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 SCHOOL AMITY UNIVERSITY UTTAR PRADESH LUCKNOW

STUDENTS CERTIFICATE

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 Pradesh. I also declare that the contents of this report are true to the best of my knowledge. from Amity University, Uttar

Date.______________

Signature

Signature

Signature

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

Director (ABS)

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

ACKNOWLEDGEMENT
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)

TABLE OF CONTENTS

Chapter I Introduction Objective of the study Scope of the study Limitations of the study Review of the related literature Chapter II Chapter III Chapter IV Chapter V Chapter VI Research Methodology Data Analysis and Interpretation Findings Recommendation Conclusion

Chapter VII Bibliography

CHAPTER I INTRODUCTION

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

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

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 <Book Value, established track recode on the shareholders return.

The net cash flow to share holders after paying for future investment is sometime s knows as companys cash flow. This analysis is done at portfolio return on the excess returns for the market factors using CAPM.

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 return analysis 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. HDFCbank 2. 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.

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.

HDFC BANK PROFILE

HDFC is India's premier housing finance company and enjoys an impeccable track record in India as well as in international markets. Since its inception in 1977, the Corporation has maintained a consistent and healthy growth in its operations to remain the market leader in mortgages. Its outstanding loan portfolio covers well over a million dwelling units.

HDFC has developed significant expertise in retail mortgage loans to different market segments and also has a large corporate client base for its housing related credit facilities. With its experience in the financial markets, a strong market reputation, large shareholder base and unique consumer franchise, HDFC was ideally positioned to promote a bank in the Indian environment.

The Housing Development Finance Corporation Limited (HDFC) was amongst the

first to receive an 'in principle' approval from the Reserve Bank of India (RBI) to set up a bank in the private sector, as part of the RBI's liberalization of the Indian Banking Industry in 1994.

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).

HDFC BANK HISTORY

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

Amalgamations

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

Tech-Savvy

HDFC Bank has always prided itself on a highly automated environment, be it in terms of information technology or communication systems. All the braches of the bank boast of online connectivity with the other, ensuring speedy funds transfer for the clients. At the same time, the bank's branch network and Automated Teller Machines (ATMs) allow 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'.

PRODUCTS & SERVICES

Personal Banking

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

NRI BANKING

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

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.

FIVE S PART OF KAIZEN Focus on effective work place organization believe in Small changes lead to large improvement

Every successful organization have their own strategy to win the race in the competitive market.They use some technique and methodology for smooth running of business. HDFC BANK lsoacquired the Japanese technique for smooth runningof work and effective work placeorganization. Five SPart of Kaizen is the technique which is used in the bank for easy and systematic work place and eliminating unnecessary things from the work place.

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

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 customized solutions 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.

Loans. Investments and Insurance. Forex and payment services. Cards. Customer center.

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

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

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

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

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

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

Phone Banking Branch Network

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

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

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.

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'.

Standard Chartered leading 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

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 United Kingdom China, Lanka Hong Singapore Kong, India, Sri

Year Established 1853 1858

Country Australia Mexico, Oman

Year Established 1964 1968

1859

Peru Jersey

1973 1978

Indonesia, Pakistan 1863

Philippines Malaysia Japan Zimbabwe The Gambia, Sierra Leone, Thailand Ghana Botswana USA Bangladesh Zambia Kenya Uganda Tanzania Bahrain Jordan Korea Qatar Brunei, UAE

1872 1875 1880 1892 1894 1896 1897 1902 1905 1906 1911 1912 1917 1920 1925 1929 1950 1958

Brazil Venezuela Falkland Macau Taiwan Cameroon Nepal Vietnam Cambodia, Africa Iran Colombia Laos, Argentina Nigeria Lebanon Cote dIvoire Mauritius Turkey Afghanistan South Islands,

1979 1980 1983 1985 1986 1987 1990 1992 1993 1995 1996 1999 2000 2001 2002 2003 2004

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

accorded ISO 9002 certification, now form part of the state-of-the-art global processing and reconciliation hub in Chennai.

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 available because 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.

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

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 with business operations rather than methods of debt financing. This risk is often discussed in General Business Management courses. Business risk can be divided into two board categories: external and internal .internal business risk is largely associated with the efficiency with which a firm conduct its operation within the border operating environment imposed upon it .each firm has it s on internal risk, and the degree to which it is successful in coping with them is reflected in operating efficiency.

FINANCIAL RISK The uncertainty brought about by the choice of a 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 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. (source??) Which can be classified under the 4 types of investment risk, namely; Business risk, Inflation risk, Interest rate risk and Market risk.

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

Diversifiable risk is the unsystemic risk, which is unique to an individual security. Like a long strike in a factory, which would affect its earnings and profitability. This risk can be avoided by diversifying the portfolio of securities. By holding a portfolio of 10-12 different stocks, an investor can diversify away all unsystemic risk. In this situation of a well-diversified portfolio the only risk is the non-diversifiable or market risk (which in any case cannot be avoided when an investor enters the market). The Sharpe-Lintner-Mossin analysis states that market risk can be measured by the product of the standard deviation of the return on the market and the 'beta' of the security. This beta is estimated using historical data, measures the sensitivity of the return on the security to changes in the market as measured by some market index such as the Nifty or Sensex. Now, the standard deviation of the market is common to all securities, thus the beta of the security is a proxy for relative systemic risk. Given that the investor should be compensated for the market risk, the beta is a relative measure of market risk. Expected return = Risk free rate + beta (expected market return risk free rate). This is also called the capital asset pricing model or CAPM and states that the expected return from a security should equal the risk free rate of return plus a risk premium. Prof. Stephen Ross went on to develop the arbitrage pricing theory or APT. This model allows for more than one factor to systemically affect the prices of all securities. Investors in this case would also want to be compensated for accepting each of these different systemic risks or factors effecting the market. Here: Expected return = risk free return + beta1 (risk premium for factor1) + beta2 (risk premium for factor2) + ...+ beta k (risk premium for factor k) In this case the investor's expected return is a composite of the compensation for each of the risks. In both the models above the expected return is not determined by unsystemic risk but the systemic risk.

Now, to make it simple for you it would be a good idea to study the following: Expected rate of return = [Annual Income + (Ending price Beginning price)] Beginning price Where: Annual income = Dividend; Ending price = selling price and Beginning price = cost or purchase price. 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.

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.

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.

TYPES OF STOCKS

1. BLUE CHIP STOCKS The term blue chip comes from poker, where the blue chip carries the highest value. Large established firms with a long record of profit growth, dividend payout and a reputation for quality management, products and service are referred to as blue chip companies. These firms are generally leaders in their industries and are considered likely candidates for long term growth .because blue chip companies are held in such high esteem, they often set the standard by which other companies in their field are measured .well known blue chip Companies include IBM, Coco-Cola, general electric and McDonald.

2. PENNY STOCKS

Penny stocks are low priced speculative stock, that are very risky .companies with a short or erratic history of revenues and earnings issue them .they are the lowest of the low in price and many stock exchanges choose not trade them.

3. INCOME STOCKS

Income stocks are those stocks that pay higher than average dividend over a sustained period. these above average dividend tends to be paid by large, established companies with stable earnings. Income stocks are popular with investors who want steady income for a long time and who do not need much growth in their stocks value.

4) VALUE STOCK

A value stock is a stock that is currently selling at a low price .companies that have good earning and growth potential but whose stock price do not reflect this are considered value companies .both the market and investors are largely ignoring their

stocks. Investors who buy value stocks believe that thes3e stocks are only temporarily out of favor and will soon experience great growth .factors such as new management, a new product or operation that are more efficient may make a value stock grow quickly.

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 postoffice schemes.

Are Company Fixed Deposits Suitable for Income? Yes, Company/HDFC Fixed Deposits are suitable for regular income with the option to receive monthly, quarterly, half-yearly, and annual interest income. Moreover, the interest rates offered are higher than banks.

To What Extent Does a Company Deposit Protect Me Against Inflation?

A Company/HDFC Fixed Deposit provides you with limited protection against inflation, with comparatively higher returns than other assured return options.

The three key aspects of any investment are time capital gain and risk the sacrifice takes place now and is certain. The benefits are expected in the future and tend to be uncertain.

Risk: investment is considered to involve limited risk and is confined to those avenues where the principle is safe. No investments are completely risk free

Capital gain: If purchase of securities is preceded by proper investigation and analysis and review to receive a stable return over a period of time it is termed as investment.

Time: A longer time, fund allocation is termed as investment. The investor constantly evaluates the work of a security. There has to be a constant review of securities to find out whether it is a suitable investment. The investment is an attempt to carefully plan, evaluate and allocate funds in various investments which offer safety of principal, moderate and continuous return and long term commitment.

INVESTMENT DECISION

In stock market parlance investment decision refers to making a decision regarding the buy and sell orders. As we know economic analysis or factors play in any investment decision which is made for making a gain and better returns. Economic analysis and forecasting company performance and of returns is necessary for making investment.

Any investment is risky and such investment decision is difficult to make. It is based on availability of money and information on economy industry and company, share prices are ruled by expectation of the market and the market sentiments.

As we know these decisions are influenced by availability of money and flow of information. What to buy and sell also depends on the fair value of shares and the extent of over valuation and under valuation. For making such a decision the common investors have to depend more up on a study of fundamental rather than technical, although technical are also important.

PRIMARY AND SECONDARY CAPITAL MARKET

Primary market is the market for issue of new securities. It therefore essentially consists of the companies issuing securities, his public subscribing to these securities, his regulatory agencies like SEBI and the government, merchant bankers and bank who underwrite the issues and help in collecting subscription money from the public.

Secondary Market refers to a market where securities are traded after being initially offered to the public in the primary market and/or listed on the Stock Exchange. Majority of the trading is done in the secondary market. Secondary market comprises of equity markets and the debt markets.

For the general investor, the secondary market provides an efficient platform for trading of his securities. For the management of the company, Secondary equity markets serve as a monitoring and control conduitby facilitating value-enhancing control activities, enabling implementation of incentive-based management contracts, and aggregating information (via price discovery) that guides management decisions.

Chapter II Research Methodology

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 fluctuating and uncertain. The study is mainly based on secondary data and no field work is done because of time constraint. To analyze the risk and return only standard deviation and beta is used and no other statistical tools are used. 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.

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.

Chapter III Data Analysis and Interpretation

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

Lucrative Not lucrative No idea

12 33 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.

Do you want to open an account with these bank?

Yes No Will tell later

8 5 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.

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

Yes No

15 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

Are you aware that the bank provides you free phone banking & net banking services. If you open a new savings account.

Yes No

32 18

Interpretation: From above response it can be seen that

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

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.) Geometric Mean(G.M.) Variance Standard Deviation Coefficient of Variation(C.V.) (Systematic risk) (Unsystematic risk) Total risk Beta risk

-4.6325 % -2.7695 164.4803%^% 12.83 % -2.7695

-4.2017 % -2.3942 101.1457%% 10.06 % -2.3942

11.41% 1.42% 12.83% 1.82

6.43% 3.63% 10.06% 1.02

Covariance Correlation

47.6960% 0.376

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.

Variance The 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)

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 risk The 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 risk The 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.

 Covariance The 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.

Correlation The 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 return For 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.

Chapter IV Recommendation

RECOMMENDATION

The investor should be in a position to decide where and how much of funds are he ready to invest in particular security. He should diversify his investment portfolio so that he is exposed to minimum risk. Investor should not depend entirely on the past returns as the future is uncertain and the stock market is highly volatile. The investor must be in a position to determine the degree of risk involved and then invest in any security. He should not follow the foot of others while investing because usually people tend to go by the trend. An investor must be in a position to judge which is the right time to enter into the market and quit the market.

Chapter V Conclusion

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 HDFC Bank limited is more risky than the stock of other bank.s The returns of securities of HDFC bank are moving in same direction and they are perfectly correlated with each other. The return of securities of HDFC Bank is more closely correlated with the return 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.

Chapter VI Bibliography

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