A PROJECT REPORT ON

INVESTMENT OPPORTUNITY IN STOCK MARKET WITH SPECIAL FOCUS ON OIL SECTOR

FOR

INDIAINFOLINE SECURITIES LIMITED

By

LUNKAD POONAM MBA Semester III

Project Guide

Prof. VAISHAMPAYAN

In Partial Fulfillment of the Requirements of the Two-Year Full-Time PGPM Programme of the SMVIM (St. Mira Vishwakarma Institute Of Management) Pune

AY: 2007-08

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ACKNOWLEDGEMENTIt gives me great pleasure in presenting the Project Report that gives the Details of my project in INVESTMENT OPPORTUNITY IN STOCK MARKET WITH SPECIAL FOCUS ON OIL SECTOR .I thank the college guide Prof.

VAISHAMPAYAN for his kind and consistent guidance and help during the project work. It is impossible to list all the people who have helped me during my project. I take this opportunity to express whole hearted NITIN SHRIVASTAVA thanks BRANCH to Mr.

MANAGER of

INDIAINFOLINE, KALAYANI NAGAR BRANCH. I would also like to thank Mr. PRADEEP RAMPAL who guided me at every step in the execution of the project & their experience and valuable guidance were very helpful. I would like to express my deep sense of gratitude towards all Staff and workers and to all those who directly or indirectly helped me in successful completion of project.

LUNKAD POONAM.

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INDEXCHAPTER NO. TOPIC EXECUTIVE SUMMARY INTRODUCTION OF THE STUDY 1.Introduction 2.Importance & scope of study PAGE NO. 6 7-8

CHAPTER NO. I

COMPANY PROFILE 1. Introduction the company 2. Vision of company 3. Management of the company

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4. Products and Services of company5. Geographical presence 6. Investment Highlights 7. Investment Concern 8. ON-JOB-TRAINING

CHAPTER NO. II

FINANCIAL SYSTEM OVERVIEW 1. Capital Formations and Economic Development 2. Indian Financial System 3. Stock market 4. Trading in India

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CHAPTER NO. III

RESEARCH METHODOLOGY

27-28 29-85

CHAPTER NO. IV DATA PRESENTATION, ANALYSIS & INTREPRETATION FUNDAMENTAL ANALYSIS BY EIC MODEL 1. ECONOMIC ANALYSIS 1.1. Growth rate of India 1.2. GDP of India 1.3. Inflation in India

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1.4. Stock Market Trends 1.5. Currency System 1.6. Foreign Trade 1.7. FDI (Foreign Direct Investment) 1.8. Foreign Exchange Reserves 1.9. Trends in Exchange Rates 1.10. Key Industry Check 2. INDUSTRY ANALYSIS 2.1.International crude oil market scenario 2.2. Major crude oil producers 2.3. OPEC 2.4. S P R -Strategic Petroleum Reserves 2.5. Indias Crude Oil Market Scenario 2.6. Reserves 2.7. Industry Structure 2.8. Oil Crises 2.9. Step Taken By The Government 2.10.Government Policies For FDI 2.11.Financial Year '06 For Oil Industry 2.12.Prospects Of Oil Industry 2.13.Analysis Of Oil Industry Under Porters Five Forces Model 3. COMPANY ANALYSIS 3.1. About ONGC 3.2. Strategic Vision 3.3. Management 3.4. Shareholding Pattern 3.5. Projects & Investments 3.6. Credit Rating 3.7. Recognitions 4

3.8. ONGCs Subsidiaries 3.9. Prospect 3.10. Enviromental Analysis a.) ETOP b.) SAP c.) SWOT Analysis 3.11. Financials of ONGC

CHAPTER NO. V

CONCULSIONS AND SUGGESTIONS

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BIBLIOGRAPHY

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Executive SummaryThis project is an attempt to understand the basics of stock market. A project, which will make me well, versed with the market happenings ups & downs in the stock market. The first chapter gives a brief description about the company where I did my internship from, which is 5paisa.com, which is a trading arm of Indiainfoline Securities Pvt Ltd. The following chapter explains about the formation & company composition of Indiainfoline Securities Pvt Ltd. The chapter also gives a detailed report of my summer internship done at the company. It gives the jobs assigned to me at work, followed by the methods, which I undertook in going about my internship. The following chapter two will give the details & explain in brief the basics of capital market. It will show in details the way stocks are traded, cleared & settled in the market using different techniques. Further the chapter covers the trading in India the importance of stock market to the economy. The next chapter gives the detail as to how I went about completing my project. The steps taken to understand my topic & researching the oil sector companies have been given in the chapter Body Methodology. The chapter four is data presentation, analysis & interpretation on Fundamental Analysis helps us to understand the importance of the analysis. It shows us the steps taken to complete the analysis & the findings to be analyzed in the analysis. The chapter summarizes the reason why I have selected the oil sector for analysis. The huge investments & growth opportunities in the oil sector makes it an important sector & all the more reason why we should keep an eye on the progress of it. The sub chapter on Economy of the Country helps us to know the current scenario of our country in terms of economy which taken into a/c GDP levels along with future predictions, current inflation rate, Currency of the country, service industry of the India & FDIs in India. The next sub chapter explains the oil industry as a whole. From the huge oil market in gulf, to the current scenario of oil sector in India, the chapter will give a details insight into the ever in demand sector. The industry is further analyzed by porters five-force model. The company analysis of oil sector will have a detail research & study of Indias largest E&P Oil & gas Company viz. ONGC.The techniques of SAP, ETOP and SWOT have being followed to analysis the companys fundamentals. The chapter conclusions and suggestions is on my take on the company & their financial positions. It also helps us take a prediction as to how strong the stock is for future investments. Further it also helps the investors to be cautious in investing in the company by giving the risk factors associated with the company.

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INTRODUCTION OF THE STUDYThe following project is a study of the Indian Stock Market & an investment opportunity in the oil sector in India. The capital market (securities markets) is the market for securities, where companies and the government can raise long-term funds. The capital market includes the stock market and the bond market. A stock market is a market for the trading of company stock and derivatives.

The objectives of my internship are as follows: Understanding the various activities in an E- Broking firm. To get acquainted with all the workings of online trading. To gain practical knowledge in share trading

To analyze the financial market & the share movements in order to study the prospects of investingin a particular stock or sector. The aim of the project is to understand the overall equity market, to get to know the trading, clearing & settlement aspect of the equity market. As far as this project is concerned, it will help me to understand the overall working of the equity market & its importance to the economy of the India. A huge amount of money flows & millions of shares exchange hands in a single market day. This exchange of shares enables the flow of money in & out of a firm. The company whose shares are listed & the government who plays a pivotal role through the policies formed in the market, helps them to raise long term funds which can be used for the benefit & the growth of the companies & also give back some part of their profit to the investor in the form of dividends. Also through this project what I am trying to derive is the analysis of oil sector concluding with the opportunities of investing in the sector. The reason why I have selected oil sector is because of the Oil sector is the base for the growth of other sectors and with that the growth of the economy in general and also there is huge investment opportunities in the sector & also to understand this sector for my future growth as a equity advisor for the sector.

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SCOPE: The scope of this project is limited to only one sector i.e. oil sector. This project is concerned with only one sector in the stock market. The project does not extend its scope to any other sector of companies. Source of information for this project is only secondary data. The data about the oil sector, the government policies with respect to the sector, and the Information about the companies is all gathered from secondary sources, available on the websites, annual reports, business magazines.

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Chapter 1 Company profile

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1.1 INTRODUCTIONSIndia Infoline Securities Pvt Ltd is a 100% subsidiary of India Infoline Ltd, which is engaged in the businesses of equities broking and portfolio management services. It holds memberships of both the leading stock exchanges of India viz. the stock exchange, Mumbai (BSE) and the national stock exchange (NSE). India Info line Ltd is listed on both the leading stock exchanges in India, viz. the Stock Exchange, Mumbai (BSE) and the National Stock Exchange (NSE). The India Infoline group, comprising the holding company, India Info line Ltd and its subsidiaries, straddles the entire financial services space with offerings ranging from Equity research, Equities and derivatives trading, Commodities trading, Portfolio Management Services, Mutual Funds, Life Insurance, Fixed deposits, GoI bonds and other small savings instruments to loan products and Investment banking. India Infoline also owns and manages the websites, www.indiainfoline.com and www.5paisa.com . India Infoline Ltd, being a listed entity, is regulated by SEBI (Securities and Exchange Board of India). It undertakes equities research which is acknowledged by none other than Forbes as 'Best of the Web' and 'a must read for investors in Asia'. It also undertakes research, customized and off-the-shelf. Launched on 11 May 1999, www.indiainfoline.com is Indias leading and most comprehensive business and financial information website. The site provides quality information and analysis - earlier restricted to a few people - to the common man, absolutely free! The site has met with an overwhelming response and has been reviewed as the most comprehensive financial content website in India by BBC World. The company also won the Golden Mouse Award in India Internet World 2000 for the "Best Finance" site. In May 2001, the website was included in the Top 200 Best of the Web list by Forbes Global under the Asia Investing category. This is the only website from India to be featured in this category. Since then it has been nominated twice to this list. In its last review, Forbes editors have said, "www.indiainfoline.com is a must read for the investors in South Asia..." India Infoline is a growing organization, which is an ideal place for individuals with high ambitions. The working atmosphere is highly charged with a young and energetic team of qualified professionals. The average age of the team is 28. Further it provides an environment where conventions, protocols do not come in the way of good ideas. Individuals who are dynamic and result oriented will find their own niche in this environment.

1.2 VISION

To be the premier provider of investment advisory and financial planning services in India To be a leading investment intermediary for transactions through both online and offline medium 10

1.3 MANAGEMENTMr. Nirmal Jain Nirmal Jain is the founder and Chairman of India Infoline Ltd. He holds an MBA degree from IIM Ahemdabad, and is a Chartered Accountant (All India Rank 2) and a Cost Accountant. In 1995, he founded his own independent financial research company, known as India Infoline Ltd. Mr. R Venkataram R Venkataram is the co-promoter and Executive Director of India Infoline Ltd. He holds a B. Tech degree in Electronics and Electrical Communications Engineering from IIT Kharagpur and an MBA degree from IIM Bangalore. He has varied experience of more than 14 years in the financial services sector.

The Board of Directors Apart from Nirmal Jain and R Venkataram, the Board of Directors of India Infoline comprises:

Mr. Sat Pal Khattar Mr. Sanjiv Ahuja Mr. Nilesh Vikamsey Mr. Kranti Sinha

India Info line Ltd (IIL) started in 1995 with providing Online Media and Content services. Mr. Nirmal Jain and Mr. Venkataram, the founder members of the company sensed the growing opportunities in the market and increased the horizon for IIL from time to time. IIL with an aim to become 'One stop for all financial needs' started with equity and commodity broking, distribution of financial products and now with investment banking. IIL has a huge branch network across 95 cities, which it leverages for customer acquisitions, relationship building, retail advisory and distribution services.

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IIL is in the expansion mode and plans to set up 350 branches by FY07E.It also plans to set up branches in cities like Dubai, Singapore and London to serve the NRI's for PMS service. It has recently opened up a branch in Kuwait and expects this branch to contribute to the equity broking business.

1.4 PRODUCTS AND SERVICESIIL a one-stop financial services shop, most respected for quality of its advice, personalized service and cutting-edge technology

Equities Indiainfoline provided the prospect of researched investing to its clients, which was hitherto restricted only to the institutions. Research for the retail investor did not exist prior to Indiainfoline. Indiainfoline leveraged technology to bring the convenience of trading to the investors location of 12

preference (residence or office) through computerized access. Indiainfoline made it possible for clients to view transaction costs and ledger updates in real time. PMS Portfolio Management Service is a product wherein an equity investment portfolio is created to suit the investment objectives of a client. Indiainfoline invest the resources of the investors into stocks from different sectors, depending on ones risk-return profile. This service is particularly advisable for investors who cannot afford to give time or don't have that expertise for day-to-day management of their equity portfolio. Research Sound investment decisions depend upon reliable fundamental data and stock selection techniques. Indiainfoline Equity Research is proud of its reputation for, and wants to find the facts that the investors need. Equity investment professionals routinely use the research and models as integral tools in their investments strategy. Commodities Indiainfoline extension into commodities trading reconciles its strategic intent to emerge as a onestop solutions financial intermediary. Its experience in securities broking has empowered it with requisite skills and technologies. The Company was among the first to offer the facility of commodities trading in Indias young commodities market. Mortgages Indiainfoline acquired a 75% stake in Money tree Consultancy Services to mark its foray into the business of mortgages and other loan products distribution. The business is still in the investing phase and at the time of the acquisition was present only in the cities of Mumbai and Pune. Indiainfoline now has plans to roll the business out across its pan-Indian network to provide it with a truly national scale in operations. Insurance An entry into this segment helped complete the clients product basket; concurrently, it graduated the Company into a one-stop retail financial solutions provider. To ensure maximum reach to customers across India, IIL have employed a multi pronged approach and reach out to customers via its Network, Direct and Affiliate channels. Following the opening of the sector in 1999-2000, a number of private sector insurance service providers commenced operations aggressively and helped grow the market.

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Wealth Management Service IIL is leading wealth Management Company that sits down to understand the needs and goals. IIL offers a dedicated group for giving the most personal attention at every level. Newsletters The Daily Market Strategy is a morning dose on the health of the markets. Five intra-day ideas, unless the markets are really choppy coupled with a brief on the global markets and any other cues, which could impact the market. Occasionally an investment idea from the research team and a crisp round up of the previous day's top stories. The Indiainfoline Weekly Newsletter is a flashback for the week gone by. A weekly outlook coupled with the best of the web stories from Indiainfoline and links to important investment ideas, Leader Speak and features is delivered in investors inbox every Friday evening.

1.5 GEOGRAPHICAL PRESENCEIIL has pan-India presence across 94 cities. It started off with major branches in metros and now it is focusing on Tier II and III cities. In Q1-FY07 the company opened 56 branches, taking the total number of branches to 233 branches. Almost 50%of the revenue comes from centers in Maharashtra and Delhi. Followed by other regions.

1.6 INVESTMENT HIGHLIGHTSStrong growth in Industry volumes and rising retail participation Average daily volumes in the equity markets (cash and derivative combined) have increased by 72%from to Rs.167bn in FY 05 to Rs.288bn in FY 06.With the economy growing at 7-8% a mounting per capita income and growing BPO culture, there is a new class of young investors, which are moving towards the equity market. IIL is majorly present in the retail segment. With the rising income levels, risk- taking ability of people and the confidence in the India Inc, participation from the retail crowd is increasing y-o-y. IIL is 14

aggressively increasing its presence by opening branches in different cities. In FY QI-07, they roll out 56 new branches and acquired 25000 new customers. And it expects them to have 350 and 430 branches by FY 08 respectively.

1.7 INVESTMENT CONCERN High reliance on equity segmentIn FY06, 67%of IILs earnings are derived from the equity broking business. Any volatility in the market has direct impact on the earnings of the company. Sensing this possibility IIL's diversified into other business segments like distribution of financial products, commodity broking and recent entry into investment banking. These segments will take time to drive the earnings of the company. There is an expectation that earnings from equity broking to be 62%and 54%of the earnings by FY07E and FY08E respectively.

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1.8 ON-JOB-TRAININGTitle

Working In Depository ParticipantIntroduction Objective Task Assigned Achievements Limitations

Conclusion

INTRODUCTIONI have been done my summer internship in India Infoline Securities Private various activities undertaken by an E broking firm (Depository Participant). Limited to perform

OBJECTIVEIndia Infoline Securities Pvt. Ltd. (5paisa.com) performs as intermediary between stock exchange and clients. Various task related to e broking has been assigned to me.

The main objectives are as follows : To understand various activities in E-Broking firm. (D P). To get familiar with the working of online trading. To gain practical knowledge in share trading. To get an exposure

TASK ASSIGNED Market observation Customer acquisition. Technical Issues Administrative tasks Customer follow-up

Market observation:It was the basic task assign during the SIP. While working with an e broking firm it very essential to be aware about the current market issues like current market news, Current market position, stock watch, global market condition, past trend of the market etc.

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It was also imperative to target particular stocks & track their daily movements. By targeting & tracking individual stocks & scripts, it helped me understand the various factors that lead to stocks price movements. Also taking with clients during market hours helped me to understand the investment psychology of the client.

Customer acquisition:To acquire new customers for the company it was the task given to me. 8 new Demat accounts have been opened in this duration.

Strategy in acquiring new customers Reference by existing customers. Lead by company guide Tele calling (by lead data) Cold callings :

Technical tasks

Various technical tasks has been performed like, software down loading, to give software demonstration to the clients, solving various problems of the clients regarding software handling etc.

Administrative task:These were the secondary task given bellow, which has been performed during the training period. Completion of account opening form Collection of requires documents form existing clients Margin funding form

To transfer shares

Customer follow-up:Follow-up has been given to newly acquire as well as existing clients for various issues. Trading for offline clients under the relationship managers guidance. To give markets updates to newly acquire as well as existing clients in market duration, etc.

ACHIEVEMENTS Stock Market observation has been done during internship period. 8 new clients have been acquired. Companies trading software has been downloaded. Software demonstration has been given to newly acquire as well as Various administrative activities have been performed. Follow-up to the customer has been given. 17 existing clients.

Company generated brokerage from the newly acquired customer by me during the internship period. Offline customers orders have been taken in regular market schedule.

LIMITATIONS It was hard to acquire knowledge about this field in such short span of time Share market is very vast & fast sector, it was very difficult to cope-up with the environment in such short span of time. This field is requiring with very deep fundamental & technical knowledge. Acquiring new clients it was the tough task to perform High risk involve while trading on behalf of the clients under the guidance of RM.

CONCLUSIONLearning Experience:In my summer training, I knew about the stock market and its nitty-gritty. And now I am confident about equity knowledge. Although nobody can claim complete expertise but there is a sea change at least from our point of view. I have learnt what are the various indices and their significance in market. I have learnt about various fundamentals and technical aspects, which affect the stock prices in short run and long run.

Selling Experience:Apart from this my specific task is to sell the Demat accounts. During this period across many people who came from different walks of life. I learnt how to deal with them, how to persuade them and guide them in trading. Selling an online trading account requires special focus on targeting the customers. Each and every person does not trade / invest in the stock market. Actually what I had to do was to identify the prospect and then convince them. As I met more and more people, I came to know more about how to talk to them, how much time be given to each person met. Even, by solving the customer queries, my own understanding was enhanced. While selling our product in the market, I also came to know more about the competitors product like, icicidirect.com, India bulls and their strategy of marketing and the consumers preference towards the competitors product. After forms were filled clients after the procedures were given client Id. After that, I was required to show the customer how to make a transaction and how to get access to the terminal. Also, other queries, which the customer faced, had to be solved by us. So, it was all a very good learning experience for me.

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Chapter 2 FINANCIAL SYSTEM OVERVIEW

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INTRODUCTIONIn world of commerce, apart from money equally revolutionary concept was the concept of limited liability. Before the industrial revolution economy was self-sufficient village economy. The artisans produced goods and services on demand. It was industrial revolution, which paved the way for production in anticipation of demand, and along with it came the economies of large-scale production and to support this was needed huge finance. Innovative forms of business establishment, incorporating the principle of Limited liability emerged. Form the highly imaginative world of business, a novel form of business organization viz. Joint Stock Companies, with the features like limited liability and the separation of ownership and management was born. Risk is an important and inherent part of any business. Risk cannot be avoided. You can only try to manage it. This was the best example of risk management by spreading it in small proportions amongst large number of shareholders. This was achieved by a concept called shares or stock and the need for trading in these stocks was felt.

2.1 CAPITAL FORMATIONS AND ECONOMIC DEVELOPMENTMultiplicity of wants and scarcity of means to satisfy these unlimited wants has continued to be the fundamental of economic problem. Money resources are required to move physical resources. Mobilization of resources for economic development was and continues to be the major problem with all developing and developed nations. The capital might be from within the country or outside the country. But one of the greatest challenges of nations today is creating conditions conducive for capital formation as also for attracting capital from various countries. A growing economy with vibrant capital and money market with rules and regulations in place is a of capital formation Prerequisite for attracting capital. Stock market plays a key role in the entire gamut of financial system. Having broadly discussed the developments and the basic issues involved, we will now try to review the Indian Financial System. India has come a long way during the last decade of the 20th Century. With the path-breaking budget of 91-92 presented by Dr. Man Mohan Sign an era of globalization, liberalization, decontrol and de-regulation was adhered in. Since then a lot of water has flown from under the bridge and lot of Development has taken place. The focus all along has been to faster economic development.

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2.2 INDIAN FINANCIAL SYSTEMThe financial system comprises a variety of intermediaries, markets, and instruments. It provides the principal means by which savings are transformed into investments. Given its role in the allocation of resources, the efficient functioning of the financial system is critical to a modern economy.

A conceptual Framework of how the financial system works: The Financial System

A financial system is a set of institutional arrangements, through which financial surpluses are mobilized from the units generating surplus income to others in need of them. Financial markets, financial instruments, financial services and financial institutions constitute the financial system. Financial market provide channels for allocation of savings to investment, that is how the savings are channelised into investments thus generating further income, cash or assets. Financial market has two major components 21

viz. money market and capital market. Money market refers to the market where borrowers and lenders exchange short-term funds, to solve their liquidity needs. Money market instruments have low default risk, maturities under one year and high marketability (liquidity). Low default risk implies that generally the risk of non-payment of money is low. Maturities under one year imply that all contracts are of maximum one year. Capital market comprises of institutions and mechanisms through which medium to long term funds are pooled and made available to business, government and individuals. It facilitates investment in fixed assets. Capital market consists of securities or stock market. Securities market consists of primary market and secondary market. Primary market consists of channel for sale of new securities, while secondary market deals in the securities already issued. Primary markets involve the following methods of issue. IPO Further issue of capital Rights issue Offers to public Secondary market enables those who already hold securities to adjust their investment in response to change in their assessment of risk and return, the statement implies that those who already holds the securities may want to sell them in case if those securities are not paying off, or if he needs to adjust his liquidity or for any other reason. Secondary market refers to the stock exchanges, a stock exchange provides mechanism to buy and sell the securities already issues in primary market. There are at present 23 stock exchanges in India.

Bonus issue

2.3 STOCK MARKETThe term the stock market is a concept for the mechanism that enables the trading of company stocks (collective shares) and other securities. The size of the 'stock market' is estimated at about $51 trillion. The stocks are listed and traded on stock exchanges which are entities specialized in the business of bringing buyers and sellers of stocks and securities together. Participants in the stock market range from small individual stock investors to large hedge fund traders, who can be based anywhere. Their orders usually end up with a professional at a stock exchange, who executes the order. Some exchanges are physical locations where transactions are carried out on a trading floor, by a method known as open outcry (e.g.: -New York stock exchange). This type of auction is used in stock exchanges and commodity exchanges where traders may enter "verbal" bids and offers simultaneously. The other type of exchange is a virtual kind, composed of a network of computers where trades are made electronically via traders at computer terminals (e.g. -Nasdaq). 22

Actual trades are based on an auction market paradigm where a potential buyer bids a specific price for a stock and a potential seller asks a specific price for the stock. (Buying or selling at market means you will accept any bid price or ask price for the stock.) When the bid and ask prices match, a sale takes place on a first come first served basis if there are multiple bidders or askers at a given price. The purpose of a stock exchange is to facilitate the exchange of securities between buyers and sellers, thus providing a market place (virtual or real). The exchanges provide real-time trading information on the listed securities, facilitating price discovery.

Market participantsMany years ago, worldwide, buyers and sellers were individual investors, such as wealthy businessmen, with long family histories (and emotional ties) to particular corporations. Over time, markets have become more "institutionalized"; buyers and sellers are largely institutions (e.g., pension funds, insurance companies, mutual funds, hedge funds, investor groups, and banks). The rise of the institutional investor has brought with it some improvements in market operations.

The First Stock MarketThe Dutch started joint stock companies, which let shareholders invest in business ventures and get a share of their profits - or losses. In 1602,The Dutch East India Company issued the first shares on the Amsterdam Stock Exchange It was the first company to issue stocks and bonds. Amsterdam Stock Exchange (or Amsterdam Beurs) is also said to have been the first stock exchange to introduce continuous trade. The Dutch "pioneered short selling, option trading, debt-equity, merchant banking, unit trusts and other speculative instruments ". There are now stock markets in virtually every developed and most developing economies, with the world's biggest markets being in the United States, Canada, China, India, UK, Germany, France and Japan

Importance of stock market Function and purpose The stock market is one of the most important sources for companies to raise money. This allows businesses to go public, or raise additional capital for expansion. The liquidity that an exchange provides affords investors the ability to quickly and easily sell securities. This is an attractive feature of investing in stocks, compared to other less liquid investments such as real estate. History has shown that the price of shares and other assets is an important part of the dynamics of economic activity, and can influence or be an indicator of social mood. Rising share prices, for instance, tend to be associated with increased business investment and vice versa. Share prices also affect the wealth of households and their consumption. Therefore, central bank tends to keep an eye on the control

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and behavior of the stock market and, in general, on the smooth operation of financial system functions. Financial stability is the important outlook of central banks. Exchanges also act as the clearinghouse for each transaction, meaning that they collect and deliver the shares, and guarantee payment to the seller of a security. The smooth functioning of all these activities facilitates economic growth in that lower cost and enterprise risks promote the production of goods and services as well as employment. In this way the financial system contributes to increased prosperity. Relation of the stock market to the modern financial system

The financial system in most western countries has undergone a remarkable transformation. One feature of this development is disintermediation. A portion of the funds involved in saving and financing flows directly to the financial markets instead of being routed via banks' traditional lending and deposit operations. The general public's heightened interest in investing in the stock market, either directly or through mutual funds, has been an important component of this process. Statistics show that in recent decades shares have made up an increasingly large proportion of households' financial assets in many countries. The major part of this adjustment in financial portfolios has gone directly to shares.

IMPACT OF STOCK EXCHANGES IN INDIA:Following are the changes due to the existence of Stock Exchange: 1. Mobilization of savings The savings of the individuals are easily mobilized in various types of industries. Therefore the amount of investments in the stock exchange increases. 2. Increase in rate of return on investment The investors get more rate of return i.e. the market rate and not the normal bank rate, which is much lower. 3. Availability of funds for growth of industries. The amount of funds required for the growth of the industries is easily available whereas there was always shortage of capital. 4. Diversification of industries Due to the availability of funds the industry becomes financially strong and have scope or diversification due to which they can become more strongly in the market. 5. Increase in employment Growth and diversification of industries leads to increase in the amount of work and thus increase job opportunities for the unemployed. 6. Increase in standard of living The increased job opportunities and the availability of goods of higher quality have increased the standard of living of people. 24

7. Increase in GDP Increase in business in overall all industries has automatically leaded to the rise in GDP of the country and thus its prosperity. 8. Decrease in Trade Deficit. Due to growth in industries the country is becoming self-sufficient leading to decrease in trade deficit.

2.4 TRADING IN INDIA: The trading on stock exchange in India used to take place through open outcry without use of information technology for immediate matching or recording of trades. This was time consuming and inefficient. This imposed limits on trading volumes and efficiency. In order to provide efficiency, liquidity and transparency, NSE introduced a nationwide online fully automated screen based trading system (SBTS) where a member can punch into the computer quantities of securities and the prices at which he likes to transact and the transaction is executed as soon as it finds matching sale or buy order from a counter party. SBTS electronically matches order on strict time/price priority and hence cuts down on time, cost and risk of error, as well as on fraud resulting in improved operational efficiency. It allows faster incorporation of price sensitive information into prevailing prices, thus increasing the information efficiency of markets. It enables market participants, irrespective of their geographical locations, to trade with one another simultaneously, improving the depth of liquidity market. It also provides a perfect audit trail, which helps to resolve disputes by logging in the trade execution process in entirety. Today India can boast that almost 100% trading take place through electronic order matching. Technology was used to carry the trading platform from the trading hall of stock exchanges to the premises of brokers. NSE carried the further platform further the PCs at the residence of Clients through the Internet for Users in geographically vast country like India.

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Conceptual framework Trading Network

The trading network is depicted in the above figure shows NSE has main computer, which is connected through very small Aperture Terminal installed at the office. The main computer runs on falls tolerant STRATUS mainframe computer at the exchange. Brokers have terminals installed at their premises, which are connected through VASTs/ leased lines/ modems. Investors inform broker to place an order on behalf of them. The broker enters the order through his PC, which runs under Windows NT and sends signal to the satellite via VAST/ leased line/ modem. The signal directed to mainframe computer at NSE The system also provides complete market information online. The market screens at any point of time provide information on total order depth in a security, the five best buys and sells available in the market, the quantity traded in the day security, the high and the low, the last traded price, etc. investors can also know the fate of the orders almost as soon as they placed with the trading members. The trading system is normally made available for trading on all days except Saturdays, Sundays and other holidays.

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Chapter 3 Research Methodology

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Research MethodologyMy first task before starting the process was to understand what fundamental analysis is all about & what the steps to achieve it are. For this my first step was going through various Internet sites & reading about the methods of fundamental analysis & the usefulness of the whole process. After reading through the whole data I analysis then with went the about help understanding fundamental of my coordinator, Mr.

Pradeep Rampal & my manager Mr. Nitin Shrivastava. Once I got to know about the basics about the fundamental analysis, my task was to select one company in the oil sector, one major company on which I can conduct the analysis. After doing a thorough research on the oil sector in India, the company that I short-listed was Oil & Natural Gas Corporation (ONGC), the big guns of oil sector. The next step lead me to knowing the history about the companies along with the growth prospects that the possess for the future. Internet research & one on one interview with the branch manager helped me in this task. Once this was done I went ahead & started my analysis on the companies & concluded the project with my say on the future investment prospects in the following company.

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CHAPTER 4DATA PRESENTATION, ANALYSIS & INTREPRETATION

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FUNDAMENTAL ANALYSIS ON OIL SECTOR Objective: To study the oil industry and find out the growth opportunities. To carry out the company analysis of the selected company and to suggest whether it is a viable investment option.

INTRODUCTIONFundamental analysis is the examination of the underlying forces that affect the well being of the economy, industry groups, and companies. As with most analysis, the goal is to derive a forecast profit from future price movements. At the company level, fundamental analysis may involve examination of financial data, management, business concept and competition. At the industry level, there might be an examination of supply and demand forces for the products offered. For the national economy, fundamental analysis might focus on economic data to assess the present and future growth of the economy. To forecast future stock prices, fundamental analysis combines economic, industry, and company analysis to derive a stock's investment opportunity. Fundamental analysis is a method used to determine the value of a stock by analyzing the financial data that is 'fundamental' to the company. Fundamental analysis does not look at the overall state of the market nor does it include behavioral variables in its methodology. It focuses exclusively on the company's business in order to determine whether or not the stock should be bought or sold. To buy a share of stock a investor is buying a proportional share in a business. As a consequence, to figure out how much the stock is worth, one should determine how much the business is worth. Investors generally need to assess the company's financials in terms of per-share values in order to calculate how much the proportional share of the business is worth. Some knows this as fundamental analysis, and most who use it view it as the only kind of rational stock analysis.

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Strengths of Fundamental AnalysisLong-term TrendsFundamental analysis is good for long-term investments based on long-term trends. The ability to identify and predict long-term economic, demographic, technological or consumer trends can benefit patient investors who pick the right company in the right industry groups.

Value SpottingSound fundamental analysis will help identify companies that represent a good value. Some of the most renowned investors think long-term and value. Graham and Dodd, Warren Buffet and John Neff are seen as the champions of value investing. Fundamental analysis can help uncover companies with valuable assets, a strong balance sheet, stable earnings, and staying power.

Business AcumenOne of the most obvious, but less tangible, rewards of fundamental analysis is the development of a thorough understanding of the business. After such painstaking research and analysis, an investor will be familiar with the key revenue and profit drivers behind a company. Earnings and earnings expectations can be potent drivers of equity prices. A good understanding can help investors avoid companies that are prone to shortfalls and identify those that continue to deliver. In addition to understanding the business, fundamental analysis allows investors to develop an understanding of the key value drivers and companies within an industry. Its industry group heavily influences a stocks price. By studying these groups, investors can better position themselves to identify opportunities that are high-risk (tech), low-risk (utilities), growth oriented (computer), value driven (oil), non-cyclical (consumer staples), cyclical (transportation) or income-oriented (high yield).

Knowing Who's WhoStocks move as a group. By understanding a company's business, investors can better position themselves to categorize stocks within their relevant industry group. Business can change rapidly and with it the revenue mix of a company. Knowing a company's business and being able to place it in a group can make a huge difference in relative valuations.

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AbstractCrude Oil & Natural Gas are the core pillars that support the development of economy worldwide. There is hardly any nation that does not seek these indispensable natural resources. The country, which possesses oil & gas, wants more & more. Nations struggle hard to explore for it and are ready to pay any cost to import it. Today Crude Oil and Natural gas has found its importance in almost every field and without them almost nothing in the modern world will move. Name any industry and you will find the application of these resources. Oil is a fossil fuel that can be found as deposits beneath the earths surface. These fuels were formed when organic matter (such as the remains of a plant or animal) died in ancient seas around 10 million to 600 million years ago. The task of finding oil is assigned to geologists. As demand for oil and natural gas increased, so did the necessity for more accurate methods of locating deposits. The liquid that comes out of the ground is unprocessed crude oil, which is generally called petroleum. It varies in color, from clear to tar-black, and in viscosity. The composition of crude oil differs from one oil field to another. Unlike other fossil fuels raw oil or unprocessed ("crude") oil is not very useful in the form it comes out of the ground. The oil needs to be separated into parts and refined before use in fuels and lubricants, and before some of the byproducts could be used in petrochemical processes to form materials such as plastics, and foams. Crude Oil and Natural Gas satisfy around 62% of the global energy requirement and it is expected that this share will increase in the coming decades. It is estimated that the entire global crude oil reserve would end up in the next 40.6 years. Saudi Arabia, Iran, US, Russia, Canada are some of the major Crude Oil producers. OPEC contains the worlds largest reserves and produces around 40% of the world production. In the coming future its share will increase to 50%. India is the sixth largest consumer of primary energy in the world. In 2006 oil and natural gas together accounted for 40% of total consumption and this figure is expected to increase to 45% by 2025. As the domestic production of crude is not adequate to meet the demand of this thirsty nation, nearly 70% of crude is imported and this figure may rise to 86% in 2025. This shows the dependence of the country on the imported crude. India is among one of the top 10 oil consuming countries in the World. With nearly 40% contribution of Oil and Gas in the total energy consumption and with inadequate crude production, India is heavily dependant on Crude import. Crude is the single largest item on Indias import list. And with a projected growth of 10% in GDP over the next decades demand is likely to increase at a faster pace. Keeping this in mind Government announced a New Exploration Licensing Policy in 1997 1998 in order to encourage in house production of Oil and Gas by inviting bidding from the domestic and foreign companies. There has been a gradual transformation in Indian refining sector; from a product deficit

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country to a product surplus country, India has come a long way. Now the refining capacity is such that India can import raw crude, refine it, and export the end products to the international market. Indias Crude Oil and Natural Gas pipeline sector has a huge potential and government is taking various investor friendly steps so as attract more and more investment in this sector, future of Indian crude & gas pipeline industry seems to be very lucrative. India is heavily dependent on the imported crude oil. As such the fluctuations of international crude prices can be felt in India. In the wake of rising crude price the government here has adopted various means to insulate the consumer from the price volatility. Form the administered price mechanism (APM) earlier to Trade Parity Pricing mechanism now, Indian crude & gas prices has saw many ups and down but its impact was borne by the consumers and companies rather than the government. The total revenue to the center not only consists of customs duty and excise duty they also constitute of royalties, corporate tax, dividends and others.

IntroductionThe history of Crude Oil and Natural Gas has been dominated by the time and place of discoveries with enormous results on the history of the 20th century. Crude Oil, Petroleum Products and Natural gas have always been the major components in international trade for thousand of years. 1914, World War I can be said to be a remarkable year though not for the war nations but for the Global Crude Oil and Natural Gas industry. This war made the whole world realize about the importance of the Crude Oil and Natural Gas and since then things have never remained the same. Today these resources have become the major source of revenue earners for various producing countries in the form of export. In Russia nearly half the hard earned currencies come from the crude and gas exports, whereas the figure goes up to 80% for Venezuela and 95% for Algeria and Nigeria. Today Crude Oil is found its importance in almost every field and without them almost nothing in the modern world will move. Name any industry and you will find the application of these resources. Be it transportation or wheels of industry, agriculture or households, plastic or artificial fibres, chemical fertilizers or pesticides, chemicals or medicine we will find the footsteps of crude oil almost every where.

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Fundamental analysis by EIC model3.1.) ECONOMIC ANALYSISFirst and foremost in a top-down approach would be an overall evaluation of the general economy. The economy is like the tide and the various industry groups and individual companies are like boats. When the economy expands, most industry groups and companies benefit and grow. When the economy declines, most sectors and companies usually suffer. So it is important to study the economy Economic experts and various studies conducted across the globe envisage India and China to rule the world in the 21st century. For over a century the United States has been the largest economy in the world but major developments have taken place in the world economy since then, leading to the shift of focus from the US and the rich countries of Europe to the two Asian giants- India and China. The rich countries of Europe have seen the greatest decline in global GDP share by 4.9 percentage points, followed by the US and Japan with a decline of about 1 percentage points each. Within Asia, the rising share of China and India has been increasing since 1990. According to experts, the share of the US in world GDP is expected to fall (from 21 per cent to 18 per cent) and that of India to rise (from 6 per cent to 11 per cent) in 2025, and hence the latter will emerge as the third pole in the global economy after the US and China. Since independence Indian economy has thrived hard for improving its pace of development. Notably in the past few years the cities in India have undergone tremendous infrastructure up-gradation but the situation in not similar in most part of rural India. Similarly in the realm of health and education and other human development indicators India's performance has been far from satisfactory, but showing a wide range of regional inequalities with urban areas getting most of the benefits. In order to attain the status that currently only a few countries in the world enjoy and to provide a more egalitarian society to its mounting population, appropriate measures need to be taken.

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1.) GROWTH RATE OF INDIA

Development Indicators:The productivity scenario of Indias economy is experiencing a faster rate of growth today. Some of the development indicators of the Indias economy are as follows: Both the savings and investment rates in the country are experiencing a faster rate of growth recently. Both the indicators are expected to rise very fast in the coming years. The age profile in India among the global population over the world is considered to be a better dividend for the countrys economy. Young population group of Indias economy has significantly added to the countrys growth.

The Government of India in the same direction has undertaken many steps to train and educate its masses for getting employment. Policy measures undertaken in India recently have helped a lot in the economic progress. Economic growth has created huge employment opportunities on the one hand and reduced poverty on the other. With manifold objectives in mind, the Government has come forward with high investments on social sector development particularly on health, education and infrastructure related developments.

2.) GDPIndia's GDP recently crossed the trillion-dollar mark for the first time and with this India has joined the elite club of 12 countries with a trillion dollar economy. Countries that have breached trillion- dollar GDP level in the past are the US, Japan, Germany, China, UK, France, Italy, Spain, Canada, Brazil and Russia. The GDP or Gross Domestic Product is the primary indicator used to gauge the health of a country's economy. The GDP of a country is defined as the market value of all final goods and services produced within a country in a given period of time. It is also considered the sum of value added at every stage of production of all final goods and services produced within a country in a given period of time. 35

GDP tries to capture all final goods and services that are produced within the political and geographical frontiers of the country, thereby assuring that the final monetary value of everything that is created in a country is represented in the GDP. GDP is calculated for a specific period of time, usually a year or a quarter of a year. According to the data released for the year 2006-2007, India's GDP grew at an impressive 9.2 per cent. The share of different sectors of the economy in India's GDP is as follows: Agriculture - 18.5 per cent, Industry - 26.4 per cent, and Services - 55.1 per cent. The fact that the service sector now accounts for more than half the GDP is a milestone in India's economic history and takes it closer to the fundamentals of a developed economy. At the time of independence agriculture occupied the major share of GDP while the contribution of services was relatively very less. It has clearly been the best year of economic growth for India since Independence. Vigorous growth with strong macroeconomic fundamentals has characterized developments in the Indian economy in 2006-07 so far. Bringing this out with compelling facts and figures, the Economic Survey 2006-07 presented by Finance Minister P. Chidambaram in the Parliament says that growth of 9.0 % and 9.2 % in 2005-06 and 2006-07, respectively, by most accounts, surpassed all expectations. Not only is that, despite apprehensions about rising prices, the growth momentum likely to be sustained and maybe even improved upon in the new financial year. While the up-and-down pattern in agriculture continued with growth estimated at 6.0 % and 2.7 % in the two recent years, and services maintained its vigorous growth performance, there were distinct signs of sustained Services sector growth has continued to be broad based. The three sub-sectors of services - trade, hotels, transport and communication - have continued to boost the sector by growing at double-digit rates for the fourth successive year. Growth in financial services (comprising banking, insurance, real estate and business services) after dipping to 5.6 % in 2003-04 bounced back to 8.7 % in 2004-05 and 10.9 % in 2005-06. The momentum has been maintained with a growth of 11.1 % in 2006-07. The impressive growth of industrial sector, propelled by robust growth in manufacturing has continued unabated during the current year so far. Year-on year industrial growth of 10.6 % in the first nine months of 2006-07 was the highest recorded since 1995-96. A notable feature of the current growth phase is the sharp rise in the rate of investment in the economy reflecting a high degree of business optimism. This sharp increase in the investment rate has sustained the industrial performance and reinforces the outlook for growth. improvement on the industrial front.

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3.) INFLATION IN INDIAInflation in India is at an acceptable level and remains much lower than in many other developing countries. But off late prices of essential commodities such as food grain, edible oil, vegetables etc have risen sharply and in the process driving up the inflation rate. Inflation is defined as a sustained increase in the general level of prices for goods and services. It is measured as an annual percentage increase. As inflation rises, the value of currency goes down. Thus the purchasing power of the currency, i.e. the goods and services that can be bought in a unit of currency, too goes down. The current rise in inflation has its roots in supply-side factors. There was shortfall in domestic production vis--vis domestic demand and hardening of international prices, prices of primary commodities, mainly food items. Wheat, pulses, edible oils, fruits and vegetables, and condiments and spices have been the major contributors to the higher inflation rate of primary articles. The inflation was also accompanied by buoyant growth of money and credit. While the GDP growth zoomed to 9.0 per cent per annum. Demand for nearly everything from housing to fast moving consumer goods is outpacing supply in part because white-collar salaries are rising faster in India than anywhere else in Asia. One of the daunting tasks before the government is to reconcile the twin needs of facilitating credit for growth on the one hand and containing liquidity to tame inflation on the other. On looking at the trend of inflation so far, it can be said that average inflation for this fiscal will remain under control. However the growing inflation above 6.0 per cent will be a matter of concern for the growing economy. The present union budget 2007-08 has made an attempt to address the issues of inflation by empowering the neglected agriculture sector. Several other measures in the direction of taming inflation have been taken using the monetary instruments.

4.) STOCK MARKET TRENDSThe 30-stock index BSE Sensex crossed 15000 points on July 2007.The NSE Nifty also touched new heights crossing 4000 points. Robust growth in the Industry, high credit growth and better quarterly earnings boosted the sentiments of the investors further leading to bullish trend in the stock market. Rising of the stock market indices is further attracting FII investment, which increases the liquidity in the stock market. This liquidity makes the market more volatile. FIIs are coming to India because they see that there is huge potential in the economy for capital gains. When FII are getting the expected returns, the funds inflows increase. But there are positive and several negative effects of this fast inflow of funds.

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1.) Foreign Exchange Reserves: Because of increasing inflow of funds, the Foreign Exchange Reserves increases which further appreciates the currency and this appreciation of currency makes the exports more costly which puts pressure on current account. 2.) Volatility in the stock market Increasing inflow of the funds makes the stock market more volatile. And too much volatility in the market is also a cause of concern.

5.) CURRENCY SYSTEMIndian bank notes depicting M. K. Gandhi, The 1000-rupee note is the highest denomination printed. The Rupee is the only legal tender accepted in India. The exchange rate as of July 24, 2007 is about 40.15 to a US dollar, 55.50 to a Euro, and 82.81 to a UK pound. The Indian rupee is accepted as legal tender in the neighboring Nepal and Bhutan, both of which peg their currency to that of the Indian rupee.

6.) FOREIGN TRADEThe numbers released for the month of January 2007-show moderation in exports. In the first quarter of this fiscal Indias merchandise exports grew at 30 per cent (in US dollar terms), growth in exports further increased to 40 per cent in the second quarter and in the third quarter growth slid below 30 per cent. The third quarter slowdown was on account of relatively low exports in the month of October and December 2006. Merchandise exports from April- January 2006-07 grew by 32.2 percent at $ US 99.13 billion as against $ US 74.9 billion. However growth in exports slowed to 5.5 per cent in January 2007. There was a 36.4per cent increase in the Crude oil imports during Apr-January 2007 at $48.6 billion than the imports at $35.6 billion in the corresponding period last year. Cumulatively, non-oil imports during Apr-January 2007 at $ 101.11 billion were 23.3 per cent higher than the level of imports at $82.0 billion in Apr-Jan 2006.

7.) FDI (Foreign Direct Investment)Foreign direct investment (FDI) into India has increased significantly during the current financial year. The inflows are likely to be more than double the amount recorded in 2006. FDI equity inflows during April 2006 to November 2006 were $7.2 billion, which is the highest ever for equity capital since economic liberalization. The higher inflows as well as the new credit rating reflected growing investor confidence in India. As the third-largest economy in the world, India is undoubtedly one of the most preferred destinations for foreign direct investments (FDI); India has strength in information technology and other 38

significant areas such as auto components, chemicals, apparels, pharmaceuticals and jewellery. India has always held promise for global investors, but its rigid FDI policies were a significant hindrance in this regard. However, as a result of a series of ambitious and positive economic reforms aimed at deregulating the economy and stimulating foreign investment, India has positioned itself as one of the front-runners of the rapidly growing Asia Pacific Region. India has a large pool of skilled managerial and technical expertise. The size of the middle-class population at 300 million exceeds the population of both the US and the EU, and represents a powerful consumer market. India's recently liberalized FDI policy (2005) allows up to a 100% FDI stake in ventures. Industrial policy reforms have substantially reduced industrial licensing requirements, removed restrictions on expansion and facilitated easy access to foreign technology and foreign direct investment FDI. The upward moving growth curve of the real-estate sector owes some credit to a booming economy and liberalized FDI regime. In March 2005, the government amended the rules to allow 100 per cent FDI in the construction business. This automatic route has been permitted in townships, housing, built-up infrastructure and construction development projects including housing, commercial premises, hotels, resorts, hospitals, educational infrastructure. institutions, recreational facilities, and city- and regional-level

8.) FOREIGN EXCHANGE RESERVESFOR IGN C R E C E URNY1 00 0 8 0 1 00 0 6 0 1 00 0 4 0 1 00 0 2 0 1 00 0 0 0 800 0 0 600 0 0 400 0 0 200 0 0 0 1 YEA S R

AS E S STMa 96 rMa 97 rMa 98 rMa 99 rMa 00 r1-Mar 2-Mar 3-Mar 4-Mar 5-Mar 6-Mar 6-Dec

From the above graph it is clear that from year 96, there have been a continuous growth in the foreign investment in India, which increased the Foreign Currency Assets. But this kind of continuous increase in foreign reserves has become the reason of appreciation of rupee. This appreciation of rupee has made the exports more costly which reflects in balance of payment. The exports are not increasing as fast as they should be. The imports are increasing more than the increase in exports further putting pressure on current account.

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9.) TRENDS IN EXCHANGE RATESIt is to be noted that appreciation of Rupee to such an extent (Rs 41.00) against the USD has led to low realizations to the exporters. This is reflected in low growth posted by the countrys merchandise exports. Indian Rupee against the USD still remains in the range of discomfort for the Indian Exporters. Experts have different opinions about the rising exchange rates. The appreciation that the rupee has seen over the past few weeks has evoked several reactions from different sector the economy. They claim that the industry will be affected at least at the two fronts. Firstly they will not be able to meet their export targets. Secondly the burden of rupee appreciation will be borne by the exporters only. On the other hand, appreciation of rupee has made the imports cheaper.

10.) KEY INDUSTRY CHECKa.) MANUFACTURING SECTORThe growth rate of manufacturing sector in a country truly reflects its economic potentiality. Most of the developed countries are strong enough in their manufacturing sector. Though the services sector in India has brought faster economic success, still the manufacturing sector plays an important role on the ground of sustainability. In India, though the manufacturing sector is growing at a faster pace still it has failed to some extent with regards to its percentage share in the total GDP. The growth rate of manufacturing sector in the country has reached at a two-digit percentage growth in the year 2006-07 from April-August.

Both Government as well as the private sectors has come forward for the development of the manufacturing sector of the country. More investments are being proposed in the sector particularly capital goods, consumer durables, and some non-durable goods.

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The impressive growth of industrial sector, propelled by robust growth in manufacturing has continued unabated during the current year so far. Year-on year industrial growth of 10.6 % in the first nine months of 2006-07 was the highest recorded since 1995-96.

b.) SERVICE SECTORThe service sector of Indian Economy has brought much success in the recent years. It constitutes a larger share in the total Gross Domestic Product. The growth rate of services sector in India is faster than any other sectors. It constitutes more than 50 percent of the total GDP in the country. The services sector in India has become a larger source of revenue for the country. The Government of India introduced service tax in the year 1994 and presently it constitutes a major source of revenue for the Government. Collection of Services tax in India has reached at Rs. 23,000 Crores in 200506 from Rs. 2072 Crores in 1999-00. For the year 2006-07, the target is being fixed at Rs. 34,500 Crores. From time to time Government is trying to bring more items under the service tax net. The Government announced Taxation of Services Rules 2006 and Service Tax Rules 2006. The Government has also formed a committee for reviewing the services tax circulars since 1994. Growth in financial services (comprising banking, insurance, real estate and business services) after dipping to 5.6 % in 2003-04 bounced back to 8.7 % in 2004-05 and 10.9 % in 2005-06. The momentum has been maintained with a growth of 11.1 % in 2006-07. Thus it can be concluded India's economy is on the fulcrum of an ever-increasing growth curve. With positive indicators such as a stable 8-9 per cent annual growth, rising foreign exchange reserves of over US$ 222 billion, a booming capital market with the popular "Sensex" index topping the majestic 15,000 mark, the Government estimating FDI flow of US$ 15.5 billion in this fiscal, and a more than 20 per cent surge in exports, it is easy to understand why India is a leading destination for foreign investment.

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3.2.) INDUSTRY ANALYSISWhen stocks move, they usually move as groups; there are very few lone guns out there. Many times it is more important to be in the right industry than in the right stock. To assess an industry groups potential, it would be consider the overall growth rate, market size, and importance to the economy. While the individual company is still important, its industry group is likely to exert just as much, or more influence on the stock price.

1.) INTERNATIONAL CRUDE OIL MARKET SCENARIO" Oil is the one commodity absolutely essential to this tidal wave of global growth. It's literally the blood supply of global growth. If it is a developing country, it need all the oil it can get to drive its trucks, may it be cars, planes or ships. It needs oil to run the factories, machines and power plants so necessary to a modern industrial economy. Due to newly industrialized countries are joining the party and importing an unending procession of super-tankers laden with black gold the demand for is increasing continuously. Since decades Crude Oil is playing key role in the global energy supply and it will continue to remain so for the half of 21st century. Crude Oil and Natural Gas satisfy around 37.5% of the global energy requirement and it is expected that this share will increase in the coming decades It is however surprise to notice that though crude oil is required by every country for the development of their economy but majority of these resources are lying in the unstable country like Iran, Iraq and others. Although world crude oil reserves have been increasing over the years but their reserve to production (R/P) ratio is decreasing. It is estimated that the entire global crude oil reserve would end up in the next 40.6 years. What surprised the most is though the reserve and consumption has seen an upward movement, the production figure is lower. It means to say global crude oil consumption figures are higher than the production figures.

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2.) MAJOR CRUDE OIL PRODUCERS Saudi ArabiaOil was first struck in 1938 in Saudi Arabia by Chevron and with this discovery it has turned around the whole Oil industry. Today Saudi Arabia contains worlds largest amount of Oil reserves and it is also the world largest producer of crude oil. With around one-fourth of the global proven oil reserves, it produces over 4 billion barrels of crude oil every year. It is likely to remain as the worlds largest Exporter of oil for the foreseeable future. However the biggest challenge for Saudi Arabia is that there existing fields sustain annual declining rates of 5 12 percent .The field is now running into problems and there are rumors that it is producing more water than oil.

IranIran accounts for worlds 2nd largest proven conventional oil reserves and also the 2nd

largest producer of crude oil in the world. However its production saw a major decline and now it averages at 1.5 billion barrel per year. However Iranian production has suffered a lot because of the US, which is prohibiting imports from Iran.

CanadaCanada has occupied a substantial position in the world crude market. From 8.7 billion barrels in 1980 to 16.7 billion barrels of crude oil reserves in 2005.

United StatesIt is the demand from the United States, which made the world realize about the importance of Crude Oil and Natural Gas. Since the 19th century United States is using Crude Oil and Natural Gas for various purposes and from then till date United States Crude Oil reserves and production both have reached its peak and now seeing a continuous downward trend. There is no need to go back much, if we consider 1980 and 2005 end, reserves have declined by 20%. In 1980 US had a reserve of 36.5 billion barrels and as on 1st January 2006 it is 29.3 billion barrels. Since 1980 reserves were continuously declining and it is declining at a much faster rate, which indicates the rate, at which the consumption is increasing. United States production figures are also seeing a downward trend, in 1980 production was 4 billion barrels whereas as on 1st January 2006 it is 2 billion barrels i.e. a decline of 50%. The above figures indicates that over the years US consumption is increasing and it will continue to do so at a faster rate in the future and to satisfy the demand US is now banging on the imported crude oil in much larger quantity. Canada is the major source of import for US. Around 90% of the production in Canada is exported to US, but as said earlier that Canada domestic consumption is increasing year after year and it will leave less space for the US export in the future. It is interesting to note that US has the largest concentration of Oil Shale in the world, according to Bureau of Land Management and holds around 800 43

billion barrels of recoverable oil which huge enough to meet current US demand for another 110 years. However the main constraint in developing the Oil shale reserves is the easy access to cheap Canadian Oil sands which they has under the NAFTA (North American Free Trade Agreement). Not only this, there are also various environmental factors which does not allow the development of Oil Shale.

RussiaRussia deserves a special place on the world map because of its crucial role in the world supply of Oil. Outside OPEC, Russia is the single largest holder and producer of Crude oil. Russias reserves (74.4 billion barrels) accounts for 6.2% of the global crude oil reserves and its R/P ratio is 21.4 years. In terms of production also Russia is the largest non-OPEC producer. It produces 9551 thousand barrels of oil per day as on 1st January 2006, which is 12.1% of the global production. This recent increase in production is largely associated with the introduction of modern technologies, following an influx of western expertise and practices.

3.) OPEC - Organization of Petroleum Exporting CountriesThough it was from 1914 (after World War I) when world starts realizing about the importance of Oil and starts exploring for it, but it was the great 1960 when World saw the emergence of a new body OPEC and since then World Oil market never remain the same as it was before. After the formation of OPEC world crude oil prices starts fluctuating in a manner as the waves of music fluctuate and starts reaching a new high every now or then. OPEC was founded in Baghdad, Iraq, in September 1960, in order to unify and coordinate its members Crude policies, so as to secure fair and stable prices for petroleum producers; efficient, economic and regular supplies of petroleum to consuming nations and a fair return to those investing in the industry. So it is clear that it is formed not to help the world market but to help its members. Originally it includes Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela as its members, but as time passed by it keeps on expanding and as of today it includes 12 members. Today OPEC accounts for almost 76% share of world oil reserves but it accounts for mere 40% of the world oil production. Oil prices are rising day after day not because the world is running out of Oil but because the bulk of reserves are in countries where market incentives cannot work fully or in the hands of monopolists who have may be exercising their power by restraining investments. World crude oil reserves are estimated at more than 1 trillion barrels of which OPEC are estimated to hold more than 75%. Since OPEC holds the major portion of Oil reserves/output it exerts strong influence on global oil prices. When OPEC decides to cut down production level it increases the world oil prices whereas when it boost oil production in order to increase supplies it drives down the price but this hardly happens. As of January 2007, world recoverable oil reserve is estimated at 1317 billion barrels, OPEC contribute 910 billion barrel and Rest of the world contribute 407 billion barrel 44

World crude oil demand is increasing year after year and it will continue. OPEC being the major will always play a strong role in World Crude supply. According to Fatih Barol (former statistical analyst of OPEC) Share of OPEC in World supply will rise to around 50% by 2030 from its present level of 42%.

As said already that OPEC has been formed with an objective of making billions of money from this liquid gold market. It means OPEC nations sell there crude at this price, but whereas their cost of production is not even cost more than $10 per barrel; in some nations like Middle East it cost only $2 per

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barrel whereas for Nigeria & Venezuela it is just $7 per barrel. Well it can clearly be ascertained about the motive for which OPEC has been created.

4.) S P R - Strategic Petroleum ReservesMany countries use SPR, controlled by the government as well as by the private players, for both economic and national security reasons. These are the reserves, which are maintained so as to meet any future supply disruptions. SPR has been made exclusively for crude oil reserves and not to pile stocks of refined petroleum products. The need for SPR was start building in the minds of many countries especially U.S.A and construction of first surface facilities was began June 1977 in U.S.A and on July 21, 1977, the first oil approximately 412,000 barrels of Saudi Arabia light crude was delivered to the SPR. According to a March 2001 agreement, all 26 members of the International Energy Agency (IEA) must have a strategic petroleum reserve equal to 90 days of oil imports for their respective country. Currently U.S SPR is one of the largest strategic reserves, with much of the remainder held by the other 25 members of the IEA. Also recently non IEA members have also started building their own SPR, with China being having the largest among them.

Most countries SPR are still in its construction stage viz. India, Iran, China (also planning to expand by building another SPR with a size of 209.44 million barrels), and Russia. U.S.A is planning to double its size whereas South Korea is planning to expand its size by 65 mbbl. Some of the countries are also maintaining a SPR of petroleum products viz. Singapore. Where U.S & Japan can meet 60 and 169 46

days of consumption respectively, India can meet only 2 weeks of consumption with its size of SPR. However the move by the Indian Government towards SPR is commendable and in the near future we can expect an increment in the size of SPR.

5.) INDIAS CRUDE OIL MARKET SCENARIOThe origin of oil & gas industry in India can be traced back to 1867 when oil was struck at Makum near Margherita in Assam. At the time of Independence in 1947, international companies controlled the Oil & Gas industry. India's domestic oil production was just 250,000 tonnes per annum and the entire production was from one state - Assam. The Industrial Policy Resolution laid the foundation of the Oil & Gas Industry in India, 1954, when the government announced that petroleum would be the core sector industry. In pursuance of the Industrial Policy Resolution, 1954, Government-owned National Oil Companies ONGC (Oil & Natural Gas Commission), IOC (Indian Oil Corporation), and OIL (Oil India Ltd.) were formed. ONGC was formed as a Directorate in 1955, and became a Commission in 1956. In 1958, Indian Refineries Ltd, a government company was set up. In 1959, for marketing of petroleum products, the government set up another company called Indian Refineries Ltd. In 1964, Indian Refineries Ltd was merged with Indian Oil Company Ltd. to form Indian Oil Corporation Ltd. During 1960s, a number of oil-bearing structures were discovered by ONGC in Gujarat and Assam. Discovery of oil in significant quantities in Bombay High in February 1974 opened up new avenues of oil exploration in offshore areas. During 1970s and till mid 1980s exploratory efforts by ONGC and OIL India yielded discoveries of oil and gas in a number of structures in Bassein, Tapti, Krishna-Godavari-Cauvery basins, Cachar (Assam), Nagaland, and Tripura. In 1984-85, India achieved a self-sufficiency level of 70% in petroleum products. The early oil fields discovered in India were of modest size. Oil production in India amounted to 200,000 tons in 1950 and 400,000 tons in 1960. By the early 1970s, production had increased to more than 8 million tons. In 1974 the Oil and Natural Gas Commission discovered a large field--called the Bombay High--offshore from Bombay. Production of Indian oil from that field was responsible for the rapid growth of the country's total crude oil production in the late 1970s and throughout the 1980s. In FY 1989, oil production peaked at 34 million tons, of which Bombay High accounted for 22 million tons. In the early 1990s, wells were shut in offshore fields that had been inefficiently exploited, and production fell to 27 million tons in FY 1993. That amount did not meet India's needs, and 30.7 million tons of crude oil was imported in FY 1993. India has thirty-five major fields onshore (primarily in Assam and Gujarat) and four major offshore oil fields (near Bombay, south of Pondicherry, and in the Palk Strait). Of the 4,828 wells, in 1990 2,514 were producing at a rate of 664,582 barrels per day. The oil field with the greatest output is Bombay 47

High, with 402,797 barrels per day production in 1990, about fifteen times the amount produced by the next largest fields. The government has sanctioned ambitious exploration plans to raise production in line with demand and to exploit new discoveries as rapidly as possible. In the late 1980s and early 1990s, there were encouraging finds in Tamil Nadu, Gujarat, Andhra Pradesh, and Assam; many of these discoveries were made offshore. Officials estimated that by the mid-1990s these new fields could contribute as much as 15 million to 20 million tons in new production and that total crude oil production could increase to 51 million tons in FY 1994. In the early 1990s, the government renewed attempts, which had begun in the early 1980s, to interest foreign oil companies in purchasing exploration and production leases. These efforts drew only a modest response because the terms offered were difficult, and foreign companies remained suspicious of India's investment climate. One response, agreed on in January 1995, was an Indian-Kuwaiti joint venture to invest in a new oil refinery to be built on the east coast of India.

The most remarkable of them was the offshore discovery of crude at Bombay High and the KG basin gas discovery recently done by Reliance and others. The first refinery was setup at Digboi in 1901; currently 19 refineries (17 PSU and 2 private) are in operation. The oil and gas reserves in this country are limited, but demand for over the year dependence on oil and gas has meet from increased. About 44.9 percent of the commercial energy is this source. It implies that at that current

rate consumption oil may last for only about 20-25 years The gap between the demand for petroleum products and domestic production of oil is expected to within and will have to be filled by imports. This extent of reliance on imports of oil and petroleum products makes India vulnerable to the changes to the international oil prices. By the end of 1980s, the petroleum sector was in the doldrums. Oil production had begun to decline whereas there was a steady increase in consumption and domestic oil production was able to meet only about 35% of the domestic requirement. The situation was further compounded by the resource crunch in early 1990s. The Government had no money for the development of some of the then newly

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discovered fields (Gandhar, Heera Phase-II and III, Neelam, Ravva, Panna, Mukta, Tapti, Lakwa Phase-II, Geleki, Bombay High Final Development schemes etc. This forced the Government to go for the petroleum sector reforms, which had become inevitable if India had to attract funds and technology from abroad into the petroleum sector. The government in order to increase exploration activity approved the New Exploration Licensing Policy (NELP) in March 1997 to ensure level playing field in the upstream sector between private and public sector companies in all fiscal, financial and contractual matters. This ensured there was no mandatory state participation through ONGC/OIL nor there was any carried interest of the government. To meet its growing petroleum demand, India is investing heavily in oil fields abroad. India's stateowned oil firms already have stakes in oil and gas fields in Russia, Sudan, Iraq, Libya, Egypt, Qatar, Ivory Coast, Australia, Vietnam and Myanmar. Oil and Gas Industry has a vital role to play in India's energy security and if India has to sustain its high economic growth rate. India is the sixth largest consumer of primary energy in the world. In 2006 oil and natural gas together accounted for 40% of total consumption and this figure is expected to increase to 45% by 2025.As the domestic production of crude is not adequate to meet the demand of this thirsty nation, nearly 70% of crude is imported and this figure may rise to 86% in 2025. This shows the dependence of the country on the imported crude. The latest India Oil & Gas Report from BMI forecasts that the country will account for 10.8% of Asia/Pacific regional oil demand by 2010, while providing 10.2% of supply. India has significant amounts of oil and natural gas, and five of India's top six revenue-generating companies are in the oil and natural gas business.

Five Indian oil companies have been listed in the Fortune Global 500 lists for the year 2006. They are:Rank 153 - Indian Oil Corporation Ltd (IOCL) A wholly owned subsidiary company, Indian Oil Technologies Ltd. is the 19th largest petroleum company in the world Indias largest company by sales. Indias flagship Downstream company - Along with subsidiaries accounts for 47% of Petroleum market share among Public Sector Oil Companies, 41% of National refining capacity and 51% downstream pipeline capacity Operates the largest and widest network of petrol and diesel stations in the country Indian Oils world-class R&D Center has developed over 2,100 formulations of SERVO brand lubricants and greases for virtually all-conceivable applications meeting stringent international standards and bearing the stamp of approval of all major original equipment manufacturers.

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Indian Oil is also strengthening its existing overseas marketing ventures and simultaneously scouting new opportunities for marketing and export of petroleum products to new energy markets in Asia and Africa.

Rank 342 - Reliance Industries Ltd.

Indias largest private sector company on all major financial parameters Presence in Upstream, midstream and downstream segment

Rank 368 - Bharat Petroleum Corporation Ltd. (BPCL)

It is the 3rd largest oil company in India owned by the Government of India. In 1976, the Burmah Shell Group of Companies was taken over by the Government of India to form Bharat Refineries Limited. In 1977, it was renamed Bharat Petroleum Corporation Limited. It was the first refinery to process newly found indigenous crude (Bombay High), in the country.

Rank 378 - Hindustan Petroleum Corporation Ltd. HPCL a Fortune 500 Company, with an annual turnover of over Rs 74,044 crores, 20% refining & marketing share in India and a strong market infrastructure. The Corporation operates 2 major refineries producing a wide variety of petroleum fuels & specialties, one in Mumbai (West Coast) of 5.5 MMTPA capacities and the other in Vishakhapatnam (East Coast) with a capacity of 7.5 MMTPA. HPCL holds an equity stake of 16.95% in Mangalore Refinery & Petrochemicals Limited, a refinery at Mangalore with a capacity of 9 MMTPA. In addition, HPCL is progressing towards setting up of a refinery in the state of Punjab.

HPCL also owns and operates the largest Lube Refinery in the country producing Lube Base Oils of international standards. With a capacity of 335,000 Metric Tones this Lube Refinery accounts for over 40% of the country's total Lube Base Oil production.

The vast marketing network of the Corporation consists of Zonal offices in the 4 metro cities and85 regional offices facilitated by a supply & distribution infrastructure.

Rank 402 - Oil and Natural Gas Corporation Ltd. (ONGC) It is a public sector petroleum company in India, contributing 74% of Indias crude oil production. Revenue (2006): $ 10.5 billion Employees: 41000 ONGC has gained junior shares in a host of projects, from Russia's Sakhalin-1, Iran's Yadavaran Field and Sudanese properties abandoned by Western investors. 50

But it has yet to take a lead role that would give it more say and a bigger share of future production. The race is gaining urgency both for India and ONGC as Chinese and other Asian competitors snap up plum properties in the face of stagnating domestic production. The 50-year-old firm has acquired interests in 16 overseas projects since it started looking abroad in 2001.

Government officials say ONGC must boost its reserve-to-production ratio - the number of years its reserves will last with the current level of output - by improving its drilling technology and management practices. ONGC's ratio is 22 years. In some onland areas the ratio is 57 years.

6.) RESERVESThe proved reserve of crude is about 5.9 billion barrels (bnbbl) it is merely 0.5% of the worlds total proved reserve. The current production rate is 0.28616 billion barrels. The reserve to production (R/P) ratio stands at 20 i.e. at the current rate of production Indian reserve would last for 20 more years.

Over the year consumption has increased many folds where as the domestic production is almost constant since 1990, similarly there has been not much change in the proved reserves. The energy sector has been given a significant share of 14.23% in the Wholesale Price Index (WPI), which is a measure of inflation in the country. This figure implies that for every 10% rise in the prices of energy products, the inflation would go up by 1.4 percentage points.

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7.) INDUSTRY STRUCTUREIndian oil and gas sector can be divided into three segments namely 1) Upstream oil companies, 2) Midstream oil companies and 3) Downstream oil companies.

UpstreamThe upstream oil companies are involved in the process of expl