TITLE:

A COMPARATIVE STUDY ON RISK AND

RETURN MANAGEMENT WITH ICICI V/s HDFC
REFERENCE TO BANKING INDUSTRY
HYDERABAD

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 Table of Contents
Chapter I Introduction………………………… 1 - 6
Chapter II Industry Profile………………........... 7 - 19
Chapter III Review of Literature………………. 20 - 33
Chapter IV Data Analysis and Interpretation…. 34 – 50
Chapter V Findings, Suggestions & Conclusion…51 - 55

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CHAPTER- I
 Introduction
 Need of the Study
 Objectives of the study
 Scope of the study
 Research Methodology
 Limitations

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 INTRODUCTION

The Risks/Return relationship is the basic concept not only in the financial
management, but it relates to every aspect of life. If decisions made should result in the
benefit maximization, it is necessary that the individuals or the institutions should
consider the affect on the future return or the benefit as well as on risk or cost. Return
means an amount that an investor actually earned on investment made for a certain
period. It includes interest, dividend and capital gains while risk represents the
uncertainty with respect to specific task. In financial terms risk is the chances or
probabilities that certain investment may or may not deliver the required returns
The risk and return together says that the potential return rises with a rise in the
amount of risk. It is important for an investor to decide the balance between desire
lowest possible risk and highest possible return.

Investment Risks:
Investment risk in general sense talks about earning of a lesser return as compared
to the return that is actually expected to receive. There are 2 types of investments
risks: 1. Stand- Alone Risk and 2. Portfolio Risk

1. Stand-Alone risk:
This risk is associated with a single asset which means that the risk will cease to
exist if that particular asset is not held. The impact of standalone risk can be
mitigated by diversifying the portfolio.
Stand-alone risk = Market risk + Firm specific risk
Market chance is a segment of the security’s remaining solitary hazard that can’t be
disposed of through broadening and it is estimated by beta. Firm hazard is a bit of a
security’s remain solitary hazard that can be disposed of through appropriate
2. Portfolio risk:
This is the risk involved in a certain combination of assets in a portfolio which fails to
deliver the overall objective of the portfolio. Risk can be minimized but cannot be
eliminated, whether the portfolio is balanced or not. A balanced portfolio reduces risk
while a non-balanced portfolio increases risk.

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 NEED OF THE STUDY

In the finance field, it is a known fact that the money or finance is limited and the

investors try to maximize the returns by investing such money or finance.But

when the return is higher, the risk is also higher. Return and risk go together and

they have a tradeoff. The art of investment is to see that return is maximized with

minimum risk.In the above discussion we concentrated on the word “investment”

and to invest we need to analyze securities.Merging of different securities with

specific risks and returnsattributes will constitute the portfolioof the investor.

OBJECTIVES OF THE STUDY

1. To study the risk and management in Banking Industry.

2, To study the fluctuations in share prices of both ICICI and HDFC.
3, To study the risk involved in the securities of both ICICI and HDFC.
4, To analyze and examine Comparative study of risk and returns of ICICI
Securities v/s HDFC Securities.
5. To study the systematic risk involved in the securities.
6. To offer suggestions to the investors to make betterment in the investment
Decisions..

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 SCOPE OF THE STUDY

The study covers all the information related to the investor risk-return relationship

of securities. It is confined to five years data of ICICI securities.It also includes the

calculation of individual standard deviations which helps in allocating the funds

available for investment based on risky portfolios.

RESEARCH METHODOLOGY

The data used in this project is of secondary nature. The information is gathered from
auxiliary sources, for example Company dairies, daily papers, books and so forth, the
examination utilized as a part of this task has been finished utilizing specific
specialized apparatuses. In Equity market, risk is analyzed and trading decisions are
taken on basis of technical analysis. It is collection of share prices of selected
companies for a period of five years.

PERIOD OF THE STUDY

This is the study of Risk-Return analysis for a period of five years (2012-2017)

STATISTICAL TOOLS
1. Standard Deviation
2. Covariance
3. Betavalues
4. Averages.
5. Correlation between Sensex

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 LIMITATIONS /ASSUMPTIONs

 This study has been conducted purely to understand Risk-return characteristics for
investors.

 The study is restricted to only two selected Banks.

 Very few and randomly selected scripts/companies are analyzed from BSE
listings.

 The study is limited to banking companies only.

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 CHAPTER: - III
 Industry Profile
 Company Profile

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 INDIAN FINANCIAL MARKET

Indian financial market consists of money market and capital market. Money
market is mainly for the short-term needs and capital market for long term needs.

CAPTAL MARKET AND ITS STRUCTURE

Capital market is a financial market, which provides and facilitates an orderly
exchange of long term needs. The capital market in India is classified into
• Primary market
• Secondary market

The primary market deals with new issue of long term securities. Whereas the
secondary market deals with buying and selling of old, second hand, existing
securities, which are already listed in official trading list of recognized stock
exchange
Players of ‘New Issue Market’ are mainly, among them the most important are:
• Merchant banker’s
• Registrars
• Collecting and coordinating bankers
• Underwriters and broker

Players of secondary market are:

• Issuers of securities like companies
• Intermediaries like brokers, and sub-brokers etc.

ABOUT NSE:
The National Stock Exchange (NSE) is India's leading stock exchange which is spread
over various cities and towns in the country. It was setup by driving establishments to
get an advanced, completely robotized screen based exchanging frame work with
national reach. This Exchange has resulted in transparency, speed & efficiency, safety
and market integrity. It has set up offices that fill in as a model for the securities
business as far as frameworks, practices and strategies.

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NSE has assumed a vital part in changing the Indian securities show case as far as
micro structure advertise practices and exchanging volumes. The market in present days
uses state of art information technology to provide efficiency and transparency in terms
of trading, clearing and settlement mechanism, and has seen several innovations in
items and administrations, for example, demutualization of stock trade administration,
screen based exchanging, pressure of settlement cycles, dematerialization and electronic
exchange of securities, securities loaning and acquiring, professionalization of
exchanging individuals, adjusted hazard administration frameworks, rise of clearing
companies to expect counterparty dangers, market of obligation and subsidiary
instruments and escalated utilization of data innovation.

The NSE has started in the report of the High Powered Study group on establishment of
New Stock Exchanges, which recommended headway of the National stock exchange
by monetary organizations (FI’s) to give access to financial specialists from the whole
way across the nation on an equivalent balance. In light of the suggestions, NSE was
advanced by driving financial institutions at the command of the Government of India
and was consolidated in November 1992 at an expense paying organization not at all
like other Stock trades in the nation.

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.

MISSION OF NSE
NSE's mission is setting the agenda for change in the securities markets in India.

OBJECTIVES OF NSE
The NSE was set-up with the main objectives of:
• Establishing a nation-wide trading facility for equities, debt instruments and
hybrids,
• Ensuring equal access to investors all over the country through an appropriate
communication network,

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 • Providing a fair, efficient and transparent securities market to investors using
electronic trading systems,
• Enabling shorter settlement cycles and book entry settlements systems, and
• Meeting the current international standards of securities markets.

The models set by NSE as far as market practices and innovations has moved toward
becoming industry benchmarks and is being imitated by other market members. NSE is
in excess of a minor market facilitator. It’s that power which is directing the business
towards new skylines and more prominent openings.
Logo
The logo of the NSE symbolizes a solitary across the nation securities exchanging
office guaranteeing equivalent and reasonable access to financial specialists,
exchanging individuals and backers everywhere throughout the nation. The initials of
the Exchange viz., N, S and E have been carved on the logo and are particularly
unmistakable.The logo symbolizes utilization of best in class data innovation and
satellite network to achieve the change inside the securities business.The logo
symbolizes vibrancy and unleashing of creative energy to constantly bring about
change through innovation.

CORPORATE STRUCTURE
NSE is one of the principal de-metalized stock trades in the nation, where the
possession and administration of the exchange is totally separated from the privilege to
exchange on it. In spite of the fact that the catalyst for its foundation originated from
approach creators in the nation, it has been setup as an organization, possessed by the
main institutional financial specialist in the nation.

From the very beginning, NSE has embraced the type of a demutualised trade – the
proprietorship, administration and exchanging is in the hands of three distinct
arrangements of individuals. NSE is possessed by an arrangement of driving money
related organizations, banks, insurance agencies and other monetary middle people and
is overseen in experts, who don’t specifically or by implication exchange on the
exchange. This has totally dispensed with any irreconcilable circumstance and made a
difference.

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NSE in forcefully seeking after arrangements and practices inside an open intrigue
system.

The NSE demonstrates in any case, does not block, but rather in truth obliges
association, support and commitment of exchanging individuals in an assortment of
ways. Its board includes senior officials from promoter foundations, famous experts in
the fields of law, financial aspects, bookkeeping, back, tax assessment, and so on open
delegates, candidates of SEBI and one full time official of the Exchange.

While the board managers expansive strategy issues, choices identifying with advertise
activities are designated by the board to different panels constituted by it. Such
committees include representatives from trading members, professionals, the public and
the management. The everyday administration of the exchange is designated to the
managing Director who is bolstered by a group of expert staff.

COMMITTEES
The Exchange has constituted different boards of trustees to prompt it in zones, for
example, great rehearses, settlement methodology, hazard regulation frameworks and so
on. These panels are kept an eye on by industry experts, exchanging individuals,
Exchange staff as likewise delegates from the market controller.
• Executive Committee
• Committee On Trade Related Issues (COTI)
• Advisory Committee - Listing of Securities

Executive Committee:
Objective: To manage the day-to-day operations of the Exchange Composition.

Committee on Trade Related Issues (COTI):

Objective: To provide guidance on trade related issues which crop up during the day-
to-day functioning of the Exchange Composition.

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BOMBAY STOCK EXCHANGE

Bombay Stock Exchange Limited is the oldest stock exchange in Asia with a rich
heritage. Popularly known as "BSE", it was established as "The Native Share & Stock
Brokers Association" in 1875. It is the first stock exchange in the country to obtain
permanent recognition in 1956 from the Government of India under the Securities
Contracts (Regulation) Act, 1956.The Exchange's pivotal and pre-eminent role in the
development of the Indian capital market is widely recognized and its index, SENSEX,
is tracked worldwide. Earlier an Association of Persons (AOP), the Exchange is now a
demutualised and corporatized entity incorporated under the provisions of the
Companies Act, 1956, pursuant to the BSE (Corporatization and Demutualization)
Scheme, 2005 notified by the Securities and Exchange Board of India (SEBI).

With demutualization, the trading rights and ownership rights have been de-linked
effectively addressing concerns regarding perceived and real conflicts of interest. The
Exchange is professionally managed under the overall direction of the Board of
Directors. The Board comprises eminent professionals, representatives of Trading
Members and the Managing Director of the Exchange. The Board is inclusive and is
designed to benefit from the participation of market intermediaries.

In terms of organization structure, the Board formulates larger policy issues and
exercises over-all control. The committees constituted by the Board are broad-based.
The day-to-day operations of the Exchange are managed by the Managing Director and
a management team of professionals. The Exchange has a nation-wide reach with a
presence in 417 cities and towns of India. The systems and processes of the Exchange
are designed to safeguard market integrity and enhance transparency in operations.
During the year 2004-2005, the trading volumes on the Exchange showed robust
growth.

The Exchange provides an efficient and transparent market for trading in equity, debt

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instruments and derivatives. The BSE's On Line Trading System (BOLT) is a
proprietary system of the Exchange and is BS 7799-2-2002 certified. The surveillance
and clearing & settlement functions of the Exchange are ISO 9001:2000 certified.The
oldest exchange in Asia and the first exchange in the country to be granted permanent
recognition under the Securities Contract Regulation Act, 1956, Bombay Stock
Exchange Limited (BSE) have had an interesting rise to prominence over the past 150
years.

While the BSE is now synonymous with Dalal Street, it wasn’t always so. In fact the
first venues of the earliest stock broker meetings in the 1850s were amidst rather natural
environs - under banyan trees - in front of the Town Hall, where Horniman Circle is
now situated. A decade later, the brokers moved their venue to another set of foliage,
this time under banyan trees at the junction of Meadows Street and Mahatma Gandhi
Road. As the number of brokers increased, they had to shift from place to place, and
wherever they went, through sheer habit, they overflowed in to the streets. At last, in
1874, found a permanent place, and one that they could, quite literally, call their own.
The new place was, aptly, called Dalal Street.
The journey of BSE is as eventful and interesting as the history of India’s securities
markets. India’s biggest bourse, in terms of listed companies and market capitalization,
BSE has played a pioneering role in the Indian Securities Market - one of the oldest in
the world. Much before actual legislations were enacted, BSE had formulated
comprehensive set of Rules and Regulations for the Indian Capital Markets. It also laid
down best practices adopted by the Indian Capital Markets after India gained its
Independence.

BSE-SENSEX, first compiled in 1986 is a "Market Capitalization-Weighted" index of

30 component stocks representing a sample of large, well-established and financially
sound companies. The base year of BSE-SENSEX is 1978-79. The index is widely
reported in both domestic and international markets through print as well as electronic
media. BSE-SENSEX is not only scientifically designed but also based on globally
accepted construction and review methodology. The "Market Capitalization-Weighted"
methodology is a widely followed index construction methodology on which majority
of global equity benchmarks are based.

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The growth of equity markets in India has been phenomenal in the decade gone by.
Right from early nineties the stock market witnessed heightened activity in terms of
various bull and bear runs. More recently, the bourses in India witnessed a similar
frenzy in the 'TMT' sectors. The BSE-SENSEX captured all these happenings in the
most judicial manner. One can identify the booms and bust of the Indian equity market
through BSE-SENSEX.

The launch of BSE-SENSEX in 1986 was later followed up in January 1989 by

introduction of BSE National Index (Base: 1983-84 = 150). It comprised of 150 stocks
listed at five major stock exchanges in India at Mumbai, Calcutta, Delhi, Ahmedabad
and Madras. The BSE National Index was renamed as BSE-150 Index from October 16,
1996 and since then it is calculated taking into consideration only the prices of stocks
listed at BSE.

With a view to provide a better representation of the increased number of companies

listed, increased market capitalization and the new industry groups, the Exchange
constructed and launched on 27th May, 1994, two new index series viz., the 'BSE-200'
and the 'DOLLEX-200' indices. Since then, BSE has come a long way in attuning itself
to the varied needs of investors and market participants. In order to fulfill the need of
the market participants for still broader, segment-specific and sector-specific indices,
the Exchange has continuously been increasing the range of its indices.

The Exchange also disseminates the Price-Earnings Ratio, the Price to Book Value
Ratio and the Dividend Yield Percentage on day-to-day basis of all its major indices.

The values of all BSE indices (except the Dollar version of indices) are updated every
17 seconds during the market hours and displayed through the BOLT system, BSE
website and news wire agencies.

All BSE-Indices are reviewed periodically by the "Index Committee" of the Exchange.
The committee frames the broad policy guidelines for the development and

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maintenance of all BSE indices. The Index Cell of the Exchange carries out the day to
day maintenance of all indices and conducts research on development of new indices.
LISTING OF SECURITIES

Listing means admission of the securities to dealings on a recognized stock exchange.

The securities may be of any public limited company, Central or State Government,
quasi-governmental and other financial institutions/corporations, municipalities, etc.

The objectives of listing are mainly to:

• Provide liquidity to securities;
• Mobilize savings for economic development;
• Protect interest of investors by ensuring full disclosures.

The Exchange has a separate Listing Department to grant approval for listing of
securities of companies in accordance with the provisions of the Securities Contracts
(Regulation) Act, 1956, Securities Contracts (Regulation) Rules, 1957, Companies Act,
1956, Guidelines issued by SEBI and Rules, Bye-laws and Regulations of the
Exchange.
A company intending to have its securities listed on the Exchange has to comply with
the listing requirements prescribed by the Exchange. Some of the requirements are as
under: -
 Minimum Listing Requirements for new companies
 Minimum Requirements for companies delisted by this Exchange seeking
relisting of this Exchange
 Permission to use the name of the Exchange in an Issuer Company's
prospectus
 Submission of Letter of Application
 Allotment of Securities
 Trading Permission
 Requirement of 1% Security
 Payment of Listing Fees
 Compliance with Listing Agreement

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COMPANY PROFILE

ICICI Bank, stands for Industrial Credit and Investment Corporation of India, it is an
Indian multinational banking and financial services company headquartered in Mumbai,
Maharashtra, India, with its registered office in Vadodara. In 2017, it is the third largest
bank in India in terms of assets and fourth in term of market capitalisation. It offers a
wide range of banking products and financial services for corporate and retail customers
through a variety of delivery channels and specialised subsidiaries in the areas of
investment banking, life, non-life insurance, venture capital and asset management. The
bank has a vast network of 4,850 branches and 14,404 ATMs in India, and has a
presence in 19 countries including India.

The bank has subsidiaries in the United Kingdom and Canada; branches in United
States, Singapore, Bahrain, Hong Kong, Sri Lanka, Qatar, Oman, Dubai International
Finance Centre, China and South Africa; and representative offices in United Arab
Emirates, Bangladesh, Malaysia and Indonesia. The company's UK subsidiary has also
established branches in Belgium and Germany.

ICICI's shareholding in ICICI Bank was reduced to 46 percent, through a public

offering of shares in India in 1998, followed by an equity offering in the form of
American Depositary Receipts on the NYSE in 2000. ICICI Bank acquired the Bank of
Madura Limited in an all-stock deal in 2001 and sold additional stakes to institutional
investors during 2001-02.

In the 1990s, ICICI transformed its business from a development financial institution
offering only project finance to a diversified financial services group, offering a wide
variety of products and services, both directly and through a number of subsidiaries and
affiliates like ICICI Bank. In 1999, ICICI became the first Indian company and the first
bank or financial institution from non-Japan Asia to be listed on the NYSE.

In 2000, ICICI Bank became the first Indian bank to list on the New York Stock
Exchange with its five million American depository shares issue generating a demand
book 13 times the offer size.
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In October 2001, the Boards of Directors of ICICI and ICICI Bank approved the merger
of ICICI and two of its wholly owned retail finance subsidiaries, ICICI Personal
Financial Services Limited and ICICI Capital Services Limited, with ICICI Bank. The
merger was approved by shareholders of ICICI and ICICI Bank in January 2002, by the
High Court of Gujarat at Ahmedabad in March 2002 and by the High Court of
Judicature at Mumbai and the Reserve Bank of India in April 2002.

In 2008, following the 2008 financial crisis, customers rushed to ICICI ATMs and
branches in some locations due to rumours of adverse financial position of ICICI Bank.
The Reserve Bank of India issued a clarification on the financial strength of ICICI Bank
to dispel the rumours

Some of the services provided by ICICI are listed below:

iMobile SmartKeys

To make mobile payments easier, ICICI Bank has launched a payment service using a
smartphone keyboard named ‘iMobile SmartKeys’. Users will be able to make quick
and secure payments on any mobile application, including chat, messenger, email,
games or search browser, without having to exit their current application on their
smartphone. This reduces the time taken by customers having to switch tabs or
applications within their smartphone to access the bank’s application ‘iMobile’.

ICICI Merchant Services

ICICI Merchant Services represents an alliance formed in 2009 between ICICI Bank,
India’s largest private sector bank, and First Data, a global leader in electronic
commerce and payment services. First Data is the majority stakeholder in the alliance
with ICICI Bank holding 19%.

Extra home loans

‘ICICI Bank Extra Home Loans’ are 'mortgage-guarantee' backed loans for retail
customers who aspire to purchase their first homes in the affordable housing segment

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List of Subsidiaries of ICICI:

Domestic

 ICICI Prudential Life InsuranceCompany Limited

 ICICI Lombard General Insurance Company Limited
 ICICI Prudential Asset Management Company Limited
 ICICI Prudential Trust Limited
 ICICI Securities Limited
 ICICI Securities Primary Dealership Limited
 ICICI Venture Funds Management Company Limited
 ICICI Home Finance Company Limited
 ICICI Investment Management Company Limited
 ICICI Trusteeship Services Limited
 ICICI Prudential Pension Funds Management Company Limited

International

 ICICI Bank USA

 ICICI Bank UK PLC
 ICICI Bank Canada
 ICICI Bank Germany
 ICICI Bank Eurasia Limited Liability Company
 ICICI Securities Holdings Inc.
 ICICI Securities Inc.
 ICICI International Limited

Significant Awards Received:

 ‘Best Retail Bank in India’ at the Asian Banker International Excellence in

Retail Financial Services Awards 2016. ICICI Bank has won this award three
years in a row.
 Gold awards in the ‘Bank’ and ‘Credit card issuing Bank’ segments under
Finance category in the Reader’s Digest Trusted Brand 2016 Survey.
 First in The Brand Trust Report, India Study 2016 by Trust Research Advisory
under the ‘Banking Financial Services and Insurance’ category.
 Winner at the ‘Global Safety Awards 2016’ organised by the Energy and
Environment Foundation. This award is sponsored by Ministry of Petroleum &
Natural Gas and Ministry of Coal, Government of India.

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Key People and Board of Directors:

Managing Director and CEO

Ms. Chanda Kochar

Independent Directors

Mr. M.K.Sharma
Mr. Uday Chitale
Mr. Dileep Choksi
Ms .Neelam Dhawan
Mr. M.D.Mallya
Mr. Radhakrishnan Nair
Mr V.K. Sharma

Executive Directors

Mr. N.S.Kannan
Ms. Vishakha Mulye
Mr Vijay Chandok
Mr Anup Bagchi

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CHAPTER-II
Review of Literature

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1. Kaushik Mukerjee (2006) in his paper CRM (Customer Relationship Management) in
Banking-Focus on ICICI Bank's drives had centered around CRM in Banking and its
applications in ICICI Bank. The CRM in ICICI is being used for targeting customers,
sales,consistent interface with customers, etc. ICICI Bank has managed to focusbetter
on customers by undertaking a serious approach that has enabled it tomanage its
operations effectively. It included better targeting of customers;higher share of wallet;
more effective channel strategies; database marketing,etc. The bank is able to evaluate
customer usage pattern through CRM datawarehouse. New products are developed
through extensive customerprofiling. Through CRM, ICICI is able to manage its data
centrally.

2. A.M. Rawani and M.P. Gupta (2002), made an attemptto explore empirically the
difference in the role of IS in the banking industry,i.e., between public sector, private
sector, and foreign sector banks operatingin India. This paper uses a strategic grid to
determine the role played by IS inbanks. The study carried was focused on role of
Information Systems inbanks from the perspective of technical persons in development
andmaintenance of IS, i.e. strategic or supportive. The study indicated that ISplayed a
supportive role in public sector banks and a strategic role in private and foreign sector
banks. The study also indicated that the future impact of IS does not vary significantly
with the banking groups.

3. Shyam Ramadhyani (2006) in his paper titled "Review of Banks working in an

electronic Information Systems Environment" concentrated on Audit related issues of
IS in bank. It was underlined that the utilization of PCs changes the preparing,
stockpiling, recovery and correspondence of budgetary data and may influence the
bookkeeping and inward control frameworks utilized by a bank. The potential for
human mistakes in the advancement, upkeep and execution of PC Information Systems
might be more noteworthy than in manual frameworks, because of level of subtle
elements innate in these exercises.Through review surveys, an exhaustive look and
comprehension of IS in bank can be seen. The review of IS would give us general
comprehension of IS in bank, overseeing

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authentication of users, access control, data security, data integrity, auditlogs, testing,
accounting entries, data migration, network and RDBMSsecurity, business continuity
and disaster recovery plans, hacking,identification of transaction for substantative
checking, utilization of reports created by framework and documentation.

4 K.S. Rajashekara (2004), discussed affect investigation of IT on keeping money. The

issue of doing legitimate effect examination is because of trouble of estimating yield
precisely when the nature of administration is changing because of such factors as
accommodation, speed, and lower hazard. Through IT, banks foresee decrease in
working expenses through such efficiencies as the streamlining back office handling
and end of blunder inclined manual contribution of information. Inferable from IT, bank
can offer new items and administrations. Banks can create and actualize refined hazard,
data administration framework and methods with all the more great information
stockpiling and investigation advancements. IT has emphatically influenced the partners
of bank like administration, representatives, and clients.

5Vasant Godse (2005) in paper titled "Innovation: An Impact Analysis" discussed part
of Information Technology in saving money. Banks confronted the huge errand of re-
situating their innovation framework towards such intuitive choice help and data
gathering instruments, very different from exchange preparing and last bookkeeping.
The effect of innovation could be on association with data innovation suppliers,
hierarchical perspectives, financier client relationship, control and supervisory angles,
new ideas and procedures, which help in additionally increasing upper hand.

6 Donald A. Marchand, William J. Kettinger, John D. Rollins (2000), worried upon the
compelling use of data for business execution. It was focused on that IT enhanced
business execution just if joined with capable data administration and the correct
practices and qualities. The exploration was connected on banks. Banks were assessed
on three expansive scales i.e. IT Practices (counting IT rehearses for Operational help,
IT forBusiness-process bolster, IT for Innovation bolster, IT for Managerial help);
Information Management Practices (Sensing data, Collecting data, Organizing data,
Processing data, Maintaining

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data); Information practices and qualities (Information Integrity, Formality, control,
sharing, straightforwardness, proactiveness). Organizations that consolidated a people-
driven, as opposed to only techno-driven, perspective of data utilize and that are great at
all three data abilities would enhance their business execution.

7 Harmeen K. Soch and H.S.Sandhu (2003) emphasized that impactof IT on banking

was so radical that it would be a key determinant of successor failure in the industry, a
key determinant of whether banks as arecognizable grouping continue to exist, and a
key determinant of thedifferentiation between competitors in financial services. Mere
possession ofsophisticated IT would not guarantee success in future. The ability to
apply ITeffectively, i.e. to increase profits by reducing costs or adding value, will be
the key. Banks that choose to use IT strategically would be long termbeneficiaries of
the Information revolution.

8 Helmut E. Zsifkovits (1996), titled "Achievement factors for administration

emotionally supportive networks execution" was to depict the purposes behind the low
level of Information Technology acknowledgment and talk about various parts of
Management Support Systems (MSS). Thisstudy emphasized on decision process with
special reference to groupdecisions. Critical Success Factors (CSF), Key Indicator
Management (KIM)and One-Page Management (OPM) were discussed as methods to
establishYardsticks for measuring a company’s performance and provided a
frameworkfor data structures in MSS. The study was focused on finding reasons for
lowlevel of IT acceptance in Management Support Systems in an organization,rather
than on evaluation of IS after implementation.

9 V. Nanda Mohan & V. Ajayakumar (2005) in their paper titled

“ManagerialEffectiveness through IT”, had developed a new model for the IT enabling
process. The main stages of the model were design of Informationarchitecture,
development of transaction systems, internal integration &development of management
information systems, design of interorganizationaldatabases and business scope
redesign. The softwaredevelopment in second stage was in accordance with the design
completed in

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the first stage and was in anticipation of the requirements of the third andfourth stages.
This study proposed a specific order for the events related toIT-enabled activities

10 R.Jagannathan (2003), cautioned Indian companies from investing inInformation

Technology in a hasty manner. It discussed about the common pitfalls companies faced
in implementing technology solutions. It emphasizedthat the use of technology for
strategic advantage was possible if topmanagement commitment was there. The
investment in IT should emergefrom a business need. IT solutions should be applied
after changemanagement, by managing expectations of employees. The intangible
benefits and intangible costs should also be taken care of, besides ROI andPayback
periods. Decisions to invest in IT should be taken jointly by businessunit heads and the
IT department. Companies should target those vendorswho have the domain knowledge
and experience in executing them.

THEORITCAL FRAMEWORK
RISK ANALYSIS

Risk in investment is because of the hindrances to make perfect or accurate forecasts.

Risk in investment is means the variability that is likely to occur in future cash flows
from an investment. The greater variability indicates greater riskof these cash flows.

Variance or standard deviation means the deviation about expected cash flows of each
possible cash flow and is known as the absolute measure of risk while co-efficient of
variation is a relative measure of risk.

Risk adjusted discount rate [Present value i.e. PV of future inflows with discount rate]

However in practice, sensitivity analysis and conservative forecast techniques being

simpler and easier to handle, are used for risk analysis. Sensitivity analysis [a variation
of break even analysis] allows estimating the impact of change in the behavior of
critical variables on the investment cash flows. Conservative forecasts include using
29
short payback or higher discount rates for discounting cash flows.
Types of risks:
Investment Risks:
Investment risk in general sense talks about earning of a lesser return as compared
to the return that is actually expected to receive. There are 2 types of investments
risks:
Stand-alone risk:
This risk is associated with a single asset, meaning that the risk will cease to exist if
that particular asset is not held. The effect of stand-alone risk can be mitigated by
diversifying the portfolio.
Stand-alone risk = Market risk + Firm specific risk Where,
Market risk is a portion of the security's stand-alone risk that cannot be eliminated
trough diversification and it is measured by beta
Firm risk is a portion of a security's stand-alone risk that can be eliminated through
proper diversification

Portfolio risk

This is the risk involved in a certain combination of assets in a portfolio which fails to
deliver the overall objective of the portfolio. Risk can be minimized but cannot be
eliminated, whether the portfolio is balanced or not. A balanced portfolio reduces risk
while a non-balanced portfolio increases risk.

Sources of risks:
Inflation
Business cycle
Interest rates
Management
Business risk

Types of Risk

Unfortunately, the concept of risk is not a simple concept in finance. There are many
30
different types of risk identified and some types are relatively more or relatively less
important in different situations and applications. In some of the models of economic
or financial processes, some of the risks or all risk may be entirely eliminated. For the
practitioner operating in the real world, however, risk can never be entirely eliminated.
It is ever-present and must be identified and dealt with.

Below is the chart showing different categories of Risks and its sub categories

Systematic risk
1. Interest Rate Risk
The uncertainty associated with the effects of changes in market interest rates. There
are two types of interest rate risk identified; price risk and reinvestment rate risk. The
price risk is sometimes referred to as maturity risk since the greater the maturity of an
investment, the greater the change in price for a given change in interest rates. Both
types of interest rate risks are important in investments, corporate financial planning,
and banking.

Price Risk: The risk associated with potential changes in the price of an assetcaused
by the changes in interest rate levels and rates of return in the economy. This risk
occurs because of the changes in interest rates affecting changes in discount rates
which in turnaffect the present value of future cash flows. The relationship is an
inverse relationship. If interest rates (and discount rates) rise, prices fall. The reverse
is also true.

Since interest rates directly affect discount rates and present values of future cash
flows represent underlying economic value, we have the following relationships.

Reinvestment Rate Risk: The uncertainty associated with the impact that
changinginterest rates have on available rates of return when reinvesting cash flows
received from an earlier investment. It is a direct or positive relationship.

31
2. Market risk
This is the risk that the value of a portfolio, either an investment portfolio or a
trading portfolio, will decrease due to the change in market risk factors. The four
standard market risk factors are stock prices, interest rates, foreign exchange rates,
and commodity prices:

Equity risk is the risk that stock prices in general (not related to a particular company
or industry) or the implied volatility will change.

Interest rate risk is the risk that interest rates or the implied volatility will change.

Currency risk is the risk that foreign exchange rates or the implied volatility will
change, which affects, for example, the value of an asset held in that currency.

Commodity risk is the risk that commodity prices (e.g. corn, copper, crude oil) or
implied volatility will change.

3. Inflation Risk (Purchasing Power Risk)

Inflation risk is the loss of purchasing power due to the effects of inflation. When
inflation is present, the currency loses its value due to the rising price level in the
economy. The higher the inflation rate, the faster the money loses its value.

Unsystematic risk
1. 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.

2. Financial risk
32
The uncertainty brought about by the choice of a firm’s 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.

Total Risk
While there are many different types of specific risk, we said earlier that in the most
general sense, risk is the possibility of experiencing an outcome that is different from
what is expected. If we focus on this definition of risk, we can define what is referred
to as total risk. In financial terms, this total risk reflects the variability of returns from
some type of financial investment.

Measures of Total Risk

The standard deviation is often referred to as a "measure of total risk" because it
captures the variation of possible outcomes about the expected value (or mean). In
financial asset pricing theory the Capital Asset Pricing Model (CAPM) separates this
"total risk" into two different types of risk (systematic risk and unsystematic risk).
Another related measure of total risk is the "coefficient of variation" which is
calculated as the standard deviation divided by the expected value. It is often referred
to as a scaled measure of total risk or a relative measure of total risk. The following
notes will discuss these concepts in more detail.

Measurement of risks
Statistical measures that are historical predictors of investment risk and volatility and
major components in modern portfolio theory (MPT). MPT is a standard financial
and academic methodology for assessing the performance of a stock or a stock fund
compared to its benchmark index.
There are five principal risk measures:
Alpha: Measures risk relative to the market or benchmark index
Beta: Measures volatility or systemic risk compared to the market or the benchmark
index
R-Squared: Measures the percentage of an investment's movement that are
attributable tomovements in its benchmark index
33
Standard Deviation: Measures how much return on an investment is deviating
from theexpected normal or average returns
Sharpe Ratio: An indicator of whether an investment's return is due to smart
investingdecisions or a result of excess risk.

Each risk measure is unique in how it measures risk. When comparing two or more
potential investments, an investor should always compare the same risk measures to
each different potential investment to get a relative performance.

Definition of 'Beta'
A measure of the volatility, or systematic risk of a security or a portfolio in comparison
to the market as a whole. Beta is used in the capital asset pricing model (CAPM), a
model that calculates the expected return of an asset based on its beta and expected
market returns.
Also known as "beta coefficient".
Beta is calculated using regression analysis, and you can think of beta as the tendency
of a security's returns to respond to swings in the market. A beta of 1 indicates that
the security's price will move with the market. If beta is less than 1 means that the
security will be less volatile than the market. A beta of greater than 1 indicates that
the security's price will be more volatile than the market. For example, if a stock's
beta is 1.2, it's theoretically 20% more volatile than the market.

Many utilities stocks have a beta of less than 1. Conversely, most high-tech Nasdaq-
based stocks have a beta of greater than 1, offering the possibility of a higher rate of
return, but also posing more risk.

Definition of 'Alpha'
1. A measure of performance on a risk-adjusted basis. Alpha takes the volatility
(price risk) of a mutual fund and compares its risk-adjusted performance to a
benchmark index. The excess return of the fund relative to the return of the
benchmark index is a fund's alpha.

2. The abnormal rate of return on a security or portfolio in excess of what would

34
be predicted by an equilibrium model like the capital asset pricing model (CAPM).

3. Alpha is one of five technical risk ratios; the others are beta, standard deviation,
R-squared, and the Sharpe ratio. These are all statistical measurements used in modern
portfolio theory (MPT). All of these indicators are intended to help investors determine
the risk-reward profile of a mutual fund. Simply stated, alpha is often considered to
represent the value that a portfolio manager adds to or subtracts from a fund's return.

A positive alpha of 1.0 means the fund has outperformed its benchmark index by
1%. Correspondingly, a similar negative alpha would indicate an
underperformance of 1%.

4. If a CAPM analysis estimates that a portfolio should earn 15% based on the
risk of the portfolio but the portfolio actually earns 17%, the portfolio's alpha would
be 5%. This 5% is the excess return over what was predicted in the CAPM model.

Definition of 'Standard Deviation'

1. A measure of the dispersion of a set of data from its mean. The more spread
apart the data, the higher the deviation. Standard deviation is calculated as the square
root of variance.

2. In finance, standard deviation is applied to the annual rate of return of an

investment to measure the investment's volatility. Standard deviation is also known
as historical volatility and is used by investors as a gauge for the amount of expected
volatility.

Standard deviation is a statistical measurement that sheds light on historical volatility.

For example, a volatile stock will have a high standard deviation while the deviation
of a stable blue chip stock will be lower. A large dispersion tells us how much the
return on the fund is deviating from the expected normal returns.

Definition of 'R-Squared'
A statistical measure that represents the percentage of a fund or security's movements
35
that can be explained by movements in a benchmark index. For fixed-income securities,
the benchmark is the T-bill. For equities, the benchmark is the S&P 500.

R-squared values range from 0 to 150. An R-squared of 150 means that all movements
ofa security are completely explained by movements in the index. A high R-squared
(between 85 and 150) indicates the fund's performance patterns have been in line with
the index. A fund with a low R-squared (70 or less) doesn't act much like the index.

A higher R-squared value will indicate a more useful beta figure. For example, if a
fund has an R-squared value of close to 150 but has a beta below 1, it is most likely
offering higher risk-adjusted returns. A low R-squared means you should ignore the
beta.

When most people think of investments they think of stocks or mutual funds. An
investment is more than this. An investment requires one to set aside an amount today
with the expectation of receiving a larger sum in the future.

Return Analysis
An investment is the current commitment of funds done in the expectation of earning
greater amount in future. Returns are subject to uncertainty or variance Longer the
period of investment, greater will be the returns sought. An investor will also like to
ensure that the returns are greater than the rate of inflation.

An investor will look forward to getting compensated by way of an expected return

based on 3 factors -
Risk involved
Duration of investment [Time value of money] Expected price levels [Inflation]
The basic rate or time value of money is the real risk free rate [RRFR] which is free of
any risk premium and inflation. This rate generally remains stable; but in the long run
there could be gradual changes in the RRFR depending upon factors such as
consumption trends, economic growth and openness of the economy.

If we include the component of inflation into the RRFR without the risk premium,
36
such a return will be known as nominal risk free rate [NRFR]

NRFR = ( 1 + RRFR ) * ( 1 + expected rate of inflation ) - 1

Third component is the risk premium that represents all kinds of uncertainties
and is calculated as follows -
Expected return = NRFR + Risk premium.

Any investor who lays aside money today expects to get more in return later. How
much is more? Well, the best way to calculate this is to look at your rate of return. In
its simplest form, you would take the ending value of your investment, divide it by
your initial investment, take the n root of it (where n= the number of years you held
the investment), and minus one. Confused? Well, let's give an example.

If I invested $150 for three years and after this period it was worth $170, my rate of
return would be [170/150^ (1/3)]-1=16.47%. Don't worry we'll look at this concept
more when we study present and future values.

Now that you have your rate of return you may be asking, "How much is enough?"
Well, looking at past market history, equities on average returned 15% annually,
small caps 17%, bonds 5%, and t-bills around 3-4%. We will ignore all this for now
and state the required return more formally.

Firstly, investors should be compensated for the real interest rate and inflation (note:
the real rate plus inflation=nominal rate). This nominal rate is the rate of return on US
Government bonds. Investors expect at least this when they buy a stock. The reason?
A stock has risk and government bonds don't. If stock does not outperform bonds then
investors will prefer the bonds. The second component of required return is inflation
which is already incorporated into our nominal rate.

Lastly we have a premium for risk. Since investors do not know for sure if their
investment will make them money, they want to be compensated for this additional
risk with additional return.
37
Return on security (single asset) consists of two parts:
Return = dividend + capital gain rate
R = D1 + (P1 – P0) P0
WHERE R = RATE OF RETURN IN YEAR 1
D1 = DIVIDEND PER SHARE IN YEAR 1
P0 = PRICE OF SHARE IN THE BEGINNING OF THE YEAR
P1 = PRICE OF SHARE IN THE END OF THE YEAR

Average rate of return

R = 1 [ R1+R2+……+Rn] n
R =1ΣRtnt=1 Where,
R = average rate of return.
Rt = Realised rates of return in periods 1,2, …..t
n = total no. of periods

Expected rate of return:

It is the weighted average of all possible returns multiplied by their respective
probabilities.
E(R) = R1P1 + R2P2 + ………+ RnPn
E(R) = ΣRiPii Where,
Ri is the outcome i,
Pi is the probability of occurrence of i.
n= No of periods

Risk and return Trade off:

Investors make investment with the objective of earning some tangible benefit. This
benefit in financial terminology is termed as return and is a reward for taking a
specified amount of risk.

Risk is defined as the possibility of the actual return being different from the expected
return on an investment over the period of investment. Low risk leads to low returns.
38
For instance, incase of government securities, while the rate of return is low, the risk of
defaulting is also low. High risks lead to higher potential returns, but may also lead to
higher losses. Long-term returns on stocks are much higher than the returns on
Government securities, but the risk of losing money is also higher.

Rate of return on an investment cal be calculated using the following

formula-Return = (Amount received - Amount invested) / Amount
invested
He risk and return trade off says that the potential rises with an increase in risk. An
investor must decide a balance between the desire for the lowest possible risk and
highest possible return.

Risk-Return Relationship
By now you should understand that even with the most conservative investments you
face some element of risk. However, not investing your money is also risky. For
example, putting your money under the mattress invites the risk of theft and the loss in
purchasing power if prices of goods and services rise in the economy. When you
recognize the different levels of risk for each type of investment asset, you can better
manage the total risk in your investment portfolio.

A direct correlation exists between risk and return and is illustrated in Figure. The
greater the risk, the greater is the potential return. However, investing in securities with
the greatest return and, therefore, the greatest risk can lead to financial ruin if
everything does not go according to plan.

Risk and Return

39
Understanding the risks pertaining to the different investments is of little consequence
unless you’re aware of your attitude toward risk. How much risk you can tolerate
depends on many factors, such as the type of person you are, your investment
objectives, the dollar amount of your total assets, the size of your portfolio, and the
time horizon for your investments.

How nervous are you about your investments? Will you check the prices of your stocks
daily? Can you sleep at night if your stocks decline in price below their acquisition
prices? Will you call your broker every time a stock falls by a point or two? If so, you
do not tolerate risk well, and your portfolio should be geared toward conservative
investments that generate income through capital preservation. The percentage of your
portfolio allocated to stocks may be low to zero depending on your comfort zone. If you
are not bothered when your stocks decline in price because with a long holding period
you can wait out the decline, your portfolio of investments can be designed with a
higher percentage of stocks. Figure 2 illustrates the continuum of risk tolerance.

A wide range of returns is associated with each type of security. For example, the many
types of common stocks, such as blue-chip stocks, growth stocks, income stocks, and
speculative stocks, react differently. Income stocks generally are lower risk and offer
returns mainly in the form of dividends, whereas growth stocks are riskier and usually
offer higher returns in the form of capital gains. Similarly, a broad range of risks and
returns can be found for the different types of bonds. You should be aware of this broad
range of risks and returns for the different types of securities so that you can find an
acceptable level of risk for yourself.

Continuum of Risk Tolerance

40
Hypothesis Statements:

A. Risk and Return of an investment are inversely related.

B. Risk and Return of an investment are not inversely related.

41
 CHAPTER - IV
DATA ANALYSIS AND INTERPRETATION
Comparison between our bank (ICICI) with its competitor HDFC

42
 ICICI Bank Balance Sheet
Mar 2018 Mar 2017 Mar 2016 Mar 2015 Mar 2014 Mar 2013
SOURCES OF FUNDS :
( ).Cr ( ).Cr ( ).Cr ( ).Cr ( ).Cr ( ).Cr
Capital 1,285.81 1,165.11 1,163.17 1,159.66 1,155.04 1,153.64
Reserves Total 1,03,867.56 98,779.71 88,565.72 79,262.26 72,051.71 65,547.84
Equity Share Warrants - - - - - -
Equity Application Money 5.57 6.26 6.70 7.44 6.57 4.48
Deposits 5,60,975.21 4,90,039.06 4,48,528.09 4,47,495.38 4,08,586.32 3,61,305.08
Borrowings 1,82,858.62 1,47,556.15 1,47,704.99 86,484.70 78,086.40 76,650.04
Other Liabilities & Provisions 33,666.89 37,612.55 37,887.43 34,374.72 36,996.27 32,601.85
TOTAL LIABILITIES 8,82,659.66 7,75,158.84 7,23,856.10 6,48,784.16 5,96,882.31 5,37,262.93
APPLICATION OF FUNDS :
Cash & Balances with RBI 33,102.38 31,702.40 27,106.09 25,652.91 21,821.82 19,052.73
Balances with Banks & money at Call 51,067.00 44,010.66 32,762.65 16,651.71 19,707.77 22,364.79
Investments 2,02,994.18 1,61,506.55 1,60,411.80 1,58,129.22 1,77,021.82 1,71,393.60
Advances 5,12,395.29 4,64,232.08 4,35,263.94 3,87,522.07 3,38,702.65 2,90,249.44
Fixed Assets 7,903.51 7,805.21 7,576.92 4,725.52 4,678.14 4,647.06
Other Assets 75,197.29 65,901.94 60,734.70 56,102.73 34,950.11 29,555.32
Mis Expenditure not written off - - - - - -
TOTAL ASSETS 8,82,659.65 7,75,158.84 7,23,856.10 6,48,784.16 5,96,882.31 5,37,262.94
Contingent Liability 12,89,244.00 10,30,993.71 9,00,798.78 8,51,977.61 7,81,430.44 7,89,989.31
Bills for collection 28,588.36 22,623.19 21,654.73 16,212.97 13,534.91 12,394.53

43
 Balance Sheet of HDFC Bank
Mar '18 Mar '17 Mar '16 Mar '15 Mar '14
SOURCES OF FUNDS :
12 mths 12 mths 12 mths 12 mths 12 mths
Capital and Liabilities:
Total Share Capital 519.02 512.51 505.64 501.3 479.81
Equity Share Capital 519.02 512.51 505.64 501.3 479.81
Reserves 1,05,775.98 88,949.84 72,172.13 61,508.12 42,998.82
Net Worth 1,06,295.00 89,462.35 72,677.77 62,009.42 43,478.63
Deposits 7,88,770.64 6,43,639.66 5,46,424.19 4,50,795.64 3,67,337.48
Borrowings 1,23,104.97 74,028.87 53,018.47 45,213.56 39,438.99
Total Debt 9,11,875.61 7,17,668.53 5,99,442.66 4,96,009.20 4,06,776.47
Other Liabilities & Provisions 45,763.72 56,709.32 36,725.13 32,484.46 41,344.40
Total Liabilities 10,63,934.33 8,63,840.20 7,08,845.56 5,90,503.08 4,91,599.50

Mar '18 Mar '17 Mar '16 Mar '15 Mar '14
12 mths 12 mths 12 mths 12 mths 12 mths
Assets
Cash & Balances with RBI 1,04,670.47 37,896.88 30,058.31 27,510.45 25,345.63
Balance with Banks, Money at Call 18,244.61 11,055.22 8,860.53 8,821.00 14,238.01
Advances 6,58,333.09 5,54,568.20 4,64,593.96 3,65,495.03 3,03,000.27
Investments 2,42,200.24 2,14,463.34 1,63,885.77 1,66,459.95 1,20,951.07
Gross Block 3,607.20 3,626.74 3,343.16 3,121.73 2,939.92
Net Block 3,607.20 3,626.74 3,343.16 3,121.73 2,939.92
Other Assets 36,878.70 42,229.82 38,103.84 19,094.91 25,124.60
Total Assets 10,63,934.31 8,63,840.20 7,08,845.57 5,90,503.07 4,91,599.50

44
 HDFC:
Analysis of Return

Rate of Return = Share price in the closing – Share price at the opening

Share price in the opening

Opening Closing value (P1-

Year value (P0) (P1) (P1-P0) P0)/P0*100
2013-14 186 286.99 150.99 54.30
2014-15 264 189 -75 -28.41
2015-16 202.4 381.28 178.88 88.38
2016-17 387.8 467.57 79.77 20.57
2017-18 469.22 515.7 41.48 8.84
Total return 143.68

Average return =143.68/5

=28.74

600

500 515.7
467.57 469.22
400 387.8
381.28

300 286.99 opening value (P0)

264
202.4 closing value (P1)
200 186 189 178.88 (P1-P0)
150 150.99 (P1-P0)/P0*100
88.38 79.77
54.30 41.48
20.57
0 8.84
-28.41
1 2 -75 3 4 5
-150

-200

45
Interpretation: The average returns of HDFC are 28.74 wherein the maximum returns are in
third year i.e., 2015-16.

ICICI:

Analysis of Return

Opening value Closing value (P1-

Year (P0) (P1) (P1-P0) P0)/P0*100
2013-14 823 835.2 12.2 1.48
2014-15 799.95 337.85 -462.1 -57.77
2015-16 360 960.05 600.05 166.68
201 6-17 952 1107.25 155.25 16.31
2017-18 1110 856.05 -253.95 -22.88
103.83
Total return

Average return =103.83/5

= 20.77

1700
1107.25 1110
1500
960.05 952
835.2 856.05
23
800 799.95

600 600.05
opening value (P0)
400 360
337.85 closing value (P1)
200 (P1-P0)
166.68 155.25
153. (P1-P0)/P0*100
12.2 16.31
0 1.48 -57.77 -22.88
1 2 3 4 5 6
-200
-253.95
-400
-462.1
-600

Interpretation: The average returns of ICICI are 20.77 wherein the maximum returns are
inthe third year i.e. 2015-16.
Investment in HDFC is more profitable to the investor as the average returns are
comparatively more than the average returns of ICICI. Thus, an investor who is
only concerned about the returns in long run should invest in HDFC securities.
46
 RISK ANALYSIS

Standard Deviation

This is the most commonly used measure of risk in fiancé. Its square also is widely used to
find out the risk associated with a security.

Computation of Variance = ∑N RI−R 2 or d2

I 1

N − 1

Standard Deviation = σ2

HDFC:

Analysis of risk:

Square
Avg return(R deviations(R-R)
Year Return (R ) ) Deviations(R-R) d2
2013-14 54.3 28.74 25.564 653.52
2014-15 -28.41 28.74 -57.146 3265.67
2015-16 88.38 28.74 59.644 3557.41
2016-17 20.57 28.74 -8.166 66.68
2017-18 8.84 28.74 -19.896 395.85
Total 143.68 7939.12

Variance = 1/n-1 (∑d2) = 1/5-1

(7939.12)=
1984.78

Standard deviation=√variance

47
 =√1984.78
= 44.55

ICICI:

Analysis of Risk:

Square
deviations(R-R)
Year Return (R ) Avg Return (R ) Deviations(R-R) d2
2013-14 1.48 20.77 -19.286 371.95
2014-15 -57.77 20.77 -78.536 6167.90
2015-16 166.68 20.77 145.914 21290.90
2016-17 16.31 20.77 -4.456 19.86
2017-18 -22.88 20.77 -43.646 1904.97
Total 103.83 29755.58

Variance = 1/n-1 (∑d2) = 1/5-1 (29755.58)

= 7438.89

Risk=Standard deviation=√variance
=√7438.89
=86.25

Interpretation: Risk associated with the investment in long run is less for the
HDFCsecurities when compared to ICICI. Thus, when an investor is only considering risk
factor, it is advisable to invest in HDFC securities.

48
 IAVERAGE RETURN OF BOTH COMPANIES:

S.No COMPANY AVERAGE RETURN STANDARD DEVIATION

1 HDFC 28.74 44.55

2 ICICI 20.77 86.25

Standard deviation
150
90
86.25
80
70
Shares price

60
50
44.55 Standard deviation
40
30
20
15
0
HDFC ICICI

Interpretation: From the above table and graph it can be understood by considering
bothrisk and return factors that the returns are more and risk is less for HDFC securities.

49
 CALCULATION OF COVARIANCES

COVARIANCE = COV. AB = (∑[RA-RA] [RB-RB]) / N

WHERE:
RA = Return on A
RB = Return on B
RA = Expected return on A
RB = Expected return on B
N = Number of securities

COVARIANCE OF BANK SECURITIES PORTFOLIO:

CovA,B = ∑(riA-rA) (riB-rB) / n-1

HDFC & ICICI

Years DEVIATIONS OF DEVIATIONS OF COMBINED
HDFC (RA-RA) ICICI (RB-RB) DEVIATIONS
2013-14 25.564 -19.286 -493.027
2014-15 -57.146 -78.536 4488.018
2015-16 59.644 145.914 8702.895
2016-17 -8.166 -4.456 36.3877
2017-18 -19.896 -43.646 868.3808
13602.65
TOTAL

COVARIANCE (COVAB) = 13602.65/5

= 2720.531

50
COEFFICIENT CORRELATION

Coefficient of Correlation

Coefficient of Correlation is a statistical technique, which measures the degree or extent to which two
or more variables fluctuate with reference to one another. Correlation analysis helps in determining
the degree of relationship between two variables but correlation does not always imply cause and
effect relationship

The Coefficient of Correlation is essentially the covariance taken not as an absolute value but relative
to the standard deviations of the individual securities. It indicates, in effect, how much X and Y vary
together as a proportion of their combined individual variations, measured by SD of X multiplied by
SD of Y

51
 BETA VALUES

SENSEX:

Years Price Returns (R Average

) returns ( R ( R- R) (R – R)2
(In %) )
2013-2014 16371.29 - - - -
2014-2015 9568.14 -41.555 10.095 -51.6504 2667.761
2015-2016 17590.17 83.841 15.145 73.74606 5438.481
2016-2017 19290.18 9.665 15.145 -0.43045 0.185291
2017-2018 17058.61 -11.568 15.145 -21.6634 469.304
Total 40.383 8575.731

Standard Deviation = √ Variance

Variance = 1/ (n-1) (R-R)
= 1/ (4-1) (8575.731)
= 1/3(8575.731)
= 2858.57

Standard Deviation = √2858.57

= 53.465

52
Correlation between Sensex and HDFC:

Date Deviations of sensex Deviations of Combined

Dsensex = (R-R) HDFC Deviations
DHDFC = (R-R) DsensexDHDFC
2013-2014 - - -
2014-2015 -51.650 -57.146 2951.59
2015-2016 73.746 59.644 4398.50
2016-2017 -0.430 -8.166 3.5113
2017-2018 -21.663 -19.896 431.00
Total 7784.61

Correlation between Sensex and ICICI:

Date Deviations of sensex Deviations of Combined

Dsensex = (R-R) ICICI Deviations
DICICI = (R-R) DsensexDICICI
2013-2014 - - -
2014-2015 -51.650 -78.536 4056.384
2015-2016 73.746 145.914 10760.57
2016-2017 -0.430 -4.456 1.91
2017-2018 -21.663 -43.646 945.50
Total 15764.38

53
Calculation of Beta Values:

β = COVAB/σ m2

Where COVAB = 1/ n-1 (D1D2)

σ m2= Variancesensex

1. HDFC:-

β = COVsensex, HDFC/Variancesensex

COV sensex, HDFC = 1/ 4-1 (7784.61)

= 2594.87

Variance sensex = 2858.57

β = 2594.87/ 2858.57
β = 0.907

2. ICICI:-

β = COVsensex, ICICI/Variancesensex

COV sensex, ICICI = 1/ 4-1 (15764.38)

= 5254.793

Variance sensex = 2858.57

β = 5254.793/ 2858.57
β = 1.838

54
Calculated Beta Values:

COMPANY NAME BETA VALUE

HDFC 0.907
ICICI 1.838

CONCEPT OF BETA:

It is a measure of movement of share price with the movement of market.

Beta is positive, if share price moves in the direction of the movement of market. Beta is
negative, if share price moves opposite to the direction of market.

Table Depicting All Calculated Values:

ICICI HDFC

Average returns 20.77 28.74

Standard deviation 86.25 44.55

Covariance 2720.531 2720.531

Beta 1.838 0.907

55
 HDFC Bank

Opening and closing values

600
515.7
500 467.57 469.22
Shares price

381.28 387.8
400
286.99 264
300
186 189 202.4 opening
200
closing
100
0
2013-14 2014-15 2015-16 2016-17 2017-18

Interpretation: From the above table by considering the

opening and closing values it can be clearly stated that almost

in 4 years the share value is increasing whereas only in 2014-15

share price has reduced

56
 Profit/Loss:

Profit/loss
200 178.88

150
100.99
100 79.77
Shares Price

41.48
50
Profit/loss

0
1 2 3 4 5
-50

-150 -75
Years

Interpretation: From the above graph it can be clearly stated that investor has enjoyed
moreprofits in 2015-16 and bears loss in 2014-15 as the opening and closing share
valuesfluctuate.
Maximum Profit:

Maximum profit
200 179 184.83
180
160
140
Shares Price

115.8
120
100
80 68.28
60 51 Maximum profit
40
20
0
1 2 3 4 5
Years

Interpretation: From the above graph it can be stated that with the fluctuations in the
openingvalue and highest share price, 2015-16 is the most profitable year for the investor.

57
 Maximum Loss:

Maximum loss
20
4
-3.9
0
2013-14 2014-15 2015-16 2016-17 2017-18
-20
Shares price

-40 -30.8

-60 Maximum loss

-80 -68.77

-100

-120 -109.2
Years

Interpretation: From the above graph by considering the difference between opening
valueand lowest share price, it can be stated that in 2014-15 there was huge loss to investors.

58
 ICICI bank

Opening and Closing values

1700 1612.25 1615

1500 835.2 960.05 952

856.05
823 799.95
800
Shares price

600 opening value

400 337.85 360 closing value

200

2013-14 2014-15 2015-162016-172017-18

Years

Interpretation: From the above graph by considering the opening and closing values it can
beclearly stated that in the year 2013-14 there was a slight change in the market share value and
in 2013-14 the share value decreased to Rs.462.1 whereas in 2015-16 it again increased by
Rs.600.05. In 2015-16 it increased by Rs.175.25 and again fell down by Rs.253.95 in 2017-18.
If the investor is ready to bear more risk then, 2015-16 is favorable year with high returns.

59
 Profit/Loss

Profit/loss
800
600.05
600

400
Shares Price

155.25
200
12.2
0 Profit/loss
2013-14 2014-15 2015-16 2016-17 2017-18
-200
-253.95
-400
-462.1
-600
Years

Interpretation: From the above graph it can be clearly stated that investor can enjoy
moreprofits in 2015-16 and bear high loss in 2014-15 as the opening and closing share
values
fluctuate.
Maximum Profit

Maximum profit

700 642
608.5
600
500
Shares Price

400 325
300 Maximum profit
200 160.95

100 27.9
0
2013-14 2014-15 2015-162016-172017-18
Years

Interpretation: From the above graph it can be stated that with the fluctuations in the
openingvalue and highest share price, 2013-14 is the most profitable year for the investor.

60
 Maximum Loss

Maximum Loss
100

0 30.6
2013-14 2014-15 2015-16 2016-17 2017-18
-100

-200 -103
Maximum Loss
-300 -143.9

-400

-500

-600 -547.2 -469

Interpretation: From the above table by considering the difference between

opening value and lowest share price, it can be stated by 2014-15 is most
unfavorable year for the investor with huge loss.

61
 CHAPTER –V
FINDINGS,
SUGGESTIONS
&
CONCLUSION

62
63
 FINDINGS

As far as the returns of the selected banks is concerned, HDFC is comparatively

performing well in isolation where as ICICI is performing low.

As far as the Standard deviation of the selected companies is concerned, ICICI is very
high where as HDFC is giving less risk. This means that higher the risk, the higher the
returns.

 The covariance of the ICICI and HDFC is 2720.531.

 The systematic risk (Beta) of HDFC is 0.912.
 The systematic risk (Beta) of ICICI is 1.838.

64
SUGGESTIONS

The investor should consider the securities with maximum returns and minimum risk.
Thus, it is advisable to invest in HDFC securities since it is resulting in more profits
with lesser amount of Risk.

 Investors should hold securities which give high returns with less risk.

 As an investor, see that there is a negative correlation among the securities.

 Do not relay completely on technical analysis.

 Investors should give importance to fundamental analysis of securities.

 Industrial policy also has a major role in facilitating the growth of the economy.

 Holding two or more securities reduce the unsystematic risk.

65
 Conclusion

In the Investing world risk refers to the Chance that an investment’s actual
return will differ from the expected return.The most effective way to manage
investing risk is through diversification.Although diversification won’t ensure
gains or guarantee against losses, it does provide the potential to improve
returns based on target level of risk.Finding the right balance between Risk and
Return helps ensure to achieve financial goals while still being able to get a
GOOD NIGHT’S Sleep.

66
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2. www. Icicibank.com

3. Annual report of ICICI bank

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