List of sectors in india stock market?

1)Metals 2) Auto 3) Banking 4)Breweries and distilleries 5)Power 6)Telecom 7)Cement 8)Chemicals 9)Computers 10) IT 11)Construction 12) FMCG 13) Electronics 14)Engineering 15) Entertainment/Media 16)Finance and Investments 17) Hotel 18) Food processing 19) Healtcare 20) Pharma 21) Paint 22) paper 23) Petrochemicals 24) Plastic 25) Refineries 26) Sugar 27) Tea 28) Airlines

Definition of 'Sector Analysis'

A review and assessment of the current condition and future prospects of a given sector of the economy. Sector analysis serves to provide an investor with an idea of how well a given group of companies are expected to perform as a whole.

Investopedia explains 'Sector Analysis'

Sector analysis is typically employed by investors who are practicing a sector-rotation strategy, or by those who are using a top-down approach to selecting stock to invest in. In the top-down approach to investing, the most promising sectors are identified first, and then the investor reviews the companies within that sector to determine which individual stocks will ultimately be purchased.

Definition of Sector Analysis Research

Sector Analysis Research relates the performance of common stocks and industry groups to the economy. The primary technique employed is a well-documented class of factor analytic methods known as Principal Components Analysis (PCA). Through PCA a set of domestic and international economic time series has been clustered into a set of 20 Factors. Each factor measures an important aspect of the economy such as long term interest rates or cost-of-energy. Each factor was first analyzed to determine its "normal" range under a variety of macro-economic conditions spanning a decade. A factor does not enter the analysis, e.g., does not influence the results, until it moves outside its own "normal" range. The effect of this is to remove economic "noise" and increase the stability of Sector Analysis techniques. The likelihood of detecting true signals is greatly increased. The result is a set of factors which truly influences the behavior of common stocks. Equations based on empirical relationships for each individual stock are created. By noting those factors outside their "normal" range that have a leading relationship with specific stocks a measure of the stock's attractiveness is developed. This measure is called Economic Preference. Preference ranks equities based on their relative attractiveness in the current economic environment. A comparison of these rankings with other information developed by the money manager provides a powerful tool in selection of specific equities for inclusion in the portfolio or the elimination of existing holdings.

sector
Definition
A distinct subset of a market, society, industry, or economy, whose components share similar characteristics. Stocks are often grouped into different sectors depending upon the company's business. Standard & Poor's breaks the market into 11 sectors. Two of these sectors, utilities and consumer staples, are said to be defensive sectors, while the rest tend to be more cyclical in nature. The other nine sectors are: transportation, technology, health care, financial, energy, consumer cyclicals, basic materials, capital goods, and communications services. Other groups break up the market into different sector categorizations, and sometimes break them down further into subsectors.

1. what is Banking

Section 5(b) defines banking Accepting for the purpose of lending or investment of deposits or money repayable on demand or otherwise and withdrawable by cheque, draft, order or otherwise

Banks get affected by y Actions of Central Banks y Actions of the Government y Domestic and International Disturbances y Inflation

Deregulation y Banks are now operating in a fairly deregulated environment and are required to determine on their own, interest rates on deposits and advances Intense competition for business involving both the assets and liabilities

together with increasing volatility in the interest rates has brought pressure on the management of banks to maintain a good balance among spreads

Risks Faced by Banks

Effects of Risk Factors y y y Loss of Market Value Loss of Reserves Loss of stakeholders confidence

BANKING SECTOR
Indian banks, the dominant financial intermediaries in India, have made good progress over the last five years, as is evident from several parameters, including annual credit growth, profitability, and trend in gross non-performing assets (NPAs). While the annual rate of credit growth clocked 23% during the last five years, profitability (average Return on Net Worth) was maintained at around 15% during the same period, and gross NPAs fell from 3.3% as on March 31, 2006 to 2.3% as on March 31, 2011. Good internal capital generation, reasonably active capital markets, and governmental support ensured good capitalisation for most banks during the period under study, with overall capital adequacy touching 14% as on March 31, 2011. At the same time, high levels of public deposit ensured most banks had a comfortable liquidity profile. While banks have benefited from an overall good economic growth over the last decade, implementation of SARFAESI1, setting up of credit information bureaus,

y y

Credit Risk arket Risk o Liquidity Risk o Interest Rate Risk Operational Risk

internal improvements such as upgrade of technology infrastructure, tightening of the appraisal and monitoring processes, and strengthening of the risk management platform have also contributed to the improvement. Significantly, the improvement in performance has been achieved despite several hurdles appearing on the way, such as temporary slowdown in economic activity (in the second half of 2008-09), a tightening liquidity situation, increases in wages following revision, and changes in regulations by the Reserve Bank of India (RBI), some of which prescribed higher credit provisions or higher capital allocations. Currently, Indian banks face several challenges, such as increase in interest rates on saving deposits, possible deregulation of interest rates on saving deposits, a tighter monetary policy, a large government deficit, increased stress in some sectors (such as, State utilities, airlines, and microfinance), restructured loan accounts, unamortised pension/gratuity liabilities, increasing infrastructure loans, and implementation of Basel III. 1 The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ICRA Research

Background

The Indian financial sector (including banks, non-banking financial companies, or NBFCs, and housing finance companies, or HFCs) reported a compounded annual growth rate (CAGR) of 19% over the last three years and their credit portfolio stood at close to Rs. 49 trillion (around 62% of 2010-11 GDP) as on March 31, 2011. Banks accounted for nearly 86% of the total credit, NBFCs for around 10%, and HFCs for around 4%. Within banks, public sector banks (PSBs), on the strength of their countrywide presence, continued to be the leader, accounting for around 76% of the total credit portfolio, while within the NBFC sector, large infrastructure financing institutions2 accounted for more than half the total NBFC credit portfolio; NBFCs that are into retail financing took up the rest. While the Indian banking sector features a large number of players competing against each other, the top 10 banks accounted for a significant 57% share of the total credit as on March 31, 2011.

Key Players In Banking Sector

Name of Bank

State Bank of India Punjab National Bank Bank of Baroda ICICI Bank Bank of India Canara Bank HDFC Bank

Credit Portfolio as in March 2011 (Rs. billion) 7,567 2,421

Market Share (%)

NIMs (201011)

Tier I Capital % as in March 2011 7.8% 8.4%

Return on Net Worth (2010-11)

Gross NPA % as in March 2011 3.3% 1.8%

18% 6%

2.9% 3.5%

13% 24%

2,287 2,164 2,131 2,125 1,600

5% 5% 5% 5% 4%

2.8% 2.3% 2.5% 2.6% 4.2%

10.0% 13.2% 8.3% 10.9% 12.2%

24% 10% 17% 26% 17%

1.4% 4.5% 2.2% 1.5% 1.1%

IDBI Bank Axis Bank Central Bank of India Total banking sector

1,571 1,424 1,297

4% 3% 3%

1.8% 3.1% 2.7%

8.1% 9.4% 6.4%

16% 19% 18%

1.8% 1.1% 2.2%

42,874

100%

2.9%

9.7%

17%

2.3%

Strong growth in infrastructure credit drives credit growth in 2010-11; pace of deposit growth slows Total banking credit4 stood at close to Rs. 39 trillion as on March 25, 2011 and reported a strong 21.4% growth in 2010-11, led by credit to the infrastructure sector and to NBFCs. In 2011-12, although the pace of credit growth has been subdued in the firsttwo months (up just 0.2% from March 2011 levels), it is in line with the pattern noticed in the previous years (0.1% in 2010-11 and 0.4% in 2009-10). According to ICRA s estimates, private banks reported a higheroverall credit growth of around 26% in201011 (10% in previous year) as compared with PSBs, which achieved around 22% (20% in previous year). Historically, the banking sector s credit portfolio has been growing at over 20% per annum over the last several years (except in 2009-10, when the growth rate moderated to 17% mainly because of the decline in ICICI Bank s credit portfolio). Over the years, credit growth has outpaced deposits growth; the credit portfolio reported a CAGR of 24% over the last eight years, while deposits achieved a CAGR of 19% and the investment portfolio of 14% over the same period. The higher growth in credit could be achieved because of the slower growth in investments and the increase in capital. In 2010-11, while deposits growth for SCBs slowed down to 17%, credit growth was

maintained at 21% with the growth in investments being just 13%. The higher credit growth versus deposits growth led to an increase in the credit deposits ratio (CD ratio) from 72.2% as in March 2010 to 75.7% as in March 2011, although the CD ratio moderated to 74.2% as on May 27, 2011, largely because of the slow credit growth in comparison with deposits during the first two months of 2011-12.

During 2010-11, the infrastructure sector, particularly power, and NBFCs were the key drivers of the credit growth achieved by the banking sector. Credit to the power sector reported a growth of 43%, while other infrastructure credit grew by 34% during 2010-11, against an overall credit growth of 21%. As in March 2011, the infrastructure sector (including power) accounted for 14% of the total credit portfolio of banks. Within the power sector, historically banks have been taking exposure to State power utilities as well asindependent power producers (IPPs). Going forward, with many banks approaching the exposure cap on lending to the power sector and given the concerns hovering over the prospects of the sector itself, the pace of growth of credit to this segment could slow down. However, in the short to medium term, the undisbursed sanctions to power projects are likely to provide for a moderate growth. As for bank credit to NBFCs, the same increased by 55% in 2010-11 and accounted for around 5% of the banks total credit portfolio as in March 2011. Moreover, around half of this went to infrastructure relatedentities, and the rest mainly to NBFCs engaged in retail financing. Most of the NBFCs are focused on secured assets classes, have reported low NPA percentages, and are well-capitalised. As for banks retail lending, this continued to lag overall credit growth during 2010-11. Retail credit grew by 17% in

2010-11 against the overall credit growth of 21%, although the 17% figure marked a significant increase over the 4.1% reported in 2009-10. Credit to commercial real estate also increased in 2010-11, reporting a 21% growth that year as against nil in 2009-10.

Large government borrowings may allow for just 17-18% credit growth in 201112
Since March 2010, the RBI has raised the repo rate by 275 basis points (bps), which in turn has been transmitted by the banking system via increases in the base and prime lending rates, besides deposit rates. Going forward, while the RBI s tight monetary stance may exert a downward pressure on the demand for credit, considering the anticipated GDP growth (around 8%), investments in infrastructure and lower funds flow from the capital markets, credit demand could still remain high. However, banks capacity to meet credit demand could get constrained by the volume of deposits they are able to mobilise and by the large amount of funds they would need to keep aside to fund the government deficit. In case the government deficit is in line with the Budget numbers, the net borrowing of the Government of India (GOI) and the State governments via bonds would reach an estimated Rs. 4.7 trillion in 2011-12 (Rs.4.1 trillion in 2010-11). As banks fund around 40% of these bonds, they would need to set aside Rs. 1.9 trillion for the purpose. If deposits were to grow by 17%, the balance funds (incremental deposits + internal capital generation + fresh external capital increase in investments in government bonds) would supportonly 17-18% credit growth. Any higher growth would require intervention from the RBI. Further, in case the government deficit is higher because of lower tax collection and underprovided fuel & food subsidies, the maximum possible credit growth would be still lower. At the same time, a higher-thanexpected deposit growth could allow banks expand their credit base.

On asset quality, PSBs report some deterioration while private banks show Improvement The Gross NPA percentage of SCBs did not increase by the extent that the stress in the Indian market during 2008-09 would warrant because of large loan restructuring over last 2-3 years (4-5% of total advances); Gross NPAs declined marginally from 2.4% as in March 2010 to 2.3% as in March 2011.However, higher provisioning led to a reduction in Net NPAs from 1.1% as in March 2010 to 0.9% as in March 2011.

Higher interest rates could ensure better deposits growth in 2011-12

In the banking system, historically, there has been a positive correlation between growth in deposits base and increase in interest rates; periods with high interest rates have seen relatively high deposits growth, as in high interest rate regime bank fixed deposits become more attractive than many other instruments. At present, it appears that given the outlook on interest rates, banks may be able to mobilise retail deposits at a higher pace in 2011-12 than in the previous year. In 2010-11, according to ICRA In 2010-11, according to ICRA s estimates, the overall deposits of private banks increased by 22%, while that of PSBs increased by 18%. Within deposits, low cost deposits (CASA, current and saving accounts) increased by 27% for private sector banks, and by 15% for PSBs. CASA deposits represented 41% of the total deposits for private banks, and for a lower

33% for PSBs. For banks, having significant low cost deposits (CASA) as a proportion of total deposits could help them keep their cost of funds under control even in a scenario of rising interest rates in the system. High proportion of certificates of deposits could impact NIM and liquidity negatively

ICRA s analysis of the current liquidity situation shows that Indian banks have been raising bulk funds in the form of certificates of deposit (CDs) and high-cost deposits from corporate entities mostly for short tenures. The share of CDs outstanding increased to 8.2% as in March 2011 from 7.2% as in September 2010 and 7.6% as in March 2010, with the total CDs outstanding increasing from Rs. 3.4 trillion to Rs. 4.2 trillion during this period. The high proportion of CDs (instead of retail deposits) could adversely impact the liquidity profile of banks and their NIMs in a scenario of rising interest rates.
Unamortised pension/gratuity liability could lower Tier I of PSBs (excluding SBI) by 30-35 bps

In 2010-11, PSBs reopened the pension option for employees who had not opted for pension earlier (including retired employees) and also enhanced the gratuity limits from Rs. 3.5 lakh to Rs. 10 lakh following the amendment to the Payment of Gratuity Act, 1972. The RBI allowed banks to amortise these liabilities over a maximum five years, beginning the financial year ended March 31, 2011, subject to minimum amortisation of 1/5th of the total liability every year. However, with the likely switch to International Financial Reporting Standards (IFRS) from April 1, 2013 (as scheduled for the Indian banking industry), the full unamortised liability would be knocked off from the opening balance of reserves, and consequently, banks may have to absorb the entire liability over the next two to three financial years. For the 24 PSBs6 analysed by ICRA, as on March 31, 2011, the total unamortised pension and gratuity liabilities were around Rs. 203 billion (11% of their net worth). If the unamortised liability is adjusted against the Tier I capital of PSBs as on March 2011, then the Tier I capital declines by 30-35 bps from the 9% level of March 2011. While unamortised liability is moderate for PSBs as a whole, it is relatively high for a few banks (bank-wise unamortised liability as on March 31, 2011

Most banks may not require significant capital now

During 2010-11, the GOI infused Rs. 165 billion in PSBs to improve their Tier I capital to 8% and take up its stake in the PSBs to at least 58%. After this, the Tier I capital of most of the PSBs has improved. Therefore, these banks (apart from SBI) may not require significant Tier I capital in the short term. The GOI has budgeted for Rs. 60 billion capital for PSBs in 2011-12. As for SBI, it plans to raise significant capital through

a rights issue, and therefore, under the current regulations and market valuations, the GOI may need to infuse substantial capital into it to maintain its stake in the bank at 58%. As for private banks, these are well capitalised, although some may need equity to fund their growth plans. Some banks may require capital to meet Basel III norms As can be seen in table 4 below, banks will need to maintain higher regulatory capital under BASEL-III norms versus the existing RBI norms.

ALM y y The ALM guidelines issued by RBI has been formulated to serve as a benchmark for banks which lack a formal ALM system Those who already have their existing system may fine tune their information and reporting system

y y

Purpose of ALM Capture the maturity structure of the cash flows (inflows and outflows) in the Statement of Structural Liquidity Tolerance levels for various maturities may be fixed by the bank keeping in view banks ALM profile, extent of stable deposit base, nature of cash flows etc

ALM y y y y ALM is about managing market risk and liquidity risk together Capital market exposure of banks is small Exchange risk is highly specialized Hence ALM is an integrated risk management approach for managing liquidity risk, interest rate risk

The problem of mismatch y y y y y y Mismatches in maturity Mismatches in interest rate How does bank makes the spread? Borrow short and lend long and keep the spread Maturity mismatch is the basis of profitability Risk management does not eliminate mismatch merely manages them

The problem of mismatch y y y Interest Rate Risk Affects profitability Liquidity Risk May lead to liquidation General Strategy o Eliminate Liquidity Risk (not the mismatch) o Manage Interest Rate Risk  Consciously create gaps

Asset Liability Transformation y y Banks are exposed to credit and market risks in view of the asset-liability transformation With liberalisation, banks operations have become complex and large , requiring strategic management ALM Pillars y y y y ALM Information Systems ALM Organisation ALM Process ALM Information systems o MIS o Information availability o Accuracy o Adequacy o Expediency ALM Organisation o Structure and responsibilities o Level of top management involvement

y y y y y y

ALM Process Risk Parameters Risk Identification Risk Measurement Risk Management Risk Policies and Procedures, prudential limits and auditing, reporting and review

ALM Information Systems y y y y ALM framework built on sound methodology with necessary information system back-up ALM to be supported by management philosophy and clearly states risk policies and procedures / prudential limits Banks may utlilise Gap Analysis or Simulation ALM Data could be developed by following approach, in case UCBs do not have requisite information o Analyse behaviour of asset and liability products in sample branches that account for significant business (60-70 per cent) o Based on this make rational assumption for the other branches

ALM Organisation y Board should have overall responsibility for management of risk o Board should decide risk management policy and procedure, set prudential limits, auditing, reporting and review mechanism in respect of liquidity, interest rate and forex risk ALCO o Consisting of banks senior management including CEO o Responsible for adherence to the polices and limits set by Board o Responsible for deciding business strategies (on asset liability side) in line with banks business and risk objectives ALM Support Group o Consisting of operating staff o Responsible for analysing, monitoring and reporting risk profiles to ALCO o Prepare forecasts showing effects of various possible changes in market conditions affecting balance sheet and suggesting action to adhere to banks internal limits

ALCO decision making unit responsible for o Balance Sheet planning from risk-return perspective which includes management of liquidity, interest rate and forex risks o Pricing of deposits and advances, desired maturity profile etc. o Monitoring the risk levels of the bank o Review of the results and progress of implementation of decisions made in previous meeting o Future business strategies based on banks current view on interest rates o To decide on source and mix of liabilities or sale of assets o To develop future direction of interest rate movements o To decide on funding mix between fixed and floating rate funds, wholesale vs. retails deposits, short term vs. long term deposits etc. ALCO size would be dependent on the size of the UCB May comprise of o CEO or Secretary o Chief of Investment / Treasury including those of forex, credit, planning etc. o Head of IT if a separate division exists UCBs may at their discretion may have Sub-committees and Support Groups

ALM Process y Scope is o o o o o

Liquidity Risk Management Interest Rate Risk Management Trading (Price) risk Management Funding and Capital Management Profit Planning and business Projections

ALM Liquidity Risk y Arising due to o Over extension of credit o High level of NPAs o Poor asset quality o Mismanagement o Hot Money o Non recognition of embedded option risk

o Reliance on few wholesale depositors o Large undrawn loan commitments o Lack of appropriate liquidity policy and contingent plan

Liquidity vs. Earnings y Bank must be in a position to:o Balance their need for liquidity with their need for earnings o More liquid assets tend to provide lower return than do less liquid assets

Assessing Liquidity Position y y y y Assessing a banks liquidity position can be challenging An adequate position for one bank may not be sufficient for another A position considered adequate for a bank in one time period may not be so in another BANK SPECIFIC & DYNAMIC

Liquidity risk-Manifestation y Funding risk o Need to replace net outflows due to unanticipated withdrawal/nonrenewal of deposits Time Risk o Need to compensate for non-receipt of expected inflows of fundsperforming assets turning into non-performing assets Regulatory Requirements o CRR / SLR o Call Money Borrowings prescriptions / limits o ALM Guidelines o Host country prescriptions o Overseas Offices of Indian Banks

Factors Reducing Liquidity Risk y y y y Availability of Refinance LAF Facility Open Market Operations CBLO

Liquidity Risk - Symptoms y y y y y y Offering higher rate of interest on deposits Delayed payment of matured proceeds Delayed disbursement to borrowers against committed lines of credit Deteriorating asset quality Large contingent liabilities Net deposit drain

Liquidity Risk - Measurement y Two methods are employed: o Stock approach - Employing ratios o Flow approach - Time bucket analysis Liquidity Ratios o Volatile Liability Dependence Ratio  Volatile Liabilities minus Temporary Investments to Earning Assets net of Temporary Investments  Shows the extent to which banks reliance on volatile funds to support Long Term assets  where volatile liabilities represent wholesale deposits which are market sensitive and temporary investments are those maturing within one year and those investments which are held in the trading book and are readily sold in the market o Growth in Core Deposits to growth in assets

Higher the ratio the better

Purchased Funds to Total Assets o where purchased funds include the entire inter-bank and other money market borrowings, including Certificate of Deposits and institutional deposits Loan Losses to Net Loans Loans to core deposits

y y

Does not lead to proper assessment of liquidity gaps due to: o Illiquidity of liquid assets o Their ready marketability o Difficulty to convert easily into liquid cash with least loss of value from the previously quoted market rates

Liquid Assets to Total Assets y Liquid Assets to Total Assets o Show the percentage of liquid assets in the asset structure of the bank 18-20% Liquid assets generally are cash balances with RBI + balances with other banks + investments available for sale + money market instruments

Liquid Assets to Total Deposits y Liquid Assets to Total Deposits o This ratio indicates extent of liquidity maintained by a bank for meeting the demand made by the depositors-Sometimes taken as a measure of bank liquidity-20-22%

Loans to Deposits y Loans to Deposits o Loans to deposits ratio indicates the degree to which the bank has already used up its available resources to accommodate the credit needs

of the customers o A high loan deposit ratio indicates that a bank will have comparatively low liquidity

Loans to Assets y Loans to Assets o This ratio indicates the percentage of illiquid assets to total assets o A rise in this ratio would indicate lower liquidity

Loans to Core Deposits y Loans to Core Deposits o Those deposits which are not subject to any large volatility o Average level of previous years deposit is generally taken as core deposits o This ratio helps in assessing level of deployment of core portion of deposits

Loans to Investments y Loans to Investments o While loans provide higher returns compared to investments, these suffer from credit risk and are more illiquid than investments o A proper mix of loans and investments keeping in view liquidity and yield considerations need to be fixed

Cash Flow Approach y y y Preparing a structural liquidity by taking into account balance sheet on particular date and place in maturity ladder according to time buckets Identify the liquidity needs - to evolve methods to meet it Negative gaps in individual time buckets indicate the need. The need could be controlled by o prudential limits

o as also by regulating the basis of business structure/financial flexibility of banks Regulatory Limit of 20% on outflows in first two time buckets

RBI Guidelines on Liquidity Risk Methodology prescribed in ALM System- Structural Liquidity Statement & Dynamic Liquidity Ladder are simple y Need to make assumptions and trend analysis- Behavioural maturity analysis y Variance Analysis at least once in six months and assumptions fine-tuned y Track the impact of exercise of options & potential liquidity needs Cap on inter-bank borrowings & Call moneys y