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Technical Analysis of Banking Sectors

Introduction
As per the Reserve Bank of India (RBI), India’s banking sector is sufficiently capitalised and
well-regulated. The financial and economic conditions in the country are far superior to any
other country in the world. Credit, market and liquidity risk studies suggest that Indian banks
are generally resilient and have withstood the global downturn well.

Indian banking industry has recently witnessed the roll out of innovative banking models like
payments and small finance banks. RBI’s new measures may go a long way in helping the
restructuring of the domestic banking industry.

The digital payments system in India has evolved the most among 25 countries with India’s
Immediate Payment Service (IMPS) being the only system at level five in the Faster
Payments Innovation Index (FPII).*

Investments/Developments

Key investments and developments in India’s banking industry include:

 In July 2021, Google Pay for Business has enabled small merchants to access credit
through tie-up with the digital lending platform for MSMEs—FlexiLoans.
 In December 2020, in response to the RBI’s cautionary message, the Digital Lenders’
Association issued a revised code of conduct for digital lending.
 As of June 23, 2021, the number of bank accounts—opened under the government’s
flagship financial inclusion drive ‘Pradhan Mantri Jan Dhan Yojana (PMJDY)’—
reached 42.55 crore and deposits in Jan Dhan bank accounts totalled >Rs. 1.44 lakh
crore (US$ 19.31 billion).
 On November 6, 2020, WhatsApp started UPI payments service in India on receiving
the National Payments Corporation of India (NPCI) approval to ‘Go Live’ on UPI in a
graded manner.
 In October 2020, HDFC Bank and Apollo Hospitals partnered to launch the
‘HealthyLife Programme’, a holistic healthcare solution that makes healthy living
accessible and affordable on Apollo’s digital platform.
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Government Initiatives

 In August 2021, Prime Minister Mr. Narendra Modi launched e-RUPI, a person and
purpose-specific digital payment solution. e-RUPI is a QR code or SMS string-based
e-voucher that is sent to the beneficiary’s cell phone. Users of this one-time payment
mechanism will be able to redeem the voucher at the service provider without the
usage of a card, digital payments app, or internet banking access.
 As per Union Budget 2021-22, the government will disinvest IDBI Bank and privatise
two public sector banks.
 As per Union Budget 2019-20, the Government proposed fully automated GST refund
module and an electronic invoice system that will eliminate the need for a separate e-
way bill.
 Government smoothly carried out consolidation, reducing the number of Public
Sector Banks by eight.

 As of September 2018, the Government of India made Pradhan Mantri Jan Dhan
Yojana (PMJDY) scheme an open-ended scheme and added more incentives.
 The Government of India planned to inject Rs. 42,000 crore (US$ 5.99 billion) in
public sector banks by March.

HDFC

The HDFC Bank was incorporated on August 1994 by the name of 'HDFC Bank Limited',
with its registered office in Mumbai, India. HDFC Bank commenced operations as a
Scheduled Commercial Bank in January 1995. The Housing Development Finance
Corporation (HDFC) was amongst the first to receive an 'in principle' approval from the
Reserve Bank of India (RBI) to set up a bank in the private sector, as part of the RBI's
liberalization of the Indian Banking Industry in 1994.

HDFC Bank is headquartered in Mumbai. The Bank at present has an enviable network of
over 1416 branches spread over 550 cities across India. All branches are linked on an online
real–time basis. Customers in over 500 locations are also serviced through Telephone
Banking. The Bank also has a network of about over 3382 networked ATMs across these
cities.

The shares are listed on the Bombay Stock Exchange Limited and The National Stock
Exchange of India Limited. The Bank's American Depository Shares ( ADS ) are listed on the
New York Stock Exchange (NYSE) under the symbol 'HDB' and the Bank's Global
Depository Receipts (GDRs) are listed on Luxembourg Stock Exchange.

On May 23, 2008, the amalgamation of Centurion Bank of Punjab with HDFC Bank was
formally approved by Reserve Bank of India to complete the statutory and regulatory
approval process. As per the scheme of amalgamation, shareholders of CBoP received 1
share of HDFC Bank for every 29 shares of CBoP.
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The merged entity now holds a strong deposit base of around Rs. 1,22,000 crore and net
advances of around Rs. 89,000 crore. The balance sheet size of the combined entity would be
over Rs. 1,63,000 crore. The amalgamation added significant value to HDFC Bank in terms
of increased branch network, geographic reach, and customer base, and a bigger pool of
skilled manpower.

In a milestone transaction in the Indian banking industry, Times Bank Limited (another new
private sector bank promoted by Bennett, Coleman & Co. / Times Group) was merged with
HDFC Bank Ltd., effective February 26, 2000. This was the first merger of two private banks
in the New Generation Private Sector Banks. As per the scheme of amalgamation approved
by the shareholders of both banks and the Reserve Bank of India, shareholders of Times Bank
received 1 share of HDFC Bank for every 5.75 shares of Times Bank.

ICICI

ICICI Bank was originally promoted in 1994 by ICICI Limited, an Indian financial
institution, and was its wholly–owned subsidiary. ICICI's shareholding in ICICI Bank was
reduced to 46% through a public offering of shares in India in fiscal 1998, an equity offering
in the form of ADRs listed on the NYSE in fiscal 2000, ICICI Bank's acquisition of Bank of
Madura Limited in an all–stock amalgamation in fiscal 2001, and secondary market sales by
ICICI to institutional investors in fiscal 2001 and fiscal 2002.
ICICI was formed in 1955 at the initiative of the World Bank, the Government of India and
representatives of Indian industry. The principal objective was to create a development
financial institution for providing medium–term and long–term project financing to Indian
businesses. In the 1990s, ICICI transformed its business from a development financial
institution offering only project finance to a diversified financial services group offering a
wide variety of products and services, both directly and through a number of subsidiaries and
affiliates like ICICI Bank. In 1999, ICICI become the first Indian company and the first bank
or financial institution from non–Japan Asia to be listed on the NYSE.
After consideration of various corporate structuring alternatives in the context of the
emerging competitive scenario in the Indian banking industry, and the move towards
universal banking, the managements of ICICI and ICICI Bank formed the view that the
merger of ICICI with ICICI Bank would be the optimal strategic alternative for both entities,
and would create the optimal legal structure for the ICICI group's universal banking strategy.
The merger would enhance value for ICICI shareholders through the merged entity's access
to low–cost deposits, greater opportunities for earning fee–based income and the ability to
participate in the payments system and provide transaction–banking services. The merger
would enhance value for ICICI Bank shareholders through a large capital base and scale of
operations, seamless access to ICICI's strong corporate relationships built up over five
decades, entry into new business segments, higher market share in various business segments,
particularly fee–based services, and access to the vast talent pool of ICICI and its
subsidiaries.
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In October 2001, the Boards of Directors of ICICI and ICICI Bank approved the merger of
ICICI and two of its wholly–owned retail finance subsidiaries, ICICI Personal Financial
Services Limited and ICICI Capital Services Limited, with ICICI Bank. The merger was
approved by shareholders of ICICI and ICICI Bank in January 2002, by the High Court of
Gujarat at Ahmedabad in March 2002, and by the High Court of Judicature at Mumbai and
the Reserve Bank of India in April 2002. Consequent to the merger, the ICICI group's
financing and banking operations, both wholesale and retail, have been integrated in a single
entity.

ICICI Bank is India's second–largest bank with total assets of Rs. 4,062.34 billion ($91
billion) at March 31, 2011 and profit after tax Rs. 51.51 billion ($1,155 million) for the year
ended March 31, 2011. The Bank has a network of 2,535 branches and 6,810 ATMs in India,
and has a presence in 19 countries, including India. 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 specialised subsidiaries in the areas of investment banking,
life and non–life insurance, venture capital and asset management.

The Bank currently has subsidiaries in the United Kingdom, Russia and Canada, branches in
United States, Singapore, Bahrain, Hong Kong, Sri Lanka, Qatar and Dubai International
Finance Centre and representative offices in United Arab Emirates, China, South Africa,
Bangladesh, Thailand, Malaysia and Indonesia. Their UK subsidiary has established branches
in Belgium and Germany.
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).

About Technical Analysis

Technical analysis is a trading discipline employed to evaluate investments and

identify trading opportunities by analysing statistical trends gathered from trading
activity, such as price movement and volume.

 Technical analysis is a trading discipline employed to evaluate investments and

identify trading opportunities in price trends and patterns seen on charts.
 Technical analysts believe past trading activity and price changes of a security
can be valuable indicators of the security's future price movements.
 Technical analysis may be contrasted with fundamental analysis, which focuses
on a company's financials rather than historical price patterns or stock trends.
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Unlike fundamental analysis, which attempts to evaluate a security's value based on

business results such as sales and earnings, technical analysis focuses on the study of
price and volume. Technical analysis tools are used to scrutinize the ways supply and
demand for a security will affect changes in price, volume, and implied volatility.

Technical analysis is often used to generate short-term trading signals from various
charting tools, but can also help improve the evaluation of a security's strength or
weakness relative to the broader market or one of its sectors. This information helps
analysts improve their overall valuation estimate.

Technical analysis can be used on any security with historical trading data. This
includes stocks, futures, commodities, fixed-income, currencies, and other securities.
In this tutorial, we’ll usually analyze stocks in our examples, but keep in mind that
these concepts can be applied to any type of security. In fact, technical analysis is far
more prevalent in commodities and forex markets where traders focus on short-term
price movements.

Technical analysis as we know it today was first introduced by Charles Dow and the
Dow Theory in the late 1800s. Several noteworthy researchers including William P.
Hamilton, Robert Rhea, Edson Gould, and John Magee further contributed to Dow
Theory concepts helping to form its basis. Nowadays technical analysis has evolved to
include hundreds of patterns and signals developed through years of research.

Technical analysis operates from the assumption that past trading activity and price
changes of a security can be valuable indicators of the security's future price
movements when paired with appropriate investing or trading rules. Professional
analysts often use technical analysis in conjunction with other forms of research.
Retail traders may make decisions based solely on the price charts of a security and
similar statistics, but practicing equity analysts rarely limit their research to
fundamental or technical analysis alone.

Among professional analysts, the CMT Association supports the largest collection of
chartered or certified analysts using technical analysis professionally around the
world. The association's Chartered Market Technician (CMT) designation can be
obtained after three levels of exams that cover both a broad and deep look at technical
analysis tools. The association now waives Level 1 of the CMT exam for those who
are Certified Financial Analyst (CFA) charterholders. This demonstrates how well the
two disciplines reinforce each other.
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Technical analysis attempts to forecast the price movement of virtually any tradable
instrument that is generally subject to forces of supply and demand, including stocks,
bonds, futures, and currency pairs. In fact, some view technical analysis as simply the
study of supply and demand forces as reflected in the market price movements of a
security. Technical analysis most commonly applies to price changes, but some
analysts track numbers other than just price, such as trading volume or open interest
figures.

Across the industry, there are hundreds of patterns and signals that have been
developed by researchers to support technical analysis trading. Technical analysts
have also developed numerous types of trading systems to help them forecast and
trade on price movements. Some indicators are focused primarily on identifying the
current market trend, including support and resistance areas, while others are focused
on determining the strength of a trend and the likelihood of its continuation.
Commonly used technical indicators and charting patterns include trendlines,
channels, moving averages, and momentum indicators.

In general, technical analysts look at the following broad types of indicators:

 Price trends
 Chart patterns
 Volume and momentum indicators
 Oscillators
 Moving averages
 Support and resistance levels

Underlying Assumptions of Technical Analysis

There are two primary methods used to analyze securities and make investment
decisions: fundamental analysis and technical analysis. Fundamental analysis involves
analysing a company’s financial statements to determine the fair value of the business,
while technical analysis assumes that a security's price already reflects all publicly
available information and instead focuses on the statistical analysis of price
movements. Technical analysis attempts to understand the market sentiment behind
price trends by looking for patterns and trends rather than analyzing a security's
fundamental attributes.

Charles Dow released a series of editorials discussing technical analysis theory. His
writings included two basic assumptions that have continued to form the framework
for technical analysis trading.
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 Markets are efficient with values representing factors that influence a security's
price, but
 Even random market price movements appear to move in identifiable patterns
and trends that tend to repeat over time.
Today the field of technical analysis builds on Dow's work. Professional analysts
typically accept three general assumptions for the discipline:

1. The market discounts everything: Technical analysts believe that everything

from a company's fundamentals to broad market factors to market psychology
is already priced into the stock. This point of view is congruent with the
Efficient Markets Hypothesis (EMH) which assumes a similar conclusion
about prices. The only thing remaining is the analysis of price movements,
which technical analysts view as the product of supply and demand for a
particular stock in the market.
2. Price moves in trends: Technical analysts expect that prices, even in random
market movements, will exhibit trends regardless of the time frame being
observed. In other words, a stock price is more likely to continue a past trend
than move erratically. Most technical trading strategies are based on this
assumption.
3. History tends to repeat itself: Technical analysts believe that history tends to
repeat itself. The repetitive nature of price movements is often attributed to
market psychology, which tends to be very predictable based on emotions like
fear or excitement. Technical analysis uses chart patterns to analyze these
emotions and subsequent market movements to understand trends. While many
forms of technical analysis have been used for more than 100 years, they are
still believed to be relevant because they illustrate patterns in price movements
that often repeat themselves.