capital market (tushar)
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1.1 OBJECT OF THE PROJECT
Management consists of getting things done through others. A manager is one whoaccomplishes the objectives by directing the efforts of others. In todays competitive world,
management has to perform variety of functions and responsibilities. Theoretical
knowledge of such functions and responsibilities can be obtained in the institute. But
practically when this knowledge is applied in the corporate world, many difficulties are
faced by the managers.
Hence in order to get an insight into the practical knowledge, communication skills
and to develop the analytical aspects, the University has provided an opportunity to improve
in this corporate world.
Keep it simple. Keep it straight: that is the investment philosophy. Never wait till the
last rupee of profit comes in. Tops and bottoms are for the fools to catch, a top is the highest
price point of a stock, which is what greedy investors often wait for and bottom is just the
opposite, where one should buy into a stock. Even though investment condition, attitude and
opportunities often change overtime and vary greatly from place to place, but basic rules of
game nearly always remain the same.
Indian economy is on the roll with a growth rate of about 8% during the last years.
Indian companies are performing well in almost all sectors be it software, engineering,
information technology, automobiles, auto components or pharmaceuticals etc. thats the
reason, foreign investors are coming by hordes and showing a great interest in Indian
economy.
Investment in Indian economy primarily comes through: -
1. Direct Investments or Foreign Direct Investment and
2. Through the capital market where Foreign Institutional Investors (FIIs) are
allowed to invest Indian Economy.
A well-organized and developed Share Market is an essential pre-requisite of
economic development. An investor plays a vital role in the growth of Share Market by
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investing in Shares, Debentures, Government Bonds and Securities etc. because of this
equity Market affects the working of Indian Economy.
Thus, the researcher have selected the topic of Equity Research which has given
him the opportunity to study Indian capital market scenario and enabled to make thorough
analysis of Method used for Fundamental analysis and Technical analysis of stock prices of
the companies.
1.2 RATIONAL OF THE STUDY
The present market scenario has shown us the recovery from bottom level in Share
Market. Even some of the research firms showed that Share Market is the fastest growing in
India. Now it is possible for the investors to trade from their own place. As compare to last
two years there is a growth in the number of share brokers and market analysts. Media is
playing an important role in these regards. Now the common man is also thinking of some
investment in share market. Too many investors invest their money for the short span, the
intention is speculative. Thus this project has provided ample amount of scope which can
be given as follows
Utility to Researcher
a. To interact with the manager of the company and gain knowledge through their
experiences.
b. To gain the knowledge about the share market.
c. Practical knowledge about the equity analysis and how to analyze the stocks.
Utility to company:-
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a. The analysis done was beneficial to the company as additional information of their
Investor.
b. With this, company can recommend their clients to invest in particular companys
shares on the basis of analysis done and also try to attract more traders by giving more
services.
1.3 LIMITATIONS OF STUDY
a. To understand the overall working of share market, the period of 60 days is not
enough.
b. Moreover, very few investor have a detail knowledge of the study.
c. A study is conducted in Nasik only, which restrict the scope of the study.
d. This project does not give results to intraday traders.
e. Fundamental Analysis is to the extent is good for the Long term calls but Not that
much successful for the intraday calls .It is just the forecasting of the future, also it depends
on the fundamentalist i.e. How researcher analyze the data? , How he/she predict the future
base on that data?
f. No technical Analysis tool is also perfect, but it should be remembered that the
indices are measuring what has already taken place; it is up to the interpreter to provide a
meaningful forecast.
g. A chart does not provide with the means to predict future price action with certainty.
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CHAPTER 2
INDUSTRY PROFILE
2.1 INDIAN CAPITAL MARKET
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The capital market plays a very important role in promoting economic growth
through the mobilization of long-term savings and the savings get invested in the economy
for productive purpose. The capital market in India is a well integrated structure and its
components include stock exchanges, developed banks investment trusts, insurance
corporations and provident fund organization. It caters to the varied needs for capital of
agriculture, industrial and trading sectors of the economy. There are two important
operations carried on in these markets. The raising the new capital and Trading in the
securities already issued by the companies.
With the pace of economic reforms followed in India, the importance of capital
markets has grown in the last ten years. Corporate both in the private sector as well as in the
public sector raise crores of rupees in these markets. The governments, through Reserve
Bank of India, as well as financial institutes also raise a lot of money from these markets.
The capital market serves a very useful purpose by pooling the savings.
The capital markets encourage capital formation in the country. The capital markets
mobilize savings of the households and of the industrial concerns. Such savings are then
invested for productive purposes. Capital markets also facilitate the growth of the industrialsector, as well as the other sectors of the economy. The capital markets provide funds for
the projects in backward areas. Thus, Capital markets generate employment in the country.
They also facilitate the development of stock markets. Due to capital markets, the
public has alternative sources of investment. The public can invest not only in bank
deposits, but also in shares and debentures issued by public companies. The commercial
banks and FIs provide timely financial assistance to viable sick units to overcome their
industrial sickness. The banks and FIs may also write off a part of loan, or they re-schedule
the loan, so as to offer payment flexibility to the weak units, which in turn helps the weak
units to overcome financial crisis.
Capital market requires many intermediaries who are responsible to transfer funds
from those who save to those who require these funds for investments. The efficiency of the
markets is dependent on the specialization attained by these intermediaries. Some of them
are as follows:
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1. Stock Exchanges.
2. Banks.
3. Investment Trusts and Companies.
4. Specialized Financial Institutions or Development Banks.
5. Mutual Funds.
6. Non-Banking Financial Institutions.
7. International Financial Investors and Institutions.
The supply in this market comes from savings from different sectors of the
economy. These savings accrue from the following sources:
1. Individuals.
2. Corporate.
3. Government Institutions.
4. FII and DII.
5. Banks.
6. Provident Funds Houses.
7. Mutual fund houses.
All these entities contribute to savings in the economy part of these savings naturally
flow in the capital markets. Individuals invest in these markets directly by investing in
shares or debentures of companies through bond issues of public sector units or through
mutual funds. Corporate who have more savings than their requirement for funds also are
participants in this market.
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2.2 ROLE OF CAPITAL MARKET IN INDIA
1. CAPITAL FORMATION
The capital market encourages capital formation in the country. Rate of capital
formation depends upon savings in the country. Though the banks mobilize savings, they
are not sufficient to match the requirements of the industrial sector. The capital market
mobilizes savings of households and of the industrial concern. Such savings are then
invested for productive purposes. Thus savings and investment leads to capital formation in
country.
2. ECONOMIC GROWTH
Capital market facilitates the growth of the industrial sector as well as other sectors
of the economy. The main function of the capital market is to transfer resources (funds)
from masses to the industrial sector. The capital market makes it possible to lend funds to
various projects, both in the private as well as public sector.
3. GENERATES EMPLOYMENT
Capital market generates employment in the country:
a. Direct employment in the capital markets such as stock markets, financial
institutions etc.
b. Indirect employment in all sectors of the economy, because of the funds provided
for developmental projects.
4. LONG TERM CAPITAL TO INDUSTRIAL SECTOR
The capital market provides a permanent long-term capital for the companies. Once,
the funds are collected through issues, the money remains with the company. The company
is left free with the funds while investors exchange securities among themselves.
5. GENERATION OF FOREIGN CAPITAL
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The capital market makes possible to generate foreign capital. Indian firms are able
to generate capital from overseas markets by way of bonds and other securities. Such
foreign exchange funds are vital for the economic development of the nation.
6. DEVELOPING ROLE OF FINANCIAL INSTITUTIONS
The various agencies of capital market such as Industrial Financial Corporation of
India (IFCI), State Finance Corporations (SFC), Industrial Development Bank of India
(IDBI), Industrial Credit and Investment Corporation of India (ICICI), Unit Trust of India
(UTI), Life Insurance Corporation of India (LIC), etc. have been rendering useful services
to the growth of industries. They have been financing, promoting and underwriting the
functions of the capital market.
7. INVESTMENT OPPORTUNITIES
Capital markets provide excellent investment opportunities to the members of the
public. The public can have alternative source of investment i.e. in bonds, shares and
debentures etc.
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2.3 EQUITY MARKET
INTRODUCTION
The first company to issue shares of stock was the Dutch East India Company, in
1602. The innovation of joint ownership made a great deal of Europe's economic growth
possible following the Middle Ages. The technique of pooling capital to finance the
building of ships, for example, made the Netherlands a maritime superpower. Before
adoption of the joint-stock corporation, an expensive venture such as the building of a
merchant ship could only be undertaken by governments or by very wealthy individuals or
families.
Equity markets, the world over, grew at a great speed in the decade of the nineties.
After the bear markets of the late eighties, the world markets saw one of the largest ever
bull markets of more than ten years. The opening up of Indian economy in the 1990's led to
a series of financial sector reforms, prominent being the capital market reforms. These
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reforms have led to the development of the Indian equity markets to the standards of the
major global equity markets. All this started with the abolition of Controller of Capital
Issues and subsequent free pricing of shares.
The introduction of dematerialization of shares, leading to faster and cheaper
transactions and introduction of derivative products and compulsory rolling settlement has
followed subsequently. Despite a series of stock market scams and crises beginning from
1992 Harshad Mehta's scam to the Ketan Parekh's 2001 scam, the Indian equity markets
have transformed themselves from a broker dominated market to a mass market. The
introduction of online trading has given a much-needed impetus to the Indian equity
markets. However, over the years, reforms in the equity markets have brought the country
on par with many developed markets on several counts. Today, India boasts of a variety of
products, including stock futures, an instrument launched only by select markets.
The introduction of rolling settlement is the latest step in the direction of
overhauling the stock market. The equity market of the country will most likely becomparable with the world's most advanced secondary markets with regard to international
best practices. The market moved to compulsory rolling settlement and now all settlements
are executed on T+2 basis and market is gearing up for moving to T+1 settlement in 2011
while the Straight Through Processing (STP) is in place from December 2002.
The importance of equity market is increasing. Rightly, realizing the advantages of
resource allocation through market, Government of India and Reserve Bank of India have
been pushing reforms in equity markets. Series of steps are being taken to remove hurdles,
increase market efficiency and to make it attractive for the retail investors to take part in the
equity market. It may not be an exaggeration to say that the Indian markets are resourceful
to put themselves on par with the markets of the developed countries. The Indian markets
have assimilated in a relatively lesser time, many a developments that took long time in the
developed markets.
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2.4 MAJOR PLAYERS IN CAPITAL MARKET
Indian capital market is in its growing stage, apart from Indian corporate Investors
and HNIs, THE COMMON MAN has also started to invest in Capital market. Hence
capital market players are the most dependable entities to protect interest of the investors.
Following are the major players in Indian market:-
1. SHAREKHAN 2. INDIA INFOLINE
3. ICICI DIRECT 4. INDIABULLS
5. KARVY 6. ANGEL BROKING
7. KOTAK MAHINDRA SECURITIES 8. EDELWEISS
9. MOTILAL OSWAL 10. HDFC SECURITIES
MARKET SHARE OF MAJOR PLAYERS:
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Though Stock broking Institutions are facing very intense competition amongst each other,
SHAREKHAN is enjoying considerable market share over other players. Below given Pie
chart is showing the current position of various firms according to their Customer base.
(SOURCE: CMIE report March 2010)
CHART -1
2.5 TWIN TOWERS OF EQUITY MARKET
In India the main exchanges are the BSE and the NSE, which contribute to more
than 90% of the trade in the capital market. These two exchanges are the movers and
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MARKET SHARE OF STOCK BROKING FIRMS
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shakers of the equity market in India.
NSE-NATIONAL STOCK EXCHANGE
NSE was setup in November 1992, started its trading operation
effectively from June 30, 1994. Only the debt market segment of the
NSE was put into operation initially. The capital market segment of
the NSE commenced its operation on November 3, 1994. It provides
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facility for trading of equity instruments, warrants, debentures, preference shares etc. The
total turnover of capital market segment of NSE was higher at RS.2,94,504crores/- as
compared with RS.1,24,284crores/- of the Mumbai Stock Exchange in 1996-97. NSE has
adopted fully automated screen based trading system, which allows trading members to
trade from their offices through a communication network. The exchange has opened
membership to a number of cities.
BSE-BOMBAY STOCK EXCHANGE
Bombay Stock Exchange Limited (BSE)
which was founded in 1875 with six brokers has
now grown into a giant institution with over 874
registered Broker-Members spread over 380
cities across the country. Today, BSE's Wide
Area Network (WAN) connecting over 8000
BSE Online Trading (BOLT) System Trader
Work Stations (TWS) is one of the largest of its kind in the country. With a view to provideefficient and integrated services to the investing public through the members and their
associates in the operations pertaining to the Exchange, Bombay Stock Exchange Limited
(BSE) has set up a unique Member Services and Development to attend to the problems of
the Broker-Members.
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CHAPTER 3
COPMPANY PROFILE
3.1 INTRODUTION
A Kantilal Chhaganlal security is a name synonymous with wealth management.
Established in 1954; Kantilal Chhaganlal securities has stood the test of time which speaks
volume about the reliability, stability and expertise of the firm.
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Backed by a highly dedicated and professional team, Kantilal Chhaganlal offers its
60,000 plus clientele a bouquet of customized, end to end, wealth management solutions.
With its presence at more than 500 locations across India, the company ensures its clientele,
uncompromised performance and a focused approach.
Why Kantilal Chhaganlal?
Experience: With over 5 decades of experience in wealth management they enjoy
the trust of over 60,000 satisfied clients.
Client Centric Model: Client satisfaction is an asset. Hence clients interest
precedes their interest .Their stringent internal customer service standards ensure that client
enjoy the best in class service.
Technology: It has been their constant endeavor to harness the best of technologies
to ensure that clients get maximized returns.
Strong Operation and Research Desk: With over 54 years of experience, the
company has one of the best operations and research cells in the industry.
Wide network: Presence all across India with over 500 locations ensures that we
are never far away from you.
3.2 VALUES AT KANTILAL CHHAGANLAL SECURITIES
A. Unification of clients interest with the companys business interest.
B. Maintaining high level of integrity, transparency and ethical values.
C. A No Compromise attitude for quality with passion for excellence.
D. Client centric model with a clear focus on providing long term value added services
while maintaining the highest standards of professionalism.
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3.3 SUBSIDERIES OF KANTILAL CHHAGANLA SECURITIES
1. Kantilal Chhaganlal Securities Pvt. Ltd.
Member of NSE, NSE F&O, BSE, BSE F&O
Depository Participant CDSL
1. Kaycee Commodity Services Pvt. Ltd.
Member of NCDEX and MCX
1. Kaycee Advisory Services Pvt. Ltd.
AMFI Mutual Fund Distributor
1. Kaycee Insurance Agency & Consultancy Services Pvt. Ltd.
Life Insurance Distribution
1. Kaycee Finstock Pvt. Ltd.
Non Banking Finance Corporation (NBFC).
3.4 Reach, Access and membership of the KC
Reach and Access Membership
No. of employees:1080 Cash Market: NSE, BSENo. of Branches: 500 + Derivatives: NSE
No. of cities and towns: 46 Debt: NSE
No. of sub-brokers: 124 Commodities: MCX/NCDEX
3.5 Product and services
KANTILAL CHAGANLAL SECURITIES offer our clientele a bouquet of
products and services where each service is customized to benefit clients need.
1. 1.WEALTH MANAGEMENT
2.
Catering to individuals and corporate with investible corpus of Rs. 5 crores
and more.
3.
4. 2. COMMODITY
5.
Kaycee Commodity Services Pvt. Ltd a group company of Kantilal
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Chhaganlal Securities Pvt. Ltd is a Clearing cum Trading Member of MCX
& NCDEX. We rank amongst the top broker houses in Commodity. We
provide online as well as offline facility. We have the best in state of art
technology for our Business partners and clients. We also provide online
back office facility to business partners and all our clients.
Kaycee Commodity is also renowned for its research services. We provide
reports on daily and weekly basis; we also give commodity specific reports.
We send our research to our clients and Business Partner's via Email, Chat
and SMS services. We at Kaycee Commodity believe in long and entrusted
relationship and we remain true to our beliefs.
6. 3. INSTITUTIONAL BROKING
7.
Currently dealing with:
1. Dll's, Fll's
2. Life Insurance Corporation of
3.UTI Mutual Funds
4. Canararobeco Asset Management Co. Ltd.
5. Axis Bank
6. State Bank of India (SBI)
7. Vijaya Bank
8. Allahabad Bank
9. Central Bank of India
10.Bank of India
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1. 5. PRIVATE CLIENT GROUP
1. Broking
2. Equities
3. Derivatives
4. Commodities
5. Internet Trading
6. Depository Participant
7. PMS & Structured Products
8. Mutual Funds
9. Alternate Investment
10. Life Insurance
11. Margin Funding
CHAPTER 4
LITERATURE SURVEY
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4.1 EQUITY RESEARCH
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The investor should bear in mind that while he makes investment decision, he
should have idea of the companys break-even point and companys position in the stock
exchange. For this EQUITY RESEARCH is done. Equity Research does the research of
companys income and growth. In the process, it uses the various sources of financial
information available in the country and accordingly advises in which company an investor
should invest. Equity research consists of mainly:
A. FUNDAMENTAL ANALYSIS,
B. TECHNICAL NALYSIS.
4.2 FUNDAMENTAL ANALYSIS
The investor, while buying stock, has the primary purpose of gain. If he invests for ashort period of time, it is speculative but when he holds if for a fairly long period of time,
the anticipation is that he would receive some return on his investment. The fundamental
analysis is a method of finding out the future price of a stock, which an investor wishes to
buy. The method for forecasting the future behavior of investment and the rate of return on
them is clearly through an analysis of the broad economic forces, industry analysis, the
company analysis and ratio analysis.
OBJECTIVE & BELIEF OF FUNDAMENTAL ANALYSIS
Fundamental analysis is an approach to determine the what ought to be price. It has
objective to identify the underpriced and overpriced securities in the market place so that
the investment decision buying, selling and holding can be made.
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a. Calculation of intrinsic value
Intrinsic value = Expected EPS * P/E ratio
Where,
Expected EPS = EPS (current year)* (1 + growth rate)
Growth rate = average compounded rate last 5 years
P/E ratio = current Year P/E ratio.
b. INVESTMENT DECISION MATRIX:
PRICED DecisionCurrent market priceIntrinsic Value Overpriced Sell
C-I-E FRAMEWORK FOR FUNDAMENTAL ANALYSIS
A basis assumption of fundamental analysis is that market price and intrinsic value
can differ from time to time, but eventually investors will recognize the discrepancy and an
act to bring values together. Professional, do follow both the approaches for investment and
disinvestment decision making.
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1. ECONOMIC ANALYSIS
A study of economic trends as indicated by the rate of growth in gross
national product, employment, aggregate corporate profits, personal disposable income,
balance of payment position, inflation, government spending, money supply etc. A study ofeconomic policies of government including plan priorities, monetary policies, EXIM policy,
fiscal policy, industrial policy, regulation and control of prices, wages and production. An
analysis of the relationship between economic trends and economic policies and the stability
of such relationships. A study of world economic trends and their impact on Indian
economy.
2. INDUSTRY ANALYSIS
The objective of this analysis is to assess the prospect of various industrial
groupings. It is almost impossible to judge which industry will appreciate the most yet
careful analysis can suggest which industries have brighter future than the others. This
concerned with the basics of industry analysis this section is divided into four parts:
a. Sensitivity to the business cycle
b. Industry life cycle analysis
c. Study of structure and characteristics of an industry
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d. Profit potential of Industry.
3. COMPANY ANALYSIS
Company analysis is last leg in the C-I-E analysis sequence. It may be organized
into two parts (a) A study of financials and (b) Study of other qualitative factors. The
company analysis should take in to account the following factors as influence the
performance of the company, whose share prices are to be analyzed.
Product Line
It is also necessary to know the industries with a high growth potential likecomputers, electronics, chemicals, diamonds, textiles etc. and whether the industry is in the
priority sector of the key industry group of capital goods or consumers goods group.
Raw Material and Inputs
Under these head, we have to look in to industries depending on imports of scare
raw materials, competition from other companies and industries and the barriers to entry of
new company, protection from foreign competition, import and export restriction etc.
Capacity Installed and Utilized
The demand for industrial product in the economy is estimated by the planning
commission and the Government, and the units are given licensed capacity on the basis of
these estimates.
Industry Characteristics
It included whether the industry is cyclical, fluctuating of stable. It is also important
industry produce seasonal product or FMCG. It also included demand of product freight
charges, cost of production, advertisement cost
Demand and Market
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It includes demand of the product in the market and price of raw material and other
input cost like freight, electricity, season, monsoon, etc. if the nature of product is such as
drugs, fertilizer or other consumer goods, whose price and distribution control by
Government.
Government Policy with regard to Industry
Government Policy is announced in the industrial policy resolution and Subsequent
announcement from time to time by the Government. The Policy strategy as laid down in
the five years plans according to planning commission and expected demand in the
economy.
Management
If the promoters and the management are the efficient and capable of steering the
company through the difficult days such management likes TATA & BIRLA, who have
reputation, buildup their companies on the strong foundation. The management has to be
assessed in the terms of their capabilities, popularity, honesty and integrity.
Influence of the economy on the company
In addition to the above factors below given are the micro level factors which
influence the companys operations externally.
01. Economic Growth of country
02. Population
03. Monsoons and Agriculture Production
04. Natural resources and availability of raw material
05. Industrial Productions
06. Inflation
07. Interest rate
08. Foreign exchange reserve
09. Balance of payment position
10. Budget deficits
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11. Public debt and foreign debt
12. Domestic saving and capital output rate
13. Employments
14. Taxation policies
15. Infrastructure facilities
16. Government policies
17. Political Stability
18. International developments
19. Capital formations
20. Economic indicators
21. Foreign direct investments
22. Rupee-Dollar Fluctuation
23. Stock New.
4.3 TECHNICAL ANALYSIS
THE VISUAL CLUE
The technical approach to investing is essentially a reflection of the idea that
prices move in trends which are determined by the changing attitudes of investors towards
a variety of economic, political, monetary and psychological forces.
-Martin J. Pring.
Technical analysis takes a completely different approach; it doesnt care one bit
about the value of a company or a commodity. Technicians (some time called chartists)
are only interested in the price movement and volumes in the market.
Despite all the fancy and exotic tools it employs, technical analysis really just
studies supply and demand in a market in an attempt to determine what direction, or
trend, will continue in the future. In other words, technical analysis attempts to understand
the emotions in the market by studying the market itself, as opposed to its components. If
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you understand the benefits and limitation of technical analysis it can give you a new set of
tools or skills than will enable you to better trader or investor.
DEFINITION
Technical analysis is a method of evaluating the securities by analyzing the statistics
generated by the market activity, such as past price and volume. In technical analysis,
analysts use charts and other tools to identify patterns that can suggest future activity. Just
as there are many investment styles on fundamental side, there is also much different type
of technical traders. Some rely on chart patterns. In any case, technical analysts exclusiveuse of historical price and volume data is what separates them from their fundamental
counterparts. Unlike fundamental analysis technical analysts dont care whether a stock is
undervalued the only thing that matter is a securitys past trading data.
Technical analysis is based almost entirely on the analysis of price and volume. The
fields which define a security's price and volume are explained below.
Open - This is the price of the first trade for period (e.g., the first trade of the day).
When analyzing daily data, the Open is especially important as it is the consensus price
after all interested parties were able to "sleep on it."
High - This is the highest price that the security traded during the period. It is the point at
which there were more sellers than buyers (i.e., there are always sellers willing to sell at
higher prices, but the High represents the highest price buyers were willing to pay).
Low - This is the lowest price that the security traded during the period. It is the point at
which there were more buyers than sellers (i.e., there are always buyers willing to buy at
lower prices, but the Low represents the lowest price sellers were willing to accept).
Close - This is the last price that the security traded during the period. Due to its
availability, the Close is the most often used price for analysis. The relationship between the
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Open (the first price) and the Close (the last price) are considered significant by most
technicians.
Volume - This is the number of shares (or contracts) that were traded during the period.
The relationship between prices and volume (e.g., increasing prices accompanied with
increasing volume) is important.
Open Interest - This is the total number of outstanding contracts (i.e., those that have not
been exercised, closed, or expired) of a future or option. Open interest is often used as an
indicator.
Bid - This is the price a market maker is willing to pay for a security (i.e., the price you will
receive if you sell).
Ask- This is the price a market maker is willing to accept (i.e., the price you will pay to buy
the security).
These simple fields are used to create literally hundreds of technical tools that study pricerelationships, trends, patterns, etc.
ASSUMPTIONS
1. The Market Discounts Everything
A major criticism of technical analysis is that it only considers price movement,ignoring the fundamental factors of the company. However, technical analysis assumes that,
at any given a time, a stocks price reflects everything that has or could affect the company
including Fundamental Factors. Technical analysts believe that the companys
fundamentals, along with broader economic factors and market psychology, are all priced
into the stock, removing the need to actually consider these factors separately. This only
leaves the analysis of price movement, which technical theory views as a product of supply
and demand for a particular stock in the market.
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2. Price Moves In Trends
In technical analysis, price movements are believed to follow trends. This means
that after a trend has been established, the future price movement is more likely to be in the
same direction as the trend that to be against it. Most technical trading strategies are based
on this assumption.
3. History Tends To Repeat Itself
Another important idea in technical analysis is that history tends to repeat itself,
mainly in terms of price movement. The repetitive nature of price movement is attributed to
market psychology; in other words, market participants tend to provide a consistent reaction
to similar market stimuli over time. Technical analysis uses chats patterns to analyze market
movements and understand trends. Although many of these charts have been use for more
than 100 years they are still believed to be relevant because they illustrate patterns in price
movements that often repeat themselves.
Types of charts
In technical analysis there are three basic types of charts, given as follows
a. Line charts
A style of charts that is created by connecting a series of data points together with a
line. This is the most basic type of charts used in finance and connecting a series of past
prices together with a line generally creates it.
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b. Bar chart
A style of chart used by some technical analysts, on whom as illustrated below, the
top of the vertical line indicates the highest price a security traded at during the day, and the
bottom represents the lowest price. The closing price is displayed on the right side of the
bar, and the opening price is shown on the left side of the bar. A single bar like the one
below represents one day of trading.
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These are the most popular type of chart used in technical analysis. The visual representation of
price activity over a given period of time is used to spot trends and patterns.
c. Candlestick
A price chart that displays the high, low, open and close for a security each day over a
specified period of time.
There are many trading strategies based upon patterns in candlestick charting.
Trend Analysis
The use of trend one of the most important concepts in technical analysis is that of
trend. The meaning in finance isnt all that different from the general definition of the term-
a trend is really nothing more than the general direction in which a security or market is
headed.
The Importance of Trend
It is important to be able to understand and identify trends so that you can trade with
them rather than trade against them. Two important sayings in technical analysis are the
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trend is your friend and dont buck the trend Illustrating how important trend analysis is
for technical trade.
Types of Trend
1. Up Trends:-As the names imply, when each successive peakand trough is higher, its
referred to as an upward trend.
2. Downtrends:- If the peaks and troughs are getting lower. Its a downtrend.
3. Sideways/ Horizontal Trends: - When there is little movement up or down in the peaks
and troughs, its a sideways or horizontal trend.
If you want to get really technical, you might even say that a sideways trend is
actually not a trend on its own, but a lack of a well-defined trend in either direction. In any
case, the market can really only trend in these three ways: up, down or nowhere.
Trend Lengths:
Along with this trend direction, there is three-trend classification. A trend of any
direction can be classified as a long-term trend, intermediate trend or a short-term. In termsof the stock market, a major trend is generally categorized as one lasting longer than a year.
An intermediate trend is considered to last between one and three months and a near-term
trend is anything less than a month. A long-term trend is composed of several intermediate
trends, which obtain move against the direction of the major trend. If the major trend is
upward and there is a downward correction in price movement followed by a continuation
of the uptrend, the correction is considered to be an intermediate trend. The short term
trends are components both major and intermediate trends.
TECHNICAL INDICATOR
1. Exponential Moving Average (EMA)
A type of moving average that is similar to a simple moving average, except that
more weight is given to the latest data. The exponential moving average is also known as
"exponentially weighted moving average". his type of moving average reacts faster to recent
price changes than a simple moving average. The 12- and 26-day EMAs are the most
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popular short-term averages, and they are used to create indicators like the moving average
convergence divergence (MACD) and the percentage price oscillator (PPO). In general, the
50- and 200-day EMAs are used as signals of long-term trends.
CHART-2
2. Average Directional Index (ADX)
J. Welles Wilder developed the Average Directional Index (ADX) to evaluate the
strength of a current trend, be it up or down. It's important to determine whether the market
is trending or trading (moving sideways), because certain indicators give more useful results
depending on the market doing one or the other.
The ADX is an oscillator that fluctuates between 0 and 100. Even though the scale is from 0
to 100, readings above 60 are relatively rare. Low readings, below 20, indicate a weak trend
and high readings, above 40, indicate a strong trend. The indicator does not grade the trend
as bullish or bearish, but merely assesses the strength of the current trend. A reading above
40 can indicate a strong downtrend as well as a strong uptrend.
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ADX can also be used to identify potential changes in a market from trending to no
trending. When ADX begins to strengthen from below 20 and moves above 20, it is a sign
that the trading range is ending and a trend is developing .
CHART-3
3. MACD
The most popular formula for the "standard" MACD is the difference between a
security's 26-day and 12-day Exponential Moving Averages (EMAs). Using shorter moving
averages will produce a quicker, more responsive indicator, while using longer moving
averages will produce a slower indicator, less prone to whipsaws. For our purposes in this
article, the traditional 12/26 MACD will be used. Of the two moving averages that make up
MACD, the 12-day EMA is the faster and the 26-day EMA is the slower. Closing prices are
used to form the moving averages. Usually, a 9-day EMA of MACD is plotted alongside to
act as a trigger line. A bullish crossover occurs when MACD moves above its 9-day EMA,
and a bearish crossover occurs when MACD moves below its 9-day EMA. The Merrill
Lynch (MER) chart below shows the 12-day EMA (thin blue line) with the 26-day EMA
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(thin red line) overlaid the price plot. MACD appears in the box below as the thick black
line and its 9-day EMA is the thin blue line. The histogram represents the difference
between MACD and its 9-day EMA. The histogram is positive when MACD is above its 9-
day EMA and negative when MACD is below its 9-day EMA.
CHART-4
Interpretation
MACD measures the difference between two Exponential Moving Averages
(EMAs). A positive MACD indicates that the 12-day EMA is trading above the 26-day
EMA. A negative MACD indicates that the 12-day EMA is trading below the 26-day EMA.
If MACD is positive and rising, then the gap between the 12-day EMA and the 26-day
EMA is widening. This indicates that the rate-of-change of the faster moving average is
higher than the rate-of-change for the slower moving average. Positive momentum is
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increasing, indicating a bullish period for the price plot. If MACD is negative and declining
further, then the negative gap between the faster moving average (blue) and the slower
moving average (red) is expanding. Downward momentum is accelerating, indicating a
bearish period of trading. MACD centerline crossovers occur when the faster moving
average crosses the slower moving average.
1. RELATIVE STRENGTH INDEX
The Relative Strength Index (RSI) is a popular oscillator. It was first introduced
by Welles Wilder in an article in Commodities (now known as Futures) Magazine in June,
1978. Step-by-step instructions on calculating and interpreting the RSI are also provided in
Mr. Wilders book, New Concepts in Technical Trading Systems.
The name Relative Strength Index is slightly misleading as the RSI does not compare the
relative strength of two securities, but rather the internal strength of a single security. A
more appropriate name might be Internal Strength Index.
Relative strength charts that compare two market indices, which are often referred to as
Comparative Relative Strength.
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CHART-5
Interpretation
When Wilder introduced the RSI, he recommended using a 14-day RSI. Since then,
the 9-day and 25-day RSIs have also gained popularity. Because you can vary the number
of time periods in the RSI calculation, the fewer days used to calculate the RSI, the more
volatile the indicator.
The RSI is a price-following oscillator that ranges between 0 and 100. A popular
method of analyzing the RSI is to look for a divergence in which the security is making a
new high, but the RSI is failing to surpass its previous high. This divergence is an indication
of an impending reversal. When the RSI then turns down and falls below its most recent
trough, it is said to have completed a "failure swing." The failure swing is considered a
confirmation of the impending reversal.
Tops and Bottoms
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The RSI usually tops above 70 and bottoms below 30. It usually forms these tops and
bottoms before the underlying price chart.
5. VOLUME
Volume is simply the number of shares (or contracts) traded during a specified time
frame (e.g., hour, day, week, month, etc). The analysis of volume is a basic yet very
important element of technical analysis. Volume provides clues as to the intensity of a given
price move.
CHART-6
Interpretation
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1. Low volume levels are characteristic of the indecisive expectations that typically occur
during consolidation periods (i.e., periods where prices move sideways in a trading range).
Low volume also often occurs during the indecisive period during market bottoms.
2. High volume levels are characteristic of market tops when there is a strong consensus that
prices will move higher. High volume levels are also very common at the beginning of new
trends (i.e., when prices break out of a trading range). Just before market bottoms, volume
will often increase due to panic-driven selling.
3. Volume can help determine the health of an existing trend. A healthy up-trend should
have higher volume on the upward legs of the trend, and lower volume on the downward
(corrective) legs. A healthy downtrend usually has higher volume on the downward legs of
the trend and lower volume on the upward (corrective) legs.
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CHAPTER 5
OBJECTIVE AND SCOPE OF PROJECT
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5.1 OBJECTIVE
It was good opportunity to familiarize myself with the stock market i.e. the capital
market & their co-relation with economical environment through EQUITY
RESEARCH. The analysis of equity gives me the opportunity to understand thoroughly
this behavioral pattern of different equity & overall capital market.
The main objective of the project research is as follows.
1. To Study the equity research and obtain the knowledge of equity market by
A. Fundamental analysis,B. Technical analysis.
2. To Study the present behavior & to estimate the future behavior of equity in stock
market.
3. To review the procedure used by brokers to understand and analyze the factors that affect
the movement of stock prices in Indian Stock Markets.
5. To study the investment scenario of five companies selected for project purpose. Namely
a. RELIANCE INDUSTRIES LIMITED.
b. INFOSYS TECHNOLOGIES.
c. BANK OF INDIA.
d. DLF.
e. SUZLON.6. To make recommendations if any, to improve the investment portfolio of the investors.
5.2 SCOPE OF THE STUDY
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The study is divided in two parts:
a. Basics of Stock Market:
This part of the project deals with study of the stock market. All the basic concepts
and terminologies of the stock are discussed in the first part of the project. Also the
procedure used in Kantilal Chhaganlal Securities Pvt. Ltd. For guiding the investors is
carefully examined by researcher.
b. Data analysis and interpretation:
As per the need recognized by the firm of High Net worth Individuals (HNIs) to
study the investment scenario in various stocks, the researcher has done equity research of
five stocks selected by firm.
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CHAPTER 6
RESEARCH METHODOLOGY
6.1 RESEARCH METHODLOGY
Research is a careful investigation or inquiry especially through search for new facts
in any branch of knowledge. It is defined as a systematic effort to gain new knowledge.
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Research Methodology is defined as a highly intellectual human activity used in
the investigation of nature and matter and deals specifically with the manner in which the
data is collected, analyzed and interpreted. [C.R.Kothari, Research Methodology, Second
Edition, New Age International Publishers].
The research performed is analytical in nature. In analytical research, the researcher
has to use facts or information already available, and analyze these to make a critical
evaluation of the material.
During my project, I collected data through various sources primary & secondary.
Primary source includes:-
1) Discussion with branch manager,
2) Discussion with experts,
3) Live trading in the market,
Secondary source includes:-
1) Various books related to stock market,
2) Books related to Portfolio Management,
3) Web sites were used as the vital information source.
Kantilal Chhaganlal Securities Pvt. Ltd. felt need of evaluating the price patterns of five
randomly selected leading scripts as per Retail investors (HNI client) requirements and also
interested in determining the trends along with price performance in near future. This equity
analysis will facilitate to investor for profitable investment. The companies selected are:
1. RELIANCE INDUSTRIES
2. DLF
3. BANK OF INDIA
4. INFOSYS TECHNOLOGIES
5. SUZLON
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6.
DATA SOURCES
a. The data essential for analysis is collected from www.nseindia.com and
www.bseindia.com.
b. Calculate the intrinsic value of share with help of last five years
financial statements of companies
c. The period taken for carrying out Technical analysis is taken from 1st
Feb 2010 to 31st July2010.
d. The idea is to apply five Technical analysis tools selected for carrying out
technical analysis of these five Companies to define bullish or bearish trend.
e. These five Technical analysis tools selected are,
1. Exponential Moving Average (EMA),
2. Average directional Index (ADX),
3. Moving Average Convergence and Divergence (MACD),
4. Relative Strength Index (RSI),
5. VOLUME.
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CHAPTER 7
DATA ANLYSIS AND INTERPRETATION
FUNDAMENTAL & TECHNICAL ANALYSIS OF COMPANIES
1. RELINCE INDUSTRIES LTD.
FUNDAMENTAL ANALYSIS
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One of the favorite stocks of investors. Even a new entrant in stock market for
investment would look towards RIL as investment option. Many times investors would buy
this stock without looking into fundamentals of the company. Thus a deep view into
fundamentals of the stock is very important. Some of the basic parameters of fundamental
analysis are considered here.
INCOME STATEMENT
YEAR Mar10 Mar09 Mar08 Mar07 Mar06
Revenue 1,92,461.00 1,41,847.00 1,33,443.00 1,11,693.00 81,211.00
Other Income 2,460.00 2,060.00 895.00 478.00 683.00Total Income 1,94,921.00 1,43,907.00 1,34,338.00 1,12,171.00 81,894.00
Expenditure -1,61,880.00 -1,18,534.00 -1,05,404.00 -91,647.00 -66,912.00
Interest -1,997.00 -1,745.00 -1,077.00 -1,189.00 -877.00
PBDT 31,044.00 23,628.00 27,857.00 19,335.00 14,105.00
Depreciation -10,497.00 -5,195.00 -4,847.00 -4,815.00 -3,401.00
PBT 20,547.00 18,433.00 23,010.00 14,520.00 10,704.00
Tax -4,311.00 -3,124.00 -3,552.00 -2,577.00 -1,635.00
Net Profit 16,236.00 15,637.00 19,458.00 11,943.00 9,069.00
TABLE-1
CALCULATION OF INTRINSIC VALUE
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Reliance 2010 2009 2008 2007 2006
EPS 49.7 133.86 85.71 65.08 54.34
DPS 07 13 11 10 7.5
D/P ratio 14.88 9.71 12.83 15.37 13.80
Retention ratio (b) 85.03 90.29 87.17 84.63 86.20
ROE ( r ) 20.14 24.66 19.49 20.08 20.09
Growth (g) 0.17 0.22 0.17 0.17 0.17
% g = b*r 17.13 22.27 16.99 16.99 17.32
Sum = 90.7
Avg. growth rate = 18.14
P/E ratio in 2009 = 20.3
Intrinsic value = 1191.92
Current market price = Rs.1009.2
CMP < Intrinsic value, i.e. stock is undervalued then investor hold/buy this stock.
INDUSTRY ANALYSIS
1. Various Production Segments
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Refinery production: Refinery production in context of crude oil escalated
from 156.11 MT in FY 2007-08 to 160.67 MT in FY 2008-09. Indian Oil
Corporation Ltd is looking forward to elevate the capacity of its Haldia refinery and
Panipat refinery plants to 7.5 million tones and 15 million tones respectively in
2010.
Natural Gas Production: The natural gas production in 2008-09 increased
from the previous year's 32.40 billion cubic meters tones (BCM) to 32.84 BCM. In
2009 alone the Natural gas production was registered at 33,846 million cubic metres.
Crude Oil Production: The projected production of crude oil during the 11th
Five-Year Plan (2007-2012) is 206.76 MMT, while that of natural gas is 255.27
BCM. Cumulative production of crude oil between April-December 2009 was 25,152
MT, while cumulative production of refinery production during the same period was
119,283 MT.
1. India as an international refining destination
India is steadily emerging as an international destination for oil refining with
investment requirements lesser by 25% - 50% as compared to its Asian counterparts.
As per the analysis carried out by Deutsche Bank, India is expected to enhance its
refining competence by 45% in the next 5 years. Being the fifth biggest worldwide
nation in context of distillation capacity, India enjoys 3% of the international
capacity share. To move ahead in making its presence felt strongly in the global
market, Indian petroleum firms are planning to raise their distillation capacity from
the existing 149 mtpa to 243 mtpa by FY 2011-12.
2. Investments in India Petroleum Industry
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In 2010 the state-owned oil firms are expected to splurge US$ 11.34 billion
on developing supplies and constructing new shipping networks for petroleum and
natural gas.
Indian Oil Corporation is looking forward to establish a petroleum plant in
the state of West Bengal by bringing in investments worth US$ 596.63 million
ONGC will bring in US$ 694 million for raising services at its oil fields in
Assam and adjoining states to enhance the petroleum output. In addition it will also
splurge US$ 5.65 billion on capital expenses in the next two years.
GAIL (India) Limited and OVL, the international associate of leading oil and
gas player ONGC, are expected to bring in investments worth US$ 250 million.
1. Future of India Petroleum Industry
As per the latest CII-KPMG analysis, the energy industry of India will help
tin the expansion of the petroleum sector by bringing in investments worth US$ 120
billion-US$ 150 billion in the next 3-5 years. By 2012, the prospects in India
Petroleum Industry are estimated to accomplish US$ 35 billion to US$ 40.
Company analysis
1. Earnings per share show increasing trend from last four Quarters, it means profit
generation capacity is increasing.
2. Company has announced good result for last quarter, the reason behind good performance
in stock market over a long run.
3. Reliance has entered in Retail market they have already started RELIANCE FRESH out
lets.
4. Within a short span of six years as an E&P operator, the company has discovered a
hydrocarbons in the four offshore basin of India namely Krishna, Godavari, Mahanadi,
sourashtra and now Cauvery, basin with major commercial finds in deep water. This
discovery establishes the company as a pioneer in the challenging deep-water exploration.
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5. 2008
- Reliance Industries makes Another Gas Discovery in Shallow Water Block in the
Krishna Basin.
- RIL wins a Deep Water block in NELP VII
- Reliance Industries Strikes Eighth Gas Discovery in Block NEC - 25
in the Mahanadi Basin
6. 2009
- Reliance Industries has discovered natural gas reserves in a well drilled on its NEC-25
block in Mahanadi basin, off the Orissa coast.
- Reliance Industries has raised around Rs 3,188 crore through sale of 1.50 crore equity
shares of the company.
7. 2010
- Haryana Special Economic Zone (SEZ), Reliance Industries (RIL) has roped in a partner,
in a bid to re-energize its dormant.
- RIL has bought around 3 million barrels of spot crude from Brazilian company Petrobras.
The delivery is expected in the next two months.
TECHNICAL ANALYSIS
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TABLE-7
Technically Speaking
1. The stock is seen in short term downtrend; the short term EMA (20) is slightly
below EMA (50) which is further indication of bearishness of stock.
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2. The RSI line which indicates relative strength of stock is above value line 30 i.e.
32.53, which further indicates bearish signal in stock over the next three months.
3. MACD which is Reflection of downtrend of stock supporting the bearishness of
the stock the advice of technical analyst would be wait and watch policy.
2. DELHI LEASE AND FINANCE (DLF)
FUNDAMENTAL ANALYSIS
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Dealing in very interest sensitive sector of realty DLF has made very strong hold
position over the years in capital market. But recent recession in world has made this stock
very unattractive in investors mind. So it has become very need of investors interest that to
analyze future prospect of DLF in Indian stock market.
INCOME STATEMENT
YEAR Mar10 Mar09 Mar08
Revenue 2,419.21 2,827.90 5,532.84
Other Income 801.22 1,011.39 525.62
Total Income 3,220.43 3,839.29 6,058.46Expenditure -1,304.05 -1,106.77 -2,467.21
Interest -847.24 -809.86 -447.65
PBDT 1,069.14 1,922.66 3,143.61
Depreciation -126.05 -113.88 -25.69
PBT 943.09 1,808.78 3,117.92
Tax -171.65 -261.01 -543.52
Net Profit 765.06 1,547.77 2,574.59
TABLE-2
CALCULATION OF INTRISIC VALUE
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DLF 2010 2009 2008
EPS 4.51 9.08 15.1
DPS 2 2 4
D/P ratio 8.25 22.03 26.49
Retention ratio( b) 91.75 77.97 73.51
ROE ( r) 13.16 12.5 22.84
Growth (g) 0.11 0.10 0.17
% g = br 12.07 9.75 16.79
Sum = 38.61
Avg. growth rate = 12.87
P/E ratio in 2009 = 66.8
Intrinsic value = 340.04
Current market price = Rs.301.3CMP < Intrinsic value, i.e. stock is undervalued then investor buy this stock.
Industry analysis
Realty stocks have rallied sharply by over 200 per cent since March, 2009. The
sectors earnings growth momentum has firmed up due to decline in interest rates and
strengthening of the rupee. The sectors forward earnings are expected to grow around 20 %
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in 2011 with DLF, Anant Raj industries, Sobha Developers and India bulls Real Estate
likely to post strong results.
Company Analysis
1. In 2008-DLF inked a memorandum of understanding with the infrastructure company
Gayatri Projects Ltd (GPL) to develop roads, highways and bridges across the country.
2. Company is dealing in real estate sector because of the recession in country this sector
face huge problem but in 2009 impact of recession will come down and so this sector havegood sing for long term prospective DLF is one of the leading company in real estate so
thus the company have good future
3. Percentage wise the net profit of the company is very favorable. The growth in return on
equity is also showing that the company is earning sufficiently for the shareholders.
4. Holders for long term are benefited from the capital appreciation.
5. The P/E ratio showing a down trend may be because of the price not increasing to the
proportion of the profit.
TECHNICAL ANALYSIS
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CHART-8
Technically Speaking
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1. The stock in short term down trend. The short term EMA (20) is above EMA (50)
which is further indication of bullishness of stock.
2. The Signal line of MACD indictor has made significant crossover over EMA (9) and
divergence is at-2., which indicates further bullishness.
3. The RSI line which indicate relative strength of stock in market is near 50 i.e. 47.44,
which further indicates strong uptrend in stock over next three months.
3. BANK OF INDIA (BOI)
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FUNDAMENTAL ANALYSIS
Countries fifth largest public sector bank, though not very popular in investors but
still shown long term interest by some of the corporate as well as retail investors. Looking
towards BOI as investment option it has strong fundamental base due to government
support. It is very interesting to analyze bank future stock market scenario and also to take
the deep looking onto banking sector of India which is showing constant growth over the
past decade.
INCOME STATEMENT
TABLE-3
CALCULATION OF INTRINSIC VALUE
59
YEAR 2009 10 2008 - 09 2007 - 08 2006 - 07 2005 - 06
Income Statement
Revenue 17,877.99 16,347.36 12,355.2 9,180.33 7,028.70
Other Income 2,616.63 3,051.86 2,116.93 1,562.95 1,184.38
Total Income 20,494.62 19,399.22 14,472.1 10,743.28 8,213.08
Expenditure -3,667.82 -3,093.97 -2,644.9 3,131.43 2,281.58
Interest -12,122.04 -10,848.45 -8,125.9 -5,739.86 -4,396.72
PBT 4,704.76 5,456.80 3,701.21 3,257.12 2,486.78
Tax -752.76 -1,157.08 -675.31 -409.69 -214.22
Net Profit 1,741.07 3,007.35 2,009.40 1,123.17 701.44
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Current market price = Rs.410.4
CMP < Intrinsic value, i.e. stock is undervalued then investor hold/buy this stock.
Industry Analysis
Bank stocks have rallied a robust 120 per cent since their March 2009 lows. This
performance has brought the sectors valuing close to the higher end of trading brand. The
current valuations do not provide protection against probable negative surprises such as a
sharp rise in inflation, sudden increase in interest rates and slower growth in loan demand.
The Reserve Bank of India may increases provision and capital adequacy norms for banks
60
YEAR 2010 2009 2008 2007 2006
EPS 33.15 58.79 38.26 23.04 14.39
DPS 7 5 4 3.5 3.4
D/P ratio 24.62 8.50 10.45 15.19 23.63
Retention ratio (b) 75.37 91.50 89.55 84.81 76.37
ROE ( r) 30.2 25.51 22.76 19.54 14.53
Growth (g) 0.27 0.23 0.20 0.17 0.11
% g = br 22.76 23.34 20.38 16.57 11.10
Sum = 94.15
Avg. growth rate = 18.83
P/E ratio in 2009 = 12.38
Intrinsic value = 487.68
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when better economic conditions take effect, which, in turn may impact the long term
sustainable return from equities of banks.
Company analysis
1. Percentage wise the net profit of the bank is very favorable. The growth in return on
equity is also showing that the bank is earning sufficiently for the shareholders.
2. The growing profits are leading towards the growth of the EPS.
3. The price trend also shows that the share is not much volatile and also shows an upward
trend.
4. Holders for long term are benefited from the capital appreciation.
5. The P/E ratio showing a down trend may be because of the price not increasing to the
proportion of the profit.
6. A lower P/E ratio is considered one of the most important criteria for investment purpose.
7. The growing book value indicates that the bank has huge reserves and can be a potential
for bonus.
1. BOI has shown strong surge in the profit margin in last two quarters ending Jun-2010.
TECHNICAL ANALYSIS
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CHART-9
Technically Speaking
1. The stock is seen in uptrend. The short term EMA (20) is above EMA (50) which is
further indication of bullishness of stock.
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2. The Signal line of MACD indictor has made significant crossover over EMA (9)
and divergence is at .5, which indicates further bullishness.
3. The RSI line which indicate overall trend in market is above 70 i.e. 70.99, which
further indicates strong uptrend in stock over next three months.
4. INFOSYS TECHNOLOGIES LTD.
FUNDAMENTAL ANALYSIS
Infosys One of the Trusted in Indian as well as International stock market. It has
given a new dimension to Indian stock market since the upward rally of stock market is
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supported by Indian Information technology sector. It is very important to understand the
fundamentals and technicals behind success story of Infosys stock performance.
INCOME STATEMENT
YEAR 2009 - 10 2008 - 09 2007 - 08 2006 - 07 2005 - 06
Revenue 21,140.00 20,264.00 15,648.00 13,149.00 9,028.00
Other Income 910.00 502.00 683.00 375.00 144.00
Total Income 22,050.00 20,766.00 16,331.00 13,524.00 9,172.00
Expenditure -13,771.00 -13,358.00 -10,685.00 -8,924.00 -6,039.00
Interest -- -- -- -- --
PBDT 8,279.00 7,408.00 5,646.00 4,602.00 3,133.00Depreciation -807.00 -694.00 -546.00 -469.00 -409.00
PBT 7,472.00 6,714.00 5,100.00 4,133.00 2,724.00
Tax -1,717.00 -895.00 -630.00 -352.00 -303.00
Net Profit 5,803.00 5,819.00 4,470.00 3,783.00 2,421.00
TABLE-4
CALCULATION OF INTRINSIC VALUE
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Year 2010 2009 2008 2007 2006
EPS 101.22 101.58 78.15 66.23 87.86
DPS 15 23.5 33.25 11.5 45
D/P ratio 24.71 23.13 42.55 17.36 51.21
Retention ratio (b) 75.28 76.87 57.45 82.64 48.78
ROE (r) 31.56 32.67 33.13 33.89 35.10
Growth (g) 0.24 0.25 0.19 0.28 0.17
% g = b*r 23.76 25.11 19.03 28.01 17.12
Sum =113.03
Avg. growth rate=22.61
P/E ratio in 2010=27.54
Intrinsic value =3449.93
Current market price = Rs.2788.85
CMP < Intrinsic value, i.e. stock is undervalued then investor buy this stock.
Industry analysis
Indian IT sector stocks have given an impressive 148 per cent returns since March
2009. The sectors P/E ratio has doubled to 20, though the net profit for the financial year
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2009-10 is expected to be flat. Though the earnings outlook is showing clear signs of
bottoming out, it remains far from poised to rebound strongly over the next few quarters.
The IT sectors strong market relative outperformance record over the past two quarters has
resulted in valuations hovering around the high end of recent multi-year levels.
Company analysis
1. Rupee Dollar Fluctuation- As most of software companies in India having their clients
in the abroad, mostly in USA. Therefore their earning is getting from of dollar. If the dollar
price increase its affect their revenue badly and recently dollar price has goes up from Rs.42.95
to Rs.48.87 it will affect forth-coming results, and currently fundamentally, it is looking strong.
2. In India, salary of software professional will be decreasing, and it will marginally affect
profit of companies and because of that, EPS will be increase.
3. Gross Profit Ratio of the Company is stable from last five years. It is a good sign of
consistency and smooth working of the company.
4. The Net Profit Ratio is constant for last four years. It means company has good Future.
TECHNICAL ANALYSIS
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CHART-10
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Technically Speaking
1. The stock is seen in long term uptrend. The short term EMA (20) is above EMA
(50) which is further indication of bullishness of stock.
2. The Signal line of MACD indictor has made crossover over EMA (9) , which
indicates further bullishness.
3. The RSI line which indicate overall trend in market is above 50 i.e. 50.74, which
further indicates strong bullishness in stock over next three months.
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5. SUZLON ENERGY LTD.
FUNDAMENTAL ANALYSIS
Dealing in the industry which will definitely flourish in coming years,
Suzlon unable to recover from recessional obstacles. Due to massive increase
in operational expenses, profit margins have been considerably decreasing.
Though stock has performed very good since it has listed in stock market, due
to recent down trend in price the importance of studying future trend in stock
value is vital from investors point of view.
INCOME STATEMENT
(in Cr.) 2009 10 2008 - 09 2007 - 08 2006 - 07 2005 - 06
Revenue 3,508.93 7,251.94 6,926.01 5,380.37 3,788.46
Other Income 222.89 160.78 125.61 88.10 69.28
Total Income 3,731.82 7,412.72 7,051.62 5,468.47 3,857.74
Expenditure -4,190.65 -7,473.40 -5,333.11 -4,186.07 -2,866.69
Interest -653.59 -380.12 -125.34 -89.33 -42.52
PBDT -1,112.42 -440.80 1,593.17 1,193.07 948.53
Depreciation -126.27 -99.16 -86.21 -73.49 -45.87
PBT -1,238.69 -539.96 1,506.96 1,119.58 902.66
Tax -175.40 70.69 -90.08 -58.44 -81.47Net Profit -1,414.09 -469.27 1,265.71 1,061.14 821.19
TABLE-5
CALCILATION OF INTRINSIC VALUE
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YEAR 2010 2009 2008 2007 2006
EPS 1.18 1.58 9.47 36.82 28.51
DPS 0 0 1 5 5
D/P ratio 0 63.29 10.56 13.58 17.54
Retention ratio(b) 0 36.71 89.44 86.42 82.46
ROE ( r) 0 25.51 22.76 19.54 14.53
Growth (g) 0 0.09 0.20 0.17 0.12
% g = b*r 0 9.36 20.36 16.89 11.98
Sum = 58.59
Avg. growth rate = 11.72
P/E ratio in 2010 = 25.8
Intrinsic value = 34.01
Current market price =56.4
CMP >Intrinsic value, i.e. stock is overvalued then investor sell this stock.
Industry analysis
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1. The IEA predicts that by 2020, 327 GW of power generation capacity will be needed,
which would imply the addition of 16 GW per year. This urgent need is reflected in the
target the Indian government has set in its 11th Five Year Plan (2007-2012), which
envisages an addition of 78.7 GW in this period, 50.5 GW of which is coal, and 10.5 GW
new wind energy generation capacity, plus 3.5 GW other renewables.
2. The Indian Ministry of New and Renewable Energy (MNRE) estimates that there is a
potential of around 90 GW for power generation from different renewable energy sources in
the country, including 48.5 GW of wind power, 14.3 GW of small hydro power and 26.4
GW of biomass.
3. It seems likely that the wind power potential is considerably underestimated. The Indian
Wind Turbine Manufacturers Association (IWTMA) estimates that at hub heights of 5565
metres, potential for wind development in India is around 6570 GW.
4. The World Institute for Sustainable Energy, India (WISE) considers that with larger wind
turbines, greater land availability and expanded resource exploration, the potential could be
as great as 100 GW.
5. At the end of 2009, India had 10,926 MW of installed wind farm capacity, and 11,807
MW were reached by the end of the countrys financial year on 31 March 2010. However,
wind power in India is concentrated in a few regions, especially the southern state of Tamil
Nadu, which maintains its position as the state with the largest wind power installation.
6. It had 4.6 GW installed on 31 March 2010, representing close to 40% of Indias total
wind farm capacity. This is beginning to change as other states, including Maharashtra,
Gujarat, Rajasthan, Karnataka, West Bengal, Madhya Pradesh and Andhra Pradesh start to
catch up, partly driven by new policy measures.
7. India ratified the Kyoto Protocol in August 2002, and the possibility to register projects
under the Clean Development Mechanism (CDM) provided a further incentive to wind
energy development.
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Company analysis
1. Earnings per share shows decreasing trend from last four Quarters, it means profit
generation capacity is decreasing.
2. Company has announced good result for last quarter thats why it is looking bullish.
3. The price trend also shows that the share is not much volatile and also shows an upward
trend.
4. A higher P/E ratio is considered one of the most important criteria for investment
purpose.
5. Company has not declared dividend in year 08-09. There is no fixed policy regarding
payment of dividend.
6. But there is one positive news that Suzlon Energy Ltd has informed BSE that
Suzlon Energy Australia Pty Ltd., a step-down wholly owned subsidiary of Suzlon EnergyLtd has entered into an agreement with AGL Energy Ltd for supply of 54 units of Suzlon's
S88-2.1 MW wind turbine generators translating to113.4 MW capacities in Australia in
2009.
TECHNICAL ANALYSIS
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CHART-11
Technically Speaking
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1. The stock is seen in long term bearish. In medium term, the short term EMA (20) is just
below EMA (50) which is further indication of bearishness of stock.
2. The Signal line of MACD indictor has made crossover over EMA (9) and divergence is at
-0.349, which indicates further bearish signal.
3. The RSI line which indicate overall trend of stock is below 40 i.e. 37.76, which further
indicates bearish signal in stock over the next three months.
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CHAPTER 8
SUGGESTIONS AND CONCLUSIONS
8.1 SUGGESTIONS
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With a very little experience of Equity research and small study of Fundamental
analysis and Technical analysis, I would like to give following suggestions to investors in
stocks of companies studied in my research.
Reliance Industries Limited (RIL) looks fundamentally & technically. As the Intrinsic
value showing stock is undervalued, as a researcher I would suggest investors to buy it for
long term.
Though stock is still very far its all time high it is better to but good stock at Fair price
rather than buying fair stocks as good price.
DLF is looking fundamentally good company is dealing in real estate sector. In 2007 the
IPO of DLF Company was introduced to market to with price band Rs. 500 to 550. And
now it is dealing at around Rs.300 so to buy this stock at this range is good for investment.
Technically this stock is also looking good on the basis of some indicators like MACD,
Moving average etc.
Bank of India is one of the leading banks in Indian stock market. Script interprets that,
increasing pattern over period. Though Bank of India Fundamental analysis interprets thatEPS is increasing EPS is Rs.58.79 per Share. So this script should buy at Rs.410. Technical
indicators
also showing bullishness in trend which is further support for concluding Bank Of India as
good investment option for investor.
Infosys is fundamentally good but companys main income is dependent upon dollar ($)
fluctuations and dollar price will come down because of global recession & Infosys
technical chart says that it may come down so my suggestion is to wait & watch as
strategy for Infosys.
Suzlon is fundamentally good company is dealing in wind power Sector. But due to
addition in operational expenses of company stock price is not reflecting its strong
fundamentals and company has registered losses in last two quarters. Technically this stock
is showing bearish on the basis of some indicators like candlesticks, MACD, Moving
average, RSI etc. Suzlon energy fundamentally is shows that are much fluctuation in EPS.
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Company has decided the dividend but not declared. So this stock should sell and present
investor should move to other scrip.
8.2 CONCLUSION
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With the help of project I concluded that blue chip companies are playing very
important role in the share market. Lot of investors is investing their money in the blue chip
companies. And this is the reason that the volume of blue chip companies is high.
During this period of two months I came to know that in the process of equity
analysis of blue chip companys two weapons are playing a vital role i.e. Fundamental
Analysis and Technical Analysis.
The concept of Fundamental Analysis studies the performance of blue chip companies.
With the help of Fundamental Analysis can know the past performance of the blue chip
companies. Fundamental Analysis considers the long-term performance of companies and
this helps the investors to invest their money for long term as well as can get the good
returns.
Technical Analysis comprises short-term analysis of blue chip companies. Technical
Analysis really just studies supply and demand in the market in an attempt to determine
what direction or trend will continue in the future.
The study of technical as well as fundamental analysis can give detail information
about
the well running companies in the market. Before investing in any company one should
study these two concepts.
Also to increase the volume of equity investment, the stock exchanges
should strive to increase transparency, strictly enforce corporate governance norms, provide
more value-added services to investors, and take steps to increase investor confidence.
These stock exchanges will have to plan strategic tie-ups with their foreign counterparts to
get an international platform. A developed and vibrant secondary market can be an engine
for the revival and growth of the primary market. So, to encourage Indian investment and
face international competition every Indian stock exchange has to stress on innovation and
sustained investment in technology to remain ahead.
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WEBSITES
1. www.nseindia.com.
2. www.bseindia.com.
3. www.sebi.gov.in.
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4. www.icharts.comInvestment.
5. www.moneycontrol.com.
6. www.cmie.com.7. www.kcsecurities.com.
BOOKS
1. Investment analysis and Portfolio management
Author- Prasanna Chandra (Tata McGraw-Hill
publication).2. Research Methodology (Methods & Techniques)
Author- C.R. Kothari (New Age publication).
3. Security Analysis ICFAI publication book.
4. The Warren Buffet Way
Author- Kenneth L. Fisher (Wildey-India Publication).
MAGZINES
1. Capital market (Sep 04-17 2010)
2. Dalal Street (June, July, August Edition).