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Performance of selected stocks in old generation private sector banks in India

Performance of selected stocks in old generation private sector banks in India
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The present study is deliberate to examine the recital selected Stocks in Old Generation Private Sector Banks in India. The banking sector plays a magnificent role in an economy for the smooth as well as efficient functioning of the different activities of the society.

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Performance of selected stocks in old generation private sector banks in India

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Nội dung Text: Performance of selected stocks in old generation private sector banks in India

  1. International Journal of Management (IJM)
    Volume 9, Issue 2, March–April 2018, pp. 43–55, Article ID: IJM_09_02_005
    Available online at
    http://www.iaeme.com/ijm/issues.asp?JType=IJM&VType=9&IType=2
    Journal Impact Factor (2016): 8.1920 (Calculated by GISI) www.jifactor.com
    ISSN Print: 0976-6502 and ISSN Online: 0976-6510
    © IAEME Publication

    PERFORMANCE OF SELECTED STOCKS IN
    OLD GENERATION PRIVATE SECTOR BANKS
    IN INDIA
    Dr. Nalla Bala Kalyan
    Assistant Professor, Department of Management Studies
    Sri Venkateswara College of Engineering, Tirupati, India

    Dr. S. Gautami
    Associate Professor, Department of Management Studies,
    Sri Venkateswara College of Engineering, Tirupati, India

    ABSTRACT
    A stock market or equity market is a public entity for the trading of company stock
    (shares) and derivatives at an agreed price; these are securities listed on a stock
    exchange as well as those only traded privately. The present study is deliberate to
    examine the recital selected Stocks in Old Generation Private Sector Banks in India.
    The banking sector plays a magnificent role in an economy for the smooth as well as
    efficient functioning of the different activities of the society. The role of banks in
    promoting the economic and social welfare for the betterment and advancement of the
    life of the community is well recognized while the Indian economy is yet to strengthen
    the Indian banking system continuously to deal with improvement in asset quality,
    execution of sensible risk management practices and capital adequacy.
    Key words: India, Old Generation, Performance, Private Sector Banks, Stocks.
    Cite this Article: Dr. Nalla Bala Kalyan and Dr. S. Gautami, Performance of Selected
    Stocks in Old Generation Private Sector Banks in India. International Journal of
    Management, 9 (2), 2018, pp. 43–55.
    http://www.iaeme.com/IJM/issues.asp?JType=IJM&VType=9&IType=2

    1. INTRODUCTION
    The Indian banking industry is one of the oldest trading industries that have been around even
    before the establishment of BSE in 1875. BSE is the oldest stock market in India. The history
    of India stock trading starts with 318 persons taking membership in Native share and Stock
    Brokers Association which we know by the name Bombay Stock Exchange or BSE in short.
    In 1965, BSE got permanent recognition from the Government of India. BSE and NSE
    represent themselves as synonyms of India stock market. The history of India stock market is
    almost the same as the history of BSE. A stock exchange provides services for stock brokers
    and traders to trade stocks, bonds and other securities. Stock exchanges also provide facilities

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  2. Dr. Nalla Bala Kalyan and Dr. S. Gautami

    for issue and redemption of securities and other financial instruments and capital events
    including the payment of income and dividends. Securities traded on stock exchange include
    shares issued by companies, unit trusts, derivatives, pooled investment products and bonds.
    The old private sector banks were those banks which were working in the private sector
    before the great depression. The old private sector banks have been operating for a long time
    and may be referred to those banks, which are in operation from before 1991. These banks are
    more than 50 years old. The banks, which were not nationalized at the time of bank
    nationalization that took place during 1969 and 1980, are known to be the old private sector
    banks.

    2. NEED FOR THE STUDY
    In the investment market, it is necessary to find out every aspect of the business due to
    competitions, particularly, in evaluating and determination of investment decisions. The
    investment decisions play a crucial part for an investor, the selection (or) choosing the best
    alternative of investment decisions depends on the performance of the company itself and in
    the market place.

    3. SCOPE OF THE STUDY
    The present study and analysis evaluates the financial performance of selected equity stocks
    in old generation private sector banks for the period of past 5 years (2012-2017) and five
    banks only. From which the investors can come to know whether to invest or not to invest in
    old generation private sector banks Equities.

    4. OBJECTIVES OF THE STUDY
     To evaluate risk and return of selected stocks of old generation private sector banks.
     To examine return selected stock through sharpe and Treynor ratios.
     To compare performance of selected stocks with bench mark.

    5. LIMITATIONS OF THE STUDY
     Only past performance of the companies is analyzed and it is not the perfect measure to expect
    the future performances.
     The study is limited to five selected old generation private sector banks equities only.
     The study is conducted in limited time period only and in-depth and broad study is not
    possible for given period of time.

    6. DATA ANALYSIS & INTERPRETATION
    Table 1 Selected Banks for Performance Evaluation
    SL.NO BANK NAME
    1 Karnataka Bank
    2 Karur Vysya Bank
    3 Dhanlaxmi Bank
    4 City Union Bank
    5 Lakshmi Vilas Bank

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  3. Performance of Selected Stocks in Old Generation Private Sector Banks in India

    7.1. Calculation of Returns of Karnataka Bank
    Table 2
    Year Opening price(Rs) Closing price (Rs)
    2012-13 96 130.75
    2013-14 134 117.25
    2014-15 116.30 124.65
    2015-16 127.95 102.65
    2016-17 104.65 140.70

    Return= (Closing price- Beginning Price)*100
    Beginning Price
    Return (2012-2013) = (130.75-96)*100 = 36.19%
    96
    Return (2013-2014) = (117.25-134)*100 = -12.5%
    134
    Return (2014-2015) = (124.65-116.30)*100 = 7.17%
    116.30
    Return (2015-2016) = (102.65-127.95)*100 = -19.77%
    127.95
    Return (2016-2017) = (140.70-104.65)*100 = 34.44%
    104.65
    Calculation of Average Rate of Return

    = = = 9.10
    Calculation of Standard Deviation:

    Standard deviation = √ =
    √ =23.15
    Interpretation: The above calculation shows that 5 years Average Return of Karnataka Bank
    Equity is 9.016 and standard Deviation is 23.15.

    Table 3 Calculation of Beta
    2
    Year Market Returns x Returns y x Xy
    2012-13 6.86 36.19 47.06 248.26
    2013-14 17.53 -12.5 307.30 -219.12
    2014-15 26.33 7.17 693.27 188.79
    2015-16 -9.87 -19.77 97.42 195.13
    2016-17 18.94 34.44 358.72 652.29
    ∑x=59.79 ∑y=45.53 ∑x2=1503.77 ∑xy=1065.35

    Beta (β) =

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  4. Dr. Nalla Bala Kalyan and Dr. S. Gautami

    =

    = = 0.66

    Calculation of Risk Adjustment Return
    Risk adjusted return = = = = 1.96

    Interpretation: The above calculation shows that the beta of Karnataka Bank is less than the
    Bench Mark i.e., 0.66

  5. Performance of Selected Stocks in Old Generation Private Sector Banks in India

    442.50

    Calculation of Average Rate of Return: = = = (-8.87)

    Calculation of Standard Deviation: Standard deviation = √ =√ = 41.28
    Interpretation: The above calculation shows that 5 years Average Return of Karur Vysya
    Bank Equity is -8.87 and Standard Deviation is 41.28.

    Table 5 Calculation of Beta
    2
    Year Market Returns x Return Y X XY
    2012-13 6.86 19.75 47.06 135.48
    2013-14 17.53 -17.37 307.30 -304.49
    2014-15 26.33 47.81 693.27 1258.83
    2015-16 -9.87 -19.85 97.42 195.91
    2016-17 18.94 -74.68 358.72 -1414.43
    ∑x=59.79 ∑y=-44.34 ∑x2=1503.77 ∑xy=-128.7

    Beta (β) = = = β = 0.50

    Calculation of Risk Adjustment Return

    Risk adjustment return= = = = -1.07

    Interpretation: The above calculation shows that the Beta of Karur Vysya Bank is less
    than the Bench Mark i.e., 0.50>1 the returns are less than the Bench Mark for Five Years. The
    risk adjusted return is -1.70
    ̅̅̅̅
    Calculation of Sharpe‟s Ratio: Sharpe ratio = = = -0.36
    ̅̅̅̅
    Calculation of Treynor‟s Ratio: Treynor ratio= = = -29.96
    Interpretation: The above calculation shows that Sharpe and treynor ratio of Karur Vysya
    Bank Equity is -0.36 and -29.96.

    7.3. Calculation of Returns of Dhanalaxmi Bank
    Table 6
    Year Opining Closing
    Price(Rs) Price(Rs)
    2012-13 70.30 45.75
    2013-14 48.55 36.05
    2014-15 35.55 30.90
    2015-16 31.75 19.60
    2016-17 20.05 29.75

    Return= (Ending price- Beginning Price)*100
    Beginning Price
    Return (2012-2013) = (45.75-70.30)*100 = -34.92%

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  6. Dr. Nalla Bala Kalyan and Dr. S. Gautami

    70.30
    Return (2013-2014) = (36.05-48.55)*100 = -25.75%
    48.55
    Return (2014-2015) = (30.90-35.55)*100 = -13.08%
    35.55
    Return (2015-2016) = (19.60-31.75)*100 = -38.27%
    31.75
    Return (2016-2014) = (29.75-20.05)*100 = 48.38%
    20.05

    Calculation of Average Rate of Return: = = = (-12.73)

    Calculation of standard deviation: Standard deviation = √ =√ = 45.94
    Interpretation: The above calculation shows that 5 years Average Return of Dhanalaxmi
    Bank Equity is -12.73 and Standard Deviation is 45.94.

    Table 7 Calculation of Beta
    2
    Year Market Returns Return Y X XY
    x
    2012-13 6.86 -34.92 47.06 -239.55
    2013-14 17.53 -25.75 307.30 -451.39
    2014-15 26.33 -13.08 693.27 -344.39
    2015-16 -9.87 -38.27 97.42 377.72
    2016-17 18.94 48.38 358.72 916.31
    ∑x=59.79 ∑y=-6364 ∑x2=1503.77 ∑xy=258.7

    Beta (β) = = = = 1.29

    Calculation of Risk Adjustment Return

    Risk adjustment return= = = = -2.80
    Interpretation: The above calculation shows that the Beta of Dhanalaxmi Bank equity is
    greater than the Bench Mark i.e., 1.29>1.The returns are less than the Bench Mark for Five
    Years .The risk adjusted return is -2.80.
    Calculation of Sharpe‟s Ratio
    ̅̅̅̅
    Sharpe ratio = = = -0.83

    Calculation of Treynor‟s Ratio
    ̅̅̅̅
    Treynor ratio = = = -14.60

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  7. Performance of Selected Stocks in Old Generation Private Sector Banks in India

    Interpretation: The above calculation shows that Sharpe and treynor ratio of Dhanalaxmi
    Bank Equity is -0.83and -14.60

    7.4. Calculation of Returns of City Union Bank
    Table 8
    Year OpeningPrice(Rs) ClosingPrice(Rs)
    2012-13 49.90 52.55
    2013-14 53.20 53.85
    2014-15 52.90 96.90
    2015-16 98.30 94.80
    2016-17 97.10 15.60

    Return = (Ending price- Beginning Price)*100
    Beginning Price
    Return (2012-2013) = (52.55-49.40)*100 =6.38%
    49.40
    Return (2013-2014) = (53.85-53.20)*100 = 1.22%
    53.20
    Return (2014-2015) = (96.90-52.90)*100 =83.17%
    52.90
    Return (2015-2016) = (94.80-98.30)*100 = -3.56%
    98.30
    Return (2016-2017) = (15.60-97.10)*100 = -83.93
    97.10
    Calculation of Average Rate of Return

    = = =0.66

    Calculation of Standard Deviation: Standard deviation = √ =√ = 52.94
    Interpretation: The above calculation shows that 5 years Average Return of City Union
    Bank Equity is 0.66 and Standard Deviation is 52.94.

    Table 9 Calculation of Beta
    2
    Year Market Returns X Return Y X XY
    2012-13 6.86 6.38 47.06 43.76
    2013-14 17.53 1.22 307.30 21.38
    2014-15 26.33 83.17 693.27 2189.86
    2015-16 -9.87 -3.56 97.42 35.13
    2016-17 18.94 -83.93 358.72 -1589.63
    ∑x=59.79 ∑y=3.28 ∑x2=1503.77 ∑xy=700.5

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  8. Dr. Nalla Bala Kalyan and Dr. S. Gautami

    Beta (β) = = = = 0.84

    Calculation of Risk Adjustment Return

    Risk adjustment return = = = = 0.06
    Interpretation: The above calculation shows that the beta of City Union Bank is less than the
    Bench Mark i.e., 0.84

  9. Performance of Selected Stocks in Old Generation Private Sector Banks in India

    Calculation of Standard Deviation: Standard deviation = √ =√ = 52.94
    Interpretation: The above calculation shows that 5 years Average Return of CITY UNION
    BANK Equity is 0.66 and Standard Deviation is 52.94.

    Table 11 Calculation of Beta
    2
    Year Market Returns x ReturnY X XY
    2012-13 6.86 6.38 47.06 43.76
    2013-14 17.53 1.22 307.30 21.38
    2014-15 26.33 83.17 693.27 2189.86
    2015-16 -9.87 -3.56 97.42 35.13
    2016-17 18.94 -83.93 358.72 -1589.63
    ∑x=59.79 ∑y=3.28 ∑x2=1503.77 ∑xy=700.5

    Beta (β) = = = = 0.84

    Calculation of Risk Adjustment Return: Risk adjustment return = =
    = = 0.06
    Interpretation: The above calculation shows that the beta of City Union Bankis less than the
    Bench Mark i.e., 0.84

  10. Dr. Nalla Bala Kalyan and Dr. S. Gautami

    Interpretation: Lakshmi Vilas Bank Equity has higher average rate of return i.e. (20.98)
    among all banks equities for 5years, followed by Karnataka Bank equity having second high
    average rate of return.

    8.1. Standard Deviation for 5 Years
    Table 8.2
    S. No Company Name Standard Deviation Rank
    1 Karnataka Bank 23.15 2
    2 Karur Vysya Bank 41.28 3
    3 Dhanalaxmi Bank 22.74 1
    4 City Union Bank 52.94 5
    5 Lakshmi Vilas Bank 45.95 4

    10

    0
    Karnataka

    Vilas Bank
    Dhanalaxmi
    Karur Vysya

    City Union

    Lakshmi
    -10 Rank
    Bank

    Bank
    Bank

    Bank

    -20 TREYNOR RATIO

    -30
    1 2 3 4 5
    -40

    Graph 2
    Interpretation: Dhanalaxmi Bank & Karnataka Bank has lowest deviation of returns i.e.
    22.74 &23.15, among all other banks and City Union Bank has highest deviation of returns
    i.e. 52.94

    8.3. Beta for 5 Years
    Table 8.3
    S.NO Company Name Beta Rank
    1 Karnataka Bank 0.66 2
    2 Karur Vysya Bank 0.50 1
    3 Dhanalaxmi Bank 1.29 4
    4 City Union Bank 0.83 3
    5 Lakshmi Vilas Bank 2.22 5

    10

    0
    Karnataka

    Lakshmi Vilas
    Karur Vysya

    Dhanalaxmi

    City Union
    Bank

    -10
    Bank

    Rank
    Bank

    Bank

    Bank

    -20 TREYNOR RATIO

    -30
    1 2 3 4 5
    -40

    Graph 3

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  11. Performance of Selected Stocks in Old Generation Private Sector Banks in India

    Interpretation: Lakshmi Vilas Bank equities hold highest systematic risk of (2.22) among all
    other banks, which is higher than the bench mark of BETA, Karurvysya Bank holds less risk
    i.e. (0.50).

    8.3. Risk Adjusted Return for 5 Years
    Table 8.4
    S.NO Company Name Risk Adjusted Rank
    Return
    1 Karnataka Bank 1.97 2
    2 Karur Vysya Bank -1.07 4
    3 Dhanalaxmi Bank -2.80 5
    4 City Union Bank 0.06 3
    5 Lakshmi Vilas Bank 2.28 1

    10

    0
    Karnataka

    Karur Vysya

    Dhanalaxmi

    Lakshmi Vilas
    City Union
    Bank

    -10
    Bank

    Rank
    Bank

    Bank

    Bank

    -20 TREYNOR RATIO

    -30
    1 2 3 4 5
    -40

    Graph 4
    Interpretation: Lakshmi Vilas Bank and Karnataka Bank equities earned highest risk
    adjusted rate of return i.e. (2.28) & (1.97), Dhnalaxmi Bank equity earned less risk adjusted
    return i.e. (-2.80).

    8.4. Sharpe Ratio for 5 Years
    Table 8.5
    S.NO Company Name Sharpe Ratio Rank
    1 Karnataka Bank 0.13 2
    2 Karur Vysya Bank -0.36 4
    3 Dhanalaxmi Bank -0.83 5
    4 City Union Bank -0.10 3
    5 Lakshmi Vilas Bank 0.32 1

    20

    0
    Vysya…

    Rank
    Karnataka

    Dhanalax

    Vilas Bank
    City Union
    Karur

    mi Bank

    Lakshmi
    Bank

    Bank

    -20 TREYNOR RATIO

    -40
    1 2 3 4 5

    Graph 5

    http://www.iaeme.com/IJM/index.asp 53 editor@iaeme.com

  12. Dr. Nalla Bala Kalyan and Dr. S. Gautami

    Interpretation: Lakshmi Vilas Bank & Karnataka Bank equities awarded first and second
    ranks as for Sharpe„s performance measure ratio i.e. (0.32) & (0.13), Dhanalaxmi Bank equity
    ranked last position with ratio of (-0.83).

    8.5. Treynor Ratio for 5 Years
    Table 8.6
    S.NO Company Name TREYNOR RATIO Rank
    1 Karnataka Bank 4.53 2
    2 Karur Vysya Bank -29.96 5
    3 Dhanalaxmi Bank -14.60 4
    4 City Union Bank -6.56 3
    5 Lakshmi Vilas Bank 6.70 1

    10
    0
    Karnataka

    Vilas Bank
    Karur Vysya

    Dhanalaxmi

    City Union

    -10 Lakshmi Rank
    Bank

    Bank
    Bank

    Bank

    -20 TREYNOR RATIO

    -30
    1 2 3 4 5
    -40

    Graph 6
    Interpretation: Lakshmi Vilas Bank & Karnataka Bank equities awarded first rank and
    second rank as per Treynor „s performance measure ratio i.e. (6.70) & (4.53), KARUR
    Vysya Bank equity ranked last position with ratio of (-29.96).

    9. FINDINGS
     Return:- by applying average rate of return Lakshmi Vilas Bank gives more returns i.e.
    (20.98) and Dhanalaxmi Bank low return i.e. (-12.73).
     Standard deviation: – It was Dhanalaxmi Bank having lowest deviation i.e. (22.74) and City
    Union Bank i.e. highest deviation i.e. (52.94).
     Beta: – while comparing market risk Karur Vysya Bank as low risk i.e. (0.50) and Lakshmi
    Vilas Bank as more risk i.e. (2.22)
     Risk adjusted return:- by applying risk adjusted return Lakshmi Vilas Bank & Karnataka Bank
    earned highest risk adjusted rate of return i.e. (2.28) &(1.97) and Dhanalaxmi Bank earned
    less risk adjusted return i.e.(-2.80).
     Sharpe ratio:- Lakshmi Vilas Bank & Karnataka Bank are first & second ranks as for Sharpe
    performance measure ratio i.e. (0.32) &( 0.13) the Dhanalaxmi Bank is last position i.e. (-
    0.83).
     Treynor ratio:- Lakshmi Vilas Bank & Karnataka Bank are first and second rank as for
    treynor performance measure the ratio i.e. (6.70)& (4.53). Karur Vysya Bank is last position
    i.e. (-29.96).

    10. CONCLUSIONS
    Private sector banks play an important role in the development of Indian economy. After
    introduction of new generation private sector banks, the banking industry underwent major
    changes. Investors while investing their money are to be very cautious. Here all the selected

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  13. Performance of Selected Stocks in Old Generation Private Sector Banks in India

    stocks have performed well. But Lakshmi Vilas Bank & Karnataka Bank stocks are
    performed better than Karur Vysya Bank & Dhanalaxmi Bank and City Union Bank.
    Ambiguity over the ownership structure and issues related to governance in some of the old
    generation private banks has raised the hackles of the Reserve Bank of India (RBI), with the
    regulator now questioning some of these lenders on their transactions with few companies.
    For instance, the central bank has enquired about Kaur Vysya Banks dealing with a Large
    Infrastructure company in south India.

    REFERENCES
    [1] C Gomez – Financial Markets Institutions and Financial Services Prentice-Hall 2008
    Retrieved 11 July 2012 ISBN 8120335376

    [2] Cooke, Charles Northcote (1863) the rise, progress, and present condition of banking in
    India (Printed by P.M. Cranenburgh, Bengal Print. Co.), pp.177-200.

    [3] Krishna, R. R. (1996), “ rofitability Analysis: An Overview”, Indian Banking: Today and
    Tomorrow, September

    [4] Malhotra, M. (1999), “Banking Sector Reforms: Experience of SBs”, Abhigyan, Vol.17,
    No. 2.

    [5] Vashisht, A. K. (1987), Performance Appraisal of Commercial Banks in India, A Ph.D.
    Thesis submitted to the Department of Commerce and Business Management, HPU,
    Shimla

    http://www.iaeme.com/IJM/index.asp 55 editor@iaeme.com

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