TAMIL NADU NATIONAL LAW SCHOOL

__________________________________________________

2016-2017

FINANCIAL MANAGEMENT AND AUDITING PROJECT

ON TIME VALUE OF MONEY

Submitted by- Submitted to-

Abbishek.R Dr.P. Kumaresan
BC0140003
 DECLARATION

I, Abbishek R, hereby declare that the project work entitled TIME VALUE OF MONEY
submitted to Tamil Nadu National Law School; Tiruchirappalli, is the record of a bonafide work
done by me under the supervision and guidance of Dr. P. Kumaresan, Faculty of business
statistics, Tamil Nadu National Law School; Tiruchirappalli.

All information furnished in the project is true to the best of my knowledge and belief devoid of
plagiarism. If under the circumstances plagiarism is truly established, then the Law School may
be pleased to proceed with any action against me according to the Universitys rules and
regulations.

Abbishek R

B.Com.,LL.B(H).
 SUPERVISORS CERTIFICATE

This is to certify that the Project entitled: TIME VALUE OF MONEY submitted to the Tamil
Nadu National Law School; Tiruchchirappalli, in fulfilment of the requirements for internal
component for B.com; LL.B (HONS.), Third year is a bona-fide research work carried out by
Abbishek R under my supervision and guidance. No part of this study has been submitted to any
University for the award of any Degree or Diploma whatsoever.

Dr. P. Kumaresan ( )

Date:

Place: Tiruchchirappalli
 ACKNOWLEDGEMENTS

At the outset, I take this opportunity to thank my Professor Dr. P.Kumaresan from the bottom of
my heart who has been of immense help during moments of anxiety and torpidity while the
project was taking its crucial shape.

Secondly, I convey my deepest regards to the administrative staff of TNNLS who held the
project in high esteem by providing reliable information in the form of library infrastructure and
database connections in times of need.

Thirdly, the contribution made by my parents and friends by foregoing their precious time is
unforgettable and highly solicited. Their valuable advice and timely supervision paved the way
for the successful completion of this project. Hence as a student, I am extremely grateful and
forever deeply indebted to him.
 PREFACE

This project is intended to carry out an extensive research on the given topic by the supervisor.
The material evidence presented in this project is purely based on secondary sources and also
certain standard of textual analysis have been thoroughly detailed. The research and analysis
conducted by the researchers are bona-fide and purely for academic purposes.

Every effort is made to keep the project error free. I would gratefully acknowledge the
suggestions to improve the project to make it more useful.

AIMS AND OBJECTIVE

The major objective of this Research is to understand the nature of shares in time value of money
and to evaluate the shares of the banking sector, factors that might result in increase or decrease
in the share and to advice the investors to invest or not.

RESEARCH METHODOLOGY

This is the doctrinal research project and the relevant material for this project has been collected
from the primary as well as secondary sources. By calculating the present value and future value
of 5 different banks who are listed in the stock exchange using the time value of money formulae
and also by comparing the current value of a banking company to three months before share
value. To also predict the future value of the 5 Banking companies from today to 5 years from
now.
Contents

AIMS AND OBJECTIVE ........................................................................................................... 5

RESEARCH METHODOLOGY ................................................................................................ 5
INTRODUCTION .......................................................................................................................... 7
REASONS FOR TIME VALUE OF MONEY .............................................................................. 8
Present Value (PV) ...................................................................................................................... 8
Future Value (FV) ..................................................................................................................... 10
CALCULATION OF TIME VALUE OF MONEY IN BANKING SECTOR ............................ 12
TIME VALUE OF MONEY OF SBI (State Bank of India): .................................................... 12
TIME VALUE OF MONEY OF ICICI .................................................................................... 16
TIME VALUE OF MONEY OF HDFC BANK ....................................................................... 19
TIME VALUE OF MONEY OF AXIS BANK: ....................................................................... 23
TIME VALUE OF MONEY OF STANDARD CHARTERED BANK: ................................. 26
CONCLUSION: ............................................................................................................................ 30
INTRODUCTION

Money has time value. The time value of money theory states that a dollar that you have in the
bank today is worth more than a reliable promise or expectation of receiving a dollar at some
future date. You can invest the dollar today and earn a return on that investment, such as interest
or dividend payments. The recognition of the time value of money and risk is extremely vital in
financial decision making.

Most financial decisions such as the purchase of assets or procurement of funds, affect the firms
cash flows in different time periods. For example, if a fixed asset is purchased, it will require an
immediate cash outlay and will generate cash flows during many future periods. Similarly if the
firm borrows funds from a bank or from any other source, it receives cash and commits an
obligation to pay interest and repay principal in future periods. The firm may also raise funds by
issuing equity shares. The firms cash balance will increase at the time shares are issued, but as
the firm pays dividends in future, the outflow of cash will occur. Sound decision-making requires
that the cash flows which a firm is expected to give up over period should be logically
comparable. In fact, the absolute cash flows which differ in timing and risk are not directly
comparable. Cash flows become logically comparable when they are appropriately adjusted for
their differences in timing and risk. The recognition of the time value of money and risk is
extremely vital in financial decision-making1. If the timing and risk of cash flows is not
considered, the firm may make decisions which may allow it to miss its objective of maximising
the owners welfare. The welfare of owners would be maximised when Net Present Value is
created from making a financial decision. It is thus, time value concept which is important for
financial decisions.

Thus, we conclude that time value of money is central to the concept of finance. It recognizes
that the value of money is different at different points of time. Since money can be put to
productive use, its value is different depending upon when it is received or paid. In simpler
terms, the value of a certain amount of money today is more valuable than its value tomorrow. It
is not because of the uncertainty involved with time but purely on account of timing. The
difference in the value of money today and tomorrow is referred as time value of money.
1
Chandra, Prasanna, Financial ManagementTheory and Practice, Fifth edition, TMH
Publishing Company Ltd., New Delhi, p. 72.
REASONS FOR TIME VALUE OF MONEY

Money has time value because of the following reasons:

1. Risk and Uncertainty: Future is always uncertain and risky. Outflow of cash is in our control
as payments to parties are made by us. There is no certainty for future cash inflows. Cash inflows
is dependent out on our Creditor, Bank etc. As an individual or firm is not certain about future
cash receipts, it prefers receiving cash now.

2. Inflation: In an inflationary economy, the money received today, has more purchasing power
than the money to be received in future. In other words, a rupee today represents a greater real
purchasing power than a rupee a year hence.

3. Consumption: Individuals generally prefer current consumption to future consumption.

4. Investment opportunities: An investor can profitably employ a rupee received today, to give
him a higher value to be received tomorrow or after a certain period of time2.

Thus, the fundamental principle behind the concept of time value of money is that, a sum of
money received today, is worth more than if the same is received after a certain period of time.
For example, if an individual is given an alternative either to receive ` 10,000 now or after one
year, he will prefer ` 10,000 now. This is because, today, he may be in a position to purchase
more goods with this money than what he is going to get for the same amount after one year.

Present Value (PV)

Present value (PV) of an investment refers to the current value of a future sum of money. You
must remember, however, that money you will earn in the future is less valuable to you than
money you have right now; you cannot use future money to earn interest today. You can only
earn interest on money you have in hand. Lets suppose you want to determine the current value
of the ultimate earnings on an investment. This question could be restated in the following
manner: What is the present value of my investment that will mature in N years at I percent
2
http://accounting-simplified.com/management/investment-appraisal/time-value-of-
money.html#sthash.5ws6nAJc.dpuf
interest (or discount rate)? To solve this problem, you will need to know the future value of your
investment, how many years are required for the investment to reach maturity, and what interest
or discount rate your investment has.

The result of the equation will be a dollar amount that is smaller than the future amount of
principal and interest you will have earned; it is the amount the investment is worth at
the present time.

The present value (PV) equation is as follows:

PV = FV (1 + R)N
The key inputs in the PV equation are as follows:
FV = the future value of the investment at the end of N years
N = the number of years in the future
I = the interest rate, or the annual interest rate or discount rate
PV = the present value, in todays dollars, of a sum of money you have invested or plan
to invest3.

Present value refers to today's value of money, so $100 in your pocket right now has a present
value of $100. If you put that $100 in a jar at home, it will be worth less in the future because
holding onto the money means you forfeit the value of any interest you could have earned if you
invested the money instead. It also loses value because of inflation, which raises the price of
goods. This is the opportunity cost of keeping money rather than investing it.

You can also calculate how much money you have to invest today to end up with a specified
amount in the future. For example, you have some money to invest today and want to end up
with $100 five years from now. Calculate the present value of the $100 by multiplying that
amount by the present value factor. The present value factor -- or discount factor -- is calculated
using the formula 1 / (1+ r) ^n. Using the example of investing money at 5 percent interest for
five years, the present value factor would be 1 / 1.28 = 0.78. In other words, if you multiply the
$100 you want five years from now by the discount factor of 0.78, you will find that if you invest
$78 today you'll have the $100 you want in five years.

3
http://www.investopedia.com/exam-guide/cfa-level-1/quantitative-methods/time-value-
money.asp#ixzz4cWIPtwyP
Future Value (FV)

Future value (FV) is the value an investment will have at some point in the future. The result of a
future value equation will be a dollar amount that is larger than the original investment
(assuming a positive rate of interest or return) because your money will earn interest and earn
interest on that interest. Lets suppose you want to determine what an investment will be worth at
some point in the future, i.e., what will the value of my investment be in N years if my interest
rate is I percent? You will need to know how many years it will be until you have the investment,
the interest rate, and the amount of the investment (the present value of the investment).

The result of the equation will be a dollar amount that is larger than the original investment,
since your money will earn interest and will then earn interest on that interest. For an
approximation, remember the rule of 72, which states that an investment will double
approximately each time you multiply the number of years of investment by the interest rate (in
percentage terms) and get a number that is greater than 72. For example, if your investment is
earning 8 percent interest, it will take nine years for it to double (72 divided by 8 = 9).

The future value (FV) equation is as follows:

FV = PV * (1/1 + R)N
The key inputs in the FV equation are as follows:
FV = future value of the investment at the end of N periods (years)
N = number of years in the future
I = interest rate, or the annual interest (or discount) rate
PV = present value, in todays dollars, of a sum of money you have already invested or plan to
invest4.

4
https://www.boundless.com/finance/textbooks/boundless-finance-textbook/the-time-value-of-money-
5/introduction-to-the-time-value-of-money-54/importance-of-the-time-value-of-money-255-8367/
The time value of money tells us what the present value of an investment will grow to by a given
date. This is its future value. The difference between the present value and the future value
depends on how many compounding periods are involved in the investment, and on the interest
rate. Future value calculations can tell you how much money you will have in three years if you
put $15,000 in a savings account today that pays 5 percent interest compounded annually. The
future value of money shows the benefit of investing and earning interest. Compound interest
means you earn interest on the $100 you deposit today and more interest on the accumulated
amount. In other words, in year two of the investment you earn interest on the $100 as well as on
the interest you earned in year one. For example, when you invest $100 at a 5 percent interest
rate, a year from now you've earned $5 of interest for a total of $105. A year later you've earned
$5.25 in interest -- 5 percent of $105 -- for a total of $110.25.

You can calculate the future value of today's investment by multiplying your investment by the
future value factor. It's calculated using the formula (1 + r) ^ n, read as 'one plus the rate of
interest to the nth power' where 'n' is the number of periods. For example, the future value factor
for a loan with an annual interest rate of 5 percent over five years would be (1 + .05) ^5 = 1.28.
If you invest $100 at 5 percent over five years, you can multiply 100 by the discount factor of
1.28. This means you'll have $128 five years from now because you invested $100 today.
CALCULATION OF TIME VALUE OF MONEY IN BANKING SECTOR
Since the 17th century the banking industry has marked its niche as one of the most important
financial sectors in any economy. Indeed a countrys economic prowess can progress or slow
down depending on the performance of its banks. In both the Great Depression of 1929 and the
economic recession of 2008, the banking sector was one of the major factors that contributed to
the witnessed economic meltdowns. It is thus important to analyze what economic factors affect
the banking sector.

1. TIME VALUE OF MONEY OF SBI (State Bank of India):

Share Price as on December 27, 2016 : 248.60

Share Price as on March 27, 2017 : 279.85

Average Value of Single Sum of Money : 259.75

Annual rate of Interest (r) = 279.85-248.60/248.60 = 0.1257 X 100 = 12.57%

Future Value of Single Sum of Money = Present Value (1+r)n

FV = 259.75 (1+ 0.12570/100)5

FV = 259.75 (1+ 0.001257)5

FV = 259.75 (1.001257)5

FV = 259.75 (1.0063)

FV =Rs. 261.3600

Present Value of Single Sum of Money = Future Value (1/1+r)N

PV = 1000000(1/1+0.1257/100)5
 PV = 1000000(1/1+0.001257)5

PV = 1000000(1/0.0063)

PV =1000000(0.993739)

PV= 993739/279.85

PV= 3550.97174 Shares

Analysis of SBI Bank Shares:

State Bank of India, the country's largest bank accounting for about a quarter of loans and
deposits, traded at its highest level since April 2011 on Monday, according to Reuters data. The
stock has seen buying interest on the back of its September quarter results, which came out on
Friday.
SBI's Q2 profit grew 30.5 per cent year-on-year to Rs. 3,100 crore, but lagged estimates. Q2
profits were also 7 per cent lower than Q1, when SBI had posted a net profit of Rs. 3,350 crore.
Analysts say there is much more to SBI's Q2 than its bottom line. Here are the reasons for the
/gains in SBI shares:
1) Q2 profit was lower-than-estimates because SBI's provision for bad loans jumped 52 per cent
year-on-year to Rs. 4,030 crore in Q2. Provision does not imply a cash outflow, but is an
estimate for losses if some loans have to be written off in the future. (Read)
2) Net interest income (interest earned minus paid) grew just 8.4 per cent y-o-y to Rs. 13,720
crore in Q2 because deposits grew faster than advances. But SBI made up for the moderation in
NII growth through higher non-interest or fee income growth, which rose 40 per cent y-o-y
to Rs. 4,570 crore in Q2. According to Morningstar, SBI's transaction fee jumped sharply
because the bank increased service charges on transactions, especially for its retail clients.
Transaction fees now account for 25 per cent of all fees generated by the bank, versus 21 per
cent last year, it added. SBI management told Nomura that this high transaction rate is
sustainable.
3) SBI's credit growth slowed to just 9 per cent in Q2 because loans to mid-corporate and SME
sectors slowed. These two sectors have seen large delinquencies. Loans to oil marketing
companies also saw sharp decline because of falling oil prices and diesel decontrol.
4) Fresh slippages (non-performing loans) stood at Rs. 7,700 crore, while fresh restructuring
loans stood at Rs. 3,450 crore. Nomura says slippages and restructuring are 20-25 per cent lower
as against trends in the past few quarters. Asset quality continues to get better with six
consecutive improvements in impairment asset formation ratio, Jefferies said.
5) Non-performing loans in the agriculture sector might have hit a bottom, while NPLs in mid-
corporate and SME sectors should improve in the next fiscal, Nomura added. These two sectors
accounted for 75 per cent of Q2 slippages.
6) Net interest margin, which is the difference between yields on advances and cost of deposits
and is a key gauge of profitability, was stable at 3.49 per cent year-on-year.
7) SBI managed to keep its operating costs under check. According to Nomura, employee costs
were down 5 per cent y-o-y in Q2 mainly driven by nearly 30 per cent drop in pension
provisioning. SBI had a net reduction in number of employees, it added.
8) Like some other public sector banks, SBI is not facing a capital crunch for growth as its tier I
capital stands at 10 per cent. While management has taken an enabling resolution for capital
raising, it does not see an urgent need to raise capital in the very near term, Nomura says.
9) SBI shares are up nearly 70 per cent over the last one year, but its valuations are not
"undemanding", Nomura says. It says SBI will command a premium over peers because of its
comfortable capital position, best in class CASA (current account, savings account) and
management continuity.
10) Foreign ownership in SBI is significantly below the previous cyclical peaks, according to a
report by Bank of America Merrill Lynch. Traders say SBI will see buying by FIIs as asset
quality subsides. Today, the stock gained, while private lenders, which are heavily owned by
FIIs, saw selling pressure.
Brokerages are optimistic about SBI. Nomura raised its target price to Rs. 3,150 from Rs. 3,050.
Maybank also hiked its price by Rs. 100 to Rs. 3,200. Both have a buy rating on the stock. SBI
shares closed 5.5 per cent higher at Rs. 2,940.60 outperforming the Bank Nifty, which ended
0.36 per cent higher today.

The important factor that affect value of shares of SBI shares are:
 FDIs allowed in banking sector is increased to 49% , this is a major threat to SBI as
people tend to switch to foreign banks for better facilities and technologies in banking
service
Other government banks like PNB, Andhra, Allahabad bank and Indian bank are showing
Customer prefer to switch to private banks and financial service providers for loans and
mortgages, as SBI involves stringent verification procedures and take long time for
processing.

The share price of SBI on December 27 , 2016 was 248.60 although the price of the shares
had witnessed a slim increase on March 27 , 2016 is 279.85. The future value which was
considered for five years is 261.36 which shows that even if there is volatile market in the
Banking Industry , SBI has not managed to keep its prices or is predicted not to keep its
prices in stability with volatile fluctuation in the Asset Market.

Although , shares is considered to be volatile and unpredictable in the Financial Market ,

SBI's performance shows that its market shares are volatile and the investors have to be
careful. If the investors intends to earn 10 Lakh as its future value in 5 years he has to
purchase around 3550 shares. In a Banking company like SBI Bank therefore , to earn more ,
you need to purchase a significant amount of shares.
 2. TIME VALUE OF MONEY OF ICICI

Share Price as on December 27, 2016 : 253.60

Share Price as on March 27, 2017 : 274.35

Average Value Of Single Sum of Money : 267.87

Annual rate of Interest (r) = 274.35 - 253.60/253.60 = 0.0818 X 100 = 8.18%

Future Value of Single Sum of Money = Present Value of Single Sum of Money (1+r)N

FV = 267.87 (1+0.0818/100)5

FV= 267.87 (1+0.0008182)5

FV= 267.87 (1.0008182)5

FV = 267.87 (1.0049192)

FV = Rs. 269.18772

Present Value of Single Sum of money = Future Value of Single Sum of Money (1/1+r)N

PV = 50000 (1/1+0.08182/100)5

PV = 50000 (1/1+0.0008182)5

PV= 50000 (1/1.0008182)5

PV = 50000 (1/1.0049192)

PV = 50000 (0.9951)

PV= 497552/274.35

PV = 1813.56821592 Shares
Analysis of ICICI Bank Shares:

Banks profitability is dependent on many other factors. Banks earn from raising deposits and
lending to the economy, banks earn fee income from services and transactions rendered and
banks earn from treasury. High deposit growth coupled with high credit growth is good for bank
stocks as it improves the profitability of banks.

ICICI Bank shares rose 1.5 per cent on Monday as the bank reported a strong growth in profits.
Here are some pointers to watch:
Profitability improving: ICICI bank reported a net interest margin of 3 per cent in March
2012 quarter. This is perhaps the first time the bank has touched that mark in several quarters.
The banks management has told analysts that it could only improve on these numbers going
forward. Net interest margin is the difference between the cost of borrowing and cost of lending
of the bank. It is an important number to assess profitability of banks. HDFC Bank consistently
clocks over 4 per cent. This is why the market gives HDFC Bank more value than ICICI Bank.
ICICI Bank market cap is Rs. 1,01,979 crore while HDFC Banks market cap is Rs. 1,27,941
crore.
Diversified and bigger loan book: Under K V Kamaths leadership, ICICI Bank grew its retail
loans aggressively. Since Chanda Kochhar took over from him, this has declined consistently.
The bank has focused on growing other loans to diversify assets. In March 2012 quarter, retail
loans accounted for 35 per cent of the total loans given by the bank. This was over 38 per cent in
the March 2011 quarter. The number was close to 50 per cent three years ago. Corporate and
project finance loans rose to 28.3 per cent from around 26 per cent while international loans
grew to 27 per cent from 25 per cent. The total size of the loan book for ICICI Bank stands
at Rs. 2,53,730 crore, over 25 per cent higher than in the quarter ended March 2011.
Asset quality improving: The non-performing assets or NPAs as a percentage of total loans
fell to 0.62 per cent at the end of March 2012 quarter against 0.94 per cent in the year ago period.
RBI has expressed a concern about the rising level of non-performing and restructured loans in
the system. Overall, For ICICI Bank, there is a sharp jump of 116 per cent in loans that went for
restructuring. They now account for 1.7 pe rcent of the total loan book at Rs. 4,256 crore.
However, the bank had warned analysts early and hence the stock market has not reacted to the
number.
 CASA ratio rising: The current account-savings account (CASA) ratio stood at 43.6 per cent.
This means 43.6 per cent of the total deposits of Rs. 2,60,000 crore were current and savings
deposits. This is due to over 14 per cent rise in the savings account balances. Two years ago, the
CASA for ICICI bank was less than 30 per cent. A high CASA ratio is good for the bank as
banks pay no interest on current account deposits and least interest on savings accounts. This is
the cheapest source of money for banks.
Brokers are upgrading the stock: We recommend BUY on ICICI Bank with a price target
of Rs.1103, said Kotak Securities. In our opinion, the quarters been a good one; numbers are
up, enough justification for the market to at least start talking about a re-rating; we maintain our
positive bias on the stock, and our target price of Rs1035, said Citi Global markets. ICICI
Banks current share price is Rs. 885.60.

The share price of ICICI on December 27 , 2016 was 253.60 although the price of the shares
had witnessed a slim increase on March 27 , 2016 is 274.35. The future value which was
considered for five years is 269.18772 which shows that even if there is volatile market in the
Banking Industry , ICICI has managed to keep its prices or is predicted to keep its prices in
stability without volatile fluctuation in the Asset Market.
Although , shares is considered to be volatile and unpredictable in the Financial Market ,
ICICI's performance shows that its market shares are volatile and the investors have to be
invest with good faith. If the investors intends to earn 10 Lakh as its future value in 5 years
he has to purchase around 1813 shares. In a Banking company like ICICI bank to earn more ,
you need to purchase a significant amount of shares.
 3. TIME VALUE OF MONEY OF HDFC BANK

Share Price as on December 27, 2016 : 1235.70

Share Price as on March 27, 2017 : 1474.30

Average Value of Single Sum of Money : 1401.50

Annual rate of Interest (r) = 1474.30-1235.70/1235.70 = 0.193 X 100 = 19.3%

Future Value of Single Sum of Money = Present Value of Single Sum of Money (1+r)N

FV = 1401.70 (1+0.193/100)5

FV = 1401.70 (1+0.00193)5

FV = 1401.70 (1.00193)5

FV = 1401.70 (1.011636)

FV = Rs. 1417.80787

Present Value of Single Sum of Money = Future Value of Single Sum of Money (1/1+r)N

PV = 1000000(1/1+0.193/100)5

PV = 1000000(1/1+0.00193)5

PV = 1000000(1/1.00193)5

PV = 1000000(1/1.011636)

PV = 1000000(0.988498)

PV = 988497.839144/1474.30

PV = 670.48623339 shares

Analysis of HDFC Bank Shares:

Why HDFCs stock fell 2% despite meeting net profit?

When a stock trades at four times its estimated book value for the fiscal year, investors expect a
bit of a bang for the buck during the earnings season. While the Housing Development Finance
Corp. Ltds (HDFCs) net profit growth of 18.2% was more or less what analysts had forecast,
investors were not pleased with other performance metrics. They drove down the stock 2.1%
taking some money off a stock, which has rallied 20% since August.

While the housing financier has in general bucked the economic slowdown (this and the previous
ones), the September quarter earnings showed that loan growth has slowed further, although
marginally. In the three months ended 30 September, loans, including those sold to its unit
HDFC Bank Ltd, grew 18% from a year ago. That is slower than the 19% growth seen in the
June quarter and 20% growth in the three months ended 31 March.

Secondly, this growth was driven by the lower-yielding retail book that rose 23%. The growth in
the corporate book slowed to 8%, which is not surprising given the tepid economic recovery.
HDFCs vice-chairman and chief executive officer said as much in interviews.

Historically, around 68% of HDFCs loan book has been from the retail segment which has
increased to around 71% at the end of September. There is fear in some quarters that this might
pressure margins of the company. For now though, spreads are stable while net interest margin
improved marginally to 3.95% in the September quarter compared with 3.8% for the three
months ended June and 4% a year ago.

The slowdown in loan book growth also meant that net interest income grew at slower pace of
6%. Lower interest earned on shareholder funds due to softening of rates also weighed on the
interest income. Thus, the companys core operating profit (before considering one-offs such as
dividends and sale of investments) also grew at 4% compared with 16% in the June quarter. A
decline in non-interest income by more than half also contributed.
 That said, HDFCs asset quality remained stable with the gross bad loans ratio at around 0.71%.
It has generally been prudent and in the September quarter too raised provisions by almost half
from a year ago. The housing financier is also well capitalized to meet a rebound in growth and
demand for loans. While its valuations reflect investor confidence, the upside may be capped due
to slowing loan growth. Increasing competition in the home loan segment as banks switch to
marginal cost of funds which will lead to lower lending rates is something investors should track
closely.

Economic factors which might result in decrease in shares:

The income of the country and its economic level always affects the banking sector. It goes
without saying that banks thrive under economic boom as compared to recession times. Income
flows in a country affect banks in terms of the amount of capital they can access and clients that
are ready to bank with them. Income also determines spending and borrowing limits hence is a
crucial factor within the banking sector. In a country with enough income, banks which face
economic hurdles can be salvaged by their respective governments.
Inflation Rates. When inflation is high, banks tend to suffer. This is because inflation tends to
affect the value of currency and this often has a ripple effect in the banking sector. Apart from
liquidity structures and processes, inflation causes instability in currencies. It also erodes client
confidence especially foreign investors who can choose whether or not to use a particular
countrys currency.
Economic policies. Macroeconomic policies can have far reaching impacts on the banking
sector. If a country makes unfavorable policies, the banking sector is bound to lose while sound
macroeconomic policies can make all the difference and enable a countrys banks to actually
grow.
Exchange Rates across the world. Exchange rates across the world also affect banks all over the
globe. Strong currencies such as the US Dollar, British Pound, Japanese Yen, European Euro and
Canadian Dollar amongst others have a cross cutting impact on other currencies and financial
markets in the world. When the exchange rates for these currencies fall the banking sectors can
experience problems.
 Laws and regulations. Every country has in place specific regulatory framework for financial
institutions to either provide guidance, supervisory or monitoring roles for these institutions.
These laws are important in determining major decisions such as interest rates, banking services,
loan regulations and even minor aspects of banking such as opening and closing hours. A
country with stringent laws and regulations for the banking sector can actually curtail business.
Nevertheless a liberal regulator is also quite dangerous because some banks can easily lose focus
in the bid to make higher profits. It is therefore important to maintain a logical regulatory
framework that addresses the needs of both the bank and its consumers.

The share price of HDFC on December 27 , 2016 was 1235.7 although the price of the shares
had witnessed a medium increase on March 27 , 2016 is 1474.30. The future value which was
considered for five years is 1401.50 which shows that even if there is volatile market in the
Banking Industry , HDFC has not managed to keep its prices or is predicted not to keep its prices
in stability with volatile fluctuation in the Asset Market.

Although , shares is considered to be volatile and unpredictable in the Financial Market ,

HDFC's performance shows that its market shares are volatile and the investors have to be
careful. If the investors intends to earn 10 Lakh as its future value in 5 years he has to
purchase around 670 shares. In a Banking company like HDFC therefore , to earn more , you
need to purchase a significant amount of shares.
 4. TIME VALUE OF MONEY OF AXIS BANK:

Share Price as on December 27, 2016 : 435.80

Share Price as on March 27, 2017 : 487.25

Average Value of Single Sum of Money : 459.69

Annual rate of Interest (r) = 487.25 - 435.80/435.80 = 0.118059 X 100 = 11.8%

Future Value of Single Sum of Money = Present Value of Single Sum of Money (1+r)N

FV = 459.69 (1+0.811059/100)5

FV = 459.69 (1+0.00811059)5

FV = 459.60 (1.00811059)5

FV = 459.60 (1.00710448)

FV = Rs. 462.955858333

Present Value of Single Sum of Money = Future Value of Single Sum of Money (1/1+r)N

PV = 1000000 (1/1+0.118059/100)5

PV = 1000000 (1/1+0.00118059)5

PV = 1000000 (1/1.00118059)5

PV = 1000000 (1/1.0071448)

PV = 1000000 (0.9929059)

PV = 9929059/487.25

PV = 2037.77503546 Shares

Analysis of AXIS Bank Shares:

Axis bank shares might fall drastically on assets quality concern, but it will recover
significantly in 4-5 month and are likely to perform well in coming days with Union Minister
Nirmala Sitharaman defending her demand for 2 percent cut in interest rates by RBI, saying it is
essential to boost SMEs and create jobs.

Nirmala Sitharaman has pitched for as much as 200 basis points interest rate cut by Reserve
Bank of India (RBI) to boost Small and Medium Enterprises (SMEs) and create jobs. Sitharaman
who also heads the SME Ministry said that I still hold that the cost of credit in India is high.
Undoubtedly, particularly MSMEs which create a lot of jobs contribute to exports are all hard
pressed for money and for them, approaching a bank is no solution because of the prevailing rate
of interest. I have no hesitation to say, yes 200 bps (2%), I would strongly recommend.

For the further movement, KR Choksey Shares and Securities in a research note said, Axis
Bank has been able to deliver consistent core operating earnings with superior retail loan book
accretion and consistent healthy fee-income performance. While Axis Bank boasts of well
capitalised balance sheet and rich liability franchise supported by its huge presence in retail and
corporate lending, the credit quality concerns now have come to the fore. Against this backdrop,
we maintain Accumulate rating on the stock with a target price of Rs 600.
Prabhudas Lilladher in a research note said, We expect stock to remain under pressure in near
term but maintain positive stance from a medium term perspective. We believe the share price of
Axis Bank can touch Rs 615 in the next few quarters.

The share price of AXIS on December 27 , 2016 was 435.80 although the price of the shares
had witnessed a slim increase on March 27 , 2016 is 487.25. The future value which was
considered for five years is 462.955 which shows that even if there is volatile market in the
Banking Industry , AXIS has not managed to keep its prices or is predicted not to keep its
prices in stability with volatile fluctuation in the Asset Market.
Although , shares is considered to be volatile and unpredictable in the Financial Market ,
AXIS's performance shows that its market shares are volatile and the investors have to be
cautious. If the investors intends to earn 10 Lakh as its future value in 5 years he has to
purchase around 2037 shares. In a Banking company like AXIS therefore , to earn more , you
need to purchase a significant amount of shares and the investors who have invested in the
company should hold the shares because there is significant rise in the near future.
 5. TIME VALUE OF MONEY OF STANDARD CHARTERED BANK:

Share Price as on December 27, 2016 : 50.70

Share Price as on March 27, 2017 : 52.65

Average Value of Single Sum of Money : 56.85

Annual Rate of Return (r) = 52.65 - 50.70/50.7 = 0.0384615 X 100 = 3.84615%

Future Value of Single Sum of Money = Present Value of Single Sum of Money (1+r)N

FV = 56.85 (1+ 0.0384615/100)5

FV = 56.85 (1+ 0.000384615)5

FV = 56.85 (1.000384615)5

FV = 56.85 (1.00230991)

FV =Rs. 56.9813185175

Present Value of Single Sum of Money = Future Value of Single Sum of Money (1/1+r)N

PV = 1000000 (1/1+0.0384615/100)5

PV = 1000000 (1/1+0.000384615)5

PV = 1000000 (1/1.000384615)5

PV = 1000000 (1/1.00230991)

PV = 1000000 (0.99769541103)

PV = 997695.411039/ 52.65

PV = 18949.5804566 Shares

Analysis of Standard Chartered Bank Shares:

Banks with higher price-to-earnings (P/E) ratios or higher price-to-book (P/B) values tend to
have higher share prices. Since banks are highly leveraged by nature, it's very important for cash
flow to be significant enough to cover short-term obligations.

The new strategy has three components:

The Group is taking a number of actions to manage risk and position for safe and sustainable
future growth. These actions include:

Adoption of a new risk tolerance framework which will reduce single-name

concentrations and unsecured retail and corporate business, coupled with more active
reduction in our China, India and commodities exposures
Targeting USD100bn of RWA to be managed up, restructured or exited by 2018. This
includes turnaround for the Retail and Commercial Banking business in Korea, exit of
non-strategic businesses, improving returns on, or exiting low returning client
relationships, as well as liquidating assets in GSAM which are beyond our new risk
tolerances
The Group will invest significantly in compliance and related infrastructure as we
continue to focus on our behaviour, systems and processes to enable us to make a
meaningful contribution to fighting financial crime

Invest and Innovate

The Group will cut costs to free up capital to invest in the business. We will invest USD3bn into
the Groups technology infrastructure, and into strategic opportunities where we have, or will
create, a competitive advantage:
 Grow Private Banking and Wealth Management where we have a good platform and a
meaningful competitive position, targeting USD25bn AUM growth by 2018.
Investing to grow our business in Africa, building on our strong brand, where the
opportunities are significant
Use our franchise in China and our international footprint to capture the substantial RMB
opportunities and retain our leadership in offshore RMB
Improve retail client systems and digital capability (30% of sales and 40% of payments
online by 2018) to improve the customer experience and make the bank more efficient
Continue to invest in making a meaningful and leading contribution to the global fight
against financial crime, and to do so by engaging proactively and transparently with
regulators and other stakeholders

The execution of the strategy is underpinned by a Rights Issue which will be launched today to:

Strengthen the balance sheet and enable the Group to achieve its target CET1 capital ratio
of 12 to 13 per cent
Absorb the financial impact of the Groups planned restructuring charges, estimated to be
approximately USD3bn by the end of 2016
Implement the strategic initiatives outlined above

Enable the Group to weather near-term macroeconomic uncertainty and focus on

businesses and markets where it has a competitive advantage

The share price of Standard Chartered on December 27 , 2016 was 50.70 although the
price of the shares had witnessed a slim increase on March 27 , 2016 is 52.65. The future
value which was considered for five years is 56.98 which shows that even if there is
volatile market in the Banking Industry , Standard Chartered has managed to keep its
prices or is predicted to keep its prices in stability without volatile fluctuation in the Asset
Market.

Although , shares is considered to be volatile and unpredictable in the Financial Market ,

Standard Chartered's performance shows that its market shares are volatile and the investors
can invest with confidence. If the investors intends to earn 10 Lakh as its future value in 5
years he has to purchase around 18949 shares. In a Banking company like Standard
Chartered Bank therefore , to earn more , you need to purchase a humungous amount of
shares.
CONCLUSION:

There are N number of factors which affect the share prices. They can be broadly

classified into two:

1. INTERNAL FACTORS
2. EXTERNAL FACTORS

1. INTERNAL FACTORS: As the name suggests, Internal Factors are those which affect the
share prices internally, i.e. they are internal to the company or more specifically bank. Some of
the major internal factors that affect the share prices of a bank are as follows:

EARNINGS OF THE COMPANY

MARKET CAPITALIZATION
PRICE/EARNINGS RATIO
INTERNAL AFFAIRS OF THE COMPANY
INTERST RATES
OTHER FACTORS

Other factors like Growth of the company, figures of deposits, advances, balance sheet, Profit
and Loss Account, etc.. also affect the share prices drastically. A discussion for the same is done
in later part of the report

2. EXTERNAL FACTORS: After studying the internal factors, lets take a look at some External
Factors which affect the Share Prices.

SENTIMENTS
COMPANY NEWS and OTHER NEWS
DEMAND AND SUPPLY
ANALYSTS REPORTS

These are the predictable internal and external factors which result in increase or decrease
of a company. It is impossible to predict the accurate value of a future share and there are
also many factors which influence a share. But, with the help of Time value of money we
can find the values of shares which can increase or decrease in a given year. But the time
value of money found are also influenced by internal and external factors of the
company.