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

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 http://www.iaeme.com/IJM/index.asp 43 editor@iaeme.com
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 http://www.iaeme.com/IJM/index.asp 44 editor@iaeme.com
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) = http://www.iaeme.com/IJM/index.asp 45 editor@iaeme.com
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
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% http://www.iaeme.com/IJM/index.asp 47 editor@iaeme.com
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 http://www.iaeme.com/IJM/index.asp 48 editor@iaeme.com
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 http://www.iaeme.com/IJM/index.asp 49 editor@iaeme.com
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
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
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 http://www.iaeme.com/IJM/index.asp 52 editor@iaeme.com
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
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 http://www.iaeme.com/IJM/index.asp 54 editor@iaeme.com
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