EXECUTIVE SUMMARY:

Federal capital markets limited is a financial service provider, with contact to

shares, mutual funds and insurance. Company is driven by a group of
management professionals with specialization in financial management with
about 10 years‘ experience in the financial market in India. Federal capital
markets limited want to make financial schemes reachable and understandable
to all. The Project title is ―A study on FUNDAMENTAL ANALYSIS WITH
REFERENCE TO STOCKS IN BANKING SECTOR AT FEDERAL
CAPITAL MARKET LIMITED.
FCML is the brokerage industry continues to develop rapidly. Many of the
traditional restrictions against banking activities with the brokerage industry
are being eliminated and the barriers are disappearing.
To achieve this objective a structure questionnaire based on the preliminary
study is prepared. The questionnaire is used to get the direct response from the
desired sample size. A sample is 100 is used to study the customer perception
on online trading for Federal Capital Markets Limited. Descriptive
methodology is mainly used for this study. The response are analyzed and
interpreted using table and graph. Statistical tool such as T – test is used to test
the hypothesis. The interpretation helped us to understand majority of people
are investing in equity market to earn major profits. Majority of the customers
are satisfied with the online service or online trading provided by the
organization. Overall the project is good learning experience and informative
that will fit into any marketing job for efficient performance.

Federal capital markets limited(FCML) is a well diversified financial service

such as retail broking and distribution ,institutional broking, wealth
management, asset management , private equity and principal strategy.

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CHAPTER – 1
1.1 Introduction.
Fundamental analysis involves examining the economic. Financial and other
qualitative and quantitative factors related to a security in order to determine
its intrinsic value. If a company’s stock is trading above the intrinsic value or
fair value then the stock is overvalued. It attempts to study everything that can
affect the security value, including macro economics factors and individually
specific factor. Fundamental analysis which is also known as quantitative
analysis, involves delving into company’s financial statements in order to
study various financial indicators.

TWO APPROACHES OF FUNDAMENTAL ANALYSIS

1. Top down approach
2. Bottom-up approach

1. Top-down approach: In this approach, an analyst investigates both

international and national economic indicators, such as GDP growth rates,
energy prices, inflation and interest rates. The search for the best security
then trackless down to the analysis total sells, price levels and foreign
competition in a sector in order to identify the best business in the sector.

2. Bottom-up approach: In the approach, an analyst starts the search with

specific businesses, irrespective of their industry or region.

Framework of the analysis

This study on fundamental Analysis consists of the following framework:

 Economic Analysis
 Industry Analysis
 Company Analysis

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 The aspects taken into consideration for the 3 framework are as
follows:
 Economic Analysis – Variables such as GDP, Inflation
rate, FE reserve
 Indusrty Analysis - Growth rate of the market,
development in the industry, Bank index, Non-Performing
Assets(NPA)etc.
 Company Analysis – Earning per share (EPS), Dividend
per share (DPS), Dividend pay-out ratio (DP ratio),
Dividend yield, Income per share, Price/ Income Ratio
Price earnings ratio, Price/ Earnings Ratio and Intrinsic
value.

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1.2 Industry profile

The Brokerage Industry

The basic function of a brokerage firm is to execute buy and sell orders for
Clients traditionally these firms have offered the investigation of the quality
and the possibilities of investing in a variety of investment products it is still
accustomed for brokerage firms to offer information about possible
investments free of charge. This activity of bringing free of charge stock
investment reports is one of the main tools that are utilized by brokerage
houses to compete against other firms and to investors it continues to be an
important service. Full service brokerage firms continue to offer informative
stock reports and a level of service much higher than other brokerage houses,
discount brokerage houses only dedicate themselves to execute orders for
clients. Full service brokers are sellers looking for purchasing and selling for
clients and offering more customer service than is available from discount
brokers. It is many times possible that a client will not even know who is
taking care of the buy or sell order that they placed. In actuality the brokerage
industry continues to develop rapidly. Many of the traditional restrictions
against banking activities within the brokerage industry are being eliminated
and the barriers are disappearing. Due to this, some commercial banks have as
subsidiaries, brokerage houses that offer discounts and some of them have
available accounts that offer all of the services that are offered by a checking
account. These differences in services and philosophies may lead to great
differences in commission costs. It is evident that these differences may be an
important factor in the return of an investment. This is particularly true when
we see that these commissions are added to the purchase as well as to the sale
of a stock or other investments. Despite the previously, not all investors
consider that investment reports is an important service. Some investors prefer
other types of services since many investors don‘t believe that these
investment reports are useful. In order to capture this vast diverse clientele, the
brokerage industry has segmented itself. After the restrictions in commissions
were eliminated, several brokerages began to open up their doors as discount
brokerage firms. In actuality, brokerage firms may be classified into full
service brokers and discount brokers.

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Background to the stock exchange:
A stock exchange is an organized place or market where listed securities are
traded. The securities contracts regulation act, 1956 defines it as ―an
association organization or body of individual, whether incorporated or nor
established for the purpose of assisting, regulation and controlling business in
buying, selling and dealing in securities. The working of stock exchange in
India is regulated by the securities contracts (regulation) rule1957 &exchange
in India act 1992(SEBI act). The main objective of the act is to establish
unitary control over all the stock exchange by the central government with a
view to making them really helpful for the economic development of the
country. Stock exchange is a organized market for trading of stocks and bonds.
Such markets are open to all, but at present only members of the owing
association may buy or sell directly. Members or stock brokers buy and sell
for themselves or for others, charging commissions for their services. A stock
may be bought or sold only if it is listed on an exchange or it may not listed
unless it meets certain requirements set by the exchange‘s board of governors.
There are stock exchanges in all important financial centers of the world. The
New York stock exchange (NYSE) which had a trading volume of $7.3 trillion
in 1998 is largest in the world. Tokyo, London and Frankfurt also have major
facilities and euro next, an inter European.
The interstate sale of securities and certain stock exchange practices in the
united states of regulated by federal laws. Administered by the securities and
exchange commission.Today, a large percentage of stocks are traded through
such over the counter organization as NASDAQ (national association of
securities dealers automatic quotations and its European equitant, NASDAQ
Europe (formally EASDAQ).

The stock exchange regulated by the following agencies.

 Stock exchange division, department of economic affairs ministry of
finance.
 Securities and exchange board of India.

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World scenario
The first public issued security can be traced back to the 14th century in
Venice where the government made the first known issue of bonds. Merchants
and land owners as investments purchased these government securities. In and
around 1950‘s in inland, traders in the shares of early companies would
commonly meet in Jonathans coffee house to trade shares and make business
deals. Early share bids and offers were written on the coffee house walls and
the trading process was highly unregulated with insider trading forming the
basis for most investment decisions. In 1792, 24 brokers who each paid $ 400
for a trading sheet sign the button wood tree agreement. This agreement
outlined the regulation under which shares could bought and sold. These
regulation formed basis for trading rules that still exists today and led to the
formation of New York stock exchange in 1879. By 1773, trading clubs had
formed, and 1801 a group of traders raised 20 thousand pounds to build the
London stock exchange in chapel court. The similar process occurred in
America. By the early 1790‘s many merchants had begun trading shares
By late1990‘s, most of the stock exchanges had been automated and the open
outcry method of trading was the thing of past. Most stock exchanges began to
use computers to replace floor traders. Floor traders take phone and computers
orders from brokers and negotiate a trade with stock specialist at trading
stations on the trading floor. The internet orders placed by the clients are first
processed and authorized through the stock brokers computer system before
being automatically placed on the stock exchanges computer systems.

SECURITIES MARKET
Securities markets are those markets where sellers and buyers enter to sell or
buy the shares, bonds, debentures etc. Securities market is a module of the
broader monetary market where securities can be bought and sold between
topics of the economy, on the basis of demand and supply.

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ROLE OF NSE IN INDIAN SECURITIES MARKET
In 1993 ( April ) NSE of India was given a stock exchange recognition.
Objectives was set up
1. The trading facilities are establishing in a country for all the types of
securities.
2. Certifying with the equal access to the investors of the country with an
appropriate network.
3. They are providing pure, fair and transparent securities by using electronic
trading system.
4. In a short period of time above objectives and exchange has played an
important role to changing the agent in transforming the Indian capital. It
happens after meeting the standards and international benchmarks. NSE has
been playing the important role of an agent in creating a market structure and
implementation of practices.

Bombay stock exchange ( BSE ) :

The BSE is one of the first organized exchange. The BSE is transferred from
the open uproar system to the screen based system. It accelerated its
computerization in response to the threat from the NSE.
Brokers plays an important role on the BSE. A broker who trades on his own
accounts and hence offers a two way quote or a bid ask quote. The offer price
reflects the price at which the broker is willing to buy and probe price
represent a price at which the broker is ready to sell.

What is SEBI and what is its role?

The Securities and Exchange Board of India (SEBI) is the regulatory authority
in India established under Section 3 of SEBI Act, 1992. SEBI Act, 1992
provides for stablishment of Securities and Exchange Board of India (SEBI)
with statutory powers for
(a) protecting the interests of investors in securities
(b) promoting the development of the securities market and
(c) regulating the securities market. Its regulatory jurisdiction
extends over corporate in the issuance of capital and transfer of securities, in
addition to all intermediaries and persons associated with securities market.

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SEBI has been obligated to perform the aforesaid functions by such measures
as it thinks fit. In particular, it has powers for:
 Registering and modifing the working of stock brokers, sub–brokers
etc.
 Prohibiting fake and partial trade practices
 Promoting and modifing self-regulatory organizations
 Regulating the business stock exchanges and any other securities
markets

TRADING
The trading on stock exchanges in India used to take place through open
outcry without use of information technology for immediate matching or
recording of trades. This was time consuming and inefficient. This imposed
limits on trading volumes and efficiency. In order to provide efficiency,
liquidity and transparency, NSE introduced a nation-wide on-line fully
automated screen based trading system (SBTS) where a member can punch
into the computer quantities of securities and the prices at which he likes to
transact and the transaction is executed as soon as it finds a matching sale or
,buy order from a counter party. SBTS electronically matches orders on a strict
price/time priority and hence cuts down on time, cost and risk of error, as well
as on fraud resulting in improved operational efficiency. It enables market
participants, irrespective of their geographical locations, to trade with one
another also provides a perfect audit trail, which helps to resolve disputes by
logging in the trade execution process in entirety. NSE has main computer
which is connected through Very Small Aperture Terminal
(VSAT) installed at its office. The main computer runs on a fault tolerant
STRATUS mainframe computer at the Exchange. Brokers have terminals
(identified as the PCs in the Figure 1)
installed at their premises which are connected through VSATs/leased
lines/modem.

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LIST OF STOCK EXCHANGES IN INDIA

1. Bombay stock exchange (BSE)

2. National stock exchange (NSE)

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CHAPTER – 2
2.1 COMPANY PROFILE

FEDERAL CAPITAL MARKETS LTD

Background and inception of the company

• We at federal capital markets limited want to make financial products

reachable and understandable to all. We believe in client commitment,
profitability, and simple understanding of stock markets.
• The products of the federal capital markets limited are shares, mutual funds
and insurance. Our company is driven by the highly decorated professionals
with thespecialization in financial management having 11 years of experience
• Our main focus is on Personalized Service to clients (based on Fundamental
Research, Technical Research, Research on commodities).

Nature of business carried

Federal capital markets limited is one of the most leading brokerage firm
where they are providing the financial services to institutions and individuals
in the equity, derivatives and commodities segment in India. We are delivering
efficiently the full depth and breadth of our broking services to clients through
a network of more than 7 branches.

Vision
Our vision is to be the best financial services provider in India and to give the
best investment ideas and help our investors understand the economics of the
stock market.

Mission
The growing Indian financial market demands constant up gradation of
knowledge and technology. With the financial markets being systematic and
competitive, the need for expertise has increased rapidly. We at federal capital
believe that the need of the hour is to be equipped with the best available
techniques and prepare for the challenging days ahead.

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Values for the company
 Integrity
 Client Commitment
 Strive for Profitability
 Excellence
 Up-to-date Technology
 Innovation
 Fundamental Research
 Technical Analysis
 Systematic investment ideas

OWNERSHIP PATTERN
CATEGORY NO .OF %OF
SHARE(min) SHAREHOLDING
Total promoters holding 17.44 69
NRI holding 3.48 15.3
Non promoters corporate 2.18 3.2
Others 3.14 12.5

Total 26.24 100

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 ownership pattern of federal capital

Total promoters holding

NRI holding
Non promoters corporate
Others

Federal capital is a public limited company, where it consist of 26.24 number

of shares, in that total promoters holdings 17.44 of shares 69% are the major
capital holder, NRI holdings 3.48 consist of 15.3%. non promoters corporate
holdings 2.18 consists of 3.2% and Others holding are 3.14 with 12.5%.

Federal capital markets ltd. Organization chart

FEDERAL CAPITAL MARKETS LIMITTED

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Quality policy
Federal capital markets LTD.
Quality policy statement: ISO 9001:2008
At federal capital markets LTD, our aim is to continue to achieve high levels
of satisfaction for our clients and help them achieve their financial goals
through right investment advice and excellent service. . To realize this, it is the
policy of the Company to continually review and update our processes,
improve the competence of human resources and effectiveness of quality
management systems, ensure compliance with all regulatory requirements,
optimize technology and infrastructure, thereby enhancing customer
satisfaction. The objective of the company is to make the products easily
accessible and understandable to all . The quality policy has full support of the
senior management, and as such it is their responsibility to maintain and
implement our quality policy and ensure that the staff adheres to the
procedures.

2.2 Services Profile

• Equity
• Derivatives
• Insurance
• Mutual Funds
• Commodity Trading
• IPO

Equity
Investors are presented with well researched opportunities in companies which
will grow in both market perceived value and growth. Alongside, the trading
fraternity is catered to with ideas induced by technical analysis and news flow
analysis, In keeping with our tradition of personalized service, FCML provides
customized equity advisory group to clients based on their profile. Equity
research is an inherent strength of FCML, Converting that research to advice
is the main function of equity advisory.
.

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Benefits of opening an account with FCML
• Wide range of investment choices - Equity, Derivatives, IPOs and Mutual
Funds
• Discounted brokerage schemes
• Leverage products allowing you to trade more on your margin Online
Trading platform from your Desktop, Web, or Call N Trade

Derivatives
• Derivatives trading is a good instrument for hedging, leveraging your
portfolio and making profits.
• Good advice from our derivatives desk through regular reports, SMS alerts,
technical analysis, real-time charts and news to help you evaluate
opportunities and develop investment strategies.
• Equity derivative is a class of derivatives whose value is at least partly
derived from one or more underlying equity securities. Options and futures are
the two major products under derivatives. FCML provides the platform for
clients to trade in both futures and options, which are available on indices and
stocks. Derivatives can be used as a hedging tool to reduce risk or could be
used for speculation, but the contract has an expiry period. Hence it can be
risky for customers who are new to the stock market
• Access to sophisticated trading tools, daily derivative strategies, market news
and market outlook to help you make informed investment decisions.
• Customers can make various strategies like Bull Spread, Bear Spread, Cover
call writing, hedging strategies and execute the trades faster and smarter and
make good profits by reducing risks.

IPO
• Investing in an IPO is a risky and speculative investment. Only speculators
depending on their investment objectives and risk tolerance should consider
this type of investment.
• The term IPO only refers to the first public issuance of a company's share. It
assumes a company is big enough, successful enough, and has the required
track record to raise capital in the public equity market

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• Federal capital markets Ltd will help the clients by giving a detailed report
about the prospects of the company planning for IPO and advice the clients to
apply for it as and when its issued.

Priority Client Group

• For investors who want to actively participate in investment decisions.
• Dedicated team for HNI clients.
• Position calls, investment Ideas, arbitrage opportunities, derivative Strategies
and BTST Strategies.
• Professional advice based on fundamental and technical research and
analysis of news and corporate events.
• Fast execution of orders.

2.2 Area of operation

Federal capital markets LTD being a private brokerage firm operates well in
the national market. The company branch offices are scattered all over the
country (India). The branches across nation are in Kerala, Mumbai, Bangalore,
Mysore, Kolar and many other places. The company commenced its operation
in 2010 and exposed its trading facility in Equity, derivatives, and
commodities.

2.3 Competitors
The major competitors‘ are-
1. Share khan.
2. India bulls.
3. 5Paisa.
4. Reliance Money.
5. IDBI Paisa Builder.
6. Religare Securities Ltd
7. Geojit.
8. Net worth Stock Broking.
9. Kotak Securities.
10. Standard Chartered-STCI Capital Markets Ltd.

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QUALITY POLICY
 To achieve and retain leadership, federal capital markets Ltd shall
aim for complete customers satisfaction, by combining its human and
technological resources, to provide superior quality financial services.
 In the process, Federal Capital Markets Ltd will strive to exceed
customers expectation quality objectives. As per the quality policy,
Federal Capital Markets Ltd will emphasize on :
 Integrity
 Client commitment
 Strive for profitability
 Excellence
 Up-to-date technology
 Innovation
 Fundamental analysis
 Technical analysis
 Systematic Investment plans (SIPs)

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2.4 SWOT analysis

SWOT analysis is an auditing of an organization and its environment. It is the

analysis of organization‘s strength, weakness, opportunities and threats.
Strength and weakness are internal part of the organization and opportunities
and threats are external part of the organization.
Strengths-
 Employees with strong analytical, logical brain, imagination, pleasure
in solving
complicated problems, tact in dealing with clients/ colleagues, business sense.
 Ability of employees to visualize the implication of present policies
and actions for future in practical terms, and a fair for figures.
 It is recognized for good people driven relationship.
 Highly sophisticated and advanced research team makes it possible for
the clients to earn good returns. Well experienced and dedicated
employees in organization.
Weakness
 Lack of funds for advertisement.
 Operation is carried out mainly in south India.

Opportunity-
Around only 2% of Indian total populations are invested in stock market and it
has been anticipated that it rises to 5% by next year.
 Decrease in brokerage charges, attracts large number on investors.
 Due to inflation, increase in price of commodities increases the trade
volume of commodity market.
Threats-
 Increased competition by rival firms and entry of new players to the
market.
 Disinvestment by customers.
 Decrease in brokerage charges by other players.

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 2.3 Future Prospect of the sector
 Present demat accounts - 2% of the population
 Expected growth 5- 7% in the next 5yrs.

Future plans of our company

 100 Branches/ franchisees across India in the first year of operation
 To be in the top 10 stock broking firms in South India
 To be a good company in terms of corporate governance
 To focus on the client profits first this is our business mantra.
 Rural areas to be covered but with only long Term investment ideas
(delivery
 based)
 Investor awareness programs
 Expand overseas to places like Europe, U.S and Middle East
Main Focus
 Retail Clients
 Institutional Broking
 Corporate Accounts

“The best time to invest was 20 years back and the next best time is
today”.

FINANCIAL STATEMENT ANALYSIS

Current ratio:
The ratio has increased in the year 2017 -2018 and thus, higher the
current ratio, the more capable the company is of paying its
obligations. The standard ratio is 1:1 Current assets are those assets
which can be converted into cash within a period of one year. Current
liabilities are those liabilities which are payable in a year.

Current Ratio= Current Assets

Current Liabilities

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 Debt equity ratio:
The ratio for the year 2016 -17 and 2017-2018 is zero because the
company is fully dependent on internal source. This indicates that the
company depends more on internal sources then on external sources.
It means that the company depends upon the shareholders fund. But
in 2017-18, it has also used outside fund i.e loan.
Therefore in 2017-18 its ratio is 0.16

Proprietary ratio:
The ratio is 1.00 in 2016-17 and 2017-18. But in the year 2017-18, the
ratio has decreased to 0.85, which is quite normal and hence it is
negligible. It indicates that the company’s dependence on shareholders
fund is increasing year by year. It shows that the financial position
of the company is quite good.

EPS:
The earnings per share of the company is very less. In 2015-16 EPS is
0.01 but in 2016-17 and 2017-18 it was negative and has decreased
from -0.024 to -0.034 in these two years. This is because the company
is suffering from losses and having negative PAT.

DPS:
From the year 2015-16, till 2017-18, the dividend is not declared by
the company because the EPS is negative. This indicates that the
company is not in good condition.

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CHAPTER – 3
LITERATURE REVIEW

The origin of the concept of Fundamental Analysis of the share prices and its
valuation dates back to YU-HON LUI & David Mole (1998). There has been
reports showing the use of Fundamentals Analysis as well as Technical
Analysis by the foreign exchange dealers in Hong Kong for the purpose of
forecasting the exchange rate movements.

Mark P. Bauman (1996) conducted a study called, “Review of Fundamental

Analysis Research in Accounting”. His study has emphasised on the
development of various accounting valuation models and reviewed related
empirical work. His study identified 3 major issues associated with practical
implementation of his model; the prediction of future profitability, the
determination of the appropriate discount rate and the length of appropriate
forecast horizon.

Pramod Gupta, in his work titled, “Indian banks going Innovative”,

published in October 2003 by ‘Professional Bankers’ exclaimed that both
public and private banks were spending huge sums of money on technology so
as to provide innovative products and services to its customers facilitating
more convenience and satisfaction. Technology reduces the cost of transaction
and thereby helps to increase the customer base and enable wider geographic
reach.

Dr. Umesh Charan Patnaik published “Profitability in Public Sector

Banks” through the publisher ‘Sonali Publications’ in 2005. This book was
designed exclusively for the masses of people who had greater interest in
evaluating the performance of banks. He used Fundamental Analysis in his
study and published his findings. His book laid emphasis on the analysis of
profitability of public sector banks in general and SBI in particular.

Prakash Tiwari & Hemraj Verma (2009) made a study on “Fundamental

Analysis of Public sector Banks in India”. His study explained the favourable
and profitable position of the banks with reference to various ratios. The
stocks that he chose outperformed the market and provided consistent gains to
the investors.

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K. Srinivas Rao, in his publication “Private Sector Banks in India and the
Productivity Question”, studied the productivity of the banking industry as a
whole in the Indian economy. This work was on profitability. Mr. Srinivas
Rao concluded that social banking had become an essential factor for
productivity alongside conventional banking.

J. Oza, in his article made a comparison between productivity and

profitability of public banks in India. By analysing the productivity of banks in
the public sector, he inferred that there had been remarkable growth in
productivity per employee.

B. Satyamurty in wrote an article titled, “Bank costs and Profitability

Concepts - Evaluation, Technique & Strategies for Improvement” which was
published in the journal of the Indian Institute of Bankers dated July – Sept
1990. For his study, 24 ratios were categorized into 6 different groups of
performance. The interrelationship among the variables was observed and was
interpreted for systematically and the evaluation of productivity and
profitability of banks were made.

CHAPTER - 4
RESEARCH METHODOLOGY

The Fundamental Analysis is done on the historical data. The companies in the
banking industry have been selected for this study. During the study, the
historical data of the selected companies, the banking industry and the
economy was collected for certain period, based on the different parameters of
fundamental analysis to study the profitability of various stocks. As the study
is predominantly based on the historical data, the descriptive research is ideal
for the study where the data of the recent past were observed and examined
and their patterns were analysed from which an inference is drawn making use
of the Fundamental Analysis.

Source of data

Primary data: It was collected through an informal interaction with the

personnel of Federal Capital Markets Ltd.

Secondary data: The secondary data collected forms the majority of the data
collected for this study. It was gathered from various web sources and
reference books.

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The Balance Sheets of various banking companies, ratio analysis and market
capitalisation of the banks were all collected from the websites
www.moneycontrol.com and www.equitymaster.com whereas the theoretical
background of the study was obtained from a book called “Investment
Analysis – Security Analysis and Portfolio Management” written by V. K.
Bhalla.

Framework of the analysis

This study on Fundamental Analysis consists of the following framework:

 Economic Analysis
 Industry Analysis
 Company Analysis

The aspects taken into consideration for the 3 framework are as follows:

 Economic Analysis – Variables such as GDP, Inflation rate, FDI,

FE Reserve
 Industry Analysis – Growth rate of the market, developments in
the industry, Bank Index, Non –Performing Assets (NPA), etc.
 Company Analysis – Earnings per share (EPS), Dividend per
share (DPS), Dividend pay-out ratio (DP ratio), Dividend Yield,
Income per share, Price/Income Ratio Price earnings ratio, Price /
Earnings Ratio and Intrinsic value.

4.1 Title of the Study : A STUDY ON FUNDAMENTAL ANALYSIS WITH

REFERENCE TO STOCKS IN BANKING SECTOR AT FEDERAL
CAPITAL MARKETS LTD.”

4.2

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4.3 OBJECTIVES OF THE STUDY

 To analyse economy by using some economic indicators like GDP,

inflation rate, Foreign Direct Investments (FDI) and Foreign
Exchange Reserves
 To select the industry performing well in economy.
 To analyse industry for assessing the strength and find out best
performing companies.
 To carry out analysis of companies so as to select a particular
company performing well for and yielding good investment.
 To provide investment decisions

4.4 SCOPE OF THE STUDY

The study covers the stock price of 5 banking stocks for a period of 5 years
ranging from 2011 to 2015. Five years’ monthly closing prices of banking
stocks have been taken for testing the relevance of fundamental analysis. Five
banking stocks with highest market capitalization are chosen. The banking
companies chosen for the study are:

 SBI (State Bank of India)

 Bank of Baroda
 PNB (Punjab National Bank)
 IDBI
 Canara bank

4.5 LIMITATIONS OF THE STUDY

 In this study, only limited number of economic indicators like GDP,

inflation rate, FDI and Foreign Exchange Reserves are used to examine
the economy of the country.
 The study is limited only to one industry, i:e, banking industry, from
which only 5 companies are examined for the purpose of the analysis.
 Only quantitative factors are considered for the study. This study
ignores factors such as ‘Political factors’.
 Fundamental Analysis is a time consuming study. Efficiency and
accuracy of the analysis totally depends upon the availability of time.

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 Since the study was conducted in a limited time frame, the historical
data of only the past 5 years is considered for this study.
 In the Company Analysis, qualitative factors have only a limited
priority.
 Reliability of this study depends upon the reliability of the data
collected.
 The future of any industry or company is uncertain. Therefore the past
record is a poor guide for the future performance.
 Since the scope of this study is limited, the accuracy of the suggested
investment decisions cannot be fully guaranteed.

4.6

4.8

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CHAPTER 5 – Data Analysis and Interpretation

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CHAPTER – 6
FINDINGS

Economic Analysis

 India stands third largest by Purchasing Power Parity (PPP) and the Indian
economy is the ninth largest economy in the world by nominal GDP.
 Sector wise Indian GDP contribution are 17.9% Agriculture 24.2% in
Industry and 57.9% in the Service sector.
 In agricultural products, India is the second largest producer
 Year on year, in the last 3 months of 2015, the Indian economy expanded
for 7.3%
 Foreign Exchange Reserves in India as reported by the Reserve Bank of
India, makes it safe for investment because India has a good amount of
Foreign Exchange Reserve.
 FDI has played an important non debt financial force for the economic
upsurge in India
 The consumers save 5% to 10% on their expenses with good quality and
less rates which are the advantages of increasing FDI
 In the year 2011, the inflation rate was 8.9% and in the year 2015, it was
6.23%
 Over the past five years, the inflation rate has been decreased.
 The economic cycle is quite sensitive to the banking sector. Hence it is
susceptible to extremes in prices and valuation that attracts the value
investors.
 The Indian economy grew up to 8% and the banking industry is benefited
with demand for credit and market conditions are more expectable for
growth of loan books

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Industry Analysis

 Balance Sheet and better execution are relatively strong by Indian Banks.
 The Return on Equity is 15.3% by Indian banks.
 Cost of income ratio is 47.3% by Indian banks.
 Bad debts to asset ratio is 0.6.
 Better performance execution is expected from Indian banks. it is expected
to be the third largest by 2025 with the current growth rate in the banking
industry, though it is lagging with Savings Accounts per bank.
 A major source of funds can be from current accounts (CA) and savings
accounts (SA).
 Bank with new technologies is adopted by foreign banks and new
generation private banks with more efficiency.

Company Analysis

 SBI
 SBI is the largest public sector bank in India on the basis of market
capitalization and had 180 overseas offices spread over 34 countries.
There is no scarcity of labour and employed labours are highly
productive compared to past years.

 EPS, DPS are increased and Dividend payout ratio decreased

 Price earnings ratio has increased in the year 2014-15.

 EPS, and DPS are showing decreasing trend for 2013-14.

 Dividend payout ratio, and P/E ratio are showing an increasing trend
to 2014-15.

 Intrinsic value=1984.69
 Current market price=191.50
 Current market price is lower than intrinsic value of security, security
is underprized. It is advised to buy the share.

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  BANK OF BARODA
 Bank of Baroda is the Second largest public sector bank in India on
the basis of market capitalization and has 100 branches in 24 countries.

 DPS has decreased in the year 2014-15

 EPS, Dividend payout ratio are decreased.

 Price earnings ratio increased.

 EPS, DPS, Dividend payout ratio and P/E ratio are showing
decreasing trend for 2013-14.

 Intrinsic value = 710.028

 Current market price = 144.30
 Current market price is lower than intrinsic value of security, security
is under prized. It is advised to buy the share.

 PANJAB NATIONAL BANK

 Third largest public sector bank on the basis of market capitalization
.It has 5 overseas branches. Number of employees and productive
capacity of employees are increasing.

 DPS has decreased in the year 2014-15.

 EPS and Dividend payout ratio are decreased in the 2014-15.
 Price earnings ratio showing decreasing trend in 2014-15.

 EPS, DPS, Dividend payout ratio and P/E ratio showing decreasing
trend for 2014-15.

 Intrinsic value = 706.7088

 Current market price = 84.50

 Current market price is lower than intrinsic value of security, security
is underprized. It is advised to buy the share.

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 CANARA BANK
 EPS, Dividend payout ratio has increased in 2014-15

 Dividend per share has decreased in the year 2014-15.

 Price earnings ratio increased in 2014-15 . Dividend payout ratio and

P/E ratio are showing increasing trend for 2014-15.

 EPS, and DPS are showing decreasing trend for 2013-14.

 Intrinsic value = 443.143

 Current market price=190.75
 Current market price is lower than intrinsic value of security. security
is underprized. It is advised to buy the share.

 Industrial Development Bank of India

 It is currently 10th largest development bank in the world today .
 EPS, Dividend payout ratio has increased in 2014-15

 Dividend per share has decreased in the year 2014-15.

 Price earnings ratio increased in 2014-15 by 114.732 . Dividend

payout ratio is decreased and P/E ratio are showing increasing trend
for 2014-15.

 EPS, and DPS are showing decreasing trend for 2013-14.

 Intrinsic value = 114.732

 Current market price=67.20
 Current market price is lower than intrinsic value of security. security
is under prized. It is advised to buy the share.

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CHAPTER – 7
 Fundamental Analysis criteria is first rated for long term investments for
long term trends.
 Banking sector and investors are more focused on long term value
investing
 The investments in stocks which have more market price will not fully
reflect the business future cash flow.
 Analyse the fundamental estimation or valuation of a company stock for
investments.
 Realise the intrinsic value to analyse the company’s fundamental ratios.
 Then forecast the economic condition for general economic realisation.
The top –down approach would be the preferred option.
 For a better determination of an investment opportunity, the market value
should match the true value of the company
 Earnings help to identifying the future growth and potential growth
opportunities which are determinants of the stock price.
 Profit margin helps to determine the company that keeps the earnings out
of every rupee of revenue.
 The Return on Equity helps in measuring how efficient a company is in
creating its profit, because it contains the information about the factors like
leverage, returning value on share, margins, profits and revenue.
 It is very important in a long run stock price that it should reflect its
fundamental true value.
 Through Fundamental Analysis of a company, we can identify a company
that represent a good value.

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CONCLUSION

According to Fundamental Analysis, the investment decision cannot be taken

without having a proper analysis of all the required and relevant information.
Therefore the Fundamental Analysis is based on a detailed analysis of the
Economy, Industry and the Company. The results of such analysis can be used to
make long term decisions.

According the research of fundamental analysis in banking sector, the Economic

analysis shows a growth rate of the Gross Domestic Product of India at an
increased rate over the past 25 years. This shows an increased trend for the
upcoming years. The increased growth in the service sector, foreign investment
inflow and Foreign Exchange Reserves are positively giving hope to the Indian
economy. Financial Sector is a significant contributor of the Indian GDP after
trading sector.

According to Return on Equity, Cost to income ratio, Price to Book ratio, Bad debt
to Asset ratio and the NPA ratio of banking industry, it can be said that the Indian
banks as a whole, are performing well, tough there is scope for improvement.

For the company analysis, top five banks were selected from the BSE stocks on the
basis of Market capitalization. The Market values of all the stocks of the
selected 5 banks were low when compared to that of their respective intrinsic
values. Therefore it can be inferred that the stock values in the market for all
these five banks were undervalued. So it recommended to invest in the
securities in the current scenario. However, Bank of Baroda currently shows
the most attractive stock prices earnings ratio.

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