project report on analysis of stock market for investment

ANALYSIS OF STOCK MARKET FOR INVESTORS

SUMMER PROJECT REPORT

ON

“ANALYSIS OF STOCK MARKET FOR INVESTORS”

1


INDEX

1. OBJECTIVE, SCOPE, ASSUMPTION AND LIMITATIONS 08

1.1 OBJECTIVE 09

1.2 SCOPE 09

1.3 ASSUMPTION 09

1.4 LIMITATIONS 09

2. LITERATURE REVIEW 10

2.1 COMPANY PROFILE 11

2.2 VISION 13

2.3 MISSION 13

2.4 VALUES 13

2.5 AWARDS 14

2.6 FUTURE 15

3. ANALYSIS 18

3.1 SECTORIAL ANALYSIS 19

3.2 FUNDAMENTAL ANALYSIS 27

3.3 TECHNICAL ANALYSIS 35

2


3.4 FUNDAMENTAL V/S TECHNICAL ANALYSIS 47

4. CONCLUSION 50

5. RECOMMENDATIONS 52

6. SCOPE FOR FURTHER STUDIES 54

7. BIBLIOGRAPHY 56

EXECUTIVE SUMMARY

3


Why should I put my hard earned money into shares when I am not sure of a

return?

If there is a science to investing then why do we call investing a risk? And if it’s not a risk, then

why do people end up losing money from their investment in shares?

In this project report I have tried to answer the questions, you might have about investing in

shares. When is investing in shares a risk and when does it become a science? How can you be

assured that your investment in shares is safe?

And most importantly, I have tried to explain some basic concepts that most investors take for

granted but that’s a crucial knowledge for a person just entering into the financial jungle.

I hope that the project report shall succeed in satisfying desire for knowledge of the share market

as well as in lending investor a helping hand as they take their FIRST STEP into the world of

investing.

4


Main purpose of investment is return and liquidity, share market is less preferred by investors

due to lack of awareness. The major findings of this study are that people are interested to invest

in stock market but they lack knowledge……

5


PROJECT DETAILS

“This study suggests that people are reluctant while investing in stock market

due to lack of knowledge…”

This is the project on the analyzing of equities to invest the money to future for get higher return

on investment. This project report to all investor who want to invest their money in equities. But

they should analysis the securities before to invest because the money has very much value in

our life...

I choose this project to do because I want to analysis the equities for investor point of view so

they can get good return in future, by using fundamental and technical analysis of securities and

try to understand the movement and performance of stocks and also try to know the factors that

affect the movement of stock prices in the Indian stock market.

Through this project we were also able to understand, what the companies positive are and strong

points, on the basis of which we come to know what, can be the basis of pitching to a potential

client.

6


CHAPTER – 1

OBJECTIVE, SCOPE, ASSUMPTION AND LIMITATIONS

OF THE PROJECT

7


1.1OBJECTIVE

The main objective of this project to understand that proper analysis of a company minimizes the

risk of losing money in stock market of any investor.

The other objective is to make people aware that other than cash market there is future and

option which is well known as derivative market to invest. In this they can earn profit even if

they are in loss in cash market.

1.2 SCOPE

The scope of project is limited to Understanding the basics of Fundamental analysis and

Technical analysis and apply it to take a decision of investing in Cement and Steel Stocks and

F&O strategies for the same.

1.3 ASSUMPTIONS

This project is prepared on the assumption that most of the investment in stock market is done by

the brokers and not by the common man and on the other hand there are many people who want

to invest in stock market but fears as they think that it is luck game which is not totally true and

this might change their way of thinking.

1.4 LIMITATIONS

The project has been limited to investment analysis of pharma, steel, IT and energy only.

8


CHAPTER- 2

LITERATURE REVIEW

9


`

10


2.1 COMPANY PROFILE

Established in 2000, Birla Sun Life Insurance Company Limited (BSLI) is a joint venture

between the Aditya Birla Group, a well known and trusted name globally amongst Indian

conglomerates and Sun Life Financial Inc, leading international financial services organization

from Canada. The local knowledge of the Aditya Birla Group combined with the domain

expertise of Sun Life Financial Inc., offers a formidable protection for its customers’ future.

With an experience of over 15 years, BSLI has contributed significantly to the growth and

development of the life insurance industry in India and currently ranks amongst the top 5

private life insurance companies in the country.

Known for its innovation and creating industry benchmarks, BSLI has several firsts to its credit.

It was the first Indian Insurance Company to introduce “Free Look Period” and the same was

made mandatory by IRDA for all other life insurance companies. Additionally, BSLI pioneered

the launch of Unit Linked Life Insurance plans amongst the private players in India. To

establish credibility and further transparency, BSLI also enjoys the prestige to be the originator

of practice to disclose portfolio on monthly basis. These category development initiatives have

helped BSLI be closer to its policy holders’ expectations, which gets further accentuated by the

complete bouquet of insurance products (viz. pure term plan, life stage products, health plan and

retirement plan) that the company offers.

Add to this, the extensive reach through its network of 600 branches and 175,000 empanelled

advisors. This impressive combination of domain expertise, product range, reach and ears on

ground, helped BSLI cover more than 2 million lives since it commenced operations and

establish a customer base spread across more than 1500 towns and cities in India. To ensure that

our customers have an impeccable experience, BSLI has ensured that it has lowest outstanding

claims ratio of 0.00% for FY 2008-09. Additionally, BSLI has the best Turn around Time

according to LOMA on all claims Parameters. Such services are well supported by sound

11


financials that the Company has. The AUM of BSLI stood at Rs. 8165 crs as on February 28,

2009, while as on March 31, 2009, the company has a robust capital base of Rs. 2000 crore.

2.2 VISION

To be a leader and role model in a broad based and integrated financial services business.

2.3 MISSION

To help people mitigate risks of life, accident, health, and money at all stages and under all

circumstances.

Enhance the financial future of our customers including enterprises.

2.4 VALUES

Integrity

Commitment

Passion

Seamlessness

Speed

A US $28 billion corporation, the Aditya Birla Group is in the league of Fortune 500

worldwide. It is anchored by an extraordinary force of 100,000 employees, belonging to 25

different nationalities. The group operates in 25 countries across six continents – truly India's

first multinational corporation.

Aditya Birla Group through Aditya Birla Financial Services Group (ABFSG), has a strong

presence across various financial services verticals that include life insurance, fund

management, distribution & wealth management, security based lending, insurance broking,

12


private equity and retail broking. The seven companies representing ABFSG are Birla Sun Life

Insurance Company, Birla Sun Life Asset Management Company, Aditya Birla Money, Aditya

Birla Finance, Birla Insurance Advisory & Broking Services, Aditya Birla Capital Advisors

and Apollo Sindhoori Capital Investment. In FY 2008-09, the consolidated revenues of

ABFSG from these businesses crossed Rs. 4763 crore, registering a growth rate of 36%.

Sun Life Financial is a leading international financial services organization providing a diverse

range of protection and wealth accumulation products and services to individuals and corporate

customers. Chartered in 1865, Sun Life Financial and its partners today have operations in key

markets worldwide, including Canada, the United States, the United Kingdom, Ireland, Hong

Kong, the Philippines, Japan, Indonesia, India, China and Bermuda. As of December 31, 2008,

the Sun Life Financial group of companies had total assets under management of $381

billion.

2.5 AWARDS

At Birla Sun Life Insurance, winning is a way of life. Our innovative solutions and customer-

friendly services have been admired, appreciated and rewarded by customers and the industry at

large.

Recruiting and Staffing Best in Class Awards.

BSLI bagged the prestigious 'Gold Trophy' for Financial Reporting from The Institute of

Chartered Accountants of India (ICAI) for the year 2010-11. In the past BSLI has also won

Silver trophies from ICAI.

BSLI was named 2nd runners up for the 'Best Presented Accounts & Corporate Governance

Disclosures Awards 2011' by The South Asian Federation of Insurance sector.

Birla Sun Life Insurance bagged the 'Golden Peacock Award for Excellence in Corporate

Governance' for the year 2011.

BSLI won an award for their Protection Solutions campaign under the category of 'Best use

of Radio as a medium' at the Kaan award for excellence in radio advertising.

13


Birla Sun Life Insurance bagged the 'Golden Peacock Award for HR Excellence'

Golden Peacock Award for Excellence in Corporate Governance for the year 2010-11

Internet Advertising Competition Awards 2011

BBC.com-Campaign India Digital Media Awards 2011 honored BSLI with a Gold in the

"financial services website" category for Birla Sun Life Insurance - Not Jobs But Passion

microsite.

IPE BFSI Awards endorsed by the Asian Confederation of Businesses has conferred 'Birla

Sun Life Insurance Company Limited' with 'Best Employer Brand Award' for the year 2011

- 12.

BSLI Email marketing campaign 'Save Forest' was selected for 14th Annual Webby Awards

2010 as official nominee

ICAI Awards for Excellence in Financial Reporting, Awarded a Silver Shield in the

Insurance category by the ICAI for the year 2009.

Recruiting and Staffing Best in Class Awards.

Outlook Money Awards 2004 BSLI - Best Life Insurer (Runner Up) 2004 TROPHY

Outlook Money Awards 2004 BSLI - Best Life Insurer (Runner Up) 2004 CERTIFICATE.

The 8th Asia Insurance Industry Awards 2004 - Birla Sun Life Insurance was among the top

five nominees in the category.

The Indo-Canadian Business Chamber- BSLI awarded for its 'Successful Performance' for 4

years April 2005.

Birla Sun Life Insurance was presented 'The Hewitt Best Employers In India Awards 2004'

Trophy.

Hewitt Best Employers in India 2004.

Sponsorship Acknowledgement for - The Asia Insurance Review.

Golden Peacock Global Awards Secretariat Golden Peacock Award in 2011

APPIES 2010 - Asia Pacific Advertising & Marketing Congress Silver Medal & a

letter of appreciation for - Wealth with Protection Solutions campaign

14


14th Annual Webby Awards 2010 Official Nominee - BSLI Email marketing

campaign 'Save Forest'

Outlook Money Awards 2004 Best Life Insurer (Runner Up) 2004 TROPHY

Outlook Money Awards 2004 Best Life Insurer (Runner Up) 2004 CERTIFICATE

The 8th Asia Insurance Industry Awards 2004 Top five nominees in the category

The Indo-Canadian Business Chamber 'Successful Performance' for 4 years April 2005

Hewitt The Hewitt Best Employers In India Awards 2004' Trophy

Golden Peacock Award Excellence in Corporate Governance in 2012

Effies Gold in the 'Services category in 2012

Kaan awards Best use of Radio in 2012

Outlook Money Awards 2004 BSLI - Best Life Insurer (Runner Up) 2004 TROPHY

The 8th Asia Insurance Industry Awards 2004 - Birla Sun Life Insurance was among the top

five nominees in the category.

The Indo-Canadian Business Chamber- BSLI awarded for its 'Successful Performance' for 4

years April 2005.

Birla Sun Life Insurance was presented 'The Hewitt Best Employers In India Awards 2004'

Trophy.

The Bhartiya Shiromani Puraskar awarded to BSLI at the seminar on "Economic

Development” New Delhi, on February 13, 2006.

Hewitt Best Employers in India 2004.

Sponsorship Acknowledgement for - The Asia Insurance Review.

2.6 FUTURE

BUSINESS CONTINUITY PLAN

Birla Sun Life Insurance is one of the few Indian companies to have a fully operational

Business Continuity Plan (BCP) to ensure minimal impact to the organization, its people, and

15


most importantly, its customers. Our Business Continuity Planning (BCP) Program is a

response plan which would ensure that in the event of a disaster we would be able to restore and

recover operations for critical processes within a predetermined time after the disaster.

BSLI’S BUSINESS CONTINUITY MANAGEMENT POLICY

To have a planned response in the event of any contingency ensuring recovery of critical

activities at agreed levels within agreed timeframe thereby complying with various regulatory

requirements and minimizing the potential business impact to BSLI. Additionally to create a

system that fosters continuous improvement of business continuity management

BUSINESS CONTINUITY MANAGEMENT SYSTEM OBJECTIVES (BCMS):

The objectives of BSLI's BCMS are as follows

Ensuring a Proactive response to any contingency

Ensuring recovery of identified critical activities within agreed timeframe.

Ensuring that we adhere to our clients, contractual, legal & regulatory requirements.

PROGRAMME OVERVIEW

As part of our Business Continuity Plan, we have a documented crisis response and recovery

procedure for quick response and stabilization of the situation, and a business continuity

procedure to ensure recovery.

HIGHLIGHTS OF OUR PLAN DOCUMENT:

16


Alternate recovery sites if primary location is unavailable

Assurance to customers that they will continue to receive optimum customer services at all

times

Communication with customers, employees and other stakeholders

Crisis Management & incident response

Data back-up, data and system recovery

Recovery of all mission-critical business functions and supporting systems

OUR COMMITMENT

Risk Assessment & Business Impact Analysis (BIA) annually.

Business Continuity Plan for HO & its Critical branches.

Crisis Management Plan & Pandemic Response Plan at a corporate Level.

Business Continuity Plan Testing ensuring viability of all its plans.

The activities set forth above may evolve as business and regulatory needs

require.

17


CHAPTER- 3

ANALYSIS

3.1 SECTORIAL ANALYSIS:

18


INFORMATION TECHNOLOGY (I.T)

India is the world's largest sourcing destination for the information technology (IT) industry,

accounting for approximately 67 per cent of the US$ 124-130 billion market. The industry

employs about 10 million workforces.

More importantly, the industry has led the economic transformation of the country and altered

the perception of India in the global economy. India's cost competitiveness in providing IT

services, which is approximately 3-4 times cheaper than the US, continues to be the mainstay of

its Unique Selling Proposition (USP) in the global sourcing market.

However, India is also gaining prominence in terms of intellectual capital with several global IT

firms setting up their innovation centers in India.

The IT industry has also created significant demand in the Indian education sector, especially for

engineering and computer science. The Indian IT and ITeS industry is divided into four major

segments –

(1) IT services,

(2) Business Process Management (BPM),

(3) software products and

(4) Engineering services and hardware.

The IT-BPM sector which is currently valued at US$ 143 billion is expected to grow at a

Compound Annual Growth Rate (CAGR) of 8.3 per cent year-on-year to US$ 143 billion for

2015-16. The sector is expected to contribute 9.5 per cent of India’s Gross Domestic Product

(GDP) and more than 45 per cent in total services export in 2015-16.

19


Indian IT's core competencies and strengths have attracted significant investments from major

countries. The computer software and hardware sector in India attracted cumulative Foreign

Direct Investment (FDI) inflows worth US$ 20.42 billion between April 2000 and December

2015, according to data released by the Department of Industrial Policy and Promotion

(DIPP).Indian start-ups are expected to receive funding worth US$ 5 billion by the end of 2015,

125 per cent increase in a year, according to a report by IT Industry association NASSCOM.

The Private Equity (PE) deals increased the number of Mergers and Acquisitions (M&A)

especially in the e-commerce space in 2014. The IT space, including e-commerce, witnessed 240

deals worth US$ 3.8 billion in 2014, as per data from Dealogic

KEY POINTS

Supply: - The supply part of I.T industry is strongly high in India.

Demand: - Industrial sector acts as the principal growth driver for IT. However, in recent times

education, industrial and infrastructure sector have also emerged as demand drivers for IT.

Barriers to entry: - High capital costs and Licensing of 2G/3G spectrum, software

development.

Bargaining power of suppliers: There is high bargaining power of foreign suppliers.

Bargaining power of customers: - relatively very low bargaining power of customers.

FINANCIAL YEAR 2015

20


The current fiscal year FY2015 brought in overall optimism for the Indian IT-BPM industry and

the industry continued to evolve over the year and prioritized on enhancing efficiency, enabling

transformation and agility and partnering for digital initiatives.

Digital solutions around SMAC – upgrading legacy systems to be SMAC enabled, greater

demand for ERP, CRM, mobility and user experience technologies is driving growth in IT

services. Infrastructure outsourcing and software testing segment also outpaced the industry

growth rate. The BPM sector is being driven by greater automation, expanding omni-channel

presence, application of analytics across entire value chain, etc.

The year also witnessed hyper-growth in the technology start-up and product landscape and India

is already ranked as the 4th largest startup hub in the world with over 3100 startups in the

country.

Exports to USA, the largest market grew above industry average, aided by an economic revival

and higher technology adoption. Demand from Europe remained strong during the first half of

the year, but softened during the second half due to currency movements and economic

challenges. Manufacturing, utilities and retail growth remained strong as clients increase

discretionary spend on customer experience, digital, analytics, ERP updates and improving

overall efficiency.

In 2015 India jumped the technology maturity curve and is emerging as a digital

economy. The recent announcements by the Government on Digital India, Make in India,

Skilling India are creating a renewed thrust on the domestic market. NASSCOM will continue to

partners with diverse industry sectors and related government departments to enable technology

adoption for key challenges faced by the country.” said Mr. R. Chandrasekhar, President,

NASSCOM.

21


PROSPECTS

IT sector has been in a growth rate over the past five years and is expected to grow year by year

in the future. It is expected that the growth rate in IT sector will increase by 20 percent over the

next decade. The Indian economy growth has been boosted with the revenue done by the IT

sectors. But, some may include, that the growth rate may even go down as compared with the

current situation, as major of the IT business depends upon the foreign clients. Once they stop

the business or outsourcing to India, the IT sector will face a huge deflection. But the Indian

companies are taking remedy steps to get this situation rid off. But considerably the growth rate

won't go down, as many stock holders have invested in the IT sector and the IT companies are

doing business internally and not fully dependent on the foreign clients. So, as far as the present

situation, the IT sector will be booming in the near future and many job opportunities will help

our nation to increase the revenue. Many people will be employed in a decent fashion and many

other sectors to increase their business with the help of IT sector

In FY2016, NASSCOM expects the industry to add revenues of USD 20 billion to the existing

industry revenues of USD 146 billion. Export revenues for FY2016 is projected to grow by 12 to

14% and reach USD 110-112 bn. Domestic revenues (including ecommerce) for the same period

will grow at a rate of 15-17% percent and is expected to reach USD 55-57 billion during the

year.

22


23


3.2 FUNDAMENTAL ANALYSIS

Fundamental analysis of a business involves analyzing its financial statements and health, its

management and competitive advantages, and its competitors and markets. When applied to

futures and forex, it focuses on the overall state of the economy, interest rates, production,

earnings, and management. When analyzing a stock, futures contract, or currency using

fundamental analysis there are two basic approaches one can use; bottom up analysis and top

down analysis. The term is used to distinguish such analysis from other types of investment

analysis, such as quantitative analysis and technical analysis.

Fundamental analysis is performed on historical and present data, but with the goal of making

financial forecasts. There are several possible objectives:

To conduct a company stock valuation and predict its probable price evolution.

To make a projection on its business performance,

To evaluate its management and make internal business decisions,

To calculate its credit risk.

Fundamental analysis includes:

1. Economic analysis

2. Industry analysis

3. Company analysis

On the basis of this three analysis the intrinsic value of the shares are determined. This is

considered as the true value of the share. If the intrinsic value is higher than the market price it

24


is recommended to buy the share but if it is equal to market price hold the share and if it is less

than the market price sell the shares.

USE BY DIFFERENT PORTFOLIO STYLESInvestors may use fundamental analysis within different portfolio management styles.

Buy and hold investors believe that latching onto good businesses allows the investor's asset to

grow with the business. Fundamental analysis lets them find 'good' companies, so they lower

their risk and probability of wipe-out.

Managers may use fundamental analysis to correctly value 'good' and 'bad' companies. Even

'bad' companies' stock goes up and down, creating opportunities for profits.

Managers may also consider the economic cycle in determining whether conditions are 'right' to

buy fundamentally suitable companies.

Contrarian investors distinguish "in the short run, the market is a voting machine, not a

weighing machine". Fundamental analysis allows you to make your own decision on value, and

ignore the market.

Value investors restrict their attention to under-valued companies, believing that 'it's hard to fall

out of a ditch'. The value comes from fundamental analysis.

Managers may use fundamental analysis to determine future growth rates for buying high priced

growth stocks.

Managers may also include fundamental factors along with technical factors into computer

models (quantitative analysis).

25


PROCEDURESThe analysis of a business' health starts with financial statement analysis that includes ratios. It

looks at dividends paid, operating cash flow, new equity issues and capital financing. The

earnings estimates and growth rate projections published widely by Thomson Reuters and others

can be considered either 'fundamental' (they are facts) or 'technical' (they are investor sentiment)

based on your perception of their validity.

The determined growth rates (of income and cash) and risk levels (to determine the discount

rate) are used in various valuation models. The foremost is the discounted cash flow model,

which calculates the present value of the future

Dividends received by the investor, along with the eventual sale price.

Earnings of the company or Cash flows of the company.

The amount of debt is also a major consideration in determining a company's health. It can be

quickly assessed using the debt to equity ratio and the current ratio (current assets/current

liabilities).

The simple model commonly used is the Price/Earnings ratio. Implicit in this model of a

perpetual annuity (Time value of money) is that the 'flip' of the P/E is the discount rate

appropriate to the risk of the business. The multiple accepted is adjusted for expected growth

(that is not built into the model).

Growth estimates are incorporated into the PEG ratio but the math does not hold up to analysis.

[neutrality is disputed] Its validity depends on the length of time you think the growth will

continue.

Computer modeling of stock prices has now replaced much of the subjective interpretation of

fundamental data (along with technical data) in the industry. Since year 2000, with the power of

computers to crunch vast quantities of data, a new career has been invented. At some funds

26


(called Quant Funds) the manager's decisions have been replaced by proprietary mathematical

models.

I.T INDUSTRY ANALYSISFor the technical and fundamental analysis of IT sector I have taken three top performer

companies of concern sector I.e.

1. HCLTECH

2. INFOSYS

3. WIPRO

HCLTECH

HCL Technologies Limited is a multinational IT services company, headquartered in Noida,

Uttar Pradesh, India. It is a subsidiary of HCL Enterprise. Originally a research and development

division of HCL, it emerged as an independent company in 1991 when HCL ventured into the

software services business. HCL Technologies (an acronym for Hindustan Computers Limited)

offers services including IT consulting, enterprise transformation, remote infrastructure

management, engineering and R&D, and business process outsourcing (BPO).

The company has offices in 34 countries including the United States, European countries like

France and Germany, and Northern Ireland in the United Kingdom. It operates across a number

of sectors including aerospace and defence, automotive, consumer electronics, energy and

27


utilities, financial services, government, industrial manufacturing, life sciences and healthcare,

media and entertainment, mining and natural resources, public services, retail and consumer,

semiconductor, server and storage, telecom, and travel, transportation, logistics, and hospitality.

HCL Technologies is on the Forbes Global 2000 list. It is among the top 20 largest publicly

traded companies in India with a market capitalization of $22.1 billion as of May 2015.[13] As

of August 2015, the company, along with its subsidiaries, had a consolidated revenue of $6.0

billion.

INFOSYS

Infosys is a NYSE listed global consulting and IT services company with more than 197,000

employees. From a capital of US$ 250, we have grown to become a US$ 9.75 billion (LTM Q1

FY17 revenues) company with a market capitalization of approximately US$ 41.0 billion.

In our journey of over 30 years, we have catalyzed some of the major changes that have led to

India's emergence as the global destination for software services talent. We pioneered the Global

Delivery Model and became the first IT company from India to be listed on NASDAQ. Our

employee stock options program created some of India's first salaried millionaires.

Infosys acquired Noah Consulting LLC, a leading provider of advanced information

management consulting services for the oil and gas industry.

28


WIPRO

Wipro Limited (Western India Palm Refined Oils Limited or more recently, Western India

Products Limited is an Indian Information Technology Services corporation headquartered in

Bangalore, India.

In 2013, Wipro demerged its non-IT businesses into a separate companies to bring in more focus

on independent businesses. As of Dec 2015, Wipro's market capitalization was $45 Billion,

making it one of India's largest publicly traded companies and seventh largest IT Corporation in

the World.

Wipro group of companies:-

Wipro consumer care and lighting

Wipro infrastructure engineering

Wipro GE Medical Systems

HCL TECH

(716.6)

INFO

()

WIPRO COMMENT

Attribute Value Value Value

PE ratio14.8 20.33 22.53 As the PE ratio

of HCL is low it is good to invest

EPS (Rs)45.13 55.51 32.78 As the eps of

INFO in high it is good to invest

29


Stock turnover ratio

4.18 7.7 8.49 As the s.t.o.r of INFO in high it is good to invest

Price to sale ratio

Dividend

Payout ratio

22.32 32.95 18.30 As the D/P of INFO in high it is good to invest

Return on

average equity

32 24.55 21.52 As the ROE of HCL in high it is good to invest

CONCLUSION

Fundamental analysis clearly suggest that if we are thinking of investing in I.T sector then HCL

TECH Steel is the best stock to buy at this point.

FORMULAS

1. EPS = Net Earnings / Outstanding Shares

There are three types of EPS numbers:

Trailing EPS – last year’s numbers and the only actual EPS

Current EPS – this year’s numbers, which are still projections

Forward EPS – future numbers, which are obviously projections

What Does Outstanding Shares Mean?

30


Stock currently held by investors, including restricted shares owned by the company's officers

and insiders, as well as those held by the public. Shares that have been repurchased by the

company are not considered outstanding stock.

Also referred to as "issued and outstanding" if all repurchased shares have been retired.

2. P/E = Stock Price / EPS

The P/E gives you an idea of what the market is willing to pay for the company’s earnings. The

higher the P/E the more the market is willing to pay for the company’s earnings. Some

investors read a high P/E as an overpriced stock and that may be the case, however it can also

indicate the market has high hopes for this stock’s future and has bid up the price.

Conversely, a low P/E may indicate a “vote of no confidence” by the market or it could mean

this is a sleeper that the market has overlooked. Known as value stocks, many investors made

their fortunes spotting these “diamonds in the rough” before the rest of the market discovered

their true worth.

3. P/S = Market Cap / Revenues

Much like P/E, the P/S number reflects the value placed on sales by the market. The lower the

P/S, the better the value, at least that’s the conventional wisdom.

4. DPR = Dividends Per Share / EPS

31


Companies that pay higher dividends may be in mature industries where there is little room for

growth and paying higher dividends is the best use of profits (utilities used to fall into this

group, although in recent years many of them have been diversifying).

The payout ratio and the retained earning ratio are the indicators of the amount of earnings that

have been ploughed back in the business. The lower the payout ratio, the higher will be the

amount of earnings ploughed back in the business and vice versa. A lower payout ratio or

higher retained earnings ratio means a stronger financial position of the company.

5. Return on Equity (ROE)

It is one measure of how efficiently a company uses its assets to produce earnings. You

calculate ROE by dividing Net Income by Book Value. A healthy company may produce an

ROE in the 13% to 15% range. Like all metrics, compare companies in the same industry to

get a better picture.

6. Inventory Turnover Ratio = Cost of goods sold / Average inventory at cost

Usually a high inventory turnover/stock velocity indicates efficient management of inventory

because more frequently the stocks are sold, the lesser amount of money is required to finance

the inventory. A low inventory turnover ratio indicates an inefficient management of inventory.

A low inventory turnover implies over-investment in inventories, dull business, poor quality of

goods, stock accumulation, accumulation of obsolete and slow moving goods and low profits

as compared to total investment.

7. Dividend pay-out Ratio

The percentage of earnings paid to shareholders in dividends. The dividend pay-out ratio

provides an idea of how earnings support the dividend payments. More mature companies tend

to have a higher pay-out ratio.

32


𝐃𝐢𝐯𝐢𝐝𝐞𝐧𝐝 𝐏𝐚𝐲𝐨𝐮𝐭 𝐑𝐚𝐭𝐢𝐨=𝑫𝒊𝒗𝒊𝒅𝒆𝒏𝒅 𝑷𝒆𝒓 𝑺𝒉𝒂𝒓𝒆𝑬𝒂𝒓𝒏𝒊𝒏𝒈𝒔 𝑷𝒆𝒓 𝑺𝒉𝒂𝒓𝒆

3.3 TECHNICAL ANALYSIS

INTRODUCTION

Despite all the fancy and exotic tools it employs, technical analysis really just studies supply and

demand in a market in an attempt to determine what direction, or trend, will continue in the

future. In other words, technical analysis attempts to understand the emotions in the market by

studying the market itself, as opposed to its components. If you understand the benefits and

limitations of technical analysis, it can give you a new set of tools or skills that will enable you to

be a better trader or investor.

Technical analysts seek to identify price patterns and trends in financial markets and attempt to

exploit those patterns. While technicians use various methods and tools, the study of price charts

is primary.

Technicians especially search for archetypal patterns, such as the well-known head and shoulders

or double top reversal patterns, study indicators such as moving averages, and look for forms

such as lines of support, resistance, channels, and more obscure formations such as flags,

pennants, balance days and cup and handle patterns.

Technical analysts also extensively use indicators, which are typically mathematical

transformations of price or volume. These indicators are used to help determine whether an asset

is trending, and if it is, its price direction. Technicians also look for relationships between prices,

volume and, in the case of futures, open interest. Examples include the relative strength index,

33


and MACD. Other avenues of study include correlations between changes in options (implied

volatility) and put/call ratios with price. Other technicians include sentiment indicators, such as

Put/Call ratios and Implied Volatility in their analysis.

Technicians seek to forecast price movements such that large gains from successful trades

exceed more numerous but smaller losing trades, producing positive returns in the long run

through proper risk control and money management.

CHARACTERISTICS

Technical analysis employs models and trading rules based on price and volume transformations,

such as the relative strength index, moving averages, regressions, inter-market and intra-market

price correlations, cycles or, classically, through recognition of chart patterns.

Technical analysis stands in contrast to the fundamental analysis approach to security and stock

analysis. Technical analysis "ignores" the actual nature of the company, market, currency or

commodity and is based solely on "the charts," that is to say price and volume information,

whereas fundamental analysis does look at the actual facts of the company, market, currency or

commodity. For example, any large brokerage, trading group, or financial institution will

typically have both a technical analysis and fundamental analysis team.

PRINCIPLES

Technicians say that a market's price reflects all relevant information, so their analysis looks at

the history of a security's trading pattern rather than external drivers such as economic,

fundamental and news events. Price action also tends to repeat itself because investors

collectively tend toward patterned behavior – hence technicians' focus on identifiable trends and

conditions.

The field of technical analysis is based on three assumptions:

34


The market discounts everything.

Price moves in trends.

History tends to repeat itself.

1. The Market Discounts Everything

A major criticism of technical analysis is that it only considers price movement, ignoring the

fundamental factors of the company. However, technical analysis assumes that, at any given

time, a stock's price reflects everything that has or could affect the company - including

fundamental factors. Technical analysts believe that the company's fundamentals, along with

broader economic factors and market psychology, are all priced into the stock, removing the

need to actually consider these factors separately. This only leaves the analysis of price

movement, which technical theory views as a product of the supply and demand for a particular

stock in the market.

2. Price Moves in Trends

In technical analysis, price movements are believed to follow trends. This means that after a

trend has been established, the future price movement is more likely to be in the same direction

as the trend than to be against it. Most technical trading strategies are based on this assumption.

3. History Tends To Repeat Itself

Another important idea in technical analysis is that history tends to repeat itself, mainly in terms

of price movement. The repetitive nature of price movements is attributed to market psychology;

35


in other words, market participants tend to provide a consistent reaction to similar market stimuli

over time. Technical analysis uses chart patterns to analyze market movements and understand

trends. Although many of these charts have been used for more than 100 years, they are still

believed to be relevant because they illustrate patterns in price movements that often repeat

themselves.

CHARTING TERMS AND INDICATORS

1. Types of charts

OHLC "Bar Charts" — Open-High-Low-Close charts, also known as bar charts, plot the

span between the high and low prices of a trading period as a vertical line segment at the

trading time, and the open and close prices with horizontal tick marks on the range line,

usually a tick to the left for the open price and a tick to the right for the closing price.

Candlestick chart — Of Japanese origin and similar to OHLC, candlesticks widen and fill

the interval between the open and close prices to emphasize the open/close relationship. In the

36


West, often black or red candle bodies represent a close lower than the open, while white,

green or blue candles represent a close higher than the open price.

Line chart — Connects the closing price values with line segments.

Point and figure chart — a chart type employing numerical filters with only passing

references to time, and which ignores time entirely in its construction.

2. Concepts

Resistance — a price level which acts as a ceiling above prices

Support — a price level which acts as a floor below prices

Breakout — the concept whereby prices forcefully penetrate an area of prior support or

resistance, usually, but not always, accompanied by an increase in volume.

Trending — the phenomenon by which price movement tends to persist in one direction for

an extended period of time

Average true range — averaged daily trading range, adjusted for price gaps

Chart pattern — distinctive pattern created by the movement of security prices on a chart

Momentum — the rate of price change

Point and figure analysis — a priced-based analytical approach employing numerical filters

which may incorporate time references, though ignores time entirely in its construction.

37


3. Overlays

Overlays are generally superimposed over the main price chart.

Resistance — an area that brings on increased selling

Support — an area that brings on increased buying

Trend line — a sloping line of support or resistance

Channel — a pair of parallel trend lines

Moving average — an average that lags behind the price action but filters out short term

movements

4. Price-based indicators

These indicators are generally shown below or above the main price chart.

Advance decline line — a popular indicator of market breadth

Average Directional Index — a widely used indicator of trend strength

Commodity Channel Index — identifies cyclical trends

MACD — moving average convergence/divergence

Relative Strength Index (RSI) — oscillator showing price strength

Stochastic oscillator — close position within recent trading range

Momentum — the rate of price change

5. Volume-based indicators

38


Accumulation/distribution index — based on the close within the day's range

Money Flow — the amount of stock traded on days the price went up

On-balance volume — the momentum of buying and selling stocks

PAC charts — two-dimensional method for charting volume by price level

I.T INDUSTRY ANALYSIS

1.HCLTECH

39


As shown in the graph HCLTECH has support and resistance level is 730.

2.INFO

40


INFO has a support level of 776 and resistance level is 900 almost. INFOSIS has a continuous

growth in chart as shown in chart the growth line has cross the support level but still there is a

growth in stock. In this chart we can also find the double top pattern. These patterns are formed

after a sustained trend and signal to chartists that the trend is about to reverse. The pattern is

created when a price movement tests support or resistance levels twice and is unable to break

through. This pattern is often used to signal intermediate and long-term trend reversals.

At present we can see from chart that it is not clear whether the stock will rise or fall so it will be

hard to predict

3. WIPRO

41


For WIPRO the support and resistance level is 487.

According to the analysis we find that the trend of stocks of Wipro has continues three top trends

in the graph.Now,as we can see that the stocks has already made two top trends in the graph so

most likely it will certainly make another one and then there is a possibility of down trend in the

graph. The investors should held there investment for some time.

CONCLUSION

Technical Analysis suggests that HCL good stock to buy as it has just completed a round shape

pattern which indicates that there is trend change in upward direction. WIPRO and INFO is good

stock to hold as it has continuous growth in trend.

42


1. FUNDAMENTAL V/S TECHNICAL ANALYSIS

Technical analysis and fundamental analysis are the two main schools of thought in the financial

markets. As we've mentioned, technical analysis looks at the price movement of a security and

uses this data to predict its future price movements. Fundamental analysis, on the other hand,

looks at economic factors, known as fundamentals. Let's get into the details of how these two

approaches differ, the criticisms against technical analysis and how technical and fundamental

analysis can be used together to analyze securities.

THE DIFFERENCES

Charts vs. Financial Statements

At the most basic level, a technical analyst approaches a security from the charts, while a

fundamental analyst starts with the financial statements.

By looking at the balance sheet, cash flow statement and income statement, a fundamental

analyst tries to determine a company's value. In financial terms, an analyst attempts to measure a

company's intrinsic value. In this approach, investment decisions are fairly easy to make - if the

price of a stock trades below its intrinsic value, it's a good investment. Although this is an

oversimplification (fundamental analysis goes beyond just the financial statements) for the

purposes of this tutorial, this simple tenet holds true.

Technical traders, on the other hand, believe there is no reason to analyze a company's

fundamentals because these are all accounted for in the stock's price. Technicians believe that all

the information they need about a stock can be found in its charts.

Time Horizon

Fundamental analysis takes a relatively long-term approach to analyzing the market compared to

technical analysis. While technical analysis can be used on a timeframe of weeks, days or even

minutes, fundamental analysis often looks at data over a number of years.

43


The different timeframes that these two approaches use is a result of the nature of the investing

style to which they each adhere. It can take a long time for a company's value to be reflected in

the market, so when a fundamental analyst estimates intrinsic value, a gain is not realized until

the stock's market price rises to its "correct" value. This type of investing is called value

investing and assumes that the short-term market is wrong, but that the price of a particular stock

will correct itself over the long run. This "long run" can represent a timeframe of as long as

several years, in some cases.

Furthermore, the numbers that a fundamentalist analyzes are only released over long periods of

time. Financial statements are filed quarterly and changes in earnings per share don't emerge on a

daily basis like price and volume information. Also remember that fundamentals are the actual

characteristics of a business. New management can't implement sweeping changes overnight and

it takes time to create new products, marketing campaigns, supply chains, etc. Part of the reason

that fundamental analysts use a long-term timeframe, therefore, is because the data they use to

analyze a stock is generated much more slowly than the price and volume data used by technical

analysts.

Trading Versus Investing

Not only is technical analysis more short term in nature that fundamental analysis, but the goals

of a purchase (or sale) of a stock are usually different for each approach. In general, technical

analysis is used for a trade, whereas fundamental analysis is used to make an investment.

Investors buy assets they believe can increase in value, while traders buy assets they believe they

can sell to somebody else at a greater price. The line between a trade and an investment can be

blurry, but it does characterize a difference between the two schools.

44


CAN THEY CO-EXIST?

Although technical analysis and fundamental analysis are seen by many as polar opposites - the oil and water of investing - many market participants have experienced great success by combining the two. For example, some fundamental analysts use technical analysis techniques to figure out the best time to enter into an undervalued security. Oftentimes, this situation occurs when the security is severely oversold. By timing entry into a security, the gains on the investment can be greatly improved.

Alternatively, some technical traders might look at fundamentals to add strength to a technical signal. For example, if a sell signal is given through technical patterns and indicators, a technical trader might look to reaffirm his or her decision by looking at some key fundamental data. Oftentimes, having both the fundamentals and technical’s on your side can provide the best-case scenario for a trade.

While mixing some of the components of technical and fundamental analysis is not well received by the most devoted groups in each school, there are certainly benefits to at least understanding both schools of thought.

45


CHAPTER- 4

CONCLUSION

46


After reading this report, one can learn the basics of FUNDAMENTAL and TECHNICAL

ANALYSIS, and he will get complete knowledge of the factors he should consider before

investing in STOCK MARKET.

In conclusion, neither fundamental analysis nor technical analysis is more superior than each

other. Both have their merits and should be used at the right times.

If you are investing for the long-term, the fundamentals analysis plays a more important role in determining the type of industry and company you choose. The technical side analysis plays a more important role when deciding the entry and exit points of your investments.

If you are a speculator, then all you are concerned with is the short-term, hence the technical charts.

From this report we can conclude that by doing proper analysis of the stock and then investing in it would minimize the risk involved in losing money in stocks.

After all this analysis an investor can lose money because at last the market behavior i.e. whether

it is bullish or bearish depends on the buying and selling of the stocks.

At the end I want to conclude this project again by saying this that by doing this analysis we

would reduce risk in stock market it does not guarantee us that we will not lose money.

47


CHAPTER- 5

RECOMMENDATION

48


As per my recommendation I will suggest peoples should invest in stock market after studing the

market, as it will be a secondary source of income along with their primary income. While

investing every investor must have a diversified portfolio so that he get good returns.

Stock market is place where we can earn lots of money if we invest smartly. We should always

invest after doing self research rather than investing blindly as someone else has invested in that

particular stock.

The last and the one of the most important suggestion while playing with stocks is keep emotions

aside and be realistic and invest it in for LONG TERM rather than short term. So one should

have a high level of patience while dealing with stock.

We should look after the stocks as our child which will give us the return in future and not as

soon as we bought it.

STOCK MARKET IS SUBJECTED TO HIGH RISK SO PEOPLE WITH WEAKER

HEART DON’T EVEN TRY TO DEAL WITH IT AND PEOPLE WHO LOVE TO TAKE

RISK IN LIFE IT’S THE BEST WAY OF EARNING MONEY LEGALLY.

49


CHAPTER- 6

FUTURE SCOPE

This report is limited to only two sectors and that also only three companies are considered in

those sectors so in future we can study all the sectors and the different companies in it.

I also have considered six ratios in fundamental analysis we can also take other ratios and take

their combination to decide which stock is good to invest.

If you are really serious about making money by stock investment, Then you must keep yourself

updated with stock market, business news and company reports.

50


What you Must NOT Do in Stock Market?

Don't panic Don't make huge investments Don't chase performance Get rid of the junk

CHAPTER- 7

BIBLIOGRAPHY

51


www.indiainfoline.com

www.sharekhan.com

www.ndtvprofit.com

www.money.rediff.com

www.cipla.com

www.tatagoup.com

52

http://www.tatagoup.com/

http://www.cipla.com/

http://www.money.rediff.com/

http://www.indiainfoline.com/


www.birlaindia.com

www.en.wikipedia.org

www.in.finance.yahoo.com

www. wikihow .com

www. moneycontrol .com

National Stock Exchange of India Ltd. Web. 05 July 2010. <http://www.nseindia.com/>.

Welcome to AMFI! <http://www.amfiindia.com/>.

Birla Sun Life Financial Services - Mutual Funds, Life Insurance & Wealth Management Services . <http://www.birlasunlife.com/>.

53

http://www.moneycontrol.com/

http://www.wikihow.com/

http://www.in.finance.yahoo.com/

http://www.en.wikipedia.org/

project report on analysis of stock market for investment

Leadership & Management