1

A

COMPREHENSIVE PROJECT REPORT ON

EQUITY RESEARCH & TECHNICAL ANALYSIS OF IT SECTOR

Submitted to

(GIDC Rajju Shroff Rofel Institute of Management Studies, Vapi)

IN PARTIAL FULFILLMENT OF THE

REQUIREMENT OF THE AWARD FOR THE DEGREE OF

MASTER OF BUSINESS ADMINISTRATION In

Gujarat Technological University

UNDER THE GUIDANCE OF

MRS. AABHA SINGHVI Lecturer (Finance)

Submitted by

BHAVESH PATEL: Enroll. No. 117160592050 NEHA DUBE : Enroll. No. 117160592053

[Batch: 2011-13]

MBA SEMESTER III/IV

MBA PROGRAMME

Affiliated to Gujarat Technological University

AHMEDABAD

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Students Declaration We Bhavesh Patel and Neha Dube hereby declare that the report for Comprehensive Project entitled EQUITY RESEARCH & TECHNICAL ANALYSIS OF IT SECTOR is a result of our own work and our indebtedness to other work publications, references,

if any, have been duly acknowledged.

Place: Vapi (Signature)

Date Bhavesh

Patel

Neha Dube

3

Institutes Certificate

Certified that this Comprehensive Project Report Titled

EQUITY RESEARCH & TECHNICAL ANALYSIS OF IT SECTOR is the bonafide work of Mr. Bhavesh patel and Miss Neha Dube (Enrolment No. 117160592050,117160592053), who carried out the research under my supervision. I also certify

further, that to the best of my knowledge the work reported herein

does not form part of any other project report or dissertation on the

basis of which a degree or award was conferred on an earlier

occasion on this or any other candidate.

DATE: MRS. AABHA SINGHVI GRIMS, VAPI Lecturer (Finance)

This project report is forwarded for the evaluation to the Gujarat

technological University.

DATE: Director GRIMS,

Vapi

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PREFACE The report on Comprehensive Project has been

prepared as per the guidelines prescribed by college for MBA

students.

Understanding of both practical and theoretical

knowledge is essential in this competitive world. The basic aim of

this study in management field is to know how to apply

management theories in practical. Therefore practicing this study

is important for management students.

Thus, it is our morale and obligatory duty to take this as

a part of our study with great enthusiasm and seriousness and

gives them due important.

And lastly we received all the information and

cooperation from our guide Mrs Aabh singhvi who helped us a lot

during our project work and also the staff and students of the

college. We hope that this report will meet educational

requirements.

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ACKNOWLEDGEMENT

To acknowledge is very great way to show your gratitude towards

the persons who have contributed in your success in one or other

way.

We would like to thank our Director DR. Pankaj Patel

who has given us the opportunity. we would like to thank Mrs.

Abha Singhvi, who has guided us for our project work and

provided encouragement through out our Project work duration.

We lack of words to thankful the entire faculty and staff of

GRIMS, Vapi without which this project would be not a successful

one. Last but not the least we are highly thankful to our parents,

and also to all dear friends for their friendly support and co-

operation.

Place: VAPI Thanking

You DATE:

Bhavesh patel

Neha

Dube

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Executive Summary Equity Research & Technical Analysis is a study of the stock

market relating to factors affecting the supply and demand of

stocks. It help the investor to identify major market turning

points.This is a significant Equity Research & technical analysis

study of selected IT companies which helps to understand the

price behaviour of the shares, the signals given by them and the

major turning points of the market price. Any investor or trader

must certainly consider technical analysis as a tool whether to buy

the stock at a particular point of time though it is fundamentally

strong.

The objective of the present project is to make a study on the

Equity Research & Technical analysis on selected stocks of IT

sector and interpret on whether to buy or sell them by using

techniques. This in turn would help investors to identify the current

trend and risks involved with the scrip on par with market.

The study is purely based on secondary sources which includes

the historical data available from the website. For the purpose of

analysis, statistical tools like Correlation Coefficient, & Co-efficient

of determination, Multiple Regression Analysis and Least squares

equation estimation using simple linear Regression, and

Technical Indicators like Relative Strength Index, Rate Of

Change, Moving average convergence and divergence,

Accumulation Distribution Line, Simple Moving Average used to

know if the stock is technically strong.

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SR NO PARTICULARS PAGE NO

PART I GENERAL INFORMATION 1 Introduction of Stock Exchange

1.1 History of Stock Exchange 8 1.2 Nature & Function of Stock Exchange 10 1.3 Need of Exchange 11 1.4 Security Exchange Board of India 12 1.4.1 Objective of SEBI 12 1.4.2 Salient Features SEBI 12 1.4.3 Function of SEBI 13 1.5 Bombay Stock Exchange 15 1.6 National Stock Exchange 17 1.6.1 Objectives of NSE 17 1.6.2 Benefits of Listing on NSE 18

2 Introduction to CNX IT Index & IT Sectors 2.1) About CNX IT Index 19 2.2) Eligibility Criteria for Selection of Constituent 19 2.3) Index Governance 19 2.4) Functioning of Software segment 22

3 Introduction of Companies 31 PART II PRIMARY STUDY

4 Introduction of Study 4.1) Literature Review 38

4.2) Background of the Study 41

4.2.1) Equity Research 32

4.2.2) Technical Analysis 44

4.3) Problem Statement 50 4.4) Objectives of the Study 50 4.5) Hypothesis 50

5 Research Methodology 51 6 Data Analysis and Interpretation 53 7 Results and Findings 88 8 Limitations of the Study 90 9 Conclusion/Suggestions 91

10 Bibliography 92

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1) HISTORY OF STOCK EXCHANGES

A centralized market for buying & selling stocks where the price is

determined through supply- demand mechanism.

Though the historical records relating to securities market in India is meager and obscure, there is evidence to indicate that the loan securities of

the East Indian Company used to be traded towards close of the 18th

century. By 1830s, the trading in shares of banks started. The trader by the

name of broker emerged in 1830 when 6 persons called themselves as share

brokers. This number grew gradually. Till 1850, they traded in shares of

banks and securities of the East India Company in Mumbai under a sprawling

Banyan Tree in front of the Town Hall, which is now in the Horniman Circle

Park. It is no surprise that the majestic Phiroze Jeejeebhoy Towers is located

at the Horniman Circle. In 1850, the Companies Act introducing limited liability

was enacted heralding the era of modern joint stock company which propelled trading volumes.

The depression was so severe that it paved way for setting up of a

formal market. The number of brokers, which had increased during the civil

war to about 250, declined. During the civil war, they had become so

influential and powerful that even the police had only salams for them. But

after the end of the civil war, they were driven from pillar to post by the police.

They moved from place to place till 1874 when they found a convenient place,

which is now appropriately called Dalal Street after their name. They

organized an informal association on or about 9th July 1875 for protecting

their interests. On 3rd December 1887, they established a stock exchange

called Native Share and Stock Brokers Association. This laid the foundation

of the oldest stock exchange in India. The word native indicated that only natives of India could be brokers of the Exchange. In 1880s a number textile

mills came up in Ahmedabad. This created a need for trading of shares of

these mills.

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In 1894, the brokers of Ahmedabad formed "The Ahmedabad Share

and Stock Brokers' Association". As a result of Swadesi movement and the

coal boom of 1904-08, Calcutta became another major center of share trading

and an exchange was set up in 1908. During interwar years, as the demand

for industrial goods kept increasing, existing enterprise expanded and new ones were floated. Yet another stock exchange was started in Madras in

1920. Stock exchanges in Hyderabad and Delhi started operations in the year

1943 and 1947, respectively. At the time of independence, there were seven

stock exchanges functioning in major cities of the country.

The membership of stock exchanges was initially open to individuals

and partnership firms and was later opened to companies. While the Bombay

Stock Exchange, Ahmedabad Stock Exchange and Madhya Pradesh Stock

Exchange, were organized as voluntary non-profit associations of persons,

the Calcutta Stock Exchange, Delhi Stock Exchange, Uttar Pradesh Stock

Exchange, and others including Ludhiana, Cochin, Gauhati, Jaipur and Manglore Stock Exchanges were organized as public limited companies. The

governance of stock exchanges rests in a governing board comprising of the

members of the board and an Executive Director.

Earlier, the investor service levels were low and the regulatory laws

inadequate. In the mid- eighties, the G.S. Patel committee on stock exchange

reforms and the Abid Hussain Committee on capital markets recommended the creation of a second tier stock market. In 1991, the Department of

Economic Affairs, Ministry of Finance, and Government of India to instituted

an expert study:

1. Study the trading system, covering both specified and non-specified

shares on

major stock exchange.

2. Review effectiveness of regulation and surveillance over trading operation,

3. Look in to the working of badla and its impact on trading, and

4. Make recommendations for investors for investor confidence.

OTCEI arose out of the need to have a second tier market in the

country. It was set up to provide small and medium companies an access to

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capital market for raising finance in a cost-effective manner and investors with

a convenient, transparent, and efficient avenue for capital market investment.

The national reach of BSE and NSE and cutthroat competition between them,

threatened the existence of the regional stock exchanges (RSEs). The

survival of these RSEs, which once had a secure position, had now become a cause for concern. So these RSEs formed the Federation of Indian Stock

Exchanges (FISE) in early 1996. The eroding market share, dwindling

volumes, and declining profitability of members at the RSEs left the FISE with

the two options: join the hands with the BOLT expansion plan or maintain

status quo and wait until capital market revived.

1.1) NATURE & FUNCTIONS OF STOCK EXCHANGE

There is an extraordinary amount of ignorance and of prejudice born

out of ignorance with regard to nature and functions of Stock Exchange. As

economic development proceeds, the scope for acquisition and ownership of

capital by private individuals also grow. Along with it, the opportunity for Stock

Exchange to render the service of stimulating private savings and challenging

such savings into productive investment exists on a vastly great scale. These

are services, which the Stock Exchange alone can render efficiently.

The Stock Exchanges in India have an important role to play in the

building of a real shareholders democracy. To protect the interest of the investing public, the authorities of the Stock Exchanges have been

increasingly subjecting not only its members to a high degree of discipline,

but also those who use its facilities-Joint Stock Companies and other bodies

in whose stocks and shares it deals.

The activities of the Stock Exchange are governed by a recognized

code of conduct apart from statutory regulations. Investors both actual and

potential are provided, through the daily Stock Exchange quotations. The job

of the Stock Exchange and its members is to satisfy the need of market for

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investments to bring the buyers and sellers of investments together, and to

make the 'Exchange' of Stock between them as simple and fair as possible.

1.2) NEED FOR A STOCK EXCHANGE

As the business and industry expanded and economy became more

complex in nature, a need for permanent finance arose. Entrepreneurs

require money for long term needs, whereas investors demand liquidity. The

solution to this problem gave way for the origin of 'stock exchange', which is a

ready market for investment and liquidity.

As per the Securities Contract Act, 1956, "STOCK EXCHANGE"

means any body of individuals whether incorporated or not constituted for the

purpose of regulating or controlling the business of buying, selling or dealing

in securities".

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2) SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI)

Securities and Exchange Board of India (SEBI) setup as an

autonomous regulatory authority by the Government of India in 1988 "to

protect the interests of investors in securities and to promote the development of, and to regulate the securities market and for matters connected therewith

or incidental thereto". It is empowered by two acts namely the SEBI Act, 1992

and the securities contract (regulation) Act, 1956 to perform the function of

protecting investor's rights and regulating the capital markers.

Securities and Exchange Board of India (SEBI) regulatory reach has

been extended to more areas and there is a considerable change in the

capital market. SEBI's annual report for 1997-98 has stated that throughout its

six-year existence as a statutory body, it has sought to balance the twin

objectives of investor protection and market development. It has formulated

new rules and crafted regulations to foster development. Monitoring. and

surveillance was put in place in the Stock Exchanges in 1996-97 and strengthened in 1997-98.

2.1)OBJECTIVES OF SEBI The promulgation of the SEBI ordinance in the parliament gave statutory

status to, SEBI in 1992. According to the preamble of the SEBI, the three

main objectives are:-

To protect the interests of the investors in securities

To promote the development of securities market.

To regulate the securities market.

2.2) SALIENT FEATURES OF SEBI

The SEBI shall be a body corporate by the name having perpetual

succession and a common seal with power to acquire, hold and

dispose of property, both movable and immovable, and to contract,

and shall, by the said name, sue or by sued.

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The Head Office of the Board shall be at Bombay. The Board may

establish offices at other places in India. In Bombay, the Board is

situated at Mittal Court, B- Wing, 224, Nariman Point, Bombay-400 021.

The chairman and the Members of the Board are appointed by the

Central Government.

The general superintendence, direction and management of the affairs

of the Board are in a Board of Members, which may exercise all

powers and do all acts and things which may be exercised or done by

that Board.

The Government can prescribe terms of office and other conditions of service of the Chairman and Members of the Board. The members can

be removed under section 6 of the SEBI Act under specified

circumstances.

It is primary duty of the Board to protect the interest of the investor in

securities and to promote the development of and to regulate the

securities market by such measures, as it thinks fit.

2.3) FUNCTIONS OF SEBI

Regulating the business in Stock Exchange and any other securities

market. Registering and regulating the working of Stock Brokers, Sub-Brokers, Share Transfer Agents, Bankers to the issue, Trustees to trust

deeds, Registrars to an issue, Merchant Bankers, Underwriters,

Portfolio Managers, Investment Advisers and such other Intermediaries

who may be associated with securities market in any manner.

Registering and regulating the working of collective investment

schemes including Mutual Funds.

Promoting and regulating self-regulatory organizations.

Prohibiting fraudulent and unfair trade practices in the securities

market. Promoting investor's education and training of intermediaries in

securities market. Prohibiting Insiders Trading in securities.

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Regulating substantial acquisition of shares and take-over of

companies

Calling for information, understanding inspection, conducting enquiries

and audits of the Stock Exchanges, Intermediaries and Self-Regulatory

organizations in the securities market.

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3) BOMBAY STOCK EXCHANGE (BSE)

Bombay Stock Exchange Limited (the Exchange) is the oldest stock

exchange in Asia with a rich heritage. Popularly known as "BSE", it was established as "The Native Share & Stock Brokers Association" in 1875. It is

the first stock exchange in the country to obtain permanent recognition in

1956 from the Government of India under the Securities Contracts

(Regulation) Act, 1956.The Exchange's pivotal and pre-eminent role in the

development of the Indian capital market is widely recognized and its index,

SENSEX, is tracked worldwide. Earlier an Association of Persons (AOP), the

Exchange is now a demutualised and corporatised entity incorporated under

the provisions of the Companies Act, 1956, pursuant to the

BSE(Corporatisation and Demutualization) Scheme, 2005 notified by the

Securities and Exchange Board of India (SEBI).Bombay Stock Exchange

Limited received its Certificate of Incorporation on 8th August, 2005 and Certificate of Commencement of Business on 12th August, 2005. The 'Due

Date' for taking over the business and operations of the BSE, by the

Exchange was fixed for 19th August, 2005, under the Scheme. The Exchange

has succeeded the business and operations of BSE on going concern basis

and its recognition as an Exchange has been continued by SEBI.

Since then, the stock market in the country has passed through both

good and bad periods. The journey in the 20th century has not been an easy

one. Till the decade of eighties, there was no measure or scale that could

precisely measure the various ups and downs in the Indian stock market.

Bombay Stock Exchange Limited (BSE) in 1986 came out with a Stock Index

that subsequently became the barometer of the Indian Stock Market.

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SENSEX, first compiled in 1986 was calculated on a "Market

Capitalization-Weighted" methodology of 30 component stocks representing a

sample of large, well-established and financially sound companies. The base

year of SENSEX is 1978-79. The index is widely reported in both domestic and international markets through print as well as electronic media. SENSEX

is not only scientifically designed but also based on globally accepted

construction and review methodology. From September 2003, the SENSEX is

calculated on a free-float market capitalization methodology. The "free-float

Market Capitalization-Weighted" methodology is a widely followed index

construction methodology on which majority of global equity benchmarks are based.

The launch of SENSEX in 1986 was later followed up in January 1989 by

introduction of BSE National Index (Base: 1983-84 = 100). It comprised of 100 stocks listed at five major stock exchanges in India at Mumbai, Calcutta ,

Delhi , Ahmedabad and Madras . The BSE National Index was renamed as

BSE-100 Index from October 14, 1996 and since then it is calculated taking

into consideration only the prices of stocks listed at BSE. The Exchange

launched dollar-linked version of BSE-100 index i.e. Dollex-100 on May 22,

2006.

The Exchange also disseminates the Price-Earnings Ratio, the Price to Book

Value Ratio and the Dividend Yield Percentage on day-to-day basis of all its

major indices.

The values of all BSE indices are updated every 15 seconds during the

market hours and displayed through the BOLT system, BSE website and

news wire agencies.

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4) NATIONAL STOCK EXCHANGE (NSE)

NSE was incorporated in 1992 and was given recognition as a stock

exchange in April 1993. It started operations in June 1994, with trading on the

wholesale debt market segment. Subsequently it launched Capital market

segment in November 1994 as a trading platform for equities and the futures

and options segment in June 2000 for various derivative instruments.

4.1) NSE was set up with the objectives of:

1. Establishing a nationwide trading facility for all type of securities:

2. Ensuring equal access to investors all over the country through an

appropriate communication network. 3. Providing a fair, efficient and transparent securities market using

electronic trading system

4. Enabling shorter settlement cycles and book entry settlements;

NSE has been able to take the stock market to the doorsteps of the investors.

The technology has been harnessed to deliver the services to the investors

across the country at the cheapest possible cost. It provides a nationwide,

screen-based, automated trading system, with a high degree of transparency

and equal access to investors irrespective of geographical location. The high

level of information dissemination through online system has helped in

integrating retail investors on a nationwide basis. The standards set by the exchange in terms of market practices, products,

technology and service standards have become industry benchmark and are

being replicated by other market participants. Within a very short span of

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time, NSE has been able to achieve all the objectives for which it was set up.

It has been playing a leading role as a change agent in transforming the

Indian Capital Markets to its present form. The Indian Capital Market are a far

cry from what they used to be a decade age in terms of market practices,

infrastructure, technology, risk management, clearing and settlement and investor service.

4.2) Benefits of listing on NSE

NSE provides a trading platform that extends across length and breath

of the country. Investors from approximately 345 centers can avail of

trading facilities on the NSE trading network. Listing on NSE thus,

enables issuers to reach and service investors across the country.

NSE being the largest stock exchange in terms of trading volumes, the

securities trade at low impact cost and are highly liquidity. This in turn

reduces the cost of trading to the investor.

The trading system of NSE provides unparallel level of trade and post

information. The best five buy and sell orders are displayed on the trading system and the total number of securities available for buying

and selling is also displayed. This helps the investor to know the depth

of the market. Further, corporate announcements, results, corporate

actions etc, are also available on the trading system, thus reducing

scope for price manipulation or misuse. The facility of making initial public offer (IPOs), using NSEs network

and software, results in significant reduction in cost and time of issues

NSE s website www.nseindia .com provides a link to the websites of

the companies that are list on NSE, so that visitors interested in any

company can visit that companiys websites form the NSE sites.

Listed companies are provided with monthly trade statistics for the securities of the company listed on the exchange.

The listing fee is nominal.

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5) About CNX IT Index

Information Technology (IT) industry has played a major role in the Indian

economy during the last few years. A number of large, profitable Indian companies today belong to the IT sector and a great deal of investment

interest is now focused on the IT sector. In order to have a good benchmark

of the Indian IT sector, IISL developed the CNX IT sector index.

Companies in this index are those that have more than 50% of their turnover

from IT related activities like software development, hardware manufacture,

vending, support and maintenance. The index is a market capitalisation

weighted index with its base period being December 1995 and the base date

and base value being January 1, 1996 and 1,000 respectively.

5.1) Eligibility Criteria for Selection of Constituent Stocks Companies must rank within the top 500 companies ranked by

average free-float market capitalisation and aggregate turnover for the last six

months.

Companies should form a part of the IT sector. The companys trading frequency should be at least 90% in the last six

months.

The company should have reported a positive net worth.

The company should have an investable weight factor (IWF) of at least

10%.

The company should have a listing history of 6 months. A company which comes out with an IPO will be eligible for inclusion in the index, if

it fulfills the normal eligibility criteria for the index for a 3 month period

instead of a 6 month period.

Final selection of 20 companies shall be done based on the free-float market capitalization of the companies

5.2) Index Govenance: A professional team at IISL manages CNX IT Index. There is a three-tier

governance structure comprising the Board of Directors of IISL, the Index

Policy Committee, and the Index Maintenance Sub-Committee.

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what exactly does IT cover?

Anything involved with software, computers, networks, intranets, Web

sites, servers, databases and telecommunications falls under the IT umbrella.

IT is the technology that helps companies store, process and flow data within

an organization. This sector ultimately serves other sectors like Banking, Manufacturing, Telecom, Hotels, Hospitals etc. to improve their efficiency and increase their revenues via customer satisfaction.

Figure Title: IT SEGMENTWISE MARKET SHARE

Figure no: 1

1. IT- Software These companies help in developing and implementation of different software for their clients worldwide. These

software could be for documentation, security services, banking

softwares etc. 2. ITeS Business process outsourcing (BPO) Major Corporations

across the world outsource their back-office operations to some

companies. E.g. Employee payroll for a US companys global

workforce is maintained by an Indian BPO. Slowly the definition is

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expanding to Human resources, accounting, logistics, legal processes

etc. 3. IT- Hardware and peripherals - The stuff you can actually see and

touch, and would likely break if you threw it out a fifth-story window, is

hardware. This would include laptops, desktops, Storage devices,

Networking devices, LCD, printers etc. 4. IT- Education This segment provides training for employment in the

other segments. This would include companies providing various certification courses, like Java, Oracle etc. These companies also

provide training for employees in corporate sector. Recently, some

companies have also expanded this service to cater to schools and

colleges.

This sector has made significant contributions to Indias economic growth in terms of GDP increase, foreign exchange earnings as well as employment

generation. Its contribution to GDP has increased tenfold in last decade, from

0.6% to 6% till 2009-10. The sector has helped India transform from a rural

and agriculture-based economy to a knowledge-based economy. Besides

this, the lives of people have been positively influenced by direct or indirect

contribution of IT sector to various parameters such as employment, standard of living, per-capita income etc.

Table Title: TOP PLAYERS IN INDIAN IT INDUSTRY

Table no: 1

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In India, the IT Software segment has seen significant growth and has put

India on the global map. It contributes for almost 75% of the total revenues of

the IT sector. Though Hardware enjoys second place in terms of market

share in India, it is quite low as compared to global benchmark. The BPO segment has grown well and is expected to make a footprint in the IT Sector.

Figure Title: Functioning of Software segment

Figure no: 2

5.3) Functioning of Software segment is explained pictorially in the figure below:

The software sector is service-oriented and thus the products offered are

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tailored to the requirement of its client. Hence, major input costs are those of

human resources (forming almost 40% of the total costs) and research and

development. Companies understand the requirements of clients and the product is developed accordingly.

In the last ten years the IT sector in India has grown at an average annual rate of 28%. India has emerged as the preferred destination for IT services owing to the cost advantage and talent pool.

India accounts for almost 51% of the global sourcing market. Exports contribute around 75% of the total revenue of the IT sector in India. However

due to increased export-orientation and lesser domestic consumption the

sector suffered major hit in the recession that shook the globe in 2008-09. In

the year 2010, different economies began seeing recovery, but at varying

pace. Indian companies have subsequently begun tapping other geographical markets and domestic consumption has also relatively increased.

Table Title: Comparing the Top Players Table no: 2

Comparing the Top Players

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As can be seen from the table above, Educomp Solutions has clocked

the highest Sales CAGR of 99% in the past five years, followed by HCL

Infosystems (50%), Infosys (24%) and Wipro (22%). However, the

highest margins are enjoyed by the software majors Infosys (28%),

closely followed by Educomp (27%) and TCS (24%).

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Figure Title: PORTERS FIVE FORCES MODEL

Figure no: 3

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1. Easy availability of Talent pool and cost advantage

The sector is human power and knowledge-oriented and this cost

accounts for more than 40% of overall cost. Indians are considered to

have better mathematical skills required for writing software. The easy

availability of this talent pool makes it a long-term

advantage. Widespread knowledge of English makes this pool employable, as compared to other countries like China, Japan etc. Also,

it is 5 to 8 times cheaper to employ an Indian technologist than one from developed countries and thus the business has been flowing to

India over the years.

2. Process and Quality Nearly all the Indian software companies take CMM

(Capability Maturity Model) certification, which is the benchmark of quality management. Out of approximately 250 companies reaching supreme level i.e. level 5 of CMM, 60 are from India. This gives the

impression of the company being dependable and hence, helps them

tap the market easily.

3. Supportive government policies In early 1970s when Americans began looking offshore for

software development, the government policies of India were not much

supportive. However, post liberalisation the government recognised the

potential and took supportive stance towards IT by reducing import tariff

on Hardware and Software, developing Software Technology Parks and

introducing legislative actions to protect intellectual property (e.g.

Information technology act 2000). Indian government policies are

framed in a way that ensures maximum benefit out of IT outsourcing to

India.

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4. Unique geographic location The major consumer of IT products so far has been the US. The

time difference between India and US is 12 hours and it offers

economy of 24 hours a day by communication equipment.

1. Threat of new emerging service economies Along with India, Israel and Ireland carry most of the benefits for development of IT

Sector. These countries are now taking up the market share and posing

threat to Indian IT sector. Moreover, software sector of Korea, Taiwan,

Philippine challenges India.

2. Emergence of China as substitute China is gradually emerging as a tough competitor in offshore IT services. China has begun offering

better rates with reduced operational costs as compared to India,

because of its low cost talent pool. The government of China is taking

measures to improve the IT sector and to overcome the language

barrier.

Although China has not yet reached Indias revenue rate of USD 12.7

billion/year from Information technology services, Chinas IT and BPO

sector is expected to grow 30 percent annually by 2013. Bill Gates has

forecasted that software sector of China would reach Indias in 5 years.

3. Hardware Sector lagging behind India is the leader for Software and ITeS sector. However, the development of hardware sector has

been lagging, due to it being a low margin business. Indian companies

thus have to depend on foreign countries for their hardware

requirement.

4. Poor Infrastructure Greater communication facilities are necessary for software, ITeS, BPO to grow at faster rate.

Communication network in India is far behind most of the western

developed countries and worse than our closest competitor China.

Arrival of 3G however, will give a relief to some extent.

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5. Concentrated market and Anti-outsourcing United States and United Kingdom have been the dominant market for Indian IT sector.

This dependency and concentration on few markets resulted in sudden

fall in demand towards the end of last decade on the aftermath of the

recent global crisis. Also, countries have started raising their concerns

regarding migration of jobs to India. Diversified client base would help

reduce the dependency of the sector on few economies.

6. Domestic consumption Overseas market accounts for 75% of Indian software sector, mainly from software outsourcing. The demand

for IT products within India has been very less, as compared to those

by other countries. The environment necessary for further growth of

software sector would come with domestic consumption of its products.

7. Exchange rate A major part of the Sector revenue is earned in Foreign currency (due to high exports) but it incurs expenses (e.g.

employee salary) in Indian rupees. Thus, appreciation of rupee reduces

revenues whereas depreciation increases the revenues. The fluctuating

exchange rate brings volatility in operating margins for IT sector.

After recession, the year 2010 has seen steady recovery by the sector.

Global markets have seen a growth of 5% in GDP, with developing

nations growing faster than developed nations. IT spend in 2011 is

expected to grow nearly 4%. Worldwide IT spending will also benefit from the accelerated recovery in emerging market.

According to NASSCOM, India can reach $ 130 Billion in IT revenue by 2015, with CAGR of 14%. With this, it would be contributing to 7% of annual GDP and creating 14.3 million employment opportunities. With the government taking active measures to stimulate the growth of

IT sector and emergence of BPO and KPO over last few years, India is

expected to climb the global value and knowledge chain. In long-term we can expect the Indian IT sector to see good growth. Different

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segments of the sector are set to experience different growth

rates. BPO industry will experience high growth but the Software and ITeS segment is expected to see slower growth. However, on company basis each company has to compete against

other domestic as well as global player. They have to adapt new business models to compete with global players e.g. Cloud, On-demand services, and SaaS. With increased threat from countries like China, the companies will suffer loss unless they change business models. It is very important that while investing in a company, an investor

selects a sector, where the long-term future prospects are bright. In the

above case, we have seen that the IT sector is expected to have good

growth in the long run. Also, it is equally important that the company

has anexcellent financial track record( i.e. Green 10 Year X-Ray) and its long-term future prospects are Green (Very Good). *The 10 YEAR X-RAY facilitates analysis of the financial performance

of the company considering the five most important parameters. A 10

Year period will normally encompass an entire business cycle.

Analysing the performance over this time frame is essential to

understand how a company has fared during the good as well as bad

times. The five most important parameters that one needs to look at are

Net Sales Growth Rate, EPS Growth Rate, Book Value Per Share

(BVPS) Growth Rate, Return on Invested Capital (ROIC) and Debt to

Net Profit Ratio.

Given below is the MoneyWorks4me assessment for a few IT companies: At MoneyWorks4me we have assigned colour codes to the 10 YEAR X-RAY and Future Prospects of the companies, as Green

(Very Good), Orange (Somewhat Good) and Red (Not Good).

30

Table Title: ASSESSMENT FOR A IT COMPANY

Table no: 3

While investing, one must always invest in a company that operates in a

sector with bright long-term prospects. Further, the companys 10 YEAR X-

RAY and future prospects should also be Green. The table above gives you a list of few Indian companies from the IT Sector that you could consider

investing in.

31

6) INTRODUCTION OF IT COMPANIES

6.1) HCL TECHNOLOGIES HCL Technologies Limited (HCL) (BSE: 532281, NSE: HCLTECH) is an

Indian provider of Information technology (IT) services and consulting

company headquartered in Noida, Uttar Pradesh, India. It is primarily engaged in providing a range of outsourcing services, business process

outsourcing and infrastructure services. HCL Technologies is the largest IT

company in India and is ranked 48 in the global list of IT services providers.

HCL Technologies is one of more than 3,000 technology companies in

the Bloomberg database. HCL Technologies is one of the seven companies

with a revenue of more than $4.5 billion, a market capitalization of more than

$5 billion, and a compounded annual growth rate greater than 25 per cent

during the past five years.

History HCL Technologies is one of three businesses which are separately listed in

India falling under the corporate umbrella of HCL Enterprise with combined

annual 2011 revenues of US$6 billion. HCL Enterprise was founded in 1976

and is one of India's original IT garage start ups.[citation needed] HCL

Technologies formed in 1991 when HCL's R&D business was spun off to

focus on the growing IT services industry. They have decided to vast their

features in Information Technology all over the world. Over the last 20 years,

HCL has expanded its service portfolio in IT applications (custom applications for industry solutions and package implementation), IT infrastructure

management, and business process outsourcing, while maintaining and

affecting product engineering.HCL Technologies is the first Indian IT garage

start up.It is also the first company to address the needs of Indian Consumer

Market.

32

6.2) Infosys Limited Infosys Limited (formerly Infosys Technologies Limited) is an Indian

multinational provider of business consulting, technology, engineering, and

outsourcing services. It is headquartered in Bangalore, Karnataka.[2] Infosys

is the third-largest India-based IT services company by 2012 revenues. Of

this revenue, the majority comes from international business. In 2009, Infosys collected 1.2% of its income from the domestic Indian market. Infosys was co-founded in 1981 by N. R. Narayana Murthy, Nandan Nilekani,

N. S. Raghavan, S. Gopalakrishnan, S. D. Shibulal, K. Dinesh and Ashok

Arora after they resigned from Patni Computer Systems. The company was

incorporated as "Infosys Consultants Pvt Ltd." in Model Colony, Pune as the

registered office and signed up its first client, Data Basics Corporation, in New

York. In 1983, Infosys corporate headquarters was relocated to Bangalore. In

1999, Infosys achieved Capability Maturity Model level 5 certification.

In recent years, Infosys has begun shifting operations to the United States

and other countries outside of India. In 2012, Infosys announced a new office

in Milwaukee, Wisconsin to service Harley-Davidson, being the 18th international office in the United States.Infosys hired 1,200 United States

employees in 2011, and expanded the workforce by an additional 2,000

employees in 2012.Globally, Infosys has 67 offices between the US, India,

China, Australia, Japan, Middle East, UK, Germany, France, Switzerland,

Netherlands, Poland, Canada.

6.3) Oracle Financial Services Software Limited Oracle Financial Services Software Limited (formerly called i-flex Solutions

Limited BSE: 532466) is a subsidiary of Oracle Corporation. It is an IT

solution provider to the banking industry. It claims to have more than 900

customers in over 145 countries.Oracle Financial Services Software Limited

is ranked No. 9 in IT companies of India and overall ranked No. 253 in

Fortune India 500 list in 2011.

33

History Part of Citicorp Oracle Financial Software Limited was a part of Citicorp's (now Citigroup)

wholly owned subsidiary called Citicorp Overseas Software Ltd (COSL). In

1991, Mr. Ravi Apte carved out a separate company called Citicorp

Information Technologies Industries Ltd. (CITIL) out of COSL and named Mr.

Rajesh Hukku to head CITIL. While COSL's mandate was to serve Citicorps

internal needs globally and be a cost center, CITIL's mandate was to be

profitable by serving not only Citicorp but the whole global financial software

market. COSL was the brain child of Mr. Ravi Apte, who convinced Citicorp,

while working for Citibank, to start COSL as the offshore captive. Many of the executive management of Oracle Financial Services, including

Rajesh Hukku, R.Ravisankar and NRK Raman were at COSL and moved to

CITIL when it was formed. i-flex CITIL started off with the universal banking product MicroBanker (which

became successful in some English speaking parts of Africa and other developing regions over the next 34 years) and the retail banking product

Finware. In the mid-90s, CITIL developed FLEXCUBE at its Bangalore

development center after a significant development effort spanning more than

18 months. After the launch of FLEXCUBE, all of CITIL's transactional

banking products were brought under a common brand umbrella.

CITIL changed its name to i-flex solutions to reflect its growing independence

from Citicorp and to strengthen its FLEXCUBE brand. The name CITIL also

made the prospective client banks hesitant about trusting the company with

their data, since the name alluded to a close link with Citibank which could be

one of their competitors.

The first version of MicroBanker was created at COSL by Ravi Sankaran who migrated to Australia before CITIL was formed. COSL started selling

MicroBanker to non-Citi banks in Africa. Ravi Apte the founder CEO of COSL

decided to carve out CITIL to focus on non-Citi business. Because non-Citi

was the primary target for MicroBanker, MicroBanker was moved to CITIL.

Rajesh Hukku was in the United States managing COSL's business

34

development in North America during the time CITIL was formed. It was Mr.

Apte who decided to get Hukku back to India to head the newly formed

CITIL.[citation needed] This is previously Oracle Corporation Oracle Financial Services Software Bagmane Tech Park, Bangalore In 2006, i-flex became a majority-owned subsidiary of Oracle Corporation.

Oracle built its stake through a series of purchases, first buying Citigroup's

41% stake in i-flex solutions for US$593 million in August 2005, a further

7.52% in March and April 2006, and 3.2 per cent in an open-market purchase

in mid-April 2006. On 14 August 2006, i-flex solutions announced it would acquire Mantas, a

US-based anti-money laundering and compliance software company for

US$122.6 million. The company part-funded the transaction through a

preferential share allotment to majority shareholder Oracle Corporation.

Following its acquisition by Oracle, i-flex has begun an expansion plan

reportedly to capitalize on its owner's brand and financial strength.[citation needed] It has invested to expand capacity at its existing locations in India

which is reportedly sufficient to accommodate 17,000 employees compared

with over 10000 staff already employed by the company in August

2007.[citation needed]

On 12 January 2007, after an open offer price to minority shareholders,

Oracle increased its stake in i-flex to around 83%. On 4 April 2008, the board of directors of i-flex solutions approved a proposal

to change the name of the company to Oracle Financial Services Limited,

subject to regulatory and shareholder approvals. A press release issued by

the company said that "The proposed new name reflects the company's close

strategic and operational alignment with its parent, Oracle Corporation, which

owns 81 percent of the company." It added that the current management

team under N.R.K. Raman, CEO and Managing Director, will continue to run

the operations of the company.

On 24 October 2010, Oracle announced the appointment of Chaitanya M

Kamat (Chet Kamat) as Managing Director and Chief Executive Officer of

Oracle Financial Services Software Limited. Mr. Kamat has also joined the

35

Board of Directors. The outgoing CEO and MD, N.R.K.Raman retired from

these posts after 25 distinguished years of service.

6.4) WIPRO Wipro Limited (formerly Western India Products Limited) (NYSE: WIT, BSE:

507685) is an information technology (IT) consulting and outsourcing service company located in Bangalore, Karnataka, India. As of 2012, the company

had 140,000 employees in 54 countries.Wipro is the second largest IT

services company in India. Its subsidiary, Wipro Enterprises Ltd., offers

consumer care, lighting, healthcare, and infrastructure engineering.

In February 2002, Wipro became the first software technology and services

company in India to

be certified for ISO 14001 certification. Wipro also achieved ISO 9000

certification to become the first software company to get SEI CMM Level 5in

2002. Wipro Consumer Care and Lighting Group entered the market of

Compact Fluorescent Lamps, with the launch of a range of CFL, under the

brand name of Wipro Smartlite. As the company grew, a study revealed that Wipro was the fastest wealth creator for 5 years (19972002).The same year

witnessed the launch of Wipros own laptops with Intel's Centrino mobile

processor. Wipro also entered into an exclusive agreement with the owners of

Chandrika for marketing of their soap in select states in India. It set up a

wholly owned subsidiary company viz. Wipro Consumer Care Limited to manufacture consumer care and lighting products. In 2004, Wipro joined the

billion dollar club. It also partnered with Intel for i-shiksha. The year 2006 saw

Wipro acquire cMango Inc., a US based Technology Infrastructure Consulting

firm[Enabler, and a Europe based retail solutions provider. In 2007, Wipro

inked a large deal with Lockheed Martin. It also entered into a definitive

agreement to acquire Oki Techno Centre Singapore Pte Ltd (OTCS) and signed an R&D partnership contract with Nokia Siemens Networks in

Germany. The year 2008 saw Wipros foray into the clean energy business

with Wipro Eco Energy. In April 2011, Wipro signed an agreement with

Science Applications International Corporation (SAIC) for the acquisition of

36

their global oil and gas information technology practice of the commercial

business services business unit. The year 2012 saw Wipro make its 17th

acquisition in IT business when it acquired Australian analytics product firm

Promax Applications Group (PAG) for $35 million.

6.5) Tata Consultancy Services Tata Consultancy Services Limited (TCS) (BSE: 532540, NSE: TCS) is an

Indian multinational information technology (IT) services, business solutions

and outsourcing services company headquartered in Mumbai, Maharashtra.

TCS is a subsidiary of the Tata Group and is listed on the Bombay Stock

Exchange and the National Stock Exchange of India. It is one of India's most

valuable companies and is the largest India-based IT services company by

2012 revenues.

History 1968 to 2000 Tata Consultancy Services (TCS) was founded in 1968. Its early contracts

included providing punched card services to sister company TISCO (now Tata Steel), working on an Inter-Branch Reconciliation System for the Central

Bank of India, and providing bureau services to Unit Trust of India.

In 1975, TCS conducted its first campus interviews, held at IISc, Bangalore.

The recruits comprised 12 Indian Institutes of Technology graduates and

three IISc graduates, who became the first TCS employees to enter a formal graduate trainee programme.

In 1979, TCS delivered an electronic depository and trading system called

SECOM for the Swiss company SIS SegaInterSettle. TCS followed this up

with System X for the Canadian Depository System and automating the

Johannesburg Stock Exchange. TCS associated with a Swiss partner, TKS Teknosoft, which it later acquired.

In 1981, TCS established India's first dedicated software research and

development center, the Tata Research Development and Design Center

37

(TRDDC) in Pune. In 1985 TCS established India's first client-dedicated

offshore development center, set up for client Tandem.

In the early 1990s the Indian IT outsourcing industry grew rapidly due to the

Y2K bug and the launch of a unified European currency, Euro. TCS created the factory model for Y2K conversion and developed software tools which

automated the conversion process and enabled third-party developer and

client implementation.

2000 to present By 2004, TCS's e-business activities were generating over US$500 million in

annual revenues.

On 25 August 2004 TCS became a publicly listed company. In 2005 TCS

became the first India-based IT services company to enter the bioinformatics

market. In 2006 TCS designed an ERP system for the Indian Railway

Catering and Tourism Corporation. In 2008 TCS undertook an internal restructuring exercise which aimed to increase the company's agility.

TCS entered the small and medium enterprises market for the first time in

2011, with cloud-based offerings. On the last trading day of 2011, TCS

overtook RIL to achieve the highest market capitalisation of any India-based

company. In the 2011/12 fiscal year TCS achieved annual revenues of over U$10 billion for the first time.

38

PART TWO

4) Literature Review

(1) Ravindra and wang in 2006 examined the relationship of trading volume to

stock indices in Asian markets. stock market indices from 6 developing market in asia were analyzed over a 34 month periods ending in october

2005.In the south korean market the causality extends from the stock indices

to trading volume,while the casuality was the opposite in the taiwanese

market.

Causality between stock index return and volumes in the asian equity market

Ravindra, wang

(2) Price and volume are simultaneously determined in equilibrium. Whatever process generates price also gives rise to the accompanying trading volume.

Trading volume is also a widely available market statistic. Therefore, it is

perhaps not surprising that both financial academics ~e.g., Blume et al.

~1994!! and practitioners ~e.g., various technical chartists! have recognized

the potential usefulness of trading volume in investment decisions.

Price Momentum and Trading Volume CHARLES M. C. LEE and BHASKARAN SWAMINATHAN

(3) Using the multivariate statistical methods of principal component analysis

and discriminate analysis, it aim to determine an accurate method for

classifying a companys stock as a good or a poor investment choice.

Additionally, they will explore the possibilities for reducing the dimensionality

of a complex financial and economic dataset while maintaining the ability to

account for a high percentage of the overall variation in the data. A Multivariate Statistical Analysis of Stock Trends

April Kerby James Lawrence ,Alma College Miami University Alma, MI

Oxford, OH

39

(4) Article reports the results of a questionnaire survey conducted in February

1995 on the use by foreign exchange dealers in Hong Kong of fundamental

and technical analyses to form their forecasts of exchange rate movements.

Our findings reveal that>85% of respondents rely on both fundamental and

technical analyses for predicting future rate movements at different time horizons. At shorter horizons, there exists a skew towards reliance on

technical analysis as opposed to fundamental analysis, but the skew

becomes steadily reversed as the length of horizon considered is extended.

Technical analysis is considered slightly more useful in forecasting trends

than fundamental analysis, but significantly more useful in predicting turning

points. Interest rate-related news is found to be a relatively important fundamental factor in exchange rate forecasting, while moving average and/or

other trend-following systems are the most useful technical technique."

LUI, Y.H. and D. MOLE, 1998. The use of fundamental and technical

analyses by foreign exchange dealers: Hong Kong evidence. Journal of

International Money and Finance. [Cited by 53] 7.07

(5) Technical analysis is a method of evaluating securities by analyzing the

statistics generated by market activity. It is based on three assumptions: the market discounts everything, price moves in trends and history tends to

repeat itself. Technicians believe that all the information they need about a

stock can be found in its charts. Technical traders take a short-term approach

to analyzing the market. One of the most important concepts used in technical

analysis is that of a trend, which the general direction that a security is

headed. Volume is the number of shares or contracts that trade over a given

period of time, usually a day. The higher the volume, the more active the

security. In study tools such as rate of change, relative strength index, and

exponential moving average were used to analyze the data. Researcher finds

that the selected securities had high fluctuations during the period. Finally the

researcher concludes that technical analysis suitable to the short-term approach than the long term approach.

40

A Study on Technical Analysis with Special Reference to Cement

Sector,K.S.Nemavathi

(6) project is to make a study on the technical analysis on selected stocks of

energy sector and interpret on whether to buy or sell them by using

techniques. This in turn would help investors to identify the current trend and

risks involved with the scrip on par with market. The study is purely based on secondary sources which includes the historical data available from the

website. For the purpose of analysis, techniques like Beta, Relative Strength

Index and Simple Moving average is used for the analysis to know if the

stock is technically strong.

Technical Analysis on Selected Stocks of Energy Sector R. Chitra

41

4.2) INTRODUCTION

Technical Analysis helps to predict the direction of share price movement

through the study of past market data, primarily price and volume. Technical

analysts consider that prices of the securities are determined largely by forces

of demand and supply. The technical analysts use charts, graphs, trends and moving averages to predict the direction and magnitude of price changes.

Pricing, a leading technical analyst, provided a more specific definition that

the trends are determined by the changing attitudes of investors towards the

different economic, monetary, political, and psychological factors. However ,

sometimes, the share price of the company is subject to be influenced by

investor sentiments. Hence, are required to consider the following factors while conducting Technical Analysis:

Budget News;

Announcement of Election news;

Changes occurring in the parliament;

Announcement of company results;

Changes that have occurred in the management of a company;

Announcement of stock Split, rights Issue, Bonus; Changes of interest rate by RBI.

42

4.2.1) Equity Research A method that seeks to understand behavior by using complex mathematical

and statistical modeling, measurement and research. By assigning a

numerical value to variables, quantitative analysts try to replicate reality

mathematically.

Coefficient of variance Coefficient of variance helps to find out how big the securitys variance really

is relative to the price of the stock. It compares the risk of assets with varying

averages to their expected returns. The coefficient of variance divides a

securitys standard deviation by mean price and multiplies it by 100.

Correlation Coefficient The quantity r, called the linear correlation coefficient, measures the strength and the direction of a linear relationship between two variables. The linear

correlation coefficient is sometimes referred to as the Pearson product

moment correlation coefficient in honor of its developer Karl Pearson.

The value of r is such that -1 < r < +1. The + and signs are used for positive

linear correlations and negative linear correlations, respectively.

Co-efficient of determination The coefficient of determination, r 2, is useful because it gives the proportion

of the variance (fluctuation) of one variable that is predictable from the other

variable.

It is a measure that allows us to determine how certain one can be in

making predictions from a certain model/graph. The coefficient of determination is the ratio of the explained variation to the

total variation.

43

The coefficient of determination is such that 0 < r 2 < 1, and denotes the

strength of the linear association between x and y

Regression analysis Regression analysis is a statistical technique for estimating the relationships among variables. It includes many techniques for modeling and analyzing

several variables, when the focus is on the relationship between a dependent

variable and one or more independent variables. More specifically, regression

analysis helps one understand how the typical value of the dependent

variable changes when any one of the independent variables is varied, while

the other independent variables are held fixed. Most commonly, regression

analysis estimates the conditional expectation of the dependent variable

given the independent variables that is, the average value of the

dependent variable when the independent variables are fixed. Less

commonly, the focus is on a quantile, or other location parameter of the

conditional distribution of the dependent variable given the independent

variables. In all cases, the estimation target is a function of the independent variables called the regression function. In regression analysis, it is also of

interest to characterize the variation of the dependent variable around the

regression function, which can be described by a probability distribution.

Regression analysis is widely used for prediction and forecasting, where its

use has substantial overlap with the field of machine learning. Regression analysis is also used to understand which among the independent variables

are related to the dependent variable, and to explore the forms of these

relationships. In restricted circumstances, regression analysis can be used to

infer causal relationships between the independent and dependent variables.

44

4.2.2) Technical Analysis

Price of securities in the stock market fluctuate daily on account of continuous

buying and selling. Stock prices move in trend and cycles and are never

stable. An investor in the stock market is interested in buying securities at a

low price and selling them at a high price so as to get a good return on his investment.

A technical analyst believes that share prices are determined by the

demand and supply forces operating in the market. These demand and

supply forces in turn are influence by a number of fundamental factors as well

as certain psychological or emotional factors. Many of these factors cannot be

quantified. The combined impact of all these factors is reflected in the share

price movement. A technical analyst therefore concentrates on the movement

of share prices. He claims that by examining past share prices movement

future share prices can be accurately predicted. Technical analysis is the

name given to forecasting techniques that utilise historical share price data.

The rationale behind technical analysis is that share price behavior

repeats itself over time and analyst attempt to derive methods to predict this repetition. A technical analyst looks at the past share price data to see if he

can establish ant patterns. The basic premise of technical analysis is that

prices move in trends or waves which may be upward or downward. It is

believed that the present trends are influenced by the past trends and that the

projection of future trends is possible by an analysis of past price trends. A technical analyst, therefore, analyses the price and volume movements of

individual securities as well as the market index. Thus, technical analysis is

really a study of past or historical price and volume movement so as to predict

the future stock price behavior.

45

Basic Principles of technical analysis

1. The market value of a security is related to demand and supply factors

operating in the market.

2. There are both rational and irrational factors which surround the supply

and demand factors of a security.

3. Security prices behave in a manner that their movement is continuous

in a particular direction for some length of time.

4. Trends in stock prices have been seen to change when there is a shift

in the demand and supply factors.

5. The shifts in demand and supply can be detected through charts prepared specially to show market action.

6. Patterns which are projected by charts record price movements and

these recorded patterns are used by analysts to make factors about

the movement of prices in future.

7.

Mathematical Indicators Share prices do not rise or fall in straight line. The movements are erratic.

This makes it difficult for the analyst to gauge the underlying trend. He can

use the mathematical tool of moving averages to smoothen out the apparent

erratic movements of share prices and highlight the underlying trend.

[A] Moving Averages Moving averages are mathematical indicators of the underlying trend of

the price movement. Two types of moving averages (MA) are commonly used

by analysts- the simple moving average and the exponential moving average.

The closing prices of shares are generally used for the calculation of moving

average.

1. Simple Moving Average

An average is the sum of prices of a share for a specific number of days

divided by the number of days. In a simple moving average, a set of

46

averages are calculated for a specific number of days, each average

being calculated by including a new price and excluding an old price.

[B] Oscillators Oscillators are mathematical indicator calculated with the help of the

closing price data. They help to identify overbought and oversold

conditions and also the possibility of trend reversals. These indicators are

called oscillators because they move across a reference point. 1. Rate Of Change Indicators (ROC)

It is a very popular oscillator which measures the rate of change of the current price as compared to the price a certain number of days or

weeks back. To calculate a 7 day rate of change, each days price is

divided by the price which prevailed 7 days ago and then 1 is

subtracted from this price ratio.

ROC= Current Price____-1 Price n period ago.

The ROC value may be positive, negative or zero. An ROC

chart the X axis represents the time and the Y axis represents the

values of the ROC. The ROC values oscillate across the zero line.

When the ROC line is above the zero line, the price is rising and when

it is below the zero line, the price is falling.

Ideally, one should buy a share that is oversold and sell a share

that is overbought. In the ROC chart, the overbought zone is above the

zero line and the oversold zone is below the zero line. Many analysts use the zero line for identifying buying and selling opportunities.

Upside crossing (from below to the zero line) indicates a buying

opportunity, while a downside crossing (from above to below the zero

line) indicates a selling opportunity.

47

2. Relative Strength Index (RSI) Relative Strength Index (RSI) is a momentum oscillator that measures

the speed and change of price movements. RSI oscillates between

zero and 100. Traditionally, and according to Wilder, RSI is considered

overbought when above 70 and oversold when below 30. Signals can also be generated by looking for divergences, failure swings and

centerline crossovers. RSI can also be used to identify the general

trend. This is a powerful indicator that signals buying and selling opportunities

ahead of the market. RSI for a share is calculated by using the following formula.

RSI= 100-[100/(1+RS)]

Where,

RS= Average Gain per day Average loss per day

The most commonly used time period for the calculated of RSI is

14days. For the calculation a 14 day RSI, the gain per day or loss per day is

arrived at by comparing the closing price of a day with that of the previous

day for a period of 14 days. The gain are added up and divided by 14 to get the average loss per day. The average gain per day and the average loss per

day are used in the above formula for calculating the RSI for a day. In this

way RSI values can be calculated for a number of days. In this way the RSI

values for the subsequent days can be calculated by taking the closing prices

of 14 previous days. The RSI values range from 0 t0 100.

The RSI values above 70 are consided to denote overbought condition

and values below 30 are considered to denote oversold condition. When the

RSI has crossed the 30 line from below to above and is rising, a buying

opportunity is indicated. When it has crossed the 70 line from above to below

and is falling, a sell signal is indicated.

48

3) ADL The Accumulation Distribution Line is a cumulative measure of each period's

volume flow, or money flow. A high positive multiplier combined with high

volume shows strong buying pressure that pushes the indicator higher.

Conversely, a low negative number combined with high volume reflects strong selling pressure that pushes the indicator lower. Money Flow Volume

accumulates to form a line that either confirms or contradicts the underlying

price trend. In this regard, the indicator is used to either reinforce the

underlying trend or cast doubts on its sustainability. An uptrend in prices with

a downtrend in the Accumulation Distribution Line suggests underlying selling pressure (distribution) that could foreshadow a bearish reversal on the price

chart. A downtrend in prices with an uptrend in the Accumulation Distribution

Line indicate underlying buying pressure (accumulation) that could

foreshadow a bullish reversal in prices.

There are three steps to calculating the Accumulation Distribution Line (ADL). First, calculate the Money Flow Multiplier. Second, multiply this value by

volume to find the Money Flow Volume. Third, create a running total of Money

Flow Volume to form the Accumulation Distribution Line (ADL).

1. Money Flow Multiplier = [(Close - Low) - (High - Close)] /(High - Low)

2. Money Flow Volume = Money Flow Multiplier x Volume for the Period

3. ADL = Previous ADL + Current Period's Money Flow Volume 4) SMA An average is the sum of prices of a share for a specific number of days

divided by the number of days, in a simple moving average a set of averages

are calculated for a specific number of days, each average calculated by

including a new price and excluding an old price. Closing price is lower than

SMA indicate buy opportunity and vice varsa. 5) MACD The MACD indicater is the difference between two exponential moving

averages (12 and

26 as default) and also has signal trigger or timing line(9 days EMA as default) MACD is all about convergence and divergence of two moving

49

averages. Convergence occur when moving averages move toward each

other, and divergence occurs when moving averages move away from each

other. the shortest moving average (12 days) is faster and is responsible for

MACD movement.longer moving average(26 days) is slower and less reactive

to price changes in underlying security. The MACD line oscillates above and below the zero line which is known as center line.

50

4.3) Statement of the Problem Technical analysis is the most useful and consistent approach to trading in

the markets. Technical analysis is the art and science of putting stock

information on a chart in the form of various kinds of bars and detecting

different patterns indicators. While a lot of people know at least a little about

technical analysis, very few really know how to use it. The main function of

technical analysis is to show the currentAdvances In Management demand-

supply position of the market or the particular stock, define risk and reward of

each particular trade.

4.4 ) OBJECTIVES To identify the relationship between the price movement of Top 5 IT

companys Equity Shares & CNX IT using various statistical tools

To know the Coefficient of variance of the prices of Top 5 IT

companys Equity Shares.

To understand price movement of Top 5 IT companys stock price

using various technical analysis indicators.

To give suggestion to investors about investment opportunity using technical analysis.

4.5) Hypothesis H0 : CNX Price index is independent of the share price of the

TCS,WIPRO,INFOSIS,HCL and ORACLE FINCIAL SERVICE SOFTWARE

H1 : CNX Price index is dependent of the share price of the

TCS,WIPRO,INFOSIS,HCL and ORACLE FINCIAL SERVICE SOFTWARE

51

5) RESEACH METHODOLOGY

Significance of study The Report was prepared to analyze the

Performance Top 5 IT companys Equity

Shares on CNX IT. Data Collection Method The collected data is OF Secondary in

nature. Data has been collected from Internet, Research Articles

Statistical Tools Correlation Coefficient, & Co-efficient of determination, Multiple Regression Analysis

and Least squares equation estimation

using simple linear Regression Technical Indicators Relative Strength Index, Rate Of Change,

Moving average convergence and

divergence, Accumulation Distribution Line,

Simple Moving Average. Software MS Excel, SPSS

Scope of the Study The scope of this project is limited to only

one sector i.e. IT sector. This project is concerned with only one sector of

companies in the stock market. The project

does not extend its scope to any other

sector of companies.

Sample Size Top Five IT company ( Based on Market Capitalization) were considered from the IT sector to analysis the price movement of

company, name of the companies are as

follows : TCS, Infosys , Wipro , HCL Tech ,

Oracle Finance.

52

Market Capitalization As on 17th march Table Title: Top 5 IT as per Market Capitalization

Table no:4

Company Name Market Cap (Rs. cr)

TCS 285,098.60

Infosys 131,146.93

Wipro 92,249.22

HCL Tech 52,299.35

Oracle Financial 21,392.14

53

6 ) DATA ANALYSIS AND INTERPRETATION

Multiple Regression Analysis

H0 : CNX Price index is independent of the share price of the TCS,WIPRO,INFOSIS,HCL and ORACLE FINCIAL SERVICE SOFTWARE

H1 : CNX Price index is dependent of the share price of the TCS,WIPRO,INFOSIS,HCL and ORACLE FINCIAL SERVICE SOFTWARE

The first table of interest is the Model Summary table. This table provides the R, R2, adjusted R2, and the standard error of the estimate, which can be

used to determine how well a regression model fits the data:

Table Title: Model Summary

Table no: 5

Model Summary

Model R

R

Square

Adjusted R

Square

Std. Error of

the Estimate

1 1.000a .999 .999 10.612

a. Predictors: (Constant), INFOSYS, ORACLE,

WIPRO, HCL, TCS

The "R" column represents the value of R, the multiple correlation coefficient.

R can be considered to be one measure of the quality of the prediction of the

dependent variable; in this case, CNX IT index. A value of 1.000 , in this

example, indicates a good level of prediction. The "R Square" column

represents the R2 value (also called the coefficient of determination), which is

54

the proportion of variance in the dependent variable that can be explained by

the independent variables (technically, it is the proportion of variation

accounted for by the regression model above and beyond the mean model).

You can see from our value of 0.999 that our independent variables explain

99.9% of the variability of our dependent variable, CNX IT INDEX VALUE. However, you also need to be able to interpret "Adjusted R Square" (adj. R2)

to accurately report your data. We explain the reasons for this, as well as the

output, in our enhanced multiple regression guide

Statistical significance The F-ratio in the ANOVA table (see below) tests whether the overall

regression model is a good fit for the data. The table shows that the

independent variables statistically significantly predict the dependent variable,

F(5,117) = 4.676E4, p < .0005 (i.e., the regression model is a good fit of the

data) Table Title: ANOVA

Table no: 6

ANOVAb

Model

Sum of

Squares df

Mean

Square F Sig.

1 Regression

2.633E7 5 5265627.71

5 4.676E4 .000a

Residual 13176.552 117 112.620

Total 2.634E7 122

a. Predictors: (Constant), INFOSYS, ORACLE , WIPRO, HCL,

TCS

b. Dependent Variable: CNXIT

55

Estimated model coefficients

The general form of the equation to predict CNX IT INDEX from HCL,

WIPRO, TCS,ORACLE, INFOSYS is:

predicted CNX IT = 692.542 - (0.459 x HCL) + (1.225x WIPRO) + (1.193 x

TCS) + (0.061 x ORACLE)+(1.243 x Infosys)

This is obtained from the Coefficients table, as shown below:

Table Title: Coefficients

Table no: 7

Coefficientsa

Model

Unstandardized

Coefficients

Standardized

Coefficients

t Sig. B Std. Error Beta

1 (Constant) 692.542 38.849 17.827 .000

HCL .459 .047 .061 9.714 .000

WIPRO 1.225 .090 .075 13.562 .000

TCS 1.193 .034 .267 34.765 .000

ORACLE .061 .009 .026 6.861 .000

INFOSYS 1.243 .010 .651 122.359 .000

a. Dependent Variable: CNXIT

Unstandardized coefficients indicate how much the dependent variable varies

with an independent variable, when all other independent variables are held

56

constant. Consider the effect of HCL in this example. The unstandardized

coefficient, B1, for HCL is equal to 0.459 (see Coefficients table). This means

that for each in HCL price, there is a increase in CNX IT of 0.459 price

Statistical significance of the independent variables You can test for the statistical significance of each of the independent

variables. This tests whether the unstandardized (or standardized)

coefficients are equal to 0 (zero) in the population. If p < .05, you can

conclude that the coefficients are statistically significantly different to 0 (zero).

The t-value and corresponding p-value are located in the "t" and "Sig."

columns.

Table Title: Coefficients

Table no: 8

Coefficientsa

Model

Unstandardized

Coefficients

Standardized

Coefficients

t Sig. B Std. Error Beta

1 (Constant) 692.542 38.849 17.827 .000

HCL .459 .047 .061 9.714 .000

WIPRO 1.225 .090 .075 13.562 .000

TCSY 1.193 .034 .267 34.765 .000

ORACLE .061 .009 .026 6.861 .000

INFOSYS 1.243 .010 .651 122.359 .000

a. Dependent Variable: CNXIT

57

Putting it all together General

A multiple regression was run to predict CNX IT Index value

HCL,WIPRO,TCS,ORACLE INFOSYS, These variables statistically

significantly predicted CNX IT Index, F(5, 117) = 4.676E4, p < .0005, R2 =

0.999. All four variables added statistically significantly to the prediction, p < .05 so CNX IT Index is dependent on the share price of value

HCL,WIPRO,TCS,ORACLE INFOSYS so null hypothesis is rejected.

58

CO-EFFICIENT OF DETERMINATION CNX IT INDEX AND STOCK PRICE OF IT COMPANYS & ALSO

AMONGS THE TOP IT COMPANIES.

Table Title: CO-EFFICIENT OF DETERMINATION

Table no: 9.

CORRELATION CNX INFOSYS HCL ORACLE TCS WIPRO

INFOSYS 0.972268 1 0.696834 0.028764 0.725663 0.682169

HCL 0.806921 0.696834 1 0.102503 0.785494 0.78322

ORACLE 0.063636 0.028764 0.102503 1 0.292417 0.002809

TCS 0.84282 0.725663 0.785494 0.292417 1 0.582151

WIPRO 0.753631 0.682169 0.78322 0.002809 0.582151 1

Co- Efficient of determination for company INFOSYS, HCL,TCS and WIPRO

are good as our independent variables explain 97.22 %, 80.69

%,84.28%,75.36% of the variability of our dependent variable and co-

efficient of determination for oracle is very low as only 0.063636 it is not good

as it can explain only 6.36 % of variability of our dependent variable.

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CORRELATION BETWEEN CNX IT INDEX AND STOCK PRICE OF IT COMPANYS & ALSO AMONGS THE TOP

IT COMPANIES. Table Title: CORRELATION COEFFICIENT

Table no: 10

CORRELATION CNX INFOSYS HCL ORACLE TCS WIPRO

INFOSYS 0.986037 1 0.834766 -0.1696 0.851859 0.825935

HCL 0.898288 0.834766 1 -0.32016 0.886281 0.884997

ORACLE -0.25226 -0.1696 -0.32016 1 -0.54076 -0.053

TCS 0.918052 0.851859 0.886281 -0.54076 1 0.762988

WIPRO 0.868119 0.825935 0.884997 -0.053 0.762988 1

Above Table shows the correlation between the CNX IT index price and the

IT companys share price and also the correlation among the IT company

them self. From the above correlation matrix we can say that Infosys, HCL,

TCS,WIPRO prices are positively correlated with the CNX IT price index but ORACLE is negatively correlated with the CNX IT price index and further It

was found that the share price of INFOSYS(0.986037) and TCS(0.918052)

are positively highly correlated with the CNX IT price index.It is also found

that all the above 4 companys share price are positively correlated with each

others share price accept the price of ORACLE which negatively correlated

with share price of other 4 company.

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Table Title: COEFFICIENT OF VARIANCE Table no: 11

INFOSYS HCL ORACLE TCS WIPRO

MEAN 2576.687805 661.4626016 3008.210163 1357.662602 392.962602

SD 243.1266479 61.51537513 198.8713138 104.0527421 28.2698933

variance 59110.56694 3784.141377 39549.79947 10826.97314 799.186869

coeff.var 9.435626912 9.299902213 6.610951466 7.664109034 7.19404167

From the above Coefficient of variance Matrix it can be inferred that

ORACLEs better and less risky as compared to the share price of its peer

company as the coefficient of variance for ORACLE is very less compared to

others. It can also be inferred that INFOSYS(9.43) is very risky among above 5

companies. It can also be said that the TCS(7.66) and (7.19 )WIPRO s

share price less better and little risky than the ORACLEs share price but is

less risky and good than the share price of the other 2 company i.e.

INFOSYS(9.43 ) and HCL(9.30) as C.V of TCS(7.66) and (7.19)WIPROs

stock price is less than that of INFOSYS(9.43 ) and HCL(9.30)

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LEAST SQUAR EQUATION ESTIMATION OF IT COMPANIES

Table Title: LEAST SQUAR EQUATION ESTIMATION

1) TCS

Table no: 12

B0 B1 X MEAN Y MEAN 24.75491 0.205581 6483.63 1357.66 Y = B0 +B1x Y = 24.75491 + 0.205581( CNX IT RETURN)

2) INFOSYS

Table no: 13

B0 B1 X MEAN Y MEAN

-768.378 0.515925 6483.63 2576.69 Y = B0+B1x Y = -768.378 + 0.515925(CNX IT) 3 ) WIPRO

Table no: 14

B0 B1 X MEAN Y MEAN

50.52401 0.052401 6483.63 392.96 Y = B0+B1x

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Y = 50.52401 + 0.052401( CNX IT ) 4) HCL TECH

Table no: 12

B0 B1 X MEAN Y MEAN

-109.58 0.118922 6483.63 661.46 Y = B0 +B1x Y = -109.58 + 0.118922( CNX IT)

5) ORACLE FINANCIAL

Table no: 12

B0 B1 X MEAN Y MEAN

3708.22 -0.10797 6483.63 3008.21 Y = B0 +B1x Y = 3708.22 + -0.10797( CNX IT)

63

TECHNICAL ANALYSIS OF IT COMPANIES 1) TCS

Figure Title: TCS RSI

Figure no: 4

Interpretation: In the above RSI chart at 26th nov RSI is Below 30 and moving up which

indicate the BUY Opportunity it indicate the rise in rice in near future, around

26 feb RSI falling from 70 which indicate fall in the price of sell so it indicate sell opportunity.

0

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205

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1309

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318

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RSI

RSI

BUY

SELL

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Figure Title: ROC

Figure no: 5

Interpretation: In the above ROC chart ROC line crossing 0 from below moving up which

indicate increase in price of stock in near future so there is a buy opportunity

and on 6th march ROC line crossing 0 from above moving down which indicate decrease in price of stock in coming future which indicate selling

opportunity.

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