chosen five different sectors ,the companies chosen BANKING SECTOR-SBI, ICICI BANK, PNB, HDFC BANK.

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4.7 METHODOLOGY The following measures were used to analyze the data collected; MS excel is used in order to calculate standard deviation and beta as well as to draw charts. The other kinds of formulae used are Computation of standard deviation Rate of return = (closing stock-opening stock)/ (opening stock)*100 Standard deviation calculated as per the excel formulae Variance= square of the standard deviation Computation of beta: Stock price(Y) = (closing-opening)/ (opening)*100 (of stock price) Market return(X) = (closing-opening)/ (opening)*100 (of index price) BETA (D) = (N*(VX*Y) – (VX*VY))/ (N*(V X^2)-(VX) ^2)

4.7 LIMITATIONS OF THE STUDY • The area of study is limited to few sectors of group a stock. • The study is limited to data of the last two months only. • Risk cannot be measured accurately as the market condition is always fluctuating and uncertain. • The study is mainly based on secondary data and no field work is done because of time constraint. • To analyze the risk and return only standard deviation and beta is used and no other statistical tools are used.

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4.9 CHAPTER SCHEME This dissertation consists of five chapters, each chapter deals with different aspects of this project. The first chapter contains the introduction to the dissertation and the theoretical background of the problem. In this chapter gives an idea about different type of return and risk apart from that brief about Indian stock exchanges like BSE and NSE. The second chapter deals with the way in which the study has been conducted. The important topics of this chapter are statement of the problem, significance of this study, scope, methodology and limitation of the study etc. The third chapter would give an idea of the current Indian economy and the industry have been selected and also about the companies come under study. It’s been mentioned the importance of each sector to the Indian economy as well. The fourth chapter deals with the data analysis and interpretation section, here data’s been analyzed by using mathematical formula to find out the expected return, beta and standard deviation. The final and fifth chapter consists of finding derived from this study, conclusion and the recommendations to the investors.

4.10 COLLECTION OF DATA:

1: SECONDARY DATA: It was collected from internal sources. The secondary data wasc o l l e c t e d o n t h e b a s i s o f o r g a n i z a t i o n a l f i l e , o f f i c i a l r e c o r d s , n e w s p a p e r s , m a g a z i n e s , management books, preserved informati o n i n t h e c o m p a n y ’ s d a t a b a s e a n d w e b s i t e o f t h e company.

2: PRIMARY DATA: All the people from different profession were personally visited andinterviewed. They were the main source of Primary data. The method of collection of primarydata was direct personal interview through a structured questionnaire. 42


4.11 SAMPLING PLAN: Since it is not possible to study whole universe, it becomes necessaryto take sample from the universe to know about its characteristics. •

Sampling units: Different professionals. Chartered Accountants, Tax c o n s u l t a n t s , Lawyers, Business Man, Professionals and House Wives of Gorakhpur.

•

Sample Technique: Random Sampling.

•

Research Instrument: Structured Questionnaire.

•

Contact Method: Personal Interview.

4.12 SAMPLE SIZE: My sample size for this project was 56 respondents. Since it was n o t possible to cover the whole universe in the available time period, it was necessary for me to takea sample size of 56 respondents.

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PROFILES THE INDIAN ECONOMY –AN OVERVIEW Economics experts and various studies conducted across the globe envisage India and china to rule the world in the 21st century. For over a century the United States has been the largest economy in the world but major developments have taken place in the world economy since then, leading to the shift of focus from the us and the rich countries of Europe to the two Asian giants- India and China. The rich countries of Europe have seen the greatest decline in global GDP share by 4.9 percentage points, followed by the US and Japan with a decline of about 1 percentage points each. Within Asia, the rising share of China and India has more than made up the declining global share of Japan since 1990. During the seventies and the eighties, ASEAN countries and during the eighties South Korea, along with China and India, contributed to the rising share of Asia in world GDP. US and the rich countries of Europe to the two Asian giants- India and China. According to some experts, the share of the US in world GDP is expected to fall (from 21per cent to 18 per cent) and that of India to rise (from 6 per cent to 11 per cent in 2025), and hence the latter will emerge as the third pole in the global economy after the US and China. By 2025 the Indian economy is projected to be about 60 per cent the size of the US economy. The transformation into a tri-polar economy will be complete by 2035, with the Indian economy only a little smaller than the US economy but larger than that of Western Europe. By 2035, India is likely to be a larger growth driver than the six largest countries in the EU, though its impact will be a little over half that of the US. India, which is now the fourth largest economy in terms of purchasing power parity, will overtake Japan and become third major economic power within 10 years.

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INDIA - A GROWING ECONOMY In a robust demonstration of the nascent strength, the Indian economy, after growing at 8.5% and 9.5% in the two previous year is projected to grow at 11% in the current year 2007- 08. Growth of gross domestic product (GDP) at constant prices in excess of 8.0%has been achieved by the economy in only five years of recorded history, and two out of these five are in the last three years Growth in the Indian economy has steadily increased since 1979, averaging 5.7% per year in the 23-year growth record. In fact, the Indian economy has posted an excellent average GDP growth of 6.8% since 1994 (the period when India's external crisis was brought under control). However, in comparison to many East Asian economies, having growth rates above 7%, the Indian growth experience lags behind. The tenth five-year plan aims at achieving a growth rate of 8% for the coming 2-3 years. Though, the growth rate for 2004-05 is less than that of 2003-04, it is still among the high growth Rates seen in India since independence. Many factors are behind this robust performance of the Indian economy in 2004-05. High growth rates in Industry & service sector and a benign world economic environment provided a backdrop conducive to the Indian economy. Another positive feature was that the growth was accompanied by continued maintenance of relative stability of prices. However, agriculture fell sharply from its 2003-04 level of 9 % to 1.1% in the current year primarily because of a bad monsoon. Thus, there is a paramount need to move Indian agriculture beyond its centuries old dependency on monsoon. This can be achieved by bringing more area under irrigation and by better water management.

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CHAPTER 5- FINDINGS, CONCLUSION AND RECOMMENDATION 5.1 FINDINGS When comparing the beta value banking companies the average beta greater than one that means the risk associated with those stocks are pretty high and the price of the shares are more fluctuating .one of the reason for this fluctuation may the inflationary trend in the economy banking shares are more bound to interest rate risk.

5.2 CONCLUSION As a whole the stock market is sometime highly volatile .it depends upon the investors how he can make use of this in order to get the money which he has put in the market .an investor should be in a position to analyze the various investment option available to him and thus minimize the risk and maximize the returns . The investor should analyze the market on a continuous basis which will help them to pick the right companies to invest their funds. the beta value, standard deviation and variance helps the investors in arriving at decision .the investors should be in a position to interpret the data in the right manner to arrive at important conclusions and investment decision . I hope this dissertation will help the investors as a guiding record in future and help them to make appropriate investment decisions.

5.3 RECOMMENDATION 

When an investor opts to enter the stock market he should first gather sufficient information about the type of investment options available to him

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The investor should be in a position to decide where and how much of funds are he ready to invest in particular security.

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He should diversify his investment portfolio so that he is exposed to minimum risk.

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Investor should not depend entirely on the past returns as the future is uncertain and the stock market is highly volatile.

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A study on risk and return on banking securities 2011 

The investor must be in a position to determine the degree of risk involved and then invest in any security.



He should not follow the foot of others while investing because usually people tend to go by the trend.

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An investor must be in a position to judge which is the right time to enter into the market and quit the market.

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CHAPTER 6-DATA ANALYSIS, INTERPRETATION AND PRESENTATION Q1.Your Age? Ans. 1. 18-23 Years

10 Person

2.24-29 Years

20 Person

3. 30-35 Years

10 Person

4. 35 Years and above

10 Person

Base 50 respondents : Interpretation From above response it can be seen that • 20% respondent’s age are 18 to 23 years. • 35% respondent’s age are 24 to 29 years. .30% respondent’s age are 30 to 35 years. . 15% respondent’s age are 35 to above years. Q2.Marital Status?. • Married □

• Single □

No. of Children: __________ Ans. • • •

Married Single No. of Children

32 Person 18 Person Nil

Interpretation From above response it can be seen that •70% respondents are married. •30% respondents are unmarried.

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Q3.Educational Qualification? •Undergraduate □ •Graduate □ •Postgraduate □ Ans • Undergraduate •Graduate •Postgraduate

10 Person 22 Person 18 Person

Interpretation From above response it can be seen that. •25% respondents are Under graduate. •40% respondents are Graduate. •35% respondents are Post graduate.

Q4.Number Of year’s Are You in Gorakhpur? •Less than five year’s □ •More than five year’s □ Ans. •Less than five year’s •More than five year’s

17 Person 33 Person

Interpretation From above response it can be seen that. •39% respondents are in Gorakhpur for less than five years. •61% respondents are in Gorakhpur for more than five years

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Q5.Your Occupation? •Business •Profession •Service Ans. •Business •Profession •Service


InterpretationFrom above response it can be seen that. •20% respondents Occupation is Business. •26% respondents Occupation is Profession. •54% respondents Occupation is Service.

Q6. Your annual household income? •Less than 2 lacs •Between 2 to 5 lacs •Between 5to 8 lacs •More than 8 lacs Ans. •Less than 2 lacs •Betweem 2 to lacs •Between 5to 8 lacs •More than 8 lacs

32 Person 13 Person 3 Person 2 Person

Interpretation From above response it can be seen that. •49% respondent’s annual household income is less than 2 lacs. •31% respondent’s annual household income is between 2 to 5 lacs. •15% respondent’s annual household income is between 5 to 8 lacs. •5% respondent’s annual household income is more than 8 lacs.

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A study on risk and return on banking securities 2011 Q7. What is your perception about different products/services provided by HDFC bank? •Lucrative □ •Not lucrative □ •No idea □ Ans. •Lucrative •Not lucrative •No idea


Interpretation From above response it can be seen that. •25% respondent’s perception about different products is lucrative. •6 0 % r e s p o n d e n t ’ s p e r c e p t i o n a b o u t d i f f e r e n t products is not lucrative. •15% respondent’s have no idea.

Q8. Do you want to open an account with HDFC bank? • Yes • No • Will tell later Ans. • Yes •No • Will tell later


Interpretation From above response it can be seen that. •80% respondents are not interested to open an account with the bank. •5% respondents are interested to open an account with the bank. •15% of the respondents say that they will tell later.

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A study on risk and return on banking securities 2011 Q9. Do you have all the documents which are required to open an account? • Yes • No Ans. • Yes •No

15 Person 35 Person

Interpretation From above response it can be seen that. •60% respondents have all the documents which are required to open an account with the bank. •25% respondents do not have all the documents which are required to open an accountwith the bank

Q10. Are you aware that the bank provides you free phone banking & net banking services. If you open a new savings account with HDFC bank? • Yes □ • No □ Ans. • Yes •No

32 Person 18 Person

Interpretation From above response it can be seen that

•20% respondents are aware of it. •40% respondents are not aware of it

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BIBLIOGRAPHY 1. BOOKS M a r k e t i n g M a n a g e m e n t ( 1 0 th E d i t i o n ) , M a r k e t i n g M a n a g e m e n t ( 3 rd E d i t i o n ) , R e s e a r c h Methodology (2nd Edition), Research Methodology (3rdEdition).

AUTHORS: Philip Kotler ,V.S. Ramaswamy, C.R.Kothary, S.P. Kasande

2. NEWS PAPERS

3. WEBSITES

• Times of India

• Financial Express

www.hdfcbank.com, www.google.com

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PROJECT REPORT on Risk and Return (1)

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