A Project Report On Equity shares Risk and Return Analysis A Study of Selected Indian Banks

(In the partial fulfillment of the degree of Master of Business Administration) (2010-2012)

SUBMITTED TO: Dr.B.S.Bodla Prof. USM University School of Management Kurukshetra University

SUBMITTED BY:MAHABIR SINGH M.B.A.4th Semester ROLL NO-82 Exam.Roll No_________

UNIVERSITY SCHOOL OF MANAGEMENT KURUKSHETRA UNIVERSITY, KURUKSHETRA

UNIVERSITY SCHOOL OF MANAGEMENT

KURUKSHETRA UNIVERSITY KURUKSHETRA
(ESTABLISHED BY THE STATE LEGISLATURE ACT XII OF 1956)

Ph. No. 01744-238565 Ext. No. 2526, 2527

e-mail:- chairman_usmkuk@yahoo.com

(A GRADE, NACC ACCREDITED)

No USOM/11/_________ Dated: ________________

CERTIFICATE

This is to certify that Mahabir Singh student of MBA (General) IV Semester, Examination Roll No ____________ has worked under my supervision and guidance on the Research Project titled Equity shares Risk and Return Analysis - A Study of Selected Indian Banks. The project is completed in the partial fulfillment of the requirements for the degree of Master of Business Administration. The matter used in the project is original and authentic to the best of my knowledge. I recommend that the project is fit for evaluation. I wish him success in all his future endeavors.

Dr. B. S. Bodla Professor USM, KUK

Mr.Rajit Verma Asst. Professor

USM, KUK

DECLARATION

I MAHABIR SINGH, Roll No.82, MBA (4th Semester) student of the University School of Management, Kurukshetra University, Kurukshetra hereby declare that the Research Report entitled Equity shares Risk and Return Analysis - A Study of Selected Indian Banks is an original work and the same has not been submitted to any other Institute for the award of any other degree.

Mahabir Singh

ACKNOWLEDGEMENT

The research report is an amalgamation of hard work and contribution of experience of eminent personality. I am grateful for the inspiration of many thinkers and for the hand together sources & roots of this wisdom. This research report has been made possible through the direct & indirect co- operation of various people whom I wish to express my thanks and gratitudes. First of all I would like to thank the supreme power, the Almighty GOD who is obviously the one who has always directed me to work on the right path of my life at every step. With his grace this project could become a reality. Then I express my sincere gratitude and thanks to Dr. B.S. Bodla for their inspiration and helpful attitude. I am also deeply thankful to Mr. Rajit Verma for his guidance, regular counseling, keen interest and constant encouragement. Without her guidance, this project would not have a successful end. I owe my sincerely thanks to all my faculty members and the associated staff for their support given to me time to time. Also, I would like to thank all my friends and family members for their support given to me time to time. Finally, with blessings of my parents who are a source of strength and inspiration for me in this endeavor.

Mahabir Singh

EXECUTIVE SUMMARY
Banks in India can be categorized into non-scheduled banks and scheduled banks. Scheduled banks constitute of commercial banks and co-operative banks. The public sector banks which are the foundation of the Indian banking system account for more than 78 percent of the total banking industry assets. The regulators have directed to evaluate the performance of this period according to different time periods. in the study the data is collected for the one year on the daily basis for analyzing the statistical tools and also implementing the CAPM for evaluating the securities. The BSE index is also taken to evaluate the market risk. The risk free rate is taken as 9% because at that time period that rate was prevailing in the market. This report includes various banks as Allahabad Bank, Andhra Bank, UCO, IDBI, Corporation Bank, Union Bank etc. The performance can be evaluated by using descriptive statistics tools, beta, regression and CAPM on the securities of these Banks. The purpose of this report is to evaluate the risk and return analysis of these with the help of CAPM and to see which one is high rate of return also see that which security is more risky and need to revise the portfolio. It primarily aims at learning the various factors that can help in evaluation process. The first part of the report is about the Introduction to topic and profile of banks that has been undertaken for the study. And in next coming pages the objective and justification of study will come. The third part consists of Research Methodology which includes Sampling, Data Collection, Statistical and Analytical tool, the Excel worksheet and the Limitations of the study and Bibliography.

Content
1. Introduction to topic Risk Return Company Profile 2. Research Methodology Type of Research Research Design Objective of the Study Scope of the Study Limitation of the Study 3. Data Analysis and Intraptation Beta Standard Deviation CAPM CML SML Result of CAPM 4. Findings and conclusion Finding Conclusion 5. Bibliography

Page No.
6-21 6 7 8-21 22-25 23 24 24 24 25 26- 35 27-28 29 30 31 32 33-35 36-38 37 38 39

Chapter 1 Introduction To Topic

Risk and Return Analysis

The dictionary meaning of the risk is the possibility of loss or injury.in risk the probable outcome of all the possible events is listed. Risk consist of two components the systematic and unsystematic. The systematic risk is caused by the external factors to the entire company and also uncontrollable by the company. The systematic risk effect the market as a whole. In the unsystematic risk the factors are specific, unique and related to the particular industry. Risk analysis is the process of defining and analyzing the dangers to individuals, businesses and government agencies posed by potential natural and human-caused adverse events. In the systematic risk the three things are included:1. Market Risk 2. Interest Rate Risk 3. Purchasing Power risk. In the unsystematic risk mainly two things are included:1. Business Risk 2. Financial Risk The risk is mainly denoted as the Beta. Beta describes the relationship between the stock return and market index return. 1. Beta = 1 One percent changes in market index return because exactly one percent changes in stock return. It indicates that the stock moves in tandem with the market. 2. Beta > 1 Its shows that there is the high systematic risk
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3. Beta < 1 It shows that the low systematic risk.

Return
In finance rate of return (ROR), also known as return on investment (ROI), rate of profit or sometimes just return, is the ratio of money gained or lost (whether realized or unrealized) on an investment relative to the amount of money invested. The amount of money gained or lost may be referred to as interest, profit/loss, gain/loss, or net income/loss. The money invested may be referred to as the asset, capital, principal, or the cost basis of the investment. ROI is usually expressed as a percentage. With the help of the risk and return formulas analysis we calculate the risk and return of the securities of different banks. Also implementing the CAPM ( Capital Assets Pricing Model) for evaluating the efficient portfolio. I take out the result with the help of MS-EXCEL. In the EXCEL using the formulas in spreadsheet. We also use the CAPM to get the efficient portfolio of the securities. With the help of CAPM we have the security which is giving the highest rate of return.

Industry /companies profile

Allahabad Bank
Allahabad Bank is one of the premier nationalized banks in India. It is also the oldest joint stock bank of India. It was incorporated by a group of Europeans at Allahabad on April 24, 1865. It was the time Indian economy had started shifting towards organized trade and business affairs. After some years in 1920, the P&O Bank brought Allahabad Bank and its headquarters at Kolkata. The Allahabad bank got an entirely new identity when it was nationalized in 1969 along with 13 other banks in India. Since then the Allahabad Bank had a smooth journey towards progress. Today it is one of the leading banks in India with a whooping business of over Rs.1, 00,000 crores. Head Office Allahabad Bank 2, N S Road Kolkata 700001 West Bengal Website: www.allahabadbank.com

Andhra Bank
Andhra Bank is an Indian bank based in Hyderabad. The bank was established in the year 1923, and its founder was Dr. Bhogaraju Pattabhi Sitaramayya, a well known freedom fighter. The initial authorized capital of the bank was Rs. 10.00 lacs, while the paid up capital was Rs. 1.00 lac at the time of its registration. Head Office Andhra Bank, 5-9-11, Saifabad, Hyderabad City, Andhra Pradesh - 500 004 Website: http://www.andhrabank.in.

Bank of Baroda
Bank of Baroda is one of the most prominent banks in India, having its total assets as Rs. 1,43,146 Crores as on 31st of March 2007. The bank was founded by Maharaja Sayajirao Gaekwad III (also known as Shrimant Gopalrao Gaekwad), the then Maharaja of Baroda on 20th of July 1908 with a paid capital of Rs. 10 Lacs. From its introduction in a small building of Baroda, the bank has come a long way to achieve its current position as one of the most important banks in India. On 19th of July 1969, Bank of Baroda was nationalized by the Government of India along with 13 other commercial banks. Head Office Bank of Baroda Suraj Plaza-1, Sayaji Ganj, Baroda-390005 Bank Of Baroda Baroda Corporate Centre, Plot No - C-26, G - Block, Bandra - Kurla Complex, Bandra (East), Mumbai-400051 Website: www.bankofbaroda.com.

Bank of India
Bank of India was founded on September 7, 1906 by a group of eminent businessmen from Mumbai. In July 1969 Bank of India was nationalized along with 13 other banks. Beginning with a paid-up capital of Rs.50 lakh and 50 employees, the Bank has made a rapid growth over the years. It has evolved into a mighty institution with a strong national presence and sizable international operations. In business volume, Bank of India occupies a premier position among the nationalized banks. Presently, Bank of India has 2609 branches in India spread over all states/ union territories including 93 specialized branches. These branches are controlled through 48 Zonal Offices. Bank of India has several firsts to its credit. The Bank has been the first among the nationalised banks to establish a fully computerised branch and ATM facility at the Mahalaxmi Branch at Mumbai way back in 1989. It pioneered the introduction of the Health Code System in 1982, for evaluating/ rating its credit portfolio. Bank of India was the first Indian Bank to open a branch
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outside the country, at London, in 1946, and also the first to open a branch in Europe, Paris in 1974. The Bank has sizable presence abroad, with a network of 23 branches (including three representative office ) at key banking and financial centres viz. London, New York, Paris, Tokyo, Hong-Kong, and Singapore

Bank of Maharashtra
Bank of Maharashtra is an Indian bank based in the city of Pune. The bank was established in the year 1935 with an initial authorized capital worth Rs. 10.00 Lacs, although it became operational in the early phase of the next year. The bank got nationalized by the Government of India in the year 1969. With a total number of 1421 branches located all over India as of April 2009, the bank claims to have the largest number of branches within the state of Maharashtra, among all the Public Sector banks. Commonly known as a common man's bank, Bank of Maharashtra adopts a philosophy of "Technology with personal touch", and follows its motto stating "One Family, One Bank, Bank of Maharashtra". Head Office Bank of Maharashtra Lokmangal, 1501, Shivajinagar, Pune (Maharashtra) - 411 005 Website: www.bankofmaharashtra.in

Canara Bank
Canara Bank is one of the most prominent commercial banks of India. The bank was established in the year 1906 at Mangalore, Karnataka by a well-known personality Mr. Ammembal Subba Rao Pai. Initially, it was founded with the name Canara Bank Hindu Permanent Fund, but later on the name was changed to Canara Bank Limited. Mr. Ammembal Subba Rao Pai had envisioned the bank to not only offer financial services but also fulfill social causes such as removal of superstitions and ignorance, promotion of habit of saving, providing assistance to the people in need and develop a sense of humanity among the people. Website: http://www.canarabank.com

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Central Bank of India

Central Bank of India is one of the oldest commercial banks of India, and reportedly is the first truly Indian bank which was totally owned and established by Indian without any foreign help. Sir Sorabji Pockhanawala was the founder of the bank, who had always dreamt of establishing a thoroughly Indian bank, who was so happy and excited about the project that he reportedly termed the Central Bank of India as property of the nation and the countrys asset. The first Chairman of the bank was Sir Pherozesha Mehta, a yet another Indian enthusiast. In the year 1969 the bank was nationalized by the Government of India. Head Office Central Bank of India Chander Mukhi, Narman Point Mumbai 400 021 Website: http://www.centralbankofindia.co.in

Corporation Bank
Corporation Bank is an Indian bank based in Mangalore, Karnataka. The bank was founded in the year 1906 at a town named Udupi in Karnataka with an investment of just Rs. 5000. A group of enthusiasts including Khan Bahadur Haji Abdulla Haji Kasim Saheb Bahadur were the founders of the bank. Interestingly, Udupi was not much far from Mangalore, and the banking needs of the people were being solely controlled by some local rich individuals. Hence, to find a way out of the existing monopoly of the money lenders, Corporation Bank was established with the initial name The Canara Banking Corporation (Udupi) Ltd. Head Office Corporation Bank Mangaladevi Temple Road Pandeshwar MANGALORE 575 001 Karnataka, India Website: http://www.corpbank.com

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Dena Bank
Dena Bank is an Indian commercial bank based in Mumbai. The bank was founded by the Devkaran Nanjee family on the 26th of May, 1938. At the time of establishment, its name was Devkaran Nanjee Banking Company Ltd. Further, the banking company was incorporated as a Public Ltd. Company in December 1939, changing its name to Dena Bank Ltd. The bank was nationalized by the Government of India along with 13 other commercial banks in the year 1969. Head Office Dena Bank, Dena Corporate Centre C-10, G Block, Bandra-Kurla Complex Bandra [E]. Mumbai- 400 051 Website: http://www.denabank.com

IDBI
The Industrial Development Bank of India Limited, now more popularly known as IDBI Bank, was established as a wholly-owned subsidiary of Reserve Bank of India. The foundation of the bank was laid down under an Act of Parliament, in July 1964. The main aim behind the setting up of IDBI was to provide credit and other facilities for the Indian industry, which was still in the initial stages of growth and development. In February 1976, the ownership of IDBI was transferred to Government of India. After the transfer of its ownership, IDBI became the main institution, through which the institutes engaged in financing, promoting and developing industry were to be coordinated. In January 1992, IDBI accessed domestic retail debt market for the first time, with innovative Deep Discount Bonds, and registered path-breaking success. The following year, it set up the IDBI Capital Market Services Ltd., as its wholly-owned subsidiary, to offer a broad range of financial services, including Bond Trading, Equity Broking, Client Asset Management and Depository Services.

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In September 1994, in response to RBI's policy of opening up domestic banking sector to private participation, IDBI set up IDBI Bank Ltd., in association with SIDBI. In July 1995, public issue of the bank was taken out, after which the Government's shareholding came down (though it still retains majority of the shareholding in the bank). In September 2003, IDBI took over Tata Home Finance Ltd, renamed IDBI Home finance Limited, thus diversifying its business domain and entering the arena of retail finance sector. The year 2005 witnessed the merger of IDBI Bank with the Industrial Development Bank of India Ltd. The new entity continued to its development finance role, while providing an array of wholesale and retail banking products (and does so till date). The following year, IDBI Bank acquired United Western Bank (which, at that time, had 230 branches spread over 47 districts, in 9 states). In the financial year of 2008, IDBI Bank had a net income of Rs 9415.9 crores and total assets of Rs 120,601 crores. Today, IDBI Bank is counted amongst the leading public sector banks of India, apart from claiming the distinction of being the 4th largest bank, in overall ratings. It is presently regarded as the tenth largest development bank in the world, mainly in terms of reach. This is because of its wide network of 509 branches, 900 ATMs and 319 centers. Apart from being involved in banking services, IDBI has set up institutions like The National Stock Exchange of India (NSE), The National Securities Depository Services Ltd. (NSDL) and the Stock Holding Corporation of India (SHCIL). Head Office IDBI Tower, WTC Complex, Cuffe Parade, Colaba, Mumbai - 400005 Website: www.idbi.com

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Indian Bank
Indian Bank is one of the indigenous banks of India that emerged as a result of the Swadeshi Movement during the British Raj. The bank was established on 15th of August, 1907. One of the prime figures associated with the establishment of the bank was V. Krishnaswamy Iyer, a lawyer from Madras (Now Chennai). The bank soon spread its wings outside India too, and opened its branch in Colombo, Sri Lanka in the year 1932 and Rangoon, Burma in 1940. The bank was further nationalized by the Government of India in the year 1969. Head Office Indian Bank, PB No.1384, 66, Rajaji Salai, Chennai 600 001, Tamil Nadu Website: http://www.indianbank.in

Oriental Bank of Commerce

Established on 19th Feb' 1943 in Lahore, Oriental Bank of Commerce (OBC) is one of the public sector banks in India. Its modest beginning is creditable to its founder Late Rai Bahadur Lala Sohan Lal, the first Chairman of the OBC. Within four years of coming into existence, the country partitioned, the Bank shifted its Registered Office from Lahore to Amritsar. The Oriental Bank of Commerce was nationalized on 15th April 1980, and paved its way to count amongst the strongest banks in India. OBC has a network of 530 branches and 505 ATM's spread throughout India, out of which 490 branches offer centralized banking solutions. With High Capital Adequacy Ratio, Oriental Bank of Commerce is known be a consistent profit-making bank. It offers various services and products, like current/ savings account, general loans, educational loans, agricultural loans, etc, for the benefit of customers. For its effective services, the National Institute of Bank Management (NIBM) rated OBC Bank as "Customer Friendly" Bank.

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Head Office Oriental Bank of Commerce Harsha Bhawan, E- Block Connaught Place New Delhi - 110001 URL: www.obcindia.com

Punjab & Sind Bank

Punjab & Sind Bank, established in 1908, is headquartered at New Delhi. Having more than 800 branches across the country, the bank has around 10,000 employees dedicated to the banking services and customer care. The bank offers usual banking services along with innovative banking methods including Internet and phone banking, international banking, merchant banking, hire, purchase, leasing and credit cards. Head Quarter Address Punjab & Sind Bank 21, Rajendra Place New Delhi - 110008 Email: ho@psb.co.in Website: http://www.psbindia.com/

Punjab National Bank

Punjab National Bank (PNB) is the second largest government-owned commercial bank in India. Having more than 3.5 crore customer, Punjab National Bank has one of the largest branch networks in India. The bank's assets for financial year 2007 were about US$60 billion. Ranked among top 50 companies by the leading financial daily, Economic Times.
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Ranked as 323rd biggest bank in the world by Bankers Almanac (January 2006), London. Earned 9th place among India's Most Trusted top 50 service brands in Economic TimesA.C Nielson Survey. Included in the top 1000 banks in the world according to The Banker, London. Golden Peacock Award for Excellence in Corporate Governance - 2005 by Institute of Directors. FICCI's Rural Development Award for Excellence in Rural Development 2005

Head Office Punjab National Bank. 7, Bhikhaiji Cama Place, New Delhi - 110066 Phone: 91-11-2371 6185 Fax: 91-11-26196176 Website: www.pnbindia.com

Syndicate Bank
Established in the year 1925, Syndicate Bank had its first office in the coastal region of Karnataka, Udupi. It was then named as 'Canara Industrial & Banking Syndicate Ltd'. The bank was initiated by a trio - Sri Upendra Ananth Pai, a businessman, Sri Vaman Kudva, an engineer and Dr.T M A Pai, a physician, with a capital of Rs. 8000. During that time, the crisis in the handloom industry crippled the local weavers completely. The main aim of Syndicate Bank was to provide financial assistance to them, by mobilizing small savings from the community. Three years later, in 1928, the bank came up with Pigmy Deposit Scheme, in which it collected as little as 2 annas per day, at the doorsteps of the depositors through its agents. The scheme existing till date, earns the bank a sum of Rs. 2 crore daily. In the same year, Syndicate bank opened its first branch at Brahmavar in Dakshina Kannada District. It became a member of the Clearing House for the first time at Bombay, in 1937. Almost a decade later, Syndicate Bank
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opened 29 branches opened in a single day in rural areas. Its 100th branch opened at Ilkal in Karnataka in 1957. Head Office SyndicateBank Head Office Post Box No.1 Manipal - 576104 (Udupi Dist) Karnataka

UCO Bank
UCO Bank is a commercial bank established in 1943. The idea to establish the bank was first conceived by G.D. Birla, the famous industrialist, after the historic 'Quit India Movement' in 1942. The idea was culminated on the 6th of January 1943, when The United Commercial Bank Ltd. was born with its Registered and Head Office at Kolkata. A commercial bank and a Government of India Undertaking, it comprises of government representatives as well as renowned professionals like accountants, management experts, economists, businessmen, and so on, in its Board of Directors. United Commercial Bank has stretched out to of all segments of the economy - be it agriculture, industry, trade and commerce, services or infrastructure. Along with 13 other major commercial banks of India, United Commercial Bank was nationalized on 19th July, 1969, by the Government of India. Thereafter the Bank expanded rapidly. To keep pace with the developing scenario and expansion of business, the Bank undertook an exercise in organizational restructuring in the year 1972. Under the act of Indian Parliament, in 1985, its name changed from United Commercial Bank to the present name, UCO Bank. As of 2005, the bank has 2000 Service Units spread all over India. A distinctive feature of UCO bank is its introduction of 'NO HOLIDAY' branches. These bank branches work on all the 365 days of a year. With the age of global banking, UCO bank has also changed to be adept with

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the newest technology, boasting of specialized computerized branches in both India and overseas. Head Office 10 B.T.M Sarani Kolkata - 700001 Website: www.ucobank.com

Union Bank of India

Union Bank of India was inaugurated by the Father of the Nation, Mahatama Gandhi, on November 11, 1919. Started as a limited company in Mumbai, it was one of the few Financial Commercial banks in India. Until 1947, UBI had only 4 branches - 3 in Mumbai and 1 in Saurashtra, all concentrated in key trade centres. Catering to all the sectors of the society, be it agriculture, industry, trade and commerce, services or infrastructure, the bank has also played a major role in rendering services to the financial needs of every section. Apart from this, the bank also extended financial support to educational, housing and trade sector. Union Bank of India undertook the task of establishment of village knowledge centers and selfemployment training centers. It was in 1975, that the Union Bank of India was nationalized. It was, then, that it merged with the Belgaum Bank, a private sector bank. Another merger was on cards in 1985, this time with the Miraj State Bank. Union Bank is a Public Sector Unit with 55.43% Share Capital held by the Government of India. The Bank came out with its Initial Public Offer (IPO) in August 20, 2002 and Follow on Public Offer in February 2006. Presently 44.57 % of Share Capital is presently held by institutions, individuals and others Website: www.unionbankofindia.co.in

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United Bank of India

Originally established as United Bank of India Ltd., the bank was a result of merger of four Bengali banks - Comilla Banking Corporation Ltd., Bengal Central Bank Ltd., Comilla Union Bank Ltd. and Hooghly Bank Ltd. in 1950. Almost two decade later, in 1969, United Bank of India was one among the major banks that were nationalized. Thereafter, the bank expanded in a major way, covering all the states of India. It also was an active participant in the growth and developmental activities, mainly in the rural and semi-urban regions. Acknowledging the efforts made by United Bank of India, it was honored as a Lead Bank in several districts of India. Presently, it the Lead Bank in 30 districts in the States of West Bengal, Assam, Manipur and Tripura. The Bank also holds the position of being the Convener of the State Level Bankers' Committees (SLBC) for the States of West Bengal and Tripura. The bank is known to spread its banking services especially in the Eastern and North-Eastern parts of India. United Bank of India supported the 4 Regional Rural Banks (RRB) at West Bengal, Assam, Manipur and Tripura. Thanks to United Bank of India, even places with little or no reach such as the Sunderbans in West Bengal, today, have an access to banking services. UBI had established two floating mobile branches on motor launches. These moved from one island to another on different days of the week, providing people with all the facilities. However, the floating branches paved way to the full-fledged bank branches at these centers. The largest lender to the tea industry, UBI is also recognized as the 'Tea Bank', for its longstanding involvement with the financing of tea gardens. Head Office United Bank Of India 11, Hemanta Basu Sarani Kolkata - 700 001 West Bengal Website: www.unitedbankofindia.com

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Vijaya Bank
Vijaya Bank was flagged off on 23rd October 1931. Late Shri A.B.Shetty, along with other enterprising farmers in Mangalore, Karnataka, founded the bank to inculcate banking habits in the farming community of Dakshina Kannada district in Karnataka State. In 1958, it was promoted and became a scheduled bank. From 1963 to 68, the Vijaya bank grew both in terms of size and stature - 9 small banks had merged with it, thus contributing to its growth and advancement. On April 15, 1980, the bank was nationalized. Vijaya Bank boasts of being one of the few banks which has undertaken the principal membership of VISA International and MasterCard International. Vijay Bank has been constantly focusing on technological upgradation. As on October 2005, all the 913 branches have been computerized, covering 97% of the bank's total business. Head Office Vijaya Bank 41/2, Head Office Building Trinity Circle, Mahatma Gandhi Road Bangalore G.P.O. Bangalore - 560001 Phone: 080-25550693, 25584385 Website: http://www.vijayabank.com/

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Chapter 2 Research Methodology

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Type of Research
Research is the systematic investigation into existing or new knowledge. It is used to establish or confirm facts, reaffirm the results of previous work, solve new or existing problems, support theorems, or develop new theories. A research project may also be an expansion on past work in the field. In order to test the validity of instruments, procedures, or experiments, research may replicate elements of prior projects, or the project as a whole. The primary purposes of basic research (as opposed to applied research) are documentation, discovery, interpretation, or the research and development of methods and systems for the advancement of human knowledge. Approaches to research depend on epistemologies, which vary considerably both within and between humanities and sciences.

Steps in conducting research

Research is often conducted using the hourglass model structure of research. The hourglass model starts with a broad spectrum for research, focusing in on the required information through the methodology of the project (like the neck of the hourglass), then expands the research in the form of discussion and results. The major steps in conducting research are: Identification of research problem Specifying the purpose of research Determine specific research questions or hypotheses Data collection Analyzing and interpreting the data Reporting and evaluating research

The steps generally represent the overall process.

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Research Design
There are two main approaches to a research problem: Quantitative Research Qualitative Research

Here my research is of Quantitative (Descriptive).

Statement of the Problem

In the recent years the financial system especially the banks have undergone numerous changes in the form of reforms, regulations & norms. With the help of CAPM we evaluate the performance evaluation of banks is an addition to this. The study is conducted to analyze the maximum and minimum return of shares of different Banks with this model.

Objectives of Study
To analyze risk and return of public sector banks to get the desired results by using CAPM as a tool of measuring performance. To identify the best performing bank in terms of risk-return trade-off. To identify the under-price and over-price situations in the various banking shares.

Scope of the Study

This study will be helpful in analyzing the risk and return analysis of banking sector which play a vital role in analyzing the financial performance of the banking industry. On the basis of this study investors can also revise their portfolio so that they can diversify their risks.

Type of research: Descriptive

Sample Size:
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The sample size is eleven banks which are public sector banks. The study environment the Banking industry.

was

Data Source:
Primary Data: Primary data was collected from the company profile. Secondary Data: Secondary data on the subject was collected from Capitaline database website.

Sampling Technique:
Convenience sampling: Convenience sampling was done for the selection of the banks.

Data Analysis:
I have collected the data from 20-03-2011 to 21-03-2012 on daily basis. All the data has been analyzed in MS-EXCEL. Descriptive statistics, standard deviation, beta, regression and CAPM model has been has been applied on the whole data to get results.

Limitation of the Study

1) The study was limited to eleven banks. 2) Time and resource constrains. 3) The method discussed pertains only to banks though it can be used for performance

evaluation of other financial institutions. 4) The study was completely done on the basis of risk and return calculated from the last one year stock data.

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Chapter 3 Data Analysis and Interpretation

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Beta
In finance, the Beta () of a stock or portfolio is a number describing the volatility of an asset in relation to the volatility of the benchmark that said asset is being compared to. This benchmark is generally the overall financial market and is often estimated via the use of representative indices, such as the S&P 500. An asset has a Beta of zero if its returns change independently of changes in the market's returns. A positive beta means that the asset's returns generally follow the market's returns, in the sense that they both tend to be above their respective averages together, or both tend to be below their respective averages together. A negative beta means that the asset's returns generally move opposite the market's returns: one will tend to be above its average when the other is below its average. It measures the part of the asset's statistical variance that cannot be removed by the diversification provided by the portfolio of many risky assets, because of the correlation of its returns with the returns of the other assets that are in the portfolio. Beta can be estimated for individual companies using regression analysis against a stock market index. The formula for the beta of an asset within a portfolio is

Where ra measures the rate of return of the asset, rp measures the rate of return of the portfolio, and cov(ra,rp) is the covariance between the rates of return. The portfolio of interest in the CAPM formulation is the market portfolio that contains all risky assets, and so the rp terms in the formula are replaced by rm, the rate of return of the market. Beta is also referred to as financial elasticity or correlated relative volatility, and can be referred to as a measure of the sensitivity of the asset's returns to market returns, its non-diversifiable risk, its systematic risk, or market risk. On an individual asset level, measuring beta can give clues to volatility and liquidity in the marketplace. In fund management, measuring beta is thought to separate a manager's skill from his or her willingness to take risk. The beta coefficient
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was born out of linear regression analysis. It is linked to a regression analysis of the returns of a portfolio (such as a stock index) (x-axis) in a specific period versus the returns of an individual asset (y-axis) in a specific year. Formula for calculating in Excel: =Slope(known_ys,known_xs) Where is known ys is dependent variable and known xs is independent variable.

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Standard Deviation
In finance, standard deviation is applied to the annual rate of return of an investment to measure the investment's volatility. Standard deviation is also known as historical volatility and is used by investors as a gauge for the amount of expected volatility. Standard deviation is a representation of the risk associated with a given security (stocks, bonds, property, etc.), or the risk of a portfolio of securities. Risk is an important factor in determining how to efficiently manage a portfolio of investments because it determines the variation in returns on the asset and/or portfolio and gives investors a mathematical basis for investment decisions. The overall concept of risk is that as it increases, the expected return on the asset will increase as a result of the risk premium earned - in other words, investors should expect a higher return on an investment when said investment carries a higher level of risk. For example, you have a choice between two stocks: Stock A historically returns 5% with a standard deviation of 10%, while Stock B returns 6% and carries a standard deviation of 20%. On the basis of risk and return, an investor may decide that Stock A is the better choice, because the additional percentage point of return (an additional 20% in dollar terms) generated by Stock B is not worth double the degree of risk associated with Stock A. Stock B is likely to fall short of the initial investment more often than Stock A under the same circumstances, and will return only one percentage point more on average. In this example, Stock A has the potential to earn 10% more than the expected return, but is equally likely to earn 10% less than the expected return. Calculating the average return (or arithmetic mean) of a security over a given number of periods will generate an expected return on the asset. For each period, subtracting the expected return from the actual return results in the variance. Square the variance in each period to find the effect of the result on the overall risk of the asset. The larger the variance in a period, the greater risk the security carries. Taking the average of the squared variances results in the measurement of overall units of risk associated with the asset. Finding the square root of this variance will result in the standard deviation of the investment tool in question. Use this measurement, combined with the average return on the security, as a basis for comparing securities.

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CAPM
Markowitz, William Sharpe, John Linter and Jan Mossin provided the basic structure of the CAPM model. It is a model of linear general equilibrium return. In the CAPM theory, the requires rate of an asset is having a linear relationship with assets beta value i.e. undiversifiable or systematic risk.

Assumptions
1. An Individual seller or buyer cannot affect the price of a stock. This assumption is the basic assumption of the perfectly competitive market. 2. Investors make their decision only on the basis of the expected returns, standard deviation and covariance. 3. Investors are assumed to have homogenous expectation during the decision making period. 4. The investor can lend or borrow any amount of fund at the riskless rate of interest. The riskless rate of interest offered for the treasury bills or Government securities. 5. Assets are infinitely divisible. 6. There is no transaction cost. 7. There is no personal income tax.

The Concept
According to CAPM, all investor hold only the market portfolio and riskless securities. The market portfolio is a portfolio comprised of all stock in the market. Each asset is held in proportion to its market value to the total value of all risky assets. For example if the Allahabad bank share represents 20% of all risky assets, then the market portfolio of the individual investor can contain 20% of Allahabad bank share. At this stage the investor has the ability to borrow or lend any amount of money at the riskless rate of interest.

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Capital market Line

Capital market line (CML) is the tangent line drawn from the point of the risk-free asset to the feasible region for risky assets. The tangency point M represents the market portfolio, so named since all rational investors (minimum variance criterion) should hold their risky assets in the same proportions as their weights in the market portfolio. The risk return relationship of an efficient portfolio is measured by the capital market line. But it does not show the risk return tradeoff for other portfolios and individual securities.

E(r) = portfolio expected rate of return Rm = expected return of market portfolio Rf = risk free rate M = standard deviation of market portfolio The CML results from the combination of the market portfolio and the risk-free asset (the point L). All points along the CML have superior risk-return profiles to any portfolio on the efficient frontier, with the exception of the Market Portfolio, the point on the efficient frontier to which
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the CML is the tangent. From a CML perspective, this portfolio is composed entirely of the risky asset, the market, and has no holding of the risk free asset, i.e., money is neither invested in, nor borrowed from the money market account. Addition of leverage (the point R) creates levered portfolios that are also on the CML.

Security Market Line

Security market line (SML) is the graphical representation of the Capital asset pricing model. It displays the expected rate of return of an individual security as a function of systematic, nondiversifiable risk (its beta). The Y-intercept of the SML is equal to the risk-free interest rate. The slope of the SML is equal to the market risk premium and reflects the risk return trade off at a given time:

When used in portfolio management, the SML represents the investment's opportunity cost (investing in a combination of the market portfolio and the risk-free asset). All the correctly priced securities are plotted on the SML. The assets above the line are undervalued because for a given amount of risk (beta), they yield a higher return. The assets below the line are overvalued because for a given amount of risk, they yield a lower return. There is a question about what the SML looks like when beta is negative. A rational investor will accept these assets even though they yield sub-risk-free returns, because they will provide "recession insurance" as part of a well-diversified portfolio. Therefore, the SML continues in a straight line whether beta is positive or negative.

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Data analysis and results

The various results with CAPM

Here, Rf = Risk free rate = Risk of the security Rm = return of the market Allahabad Bank =9+1.22*(4.98-9) =4.096 Andhra Bank =9+1.01*(4.98-9) =4.94 Bank of Baroda =9+0.88*(4.98-9) =5.46 Bank of India =9+1.14*(4.98-9) =4.42 Bank of Maharashtra =9+0.8*(4.98-9) =5.78 Canara bank =9+1.06*(4.98-9) =4.74 Central bank of India =9+1.16*(4.98-9) =4.34
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Corporation bank =9+0.72*(4.98-9) =6.11 Dena Bank =9+1.39*(4.98-9) =3.41 IDBI =9+1.3*(4.98-9) =3.77 Indian Bank =9+0.94*(4.98-9) =5.22 Oriental Bank =9+1.07*(4.98-9) =4.7 Pun.& Sind Bank =9+0.71*(4.98-9) =6.15 PNB =9+0.93*(4.98-9) =5.26 Syndicate Bank =9+0.24*(4.98-9) =8.04 Uco Bank =9+0.3*(4.98-9) =7.79 Union Bank of India =9+0.23*(4.98-9)
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=8.08

United Bank of India =9+0.27*(4.98-9) =7.91 Vijaya Bank =9+0.36*(4.98-9) =7.55

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Chapter 4 Finding and Conclusion

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Finding
In the above data analysis and Interpretation we find the various result like Descriptive Statistics Beta, Regression, Standard Deviation and CAPM. Through the all above results we find out that which bank is having the highest rate of return and which one is having the highest risk, lowest risk and analyzing the CAPM model for finding the efficient portfolio of the banks. Beta(Systematic Risk) In the beta analysis of the last one year banks sock data we find that the ALLAHABAD BANK is having the highest rate of Beta 1.2265 The finding comes that the ALLAHABAD BANK having the highest rate of Risk. As well as the UCO BANK having the lowest rate of Risk this is 0.30467. So the UCO Bank is having the low risky portfolio. CAPM The CAPM is a model of evaluating the portfolio which shows that which portfolio is efficient for investing in the security. After applying the CAPM model we find out that the UNIONE BANK OF INDIA is having highest value of CAPM which is 8.08. Which means that the security of UNIONE bank is performing best against the market index which is 4.981? And the DENA BANK is having 3.41 against the market index which is 4.981. Which means that security of Dena Bank is not performing well than the market index? Which shows that shares of Dena bank is not giving the returns properly so this is not a good security to invest in portfolio. By this we also come to know that the security of Dena Bank is overpriced. Because in the coming future this security is going under the price decrease. So this security is not good for investment purpose.

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Conclusion
By analyzing the above statement the security which is having low risk and higher return is more attractive for the investors point of view. By using CAPM model an investor can analysis the over price and underprice situations. By which an investor get to know the right time to purchase the security and to sell the security. So in the above CAPM analysis we come to know that the UNIONE Bank having the highest rate of CAPM than we should invest in the securities of Union Bank. Also there is the low rate of CAPM of DENA Bank in this situation we need to revise the portfolio of the particular security. So the results comes that we should purchase or invest in the security of Union Bank because at these particular time of period this security is giving the high rate of return.

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Bibliography
Books Kothari, C.R., Research Methodology: Methods and Techniques, Wishwa Publication, Delhi P.Pandian, Security Anlysis and Portfolio Management, Vikas publications,delhi

Websites Visited

http://www.capitaline.com http://www.rbi.com http://www.moneycontrol.com http://www.wikipedia.com http://www.investopedia.com

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