aluwalia disserttion (1)

7/30/2019 aluwalia disserttion (1)

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AN EXAMINATION OF RISK AND RETURN

IN THE BANKING SECTOR

Submitted by:

MBA (GENRAL) (IV Sem.)

Under the guidance of:

Dr. Sarveshwar Pande

Faculty Guide

ABS, Lucknow

(DISSERTATION REPORT IN PARTIAL FULFILLMENT OF THE AWARD OF

DEGREE OF MASTER IN BUSINESS ADMINISTRATION 2011-13)

AMITY BUSINESS SCHOOLAMITY UNIVERSITY UTTAR PRADESH LUCKNOW


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SSTTUUDDEENNTTSS CCEERRTTIIFFIICCAATTEE

I hereby declare that the study of An Examination of Risk and Return in the

Banking Sector has been exclusively done by me under the able guidance of Dr.

Sarveshwar Pande, in partial fulfilment of the requirement for award of degree of

MASTER IN BUSINESS ADMINISTRATION from Amity University, Uttar

Pradesh.

I also declare that the contents of this report are true to the best of my knowledge.

Date.______________

Signature Signature Signature

(Dr. Sarveshwar Pande) (Prof.V.P. Sahi)Student Assistant Professor Director (ABS)


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CERTIFICATE BY FACULTY GUIDE

Forwarded here with a Dissertation report on An Examination of Risk and Return

in the Banking Sector submitted by __________Enrolment No- A-7001911049,

student of MBA (Genral) 4th Semester (2011-2013).

This project work is partial fulfilment of the requirement for the degree of Master in

Business Administration from Amity University Lucknow Campus, Uttar Pradesh.

Dr. Sarveshwar Pande

Asst. Professor,

Amity Business School


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AACCKKNNOOWWLLEEDDGGEEMMEENNTT

I express heartfelt gratitude to my institution AMITY BUSINESS SCHOOL for

allowing a valuable chance to do a research on An Examination of Risk and

Return in the Banking Sector.

Last but not the least; I thank my parents for their prayers, help and advice which

helped me a lot to complete this project report.

Date.

Signature

___________________

(Student)


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TTAABBLLEE OOFF CCOONNTTEENNTTSS

Chapter I Introduction

Objective of the study

Scope of the study

Limitations of the study

Review of the related literature

Chapter II Research Methodology

Chapter III Data Analysis and Interpretation

Chapter IV Findings

Chapter V Recommendation

Chapter VI Conclusion

Chapter VII Bibliography


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CHAPTER I

INTRODUCTION


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TITLE OF THE DISSERTATION

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 doesnt 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.

REVIEW OF LITERATURE


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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 1950s 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


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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.

The authors developed portfolio based on four fundamental conditions namely: Single

Value P/E, Market Price


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SIGNIFICANCE OF THE STUDY

The importance and significance of the study are:

This study is important to all the students to know about the risk and returnanalysis of the concerned organization.

This study helps as reference to other students for preparing report. This study also helps to layman to understand about the organization. The study is fruitful to the various persons for investing in organization. This study is also helpful to the related organization.

OBJECTIVES OF THE STUDY

1. To know about the risk and return of an organization. i.e. HDFCbank2. To find out the reliable and actual information of an organization.3. To compare theoretical concept with its practical implication and trace out the

difficulties in practical application of theory.

4. To find out the actual condition of the bank through risk and return analysis.5. To make comparative study of two organization .i.e. HDFC Bank and

Standard chartered bank.


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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.


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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


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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.

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).


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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.


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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 multi-branch 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


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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 Payment Services NetBanking InstaAlerts MobileBanking InstaQuery ATM PhoneBanking


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PROMOTER

HDFC is India's premier housing finance company and enjoys an impeccable track

record inIndia as well as in international markets. Since its inception in 1977, the

Corporation hasmaintained a consistent and healthy growth in its operations to remain

the market leader 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 experienceinthefinancial markets, a strong market reputation,

large shareholder base and unique consumer 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 largeimprovement

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

lsoacquired the Japanese technique for smooth runningof

work and effective work placeorganization.

Five SPart ofKaizen 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.


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HDFC BANK business strategy emphasizes the following:

Increase market share in Indias expanding banking and financial services industry by

following 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

management.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

banks cost of funds.Focus on high earnings growth with low volatility.

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 arange of products which will suit their

life-stage and needs. For organizations the company has ahost of customizedsolutions that range from funded services, Non-funded services,

Valueaddition 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.


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Loans.

Investments and Insurance.

Forex and payment services.

Cards.

Customer center.


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PRODUCTS AND SERVICES AT A GLANCE

1. PERSONAL BANKING SERVICESA.

Accounts & Deposits 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


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Family Savings Account

Kisan No Frills Savings Account

Kisan Club Savings Account

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


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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

Commercial Vehicle Finance

Working Capital Finance

Construction Equipment Finance

C. Investments & Insurance

Mutual Funds


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Insurance

Bonds

Financial Planning

Knowledge Centre

Equities & Derivatives

Mudra Gold Bar

D. Forex Services

Trade Finance

Travelers 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


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G. Cards

Silver Credit Card

Gold Credit Card

Woman's Gold Credit Card

Platinum plus Credit Card

Titanium Credit Card

Value plus Credit Card

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


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Overview of Standard Chartered Bank

Standard Chartered Bank Nepal Limited has been in operation in Nepal since 1987

when it was initially registered as a joint-venture operation. Today the Bank is an

integral part of Standard Chartered Group having an ownership of 75% in the

company with 25% shares owned by the Nepalese public. The Bank enjoys the status

of the largest international bank currently operating in Nepal.

With 18 points of representation, 23 ATMs across the country and with more than 350

local staff, Standard Chartered Bank Nepal Ltd. is in a position to serve its customers

through an extensive domestic network. In addition, the global network of Standard

Chartered Group gives the Bank a unique opportunity to provide truly international

banking services in Nepal.

Standard Chartered has a history of over 150 years in banking and operates in many

of the world's fastest-growing markets with an extensive global network of over 1750

branches (including subsidiaries, associates and joint ventures) in over 70 countries in

the Asia Pacific Region, South Asia, the Middle East, Africa, the United Kingdom

and the Americas. As one of the world's most international banks, Standard Chartered

employs almost 75,000 people, representing over 115 nationalities, worldwide. This

diversity lies at the heart of the Bank's values and supports the Bank's growth as the

world increasingly becomes one market.

Standard Chartered Bank Nepal Limited offers a full range of banking products and

services in Consumer banking, Wholesale and SME Banking catering to a wide range

of customers encompassing individuals, mid-market local corporates, multinationals,large public sector companies, government corporations, airlines, hotels as well as the

DO segment comprising of embassies, aid agencies, NGOs and INGOs.

The Bank has been the pioneer in introducing 'customer focused' products and

services in the country and aspires to continue to be a leader in introducing new

products in delivering superior services. It is the first Bank in Nepal that has

implemented the Anti-Money Laundering policy and applied the 'Know Your

Customer' procedure on all the customer accounts.


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Corporate Social Responsibility is an integral part of Standard Chartered's ambition to

become the world's best international bank and is the mainstay of the Bank's values.

The Bank believes in delivering shareholder value in a socially, ethically an

environmentally responsible manner. Standard Chartered throughout its long history

has played an active role in supporting those communities in which its customers and

staff live. It concentrates on projects that assist children, particularly in the areas of

health and education. Environmental projects are also occasionally considered. It

supports non-governmental organisations involving charitable community activities

The Group launched two major initiatives in 2003 under its 'Believing in Life'

campaign- 'Living with HIV/AIDS' and 'Seeing is Believing'.


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Standard Charteredleading the way in Asia, Africa and the Middle East

Standard Chartered has a history of over 150 years in banking sector and is in many of

the worlds fastest growing markets. It has an extensive global network of over 1,200

branches (including subsidiaries, associates and joint ventures) in 56 countries in the

Asia Pacific Region, South Asia, the Middle East, Africa, the United Kingdom and

the Americas. As one of the worlds best international bank, Standard Chartered

employs over 44,000 people, representing 89 nationalities worldwide.

Standard Chartered PLC is listed on both the London Stock Exchange and the Stock

Exchange of Hong Kong and is ranked among the top 25 among FTSE-100

companies, by market capitalization.

Serving both Consumer and Wholesale Banking customers, the Bank combines deep

local knowledge with global capability to offer a wide range of innovative products

and services as well as award winning solutions.

Standard Chartered is committed to be the Right Partner to all its stakeholders by

living its values and managing its people, exceeding expectations of its customers.

Bank has made a difference in the communities in which it operates and works with

its regulators. The Bank is trusted by its customers for its standard of governance and

corporate responsibility.

History

The Standard Chartered Group was formed in 1969 by merging two banks: The

Standard Bank of British South Africa founded in 1863, and the Chartered Bank of

India, Australia and China, founded in 1853. Both the companies were keen to

capitalize on the huge expansion of trade and to earn the handsome profits to be made

from financing the movement of goods from Europe to the East and Africa.The Chartered Bank

It was funded by James Wilson following the grant of a Royal Charter by Queen

Victoria in 1853 .

Chartered opened its first branches in Mumbai (Bombay), Calcutta and Shanghai in

1858, followed by Hong Kong and Singapore in 1859.

Its traditional business was in cotton from Mumbai (Bombay), indigo and tea from

Calcutta, rice in Burma, sugar from Java, tobacco from Sumatra, hemp in Manila and

silk from Yokohama


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Played a major role in the development of trade with the East which followed the

opening of the Suez Canal in 1869, and the extension of the telegraph to China in

1871.

In 1957 Chartered Bank bought the Eastern Bank together with the Ionian Banks

Cyprus Branches. This established a presence in the Gulf.

The Standard Bank

It was founded in the Cape Province of South Africa in 1862 by John Paterson and

commenced business in Port Elizabeth, South Africa, in January 1863.

Was mainly in financing the development of the diamond fields of Kimberley from

1867 and later extended its network further north to the new town of Johannesburg

when gold was discovered there in 1885.

Expanded in Southern, Central and Eastern Africa and by 1953 had 600 offices.

In 1965, it merged with the Bank of West Africa expanding its operations into

Cameroon, Gambia, Ghana, Nigeria and Sierra Leone.

In 1969, Chartered and Standard to were merged. However, in 1986 , a hostile

takeover bid was made for the Group by Lloyds Bank of the United Kingdom. When

the bid was defeated, Standard Chartered entered a period of change and provisions

were made for third world debt exposure and loans to corporations and entrepreneurs

who could not meet their commitments. Standard Chartered began a series of

divestments in the United States and South Africa, and also entered into a number of

asset sales.

Establishment of Standard Chartered Bank around the world

Country Year Established Country Year Established

United Kingdom 1853 Australia 1964

China, India, Sri

Lanka1858 Mexico, Oman 1968

Hong Kong,

Singapore1859 Peru 1973

Indonesia, Pakistan 1863 Jersey 1978


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Philippines 1872 Brazil 1979

Malaysia 1875 Venezuela 1980

Japan 1880Falkland Islands,

Macau1983

Zimbabwe 1892 Taiwan 1985

The Gambia, Sierra

Leone, Thailand1894 Cameroon 1986

Ghana 1896 Nepal 1987

Botswana 1897 Vietnam 1990

USA 1902Cambodia, South

Africa1992

Bangladesh 1905 Iran 1993

Zambia 1906 Colombia 1995

Kenya 1911 Laos, Argentina 1996

Uganda 1912 Nigeria 1999

Tanzania 1917 Lebanon 2000

Bahrain 1920 Cote dIvoire 2001

Jordan 1925 Mauritius 2002

Korea 1929 Turkey 2003

Qatar 1950 Afghanistan 2004

Brunei, UAE 1958

Standard Chartered in India

Standard Chartered Bank India is the countrys largest international bank having 82

branches and over 8,000 employees and is one of the profitable bank in India. The

Bank has played a significant role in the history of the banking industry in India since

opening its first branch at Kolkata in 1858 and completed 150 years of existence as a

company in 2003. Standard Chartered Bank India is an active participant in various

advisory forums and has played a lead role in RBI committees on Rupee Derivatives

and Options. The Banks back office operations, which were Indias first to be


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accorded ISO 9002 certification, now form part of the state-of-the-art global

processing and reconciliation hub in Chennai.


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RISK AND RETURN ON BANKING

The term "risk and return" refers to the potential financial loss or gain experienced

through investments in securities. An investor who has registered a profit is said to

have seen a "return" on his or her investment. The "risk" of the investment,

meanwhile, denotes the possibility or likelihood that the investor could lose money. If

an investor decides to invest in a security that has a relatively low risk, the potential

return on that investment is typically fairly small. Conversely, an investment in a

security that has a high risk factor also has the potential to garner higher returns.

Return on investment can be measured by nominal rate or real rate (money earned

after the impact of inflation has been figured into the value of the investment).

Different securitiesincluding common stocks, corporate bonds, government bonds,

and Treasury billsoffer varying rates of risk and return. "Treasury bills are about as

safe an investment as we can get. There is no risk of default and their short maturity

means that the prices of Treasury bills are relatively stable." Long-term government

bonds, on the other hand, experience price fluctuations in accordance with changes in

the nation's interest rates. Bond prices fall when interest rates rise, but they rise when

interest rates drop. Government bonds typically offer a slightly higher rate of return

than Treasury bills.

Another type of security is corporate bonds. Those who invest in corporate bonds

have the potential to enjoy a higher return on their investment than those who stay

with government bonds. The greater potential benefits, however, are availablebecause the risk is greater. Those corporations that have this default option, though,

"sell at lower prices and therefore higher yields than government bonds." In the

meantime, investors "still want to make sure that the company plays fair. They don't

want it to gamble with their money or to take any other unreasonable risks. Therefore,

the bond agreement includes a number of restrictive covenants to prevent the

company from purposely increasing the value of its default option."

Investors can also put their money into common stock. Common stockholders are the

owners of a corporation in a sense, for they have ultimate control of the company.


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Their voteseither in person or by proxyon appointments to the corporation's

board of directors and other business matters often determine the company's direction.

Common stock carries greater risks than other types of securities, but can also prove

extremely profitable. Earnings or loss of money from common stock is determined by

the rise or fall in the stock price of the company.

There are other types of company stock offerings as well. Companies sometimes issue

preferred stock to investors. While owners of preferred stock do not typically have

full voting rights in the company, no dividends can be paid on the common stock until

after the preferred dividends are paid.

Figure : Risk and Return Comparison


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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.

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 withbusiness 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.


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FINANCIAL RISK

The uncertainty brought about by the choice of a firms 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.

When the investor want to invest his money at a higher rate of return there is a higherfactor 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. (source??)

Which can be classified under the 4 types of investment risk, namely; Business risk,

Inflation risk, Interest rate risk and Market risk.


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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.

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 marketor systemic risk. Once an investor is in the market he cannot avoid it.


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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 thereturn 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.


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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.

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.


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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.

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 countrys 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.


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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.


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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


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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.

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?


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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.


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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.


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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 conduitby 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 II

Research Methodology


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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

LIMITATIONS OF THE STUDY

Risk cannot be measured accurately as the market condition is always fluctuatingand uncertain.

The study is mainly based on secondary data and no field work is done because oftime constraint.

To analyze the risk and return only standard deviation and beta is used and noother statistical tools are used.

Time constraint to prepare the report and its submission within the specified time. This study is based on secondary sources only. Unable to apply concrete methodology. This study is based on limited information only. This study is focused only on risk and return analysis of the organization.


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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. Its been

mentioned the importance of each sector to the Indian economy as well.

COLLECTION OF DATA:

Secondary sources:We collected all the information mainly from the secondary sources. Under secondary

sources, the data is collected by the help of books, library, thesis, articles, report,

teachers, students.etc and also the data are included from the organization profiles,

internet sources etc.


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Chapter III

Data Analysis andInterpretation


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What is your perception about different products/services provided by these

bank.

Lucrative 12

Not lucrative 33

No idea 5

Interpretation From above response it can be seen that.

25% respondents perception about different products is lucrative.

60%respondents perception about different

products is not lucrative.

15% respondents have no idea.


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Do you want to open an account with these bank?

Yes 8

No 5

Will tell later 37

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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Do you have all the documents which are required to open an account?

Yes 15

No 35

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


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Are you aware that the bank provides you free phone banking & net banking

services. If you open a new savings account.

Yes 32

No 18

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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COMPARATIVE ANALYSIS OF HDFC BANK AND STANDARD

CHARTERED BANK

We have calculated all the necessary calculations above and shown below in the table

which helps to make the comparative analysis of securities of HDFC bank and

Standard chartered bank easily.

The comparative analyses are:

TERMS HDFC BANK STANDARD CHARTERED

BANK

Arithmetic Mean(A.M.) -4.6325 % -4.2017 %

Geometric Mean(G.M.) -2.7695 -2.3942

Variance 164.4803%^% 101.1457%%

Standard Deviation 12.83 % 10.06 %

Coefficient of

Variation(C.V.)

-2.7695 -2.3942

(Systematic risk)

(Unsystematic risk)

11.41%

1.42%

6.43%

3.63%

Total risk 12.83% 10.06%

Beta risk 1.82 1.02

Covariance 47.6960%

Correlation 0.376


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INTREPRETATION

Arithmetic Mean (A.M.)The A.M. of HDFC bank is -4.6325% and the A.M. of Standard Chartered bank are -

4.2017. So on the basis of A.M. analysis the mean of Standard chartered bank is

higher than HDFC bank so stock of Standard chartered is preferable to the investors.

Geometric Mean(G.M)The G.M. of standard chartered bank is higher than the HDFC bank.

Standard Deviation(S.D.)The S.D. of HDFC bank is 12.83%

The S.D. of Standard chartered bank is 10.06%.

As we know that the higher the S.D. of stock, higher the risk of the stock and lower

the S.D. lower the risk of the stock. So, on the basis of S.D. the stock of HDFC bank

seems to be riskier then the stock of Standard chartered bank because there is greater

absolute dispersion of returns of HDFC bank.

VarianceThe variance of the HDFC bank is 164.4803%%

The variance of SCB is 101.1457.

So as higher the variance greater is the degree the dispersion and therefore the higher

is the investments total risk. So on the basis of variance HDFC bank is riskier than

SCB due to higher degree of dispersion in return.

Coefficient of Variance(C.V)


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The C.V. of HDFC bank is -2.7695.

The C.V. of SCB is -2.3942.

Same as the variance and standard deviation higher the C.V. higher the risk. So in the

basis of C.V. the stock of SCB seems to be riskier than HDFC bank.

Total riskThe total risk of HDFC bank is divided into 11.41% of systematic risk and 1.42% of

unsystematic risk.

Whereas the total risk of SCB bank consists systematic portion of 6.43% and

unsystematic portion of 3.63%.

So on the basis of these results we can say that the investment in stock of HDFC bank

is more risky then than the investment in SCB, because along with the total risk the

systematic risk of HDFC bank is high which cant be eliminated and the systematic

portion of SCB total risk is low.

Here the unsystematic portion of SCB total risk is high than HDFC bank but it can be

reduced to zero.

Therefore on the basis of risk the stock of HDFC bank is riskier than SCB.

Beta riskThe beta risk of HDFC bank is 1.82

The beta risk of SCB is 1.02.

So here the beta of HDFC bank is high than the SCB which implies that the

investment of HDFC bank impose high risk than SCB because the fluctuations of

return of HDFC bank relative to market fluctuations is high than SCB.


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CovarianceThe covariance of the stocks of HDFC bank and SCB is 47.6960%.

So here the covariance is positive which implies that the returns of securities of these

banks move in the same direction.

CorrelationThe correlation of the securities of these HDFC bank and SCB is 0.376 which means

that the returns of the securities of these banks are perfectly correlated.

Required rate of returnFor HDFC bank: -12.86%

For Standard Chartered Bank: -4.40%

Here the required rate of return of HDFC Bank in very low than expected return on

market in comparison to SCB so investor want to buy the stock of HDFC Bank.


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Chapter IV

Recommendation


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RECOMMENDATION

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

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

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

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

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

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


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Chapter V

Conclusion


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CONCLUSION

From the whole study of the report of risk and return analysis of organization.

By analyzing all the results we have concluded that the stock of the HDFCBank limited is more risky than the stock of other bank.s

The returns of securities of HDFC bank are moving in same direction and theyare perfectly correlated with each other.

The return of securities of HDFC Bank is more closely correlated with thereturn of Market (NEPSE) than the other banks.

I hope this dissertation will help the investors as a guiding record in future and help

them to make appropriate investment decisions.


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Chapter VIBibliography


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BIBLIOGRAPHY

1. BOOKS

Marketing Management (10th Edition),

Marketing Management (3rd Edition),

Research Methodology (2nd Edition),

Research Methodology (3rdEdition).

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

2. NEWS PAPERS Times of India Financial Express

3. WEBSITES www.hdfcbank.com, www.google.com

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