finance dessertation on equity

8/18/2019 Finance Dessertation on equity

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1.1 INTRODUCTION

The field of equity research is very vast and one has to look into various aspects of the

functioning of the company to get to any conclusion about the possible performance of the

company in the market. Investors like warren buffet made a fortune out of investments in the

stock market, which is quiet impossible without proper research about the companies. This

project on “Equity esearch! was carried out by self"study. This is limited learning and devoting

time towards equity research but it also provided an insight on what various services such

broking houses provide and what efforts are required to manage such organi#ations.

Equity esearch is the systematic study of the performance of companies in stock market

with help of fundamental analysis and technical analysis.

$. %undamental &nalysis'

%undamental analysis is the study of economic, industry and company conditions in an

effort to determine the value of a company s stock. %undamental analysis typically focuses on

key statistics in company(s financial statements to determine if the stock price is correctly valued

means the current price is equals to intrinsic value of the shares or not.

)ost fundamental information focuses on economic, industry and company statistics.

The typical approach to analysing a company involves four basic steps'

$. *etermine the condition of the general economy.

+. *etermine the condition of the industry.

. *etermine the condition of the company.

-. *etermine the value of the company(s stock.

+. Technical &nalysis'

Technical analysis is a method of evaluating the securities by analy#ing the statisticsgenerated 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.

Technical analysis is a method of predicting future prices of a share based on its past

performance. Technical analysis is a specific tool to predict price movement of a share in near

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future. Technical analysis is necessary for any investor and specifically for those companies

involved in equity trading. It is method of evaluating securities technical analysis take place by

analy#ing statistics generated by market activity, such as past prices and volume. Technical

analysts believe that the historical performance of stocks and markets are indications of future

performance.

In this project I had done only technical analysis of tate /ank of India and I0I0I /ank(s

shares and by using some methodologies which are e1plained in this project.

The need for technical analysis occurs when it is tried to convince customers who are not

interested in investing or who are not believers of share market such persons can be e1plained

about technical analysis and they can be taught evaluation by themselves so that they feel free in

investing. o, now a day(s very much importance is given by the investors to technical analysis

with equal impotence to fundamental analysis.

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1.2 OBJECTIVES OF THE STUDY

This study is aimed at undertaking “Technical &nalysis of tate /ank of India and I0I0I

/ank! included in the /anking ector. I will also demonstrate how technical analysis can be of

invaluable use for the investors in making their investment decisions. The following are the main

objectives of this study.

To compare and select the shares to invest the unutili#ed savings in profitable shares.

To analy#e 2 predict future price movements of tate /ank of India and I0I0I /ank

using technical analysis.

To determine the trend of the stock prices using technical analysis.

To find out which equity share is preferable for the investors i.e., when to buy 2 when to

sell a particular stock.

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1.3 SCOPE OF THE STUDY

This study mainly focuses on investment decisions by predicting futures stock price

movements through the use of Technical analysis. This study is based on two companies selected

from those listed in 3ational tock E1change and /ombay tock E1change, belonging to

/anking ector.

%ollowing are the main scope of this study'

To help the investor in making decisions based on report

&nalysis of the shares of companies.

tudying the stock price movement of the security market.

4elps to identify trend reversals at an earlier stage to formulate the buying and selling

strategy.

The stocks so seecte! "#e "s $oo%s.

• tate /ank of India

• I0I0I /ank

Tech&'es o$ !"t" "&"*s's+

Technical tools used for the study are as follows.I& th's ,#o-ect o&* '&e ch"#ts "#e

se! to sho% the coecte! !"t".

Ch"#t ,"tte#&s+

5rice 0harts

6ine charts

7apanese candlestick chart

I&!'c"to#s o$ the st!*

$. imple )oving &verage 8)&9+. E1ponential )oving average 8E)&9. )oving average convergence and divergence 8)&0*9-. ate of change Indicator 8:09;. elative strength inde1 8I9

1. /I0ITTIONS OF THE STUDY

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The analysis is focused on technical part of equity research only.

The recommendations made may not be a perfect prediction of the future as technical

analysis is not an absolutely accurate practice.

%or doing my project I have taken into consider only four parameters. These parameters

may not be enough to predict the future price movements.

I have done the technical analysis only for < months from this data we cannot predict

prices accurately.

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2.1 FINNCI/ 0RET

%inancial market is helpful to provide liquidity in the system and for smooth functioning

of the system. These markets are the centers that provide facilities for buying and selling of

financial claims and services. The financial markets match the demands of investment with the

supply of capital from various sources.

&ccording to functional basis financial markets are classified into two types.

$9 )oney markets 8short"term9

+9 0apital markets 8long"term9

&ccording to institutional basis again classified in to two types.

$9 :rgani#ed financial market

+9 3on"organi#ed financial market.

The organi#ed market comprises of official market represented by recogni#ed institutions,

bank and government 8E/I9 registered=controlled activities and intermediaries. The

unorgani#ed market is composed of indigenous bankers, moneylenders, individual professional

and non"professionals.

0o&e* 0"#ket'

)oney market is a place where we can raise short"term capital. &gain the money market

is classified in to

$9 Interbank call money market

+9 /ill market and

9 /ank loan market Etc.

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C",'t" 0"#ket'

0apital market is a place where we can raise long"term capital. &gain the capital market

is classified in to two types and they are'

$9 5rimary market

+9 econdary market.

P#'5"#* 0"#ket'

5rimary market is generally referred to the market of new issues or market for

mobili#ation of resources by the companies and government undertakings, for new projects as

also for e1pansion, moderni#ation, addition, and diversification and up gradation. 5rimary

market is also referred to as 3ew Issue )arket. 5rimary market operations include new issues of

shares by new and e1isting companies, further and right issues to e1isting shareholders, public

offers, and issue of debt instruments such as debentures, bonds, etc.

The primary market is regulated by the ecurities and E1change /oard of India 8E/I a

government regulated authority9.

%unction of 5rimary )arket' The main services of the primary market are origination,

underwriting, and distribution. :rigination deals with the origin of the new issue. >nderwriting

contract make the shares predictable and remove the element of uncertainty in the subscription.

*istribution refers to the sale of securities to the investors.

The following are the market intermediaries associated with the market'

$9 )erchant banker=book building lead manager

+9 egistrar and transfer agent

9 >nderwriter=broker to the issue

-9 &dviser to the issue

;9 /anker to the issue


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Seco&!"#* 0"#ket'

The primary market deals with the new issues of securities. :utstanding securities are

traded in the secondary market, which is commonly known as stock market or stock e1change.

“The secondary market is a market where scrip(s are traded!. It is a market place which provides

liquidity to the scrip(s issued in the primary market. Thus, the growth of secondary market

depends on the primary market. )ore the number of companies entering the primary market, the

greater are the volume of trade at the secondary market. Trading activities in the secondary

market are done through the recogni#ed stock e1changes which are + in number including :ver

the 0ounter E1change of India 8:T0E9, 3ational tock E1change of India and Interconnected

tock E1change of India.

econdary market operations involve buying and selling of securities on the stock

e1change through its members. The companies hitting the primary market are mandatory to list

their shares on one or more stock e1changes in India. 6isting of scrip(s provides liquidity and

offers an opportunity to the investors to buy or sell the scripts.

The following are the intermediaries in the secondary market'

$. /roker=member of stock e1change @ buyer(s broker and sellers broker+. 5ortfolio )anager

. Investment advisor

-. hare transfer agent

;. *epository


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2.2 INDIN STOC 0RET

Indian tock )arkets are one of the oldest in &sia. Its history dates back to nearly +AA

years ago. The earliest records of security dealings in India are meager and obscure. The East

India 0ompany was the dominant institution in those days and business in its loan securities used

to be transacted towards the close of the eighteenth century.

/y $BACs business on corporate stocks and shares in /ank and 0otton presses took place

in /ombay. Though the trading list was broader in $BD, there were only half a do#en brokers

recogni#ed by banks and merchants during $B-A and $B;A.

The $B;ACs witnessed a rapid development of commercial enterprise and brokerage

business attracted many men into the field and by $B


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2.3 S9OT N/YSIS OF INDIN STOC 0RET

trength, eakness, :pportunity, and Threats 8:T9 of Indian stock market is given

below.

St#e&:th+

$. The first and for most thing of strength of Indian stock market is its ability to provide

high return.

+. E/I a regulatory body of Indian stock market who protects the interest of the investors.

. 6arge number of securities which provides medium for investment.

-. 6arge number of /rokers who plays a role of facilitator for investment.

9e"k&ess+

$. The weak point of Indian stock market is its volatility i.e. 4igh risk.

+. It is a kind of gambling where no guarantee of return and some time it depends on luck

also.

O,,o#t&'t*+

$. tock market provides an opportunity to money lender and money seeker to Invest anduse money for their plan.

+. It provides an opportunity to the investor to be the owner of the company and contribute

in the business decision of the company.

. tock market is a kind of indicator of the economic growth of the country where it

provides an opportunity to gain according to the inflation of the country or more than

that.

Th#e"ts+

$. There are many competitors of stock market such as post office savings, public provident

fund, company fi1ed deposits, fi1ed deposits with bank etc. which provides fi1ed and

assured returns.

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3.1 TECHNIC/ N/YSIS

Technical &nalysis is important to form a view on the likely trend of the overall market,

and it is helpful to have some idea of how to go about selecting individual stocks. 3aturally, allinvestors would like their investments to appreciate rapidly in price, but stocks, which may

satisfy this wish, tend to accompanied by a substantially greater amount of risk then many

investors are normally willing to accept. 4owever, it is important to understand that investors

can be very conscious when it comes to stock ownership.

Technical analysis is the use of numerical series generated by market activity, such as

price and volume, to predict future price trends. The techniques applied to any market with a

comprehensive price history. 5rimarily, but not e1clusively, technical analysis is conducted by

studying charts of past price movement. )any different methods and tools are used in technical

analysis, but they all rely on the assumption that price patterns and trends e1ist in markets, and

that they can be identified and e1ploited.

Technical analysis or charting is considered to be as a supplement to %undamental

&nalysis of securities. &s an approach to investment analysis technical analysis is radically

different from fundamental analysis. hile the fundamental analysts believe that the market is

DA logical and $A psychological, the technical analysis assumes that its DA psychological

and $A logical. Technical analysis can be applied to any market with a comprehensive price

history. The premises of technical analysis were derived from empirical observations of financial

markets over hundreds of years. 5erhaps the oldest branch of technical analysis is the use of

candlestick techniques by 7apanese traders at least as early as the $Bth century, and still very

popular today.

DO9 THEORY

3ew tools and theories have been produced and e1isting tools have been enhanced at a

rapid rate in recent decades, with an increasing emphasis on computer"assisted techniques.

Technical analysis is not concerned with why a price is moving but rather whether it is moving in

a particular direction or in a particular chart pattern. Technical analysts believe that profits can be

made by Gtrend following.G In other words if a particular stock price is steadily rising 8trending

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upward9 then a technical analyst will look for opportunities to buy this stock. >ntil the technical

analyst is convinced this uptrend has reversed or ended, all else equal, he will continue to own

this security. &dditionally, technical analysts look for various price patterns to form on a price

chart and will take positions in anticipation of the e1pected move following that pattern. The

various tools of technical analysis assist the technician in determining when trends have formed,

ended, etc. and when particular patterns are unfolding.

:ne of the forecasting tools very popular among practitioners is technical analysis.

Technical analysis is the e1amination of past price movements in order to forecast future price

movements. Technical analysis is open to interpretation. )any times two technicians will look at

the same chart and paint two different scenarios or see different patterns. /oth would be able to

come up with logical support to justify their position.

In addition, even if stock prices completely followed a random walk, people would be

able to convince themselves that there are e patterns having a predictive value. It has become

more and more popular, as it offered an unlimited set of tools and signals and seemed to be an

interesting method of market analysis. It has been proven that stock prices most of the time

appro1imately follow a random walk pattern. 5sychologists have described a number of ways in

which people deal with randomness. &dditionally, market participants may be subject to herd

behavior.

Technical analysis is applicable to stocks, indices, commodities, futures or any tradable

instrument where the price is influenced by the forces of supply and demand. 5rice refers to any

combination of the open, high, low, or closes for a given security over a specific time frame. The

time frame can be based on intraday 8$"minute, ;"minutes, $A"minutes, $;"minutes, A"minutes

or hourly9, daily, weekly or monthly price data and last a few hours or many years. In addition,

some technical analysts include volume or open interest figures with their study of price action.

Economists have traditionally been skeptical of the value of technical analysis, affirming the

theory of efficient markets that holds no strategy should allow investors and traders to make

unusual returns e1cept by taking e1cessive risk.

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STREN


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d. elative strength of a stock versus the overall market.

) ss'st %'th E&t#* Po'&t+ Technical analysis can help with timing a proper entry point.ome analysts use fundamental analysis to decide what to buy and technical analysis to

decide when to buy. Technical analysis can help spot demand 8support9 and supply

8resistance9 levels as well as breakouts. aiting for a breakout above resistance or

buying near support levels can improve returns.

9ENESS OF TECHNIC/ N/YSIS

1) &"*st B'"s+ 7ust as with fundamental analysis, technical analysis is subjective and

our personal biases can be reflected in the analysis. It is important to be aware of these

biases when analy#ing a chart.

2) O,e& to I&te#,#et"t'o&+ %urthering the bias argument is the fact that technical analysis

is open to interpretation. Even though there are standards, many times two technicians

will look at the same chart and paint two different scenarios or see different patterns.

/oth will be able to come up with logical support and resistance levels as well as key

breaks to justify their position. hile this can be frustrating, it should be pointed out

that technical analysis is more like an art than a science, somewhat like economics.

3) Too /"te+ Technical analysis has been critici#ed for being too late. /y the time the

trend is identified, a substantial portion of the move has already taken place. &fter such

a large move, the reward to risk ratio is not great. 6ateness is a particular criticism of

*ow Theory.

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) T#"!e#?s Re5o#se+ 3ot all technical signals and patterns work. hen you begin to

study technical analysis, you will come across an array of patterns and indicators with

rules to match. %or instance' & sell signal is given when the neckline of a head and

shoulders pattern is broken. Even though this is a rule, it is not steadfast and can be

subject to other factors such as volume and momentum.

) In that same vein, what works for one particular commodity may not work for another.

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CRITICS OF TECHNIC/ N/YSIS

• 3o one or group of trading rules seems to work consistently.

• ome prices moves are self"fulfilling because so many chartist trades on

breakouts@often are temporary.

• )ost of the trading rules require a great deal of subjective judgment.

hen price volatility goes down technical profits may also fall.

Technical &nalysis also happens to break one major jin1 of fundamental analysis as it gives an

e1act price target and answers many questions like,

J hen to enter the marketK

J hether to buy or sellK

J If buy= sell then at what pricesK

J 4ow much should be the profit objectiveK

J here should one place a stop lossK

:wing to all the above mentioned factors it could safely be concluded that Technical &nalysis is

one of the better tools for price forecasting. &nd in today(s rapidly changing world investors look

for short time returns which could better be achieved only by a superior price forecasting systemand in this case using Technical &nalysis.

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3.2 PROB/E0 STTE0ENT

The above study is undertaken to compare the selected technical analysis tools available

for forecasting. The study tries to capture the contradicting views of different tools used in

technical analysis. This study is aims to e1ploration of the topic “TE043I0&6 &3&6LI!.

o, we are going to use following methods for forecasting and to know when to buy and when to

sale the share(s and to select the more profitable shares to invest by carefully e1amining the

pattern of the movements of the share(s. ince the whole process involve much less time and

data analysis.

$9 )oving &verage'

a9 imple )oving &verage 8)&9'&n average is the sum of prices of a share for a specific number of days. In a

simple moving average, a set of average are calculated for a specific number of days,

each average being calculated by including a new price and e1cluding an old price.

)& M 8&vg. 5rice for pecific no. of days@ 3o. of days9

b9 E1ponential )oving &verage 8E)&9'

It represents the underlying trend in the share price movement. The period of the

average indicates the type of trend being identified. It is calculated by using the following

formula'

E)& M 80urrent closing price @ 5revious E)&9 N %actor O 5revious E)&

+9 :scillators'

a9 ate of 0hange Indicator 8:09'It(s 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. It is calculated by

using the following formula'

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:0 M 80urrent 5rice @ 5rice P3( period ago9 " $

b9 elative trength Inde1 8I9'This is a powerful indicator that is signals buying and selling opportunities ahead

of the market. It is calculated by using the following formula'

I M $AA @ Q$AA @ R$ O 8&verage gain per day S &verage loss per day9U

c9 )oving &verage 0onvergence and *ivergence')&0* is an oscillator that measures the convergence and divergence between

two e1ponential moving averages. & short term e1ponential moving average and long

term e1ponential moving average are calculated with the help of closing prices. & $+"

days and -B"days e1ponential moving average constitutes a popular combination. The

difference between them represents )&0*. It is calculated by using the following

formula'

)&0* M hort term E)& @ 6ong term E)&

&ll the calculations are done by the use of ) E1cel.

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.1 RESERCH 0ETHDO/O


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the secondary data through trade maga#ines, balance sheets, books.etc. )ethod comprises the

procedures used for generating collecting and evaluating data. :n that base it is easy to

understand the secondary data which was given by the company to me.

. SOURCES OF DT CO//ECTIONType of data which helped to prepare this report is secondary data. The secondary data

which was already prepared so these data was already used to reach the aims and objectives of

this project. These data has been collected from the financial reports of the company and by the

use of help of some websites. The source of collecting the secondary data was from financial

statement, website already available on the internet.

. 0ETHODS OF DT PRESENTTION ND N/YSIS

*ifferent types of data analysis techniques are used in the research project.

Tabular &nalysis

Hraphical &nalysis

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.1 BNIN< INDUSTRY

ith the Indian economy moving on to a high growth trajectory, consumption levels

soaring and investment riding high, the Indian banking sector is at a watershed. %urther, as

Indian companies globali#e and people of Indian origin increase their investment in India,

several Indian banks are pursuing global strategies.

.1.1 STTE BN OF INDI

tate /ank of India 8/I9 is a multinational banking and financial services company

based in India. It is a government"owned corporation with its headquarters in )umbai,

)aharashtra. &s of *ecember +A$, it had assets of >VBB billion and $?,AAA branches,

including $DA foreign offices, making it the largest banking and financial services company in

India by assets. tate /ank of India is one of the /ig %our banks of India, along with I0I0I

/ank , 5unjab 3ational /ank and 4*%0 /ank .

The bank traces its ancestry to /ritish India, through the Imperial /ank of India, to the

founding, in $BA


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.1.2 ICICI BN

I0I0I /ank is IndiaCs second"largest bank with total assets of s.;, D-


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.2 TBU/R N/YSIS

The data which is shown in the tables is calculated by the help of following

formulas.

$9 )& M 8&vg. 5rice for ; days @;9+9 E)& M 80urrent closing price @ 5revious E)&9 N %actor O 5revious E)&

%actor M R+ S 8$+or-B O $99 )&0* M $+ *ays E)& @ -B *ays E)&-9 :0 M 80urrent 5rice @ 5rice ? *ays ago9 @ $;9 I M $AA @ Q$AA @ R$ O 8&verage gain per day S &verage loss per day9U

.2.1 TECHNIC/ N/YSIS OF STTE BN OF INDI

*ate0lose5rice

; *ays)&

$+ *aysE)&

-B daysE)&

)&0*

? *ays:0

$- *aysI

A+"*ec"$ $B++.


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A


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$D"%eb"$- $;AB.


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+"&pr"$- +A


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A")ay"$-

+;-$.DA +


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.2.2 TECHNIC/ N/YSIS OF ICICI BN

*ate0lose5rice

; *ays)&

$+ *aysE)&

-B daysE)& )&*

? *ays:0

$- *aysI

A+"*ec"$ $ABB.D $ABB.DA $ABB.DA A.AA

A"*ec"$ $AB


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++"7an"$- $AB?.A; $A


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+;")ar"$- $+;+.;; $+$B.;< $$D?.DA $$$A.D; B


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A")ay"$- $-$B.- $--+.-D $-+?.$? $$?.B+ $AD.; "A.A$ ;-.-A

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.3


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.3.2 RTE OF CHN


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.3.3 RE/TIVE STREN


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4.1 FINDIN


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%rom the technical analysis which, I would like to suggest some suggestions for investors

as well as shareholders.

Investors'

$9 If any investor would like to invest in the shares of /I and I0I0I /ank, then they

will have to wait for one to two months time period. /ecause the technical

indicators are showing decreasing trend and at future price will go down for

specific period.+9 Invest in the shares which are showing oversold condition in :scillators charts i.e.

)&0* chart, :0 chart, and I chart.9 /efore investing in any shares go through the fundamental areas of that company

also, because only the technical indicators are not enough for making decisions.-9 It(s good to purchase I0I0I share.

hareholders'

$9 If the shareholders of the /I and I0I0I want to enjoy profit right now then this is

the opportunity to do so. /ecause the share prices of /I and I0I0I /ank may

decrease in future. It is indication of technical analysis.+9 It is a time to shift your investment strategy. /y selling this shares at high price

you can purchase the shares which are at the buying stage and profitable.9 hen you are going to sell /I and I0I0I /anks share, you would have to study

the fundamentals of /I and I0I0I /ank to know that the price may really go

down in future or not.-9 It(s good to sold /I share at this point.

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4.3 CONC/USION

Technical analysis appears to be a highly controversial approach to security analysis. It

has its ardent votaries' it has its severe critics. The advocates of technical analysis offer the

following interrelated arguments in support of their position'

hift in demand and supply are gradual rather than instantaneous. Technical analysis

helps in detecting these shifts rather early and hence provides clues to future price

movement. 0harts provide what has happened in the past and hence give a sense of volatility that can

be e1pected from the stock. %uture, the information on trading volume which is ordinarily

provide at the bottom of a bar chart gives a fair idea of the e1tent of the public interest in

the stock

emember that stocks are never too high for you to begin buying or too low to

begin selling. /ut after the initial transaction don(t make a second unless the

first shows you a profit.

There is only one side to the stock market and it is not the bull side or the bear

side but the right side.

&lways sell what shows you a loss and keep what shows you profit. Technical analysis can be used, when to buy and to when to sell the stock.

It is very helpful in determining the trend of the stock price.

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6.1 BIB/IO

finance dessertation on equity

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