17-11-2012, 12:40 PM
RISK AND RETURN ANALYSIS OF EQUITY SHARES IN BANKING
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Executive Summary
The project of risk and return analysis of equity shares in banking has been carried out at thirani securities pvt ltd. The objectives behind that evaluate investment in equity shares of banking sector Banks are selected which is top in NSE. The NSE is a national stock exchange of India located at Mumbai. There are main three indices In national stock exchange that is major indices – S &P CNX nifty, CNX nifty junior and nifty midcap 50. Another is sectoral indices -bank nifty, CNX auto, CNX commodities, and CNX metal like that 25 indices in the NSE.
In all these indices select one index that is bank nifty. There are twelve banks in the NSE bank nifty.
The main aim of this project is evaluate the risk and return using the technique of standard deviation, beta, correlation, co-variance, net asset value, rate of return, arithmetic mean, and geometric mean return. In this project shows that rate of equity shares of particular bank.
INTRODUCTION
The Risk and return analysis is important to equity shares investors in the share market. The need of equity shares at the time of preliminary stage of company or bank to raising fund for establish company and starting a business. The equity share holder is an actual owner of company or bank.
The risk and return analysis is main function of this project. The meaning risk and return as follows:
Risk - risk refers to the possibility that the actual outcome of an investment will differ from expected outcome. More specifically, most investors are concerned about the actual outcome being less than the expected outcome.
There are many sources of risk i.e. business risk, market risk, interest rate of risk.
Return – return is representing the reward for undertaking investment. The returns of an investment consist of two components as under:-
1) Current return
2) Capital return.
In this project risk and return calculated using various techniques. The return is calculate using net asset value, rate return, dividend, geographical mean and risk is calculate using co-variance, geometric mean, beta, standard deviation, correlation(using statistical methods).The rate of equity shares has not fixed. The rate of equity shares of particular company or bank is change at every time. The equity share holder either can earn profit or can take risk. This situation is not fixed and hence, here need of risk and return analysis project.
Objective of the Project
Saving money is not enough. Each of us also need to invest one’s savings intelligently in order to have enough money available for funding the higher education of one’s children, for buying a house, or for one’s own golden years. But the rapidly growing number of investment avenues often led to confusion. Objectives of the study are to provide information to individual as well as corporate investors regarding their risk, and choosing the best investment options to match their goals and attitude to risk.
The Risk and return analysis of equity shares project is helpful to equity shares holders or investors. Equity share holder is a actual owner of the bank or company. The main aim of this project is give perfect suggestion to equity share holders.
Concept of equity shares:
Shares that carry no preferential or special right in respect of annual dividend and in the repayment of capital at the time of liquidation of the company are called equity shares. These shares carry no preferential rights; therefore, these are also known as common stock or ordinary shares.
Dividend on such shares is payable only when there are profit after the payment of preferences dividend. But, the rate of dividend of these shares is not fixed. Board of directors, depending upon the dividend policy as well as the availability of profit after dividend on preference shares, declare dividend. No dividend will be paid on these shares, if there are no profits or insufficient profit in a particular year. The value of these shares in stock exchange fluctuates on the basis of rate of dividend declared.
Similarly, these shares are redeemed only after the redemption of preference shares at the time of liquidation of the company. Equity share holders enjoy full voting rights in all market of the company. They have right to elect directors and participate in the management and control of the company. They also share residual profits.
Types of equity shares:
An equity share, commonly referred to as ordinary share also represents the form of fractional ownership in which a shareholder, as a fractional owner, undertakes the maximum entrepreneurial risk associated with a business venture.
The holders of such shares are members of the company and have voting rights. A company may issue such shares with differential rights as to voting, payment of dividend, etc.
The various kinds of equity shares are as follows –
• Rights Issue/ Rights Shares: The issue of new securities to existing shareholders at a ratio to those already held.
• Bonus Shares: Shares issued by the companies to their shareholders free of cost by capitalization of accumulated reserves from the profits earned in the earlier years.
• Preferred Stock/ Preference shares: Owners of these kind of shares are entitled to a fixed dividend or dividend calculated at a fixed rate to be paid regularly before dividend can be paid in respect of equity share.
They also enjoy priority over the equity shareholders in payment of surplus. But in the event of liquidation, their claims rank below the claims of the company’s creditors, bondholders / debenture holders.
• Cumulative Preference Shares: A type of preference shares on which dividend accumulates if remains unpaid. All arrears of preference dividend have to be paid out before paying dividend on equity shares.
Introduction of NSE and nifty 50
The national stock exchange is a stock exchange located at Mumbai, India. It is the 16th largest stock exchange in world by market capitalization and largest in India by daily turnover and number of trades, for both equities and derivates trading. NSE is mutually owned by a set of leading financial institution, banks, insurance companies and other financial intermediates in India.
History of NSE:
Capital market reforms in India and the launch of the Securities and Exchange Board of India (SEBI) accelerated the incorporation of the second Indian stock exchange called the National Stock Exchange (NSE) in 1992. After a few years of operations, the NSE has become the largest stock exchange in India.
Three segments of the NSE trading platform were established one after another. The Wholesale Debt Market (WDM) commenced operations in June 1994 and the Capital Market (CM) segment was opened at the end of 1994. Finally, the Futures and Options segment began operating in 2000. Today the NSE takes the 14th position in the top 40 futures exchanges in the world.
In 1996, the National Stock Exchange of India launched S&P CNX Nifty and CNX Junior Indices that make up 100 most liquid stocks in India. CNX Nifty is a diversified index of 50 stocks from 25 different economy sectors. The Indices are owned and managed by India Index Services and Products Ltd (IISL) that has a consulting and licensing agreement with Standard & Poor's.