A PROJECT REPORT ON

FUNDAMENTAL ANALYSIS OF ICICI BANK AND AXIS

BANK

SUBMITTED
TO THE UNIVERSITY OF MUMBAI
AS A PARTIAL REQUIREMENT FOR COMPLETING THE
DEGREE OF
M.COM (BANKING AND FINANCE) SEMESTER III
SUBJECT: INVESTMENT MANAGEMENT
SUBMITTED BY:
DAKSHA J SHETTY
ROLL NO.: 46

UNDER THE GUIDANCE OF

G.S. RAMAKRISHNAN.

SIES COLLEGE OF COMMERCE AND ECONOMICS,

PLOT NO. 71/72, SION MATUNGA ESTATE
T.V. CHIDAMBARAM MARG,
SION (EAST), MUMBAI 400022.

CERTIFICATE
This is to certify that DAKSHA J SHETTY of M.Com (Banking and
Finance) Semester III (academic year 2014-2015) has successfully
completed the project on under the Guidance of Mr. G.S.RAMA
KRISHNAN

_________________
(Project Guide)

___________________
(External Examiner)

___________________
(Course Co-ordinator)

___________________
(Principal)

Place: MUMBAI
Date: ___________

DECLARATION

I, Daksha J Shetty Student M.Com (Banking and

Finance) Semester III (academic year 2014-2015) hereby declare that,

I have completed the project on Fundamental Analysis of ICICI

bank and Axis bank.
The information presented in this project is true and
original to the best of my knowledge.

___________________
DAKSHA J SHETTY.
Roll No.: 46

Place: MUMBAI
Date: _____________

ACKNOWLEDGEMENT
I would like to thank the University of Mumbai, for
introducing M.Com (Banking and Finance) course, thereby giving
its students a platform to be abreast with changing business
scenario, with the help of theory as a base and practical as a
solution.
I am indebted to the reviewer of the project

my project guide for his support and guidance. I would sincerely

like to thank him for all his efforts.
Last but not the least; I would like to thank my parents for
giving the best education and for their support and contribution
without which this project would not have been possible.

______________________

DAKSHA J SHETTY
ROLL NO.46

INDEX
SR.NO

TOPIC

PAGE.NO

1.

Introduction

6.

2.

Economic Analysis

7.

3.

Industry Analysis

10.

4.

Company Analysis

11.

5.

16.

6.

Tools for Fundamental

Analysis
Conclusion

7.

Bibliography

18.

17.

Fundamental Analysis of ICICI

bank and Axis Bank
INTRODUCTION
Fundamental analysis is an approach to determine what should to be the price of a stock or
intrinsic value which can be determined by various methods and basic assumption of
fundamental analysis is that market price and intrinsic value of stock can differ from time to
time and comparing both of them so as to decide whether the stock is under-priced or
overpriced.
A stock is said to be under-priced if its current market price is below the intrinsic value and
hence it should be bought while, a stock is said to be overpriced if its current market value is
above the intrinsic value and hence it should be sold. So end objective of fundamental
analysis is not to make speculative profits rather is to stay away from the risk of buying an
overpriced stock and selling an under-priced stock.
A method of evaluating a security that entails attempting

to measure its intrinsic value by

examining related economic, financial and other qualitative and quantitative factors.
Fundamental analysts attempt to study everything that can affect the security's value,
including

macroeconomic

factors

(like

the

overall

economy

and

industry

conditions) and company specific factors (like financial condition and management).
The end goal of performing fundamental analysis is to produce a value that an investor can
compare with the security's current price, with the aim of figuring out what sort of position to
take with that security (underpriced=buy, overpriced= sell or short).
Example
Suppose 8 grams of gold is Rs.3000 per gram.
And its Intrinsic Work is Rs.24, 000, Market Value is Rs.20, 000. And it is available in the
market for Rs.26, 000.
Investor will make a call for buy if the market value is less than intrinsic work and if the
market value is more than intrinsic work then he will make a reject call.
OBJECTIVES OF FUNDAMENTAL ANALYSIS

To predict the direction of national economy because economic activity affects the

corporate profit, investor attitudes and expectation and ultimately security prices.
To estimate the stock price changes by studying the forces operating in the overall

economy, as well as influences peculiar to industries and companies.

To select the right time and right securities for the investment.

THREE PHASES OF FUNDAMENTAL ANALYSIS

1) Understanding of the macro-economic environment and developments (Economic
Analysis)
2) Analyzing the prospects of the industry to which the firm belongs (Industry Analysis)
3) Assessing the projected performance of the company (Company Analysis)

Economic Analysis
The economic analysis aims at determining if the economic climate is conclusive and is
capable of encouraging the growth of business sector, especially the capital market. When the
economy expands, most industry groups and companies are expected to benefit and grow.
When the economy declines, most sectors and companies usually face survival problems.
Hence, to predict share prices, an investor has to spend time exploring the forces operating in
overall economy. Exploring the global economy is essential in an international investment
setting. The selection of country for investment has to focus itself to examination of a
national economic scenario.
It is important to predict the direction of the national economy because economic activity
affects corporate profits, not necessarily through tax policies but also through foreign policies
and administrative procedures.
TOOLS FOR ECONOMIC ANALYSIS
The most used tools for performing economic analysis are:
1.
2.
3.
4.

Gross Domestic Product (GDP)

Inflation
Interest rates
BOP

Analysis of Indian Economy

Over the past one year, in the financial year 2013, the Indian economy is anticipated to grow
at 4.9% (CSO) as compared to 4.5% in FY 2012 with higher output in both industrial &
agriculture sector and a rebound exports. However, sluggish growth in consumption and
investment weaker the domestic demand. Main macroeconomic indicators influences the
overall economic conditions of India are as follows: GDP, CAD, Foreign Trade, and FDI.
Agricultural output along with strong development in the Industrial, Mining and banking
sector have helped to boost the Indian economy.
According to 2010 data the shares of banking sector value add in GDP has been increased
7.7% from 2.5%.

Statistical Analysis:
The Indian economy expanded at a slower rate in Q3 to 4.7% from 4.8% in Q2 of 2013 due
to contraction in growth of manufacturing (1.9%) & mining (1.6%) sector and political
uncertainty ahead of general elections.
Inflation can be defined as a trend of rising prices caused by demand exceeding. In 2010
favourable monsoons (the rains that fall from June to September) should lead to strong farm
production which will help drive economic recovery and bring down food inflation.
Wholesale price index and Consumer price index are on decreasing side from November
2013 onwards, leaves the near term expectations slightly low, however, core inflation is
continue to be a concern

Forecast panelists expect WPI to average 5.8% and 5.7% in FY 2014 and FY2015,
respectively. High prices and sluggish growth presents a gloomy picture at global front.
INTEREST RATES
Interest rates have high influence on both growth and inflation. Higher the interest rate,
higher is the cost of capital and contributes to slowdown investment in the economy. Interest
rates are a significant factor in determining the economic environment in which investment
has to take place, especially when many companies are not cash rich. High interest rates also
impact FDI due to the uncertainty in the exchange rate as the market expects interest rates to
eventually fall.
Lower the interest rate, higher is the supply of money in the economy and greater purchasing
power of individuals. This will result in increase in the price of Goods, since there is more
demand and less supply of the goods. Manipulating interest rates thus creates a variation in
growth and inflation in the economy
Thus Interest rate is amongst the most significant components of the cost of many companies
and uncertainty of this variable only amplifies overall uncertainty in which investment
decisions have to be made. RBI has to maintain a balance between these two factors which
runs the economy. RBIs interest rate policy can help anchor expectations and reduce
uncertainty.
BALANCE OF PAYMENTS
Preliminary data on India's balance of payments (BoP) for the second quarter released by
RBI on December 2, 2013 indicates a sharp correction in the level of current account deficit
to US$ 5.2 billion from the high level of US$ 21.1 billion in the corresponding quarter last
year. Exports declined in H1 2013 due to sluggish global demand. However, it registered a
9

double digit growth in July (11.64%) and October (13.47%) as sharp depreciation of rupee
supported the growth. Lower Gold demand declined the total imports of the economy. On the
lower imports and healthy exports, trade deficit got narrowed, helped curb CAD.
India's BoP came under stress in 2011-12 owing to the euro zone crisis, which continued
through 2012-13 and the first quarter of 2013-14. As a proportion of GDP, CAD was 4.2 per
cent in 2011-12 and 4.8 per cent in 2012-13. The elevated level of the CAD expressed as a
proportion of GDP owed to the developments in the various components of the current
account as the depreciation of the rupee that led to a contraction in the implied nominal GDP
expressed in US dollar terms. This reflected in part the developments in the capital account of
the BoP.

INDIAN BANKING - INDUSTRY ANALYSIS

Structure of the Indian banking system

The Indian banking system is financially stable and resilient to the shocks that may arise due
to higher non-performing assets (NPAs) and the global economic crisis, according to a stress
test done by the Reserve Bank of India (RBI).
Globalization and liberalization of the Indian economy, and the interest of foreign banks to
expand their presence in India through the inorganic route, have fuelled the growth of the
banking industry.
Market analysis
There has been a gradual shift in business from public to private and foreign banks. The
banking system in India is dominated by Scheduled Commercial Banks (SCBs) with a pan10

India presence. As of March 2009, SCBs controlled most of the assets, with the rest being
controlled by a large number of small co-operative credit institutions with a very limited
geographic reach.
Within SCBs, public sector banks accounted for 71.9 per cent of the assets and the rest was
held by foreign banks and private sector banks.
Growth of Indian Banking Industry
Increasing emphasis by banks on fee-based services to boost income growth, favourable
demographics and rising income levels, rising literacy rate, especially in rural India, has
increased the need for banking.
Significant latent demand for retail banking services, given a low penetration level
of approximately 59 per cent. Key factors driving the growth of retail banking are

Anywhere, any time banking

Improved processes and bundled product offerings
Faster service
Customer-specific products or offerings on a regular basis
Focus on understanding customer needs or preferences

Company Analysis
ICICI BANK
ICICI Bank (formerly Industrial Credit and Investment Corporation of India) is a major
banking and financial services organization in India. It is the third largest bank in India and
the largest private sector bank in India by market capitalization.
ICICI Bank is India's largest private sector bank with total assets of Rs. 5,946.42 billion (US$
99 billion) at March 31, 2014 and profit after tax Rs. 98.10 billion (US$ 1,637 million) for
the year ended March 31, 2014. The Bank has a network of 2,044 branches and about 5,546
ATMs in India and presence in 18 countries. ICICI Bank offers a wide range of banking
products and financial services to corporate and retail customers through a variety of delivery
channels and through its specialized subsidiaries in the areas of investment banking, life and
non-life insurance, venture capital and asset management. ICICI Bank's equity shares are
listed in India on Bombay Stock Exchange and the National Stock Exchange of India Limited
and its American Depositary Receipts (ADRs) are listed on the New York Stock Exchange
(NYSE).

11

The Bank is expanding in overseas markets and has the largest international balance sheet
among Indian banks. In Overseas, the Bank is targeting the NRI (Non-Resident Indian)
population in particular.

ICICI BANK Acquired BOR

Based on the valuation report prepared by Hari bhakti & Co., Chartered Accountants, the
Board of Directors decided the share exchange ratio. This ratio has been decided and
accepted at the rate of one share of ICICI Bank for every 4.72 shares of Bank of Rajasthan.
The Reserve Bank of India on August 6 2010, approved Bank of Rajasthan Ltds merger with
ICICI Bank Ltd.

Key ratios for analysis of bank performance

Current Ratio
Current ratio measures liquidity of the firm. It represents a margin of safety available to the
creditor. High current ratio indicates that firm is liquid and able to pay current liability. From
2007, there was continuing growth of Current ratio which showed increase of current assets,
which is good sign for growth of ICICI bank.
The current Ratio was 1.94 in March 2010. Gradually in 2011 it came down to 1.02.
Currently in 2014 current ratio is 0.94
Quick Ratio
Quick Ratio measures the ability of a company to use its near cash or quick assets to
immediately extinguish or retire its current liabilities. From 2006 to 2010, there was huge
growth of Quick ratio on YOY. It will reflect the liquidity of ICICI Bank.
As on March 2010 Quick ratio was 14.70. While in 2014 quick ratio is 11.31

12

EPS

EPS is one of the most important ratios to measure net profit earn per share. Steady growth
of EPS is indicating a good profitability. Earnings per share of ICICI bank are having a
constant growth. EPS is the one of the major reason to attract a huge investors.
In the above graph Y axis represents months with years and X axis represents earning per
share in Rs. EPS for March 2010 was 41.89 which got increased to 52.9 on March 11.
In March 2014 the EPS was 95.6.
FUTURE GROWTH
Foreseeing Indian economy back on a high-growth trajectory in the coming months, ICICI
Bank is looking at expanding its fund-generation profile and revenue streams to capitalise on
the forthcoming opportunities.

Since 2007, as the global and Indian economic environment has changed rapidly, the bank
has focused on a conscious strategy of capital conservation, risk containment and efficiency
improvement
Liabilities Status

13

Axis Bank
Axis Bank Limited is the third largest private sector bank in India. It offers the entire
spectrum of financial services to customer segments covering Large and Mid-Corporate,
MSME, Agriculture and Retail Businesses. Axis Bank has its headquarters in Mumbai,
Maharashtra. Axis Bank began its operations in 1994, after the Government of India allowed
new private banks to be established. The Bank was promoted jointly by the Administrator of
the Unit Trust of India (UTI-I), Life Insurance Corporation of India (LIC), General Insurance
Corporation Ltd., National Insurance Company Ltd., The New India Assurance Company,
The Oriental Insurance Corporation and United India Insurance Company.
Axis Bank Ltd. has been promoted by the largest and the best Financial Institution of the
country, UTI. The Bank was set up with a capital of Rs. 115 crore, with UTI contributing Rs.
100 crore, LIC - Rs. 7.5 crore and GIC and its four subsidiaries contributing Rs. 1.5 crore
each.
Erstwhile Unit Trust of India was set up as a body corporate under the UTI Act, 1963, with a
view to encourage savings and investment. The Bank has a network of over 6270 ATMs (as
on 31st March, 2011) providing 24 hrs a day banking convenience to its customers. This is
one of the largest ATM networks in the country.
Current Ratio
Current ratio measures liquidity of the firm. It represents a margin of safety available to the
creditor. High current ratio indicates that firm is liquid and able to pay current liability. The
current Ratio was 0.63 in March 2010. Gradually in 2011 it came down to 0.56. In 2012 and
2013 the ratio was 0.75 and 18.74 respectively. Currently in 2014 current ratio is 0.65
Quick Ratio
14

Quick Ratio measures the ability of a company to use its near cash or quick assets to
immediately extinguish or retire its current liabilities. As on March 2010 Quick ratio was
19.19. In 2011 it was 19.60 and in 2012 the ratio was 21.63. While in 2013 and 2014 quick
ratio was 20.10 and 18.57 respectively.

EPS

EPS is one of the most important ratios to measure net profit earn per share. Steady growth
of EPS is indicating a good profitability. Earnings per share of Axis bank are having a
constant growth. EPS is the one of the major reason to attract a huge investors.
In the above graph Y axis represents months with years and X axis represents earning per
share in Rs. EPS for March 2010 was 61.16 which got increased to 81.35 on March 11.In
march 2012 EPS was 102.12.In march 2013 it had a great fall from 102.12 to 22.85.In March
2014 the EPS increased sharply i.e. 134.3
FUTURE GROWTH
During 2013-14, the operating environment for the banking system continued to be
challenging with persistent high inflation, muted growth, slowdown in credit off-take,
concerns regarding growing non-performing assets and a high incidence of assets being
restructured. Despite these challenges, the Bank's strategy to build its business upon strong
customer franchises, while adopting a prudent approach, had resulted in delivering strong
results.
Liabilities Status
15

TOOLS OF FUNDAMENTAL ANALYSIS

Earnings per Share
MARKET PRICE
EARNING PER SHARE

AXIS BANK
380.85
27.44

ICICI BANK
1428.45
88.05

The EPS of ICICI Bank is higher compared to AXIS Bank. The EPS of ICICI Bank is 88.05
whereas AXIS Bank has an EPS of 27.44.
P/E Ratio
P/E is short for the ratio of a company's share price to its per-share earnings. As the name
implies, to calculate the P/E, you simply take the current stock price of a company and divide
by its earnings per share (EPS):
P/E Ratio =

Market Value per Share

Earnings per Share (EPS)

ICICI BANK
P/E RATIO = 1428.45

= 16.22

88.05
AXIS BANK
P/E RATIO =

380.85

= 13.88

27.44

16

The P/E ratio of AXIS BANK is lower than ICICI Bank. The lower P/E ratio has better
proficiency.
BOOK VALUE
The book value of ICICI Bank is 632.52 where its market value as on 1 st October 2014 is
1428.45. It is recommended to buy 83% of ICICI bank shares.
The book value of AXIS Bank is 810.56 where its market value as on 1 st October 2014 is
380.85. As book value is greater than market value, it is recommended to buy shares of AXIS
Bank.

Conclusion
From the fundamental analysis it is clear that Indian economy doing well during this
recession period as compare to other developing or developed country. Actually Indian
economy doing well more than expectation because Indias Gross Domestic Product (GDP)
registered a better-than-expected growth rate.
Fundamental analysis of ICICI Bank reflects ICICI bank is the largest bank in private sector,
growth rate of ICICI Bank is very high comparing to whole Banking industry. Price earnings
ratio ICICI bank out performance the whole industry.
ICICI Bank despite being the second largest bank in the country after SBI in terms of asset
size, ICICI Bank lost its share of the banking sector's advances from 10.2% in FY07 to 8% in
FY12. At the end of March 2012, the bank had assets of over Rs 4.8 trillion and a franchise of
over 9,000 ATMs and 2,750 branches spread across the country. Retail assets constituted 34%
of advances in FY12 as against 65% in FY07. The bank is focusing on loan origination in the
large corporate, SME and agrie segments and on non-fund based products and services.
Besides the bank itself being the market leader across retail loan portfolios, its subsidiaries
ICICI Life Insurance, ICICI General Insurance and ICICI AMC are leaders in their respective
businesses
Axis Bank is one of the most aggressive players in the private sector banking industry having
more than tripled its share in non-food credit over the last 9 years from 1% in FY02 to 3.6%
in FY12. Axis Bank has set up a network of 9,925 ATMs, the third largest in the country.
During the period FY07 to FY12, Axis Bank has grown its advances at a compounded annual
17

rate of 47%, against the industry average of 27%. The bank acquired Enam's investment
banking business by issue of shares in 1QFY13.
The Dividend Yield of ICICI bank is 1.6% and Axis Bank is 5.3%.
Thus investing in ICICI Bank is a better option than investing in AXIS Bank.

BIBLIOGRAPHY
Websites
http://money.rediff.com
http://www.valueresearchonline.com
http://indianresearchjournals.com
www.valuereasearchonline,com
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