EXECUTIVE SUMMARY

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Executive summary

The report " Fundamental and Technical Analysis of Five Major Companies in the
Information Technology Sector" is a study to analyze the strength and weakness
of the scrip's of five major companies in the IT industry. The five major
companies include Tata Consultancy Services, Infosys, Oracle, HCL and Wipro.
The primary objective of the study to suggest the investors, whether to buy the
scrip or not, based on the valuation (Under priced or Over priced) of shares. Also
to analyze the trend (Bullish or Bearish) of this scrip's in the market. The
secondary objective of the study is Analyze the company's performance,
Understand the capital market and its functioning, and to compare theoretical
knowledge with actual industry practice.

To analyze the scrip, Fundamental and Technical analyses are used. In the
fundamental analysis the method of intrinsic value of calculation is used. For the
technical analysis, tools like Relative Strength Index (RSI), Moving Average
convergence and divergence(MACD), Moving average crossover, Stochastic and
Momentum are used. In the fundamental analysis the intrinsic value is compared
with the current market value to suggest the investor to buy or sell the share. In
the Technical Analysis, the movement of the corresponding graphs are studied to
interpret whether to buy sell or hold the share.

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1. INRODUCTION

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1. Introduction

An investor means people who invest savings. Investment is an activity, which is

different from savings. Savings are generated when a person abstains from
present consumption for a future use. Savings kept as cash are barren and do
not earn anything. Hence the saver has to find a temporary for his savings until
they are required for his future. This results in investment.

Today, investment has become a household word and is very popular with
people from all walks of life. It is because of increase in working population,
higher family incomes and consequent savings, availability of large and attractive
investment alternatives, increase in investment related publicity and so on.

Fundamental analysis is the process of looking at a business at the basic or

fundamental financial level. This type of analysis examines key ratios of a
business to detuning its financial health and gives you an idea of the value its
stock. Many investors use fundamental analysis alone or in combination with
other tools to evaluate stocks for investment purpose. The goal is to determine
the current wealth and more importantly, how the market values the stock. The
Return on Equity (ROE) is one measure of how efficiently a company uses its
assets to produce earnings . The fundamental forecast stock prices on the basis
of economic industry and company statistics. So this study also analyses the
economy, the industry and company analysis to know the behavior of stock
performance of the IT industry.

One of the primary assumptions of the fundamental analysis is the price of the
stock market does not fully reflect a stocks real value. In the financial jargon, this
true value is known as the intrinsic value. If the market price is less than intrinsic
value, then such shares are considered to be under priced and are suitable for
investment. Thus the shares have to be held in hand or if necessary more shares
can be brought as the share sis expected to move up in the future to match with

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its intrinsic value. If the market price is greater than the intrinsic value then such
shares is considered to be overpriced and it is not suitable for investment. The
market price of such shares may come down in future and the investors will sell
such a share. This leads us to the second major assumptions of fundamental
analysis: in the long run, the stock market will reflect the fundamentals. There is
no point in buying a stock based on intrinsic value if the price never reflected that
value.

1.1 Objectives of the study

1.1.1 Primary Objective
To carry out the fundamental analysis and technical analysis for five selected
companies in the IT sector and to suggest whether to buy the scrip or not to
invest based on the valuation(under priced or over priced) of shares. Also to
analyze the trend( bullish and bearish) of these scrip’s in the market.

1.1.2 Secondary Objectives

• Analyze the companies performance
• Understand the capital market and its functioning
• To compare theoretical knowledge with actual industry practice

1.2 Scope of the study

The stock market is a major source of investment. The risk associated with the
investment is relatively high compared to bank deposit and real estate, with high
yield. Cochin stock exchange limited(CSE) is one of the premier stock exchange
of India established in the year 1978. CSE: introduced the facility for
computerized trading-“ Cochin Online Trading(COLT)”. CSE was one of the
promoters of interconnected stock exchange of India(ISE). CSE promoted a
100% subsidiary called the “Cochin stock brokers ltd(CSBL)” and started trading
in the national stock exchange(NSE) and Bombay Stock Exchange(BSE).

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Due to time restriction and resource constraints the study has been confined to
only one sector i.e., IT sector. The period of the study covers only 5 years
starting from 2005 to 2009. This study will cover % companies from the IT sector
selected based on the highest market capital in the industry. The most suitable
company to be invested and the performance of the company will be analyzed.

1.3 Limitations of the Study

• The data collected is secondary in nature

• Only 5 widely traded securities of the IT sector were taken for the study
• The accuracy and correctness of the tools used depends on the accuracy
of the published accounts
• A detailed study was not possible due to shortage of time
• The inherent limitations of the fundamental and technical analysis also
exist here

1.4 Statement of the problem

Indian has a well developed capital market which provides huge investment
opportunity for investors. Indian IT sector is the centre of attraction for many
investors residing within and outside India. These days IT index is highly volatile.
So it is inevitable to evaluate the performance of each security before investing.
This study is an attempt to guide the investor to identify the best performing
security in the IT sector. The study includes the analysis of financial statement of
5 major companies in IT sector, evaluation of the shares that it posses.

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2. PROFILE

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2.1 Industry Profile

2.1.1 Indian capital market an overview

Indian stock market is one of the oldest market in Asia. Its history dates back to
nearly 200 years ago. The earliest record of security dealing in India is merger
and obscure. The east Indian company was dominant institution in those days
and business in its loan security used to be transacted towards close of the
eighteenth century.

By 18~0’s business on stock rates and shares initiated in Bombay. Though the
trading list was broader in 1839, there were only half a dozen brokers recognized
by banks and merchants during 1840’s. The 1850’s witnessed a rapid
development in commercial enterprise and brokerage business attracted many
men into the field and by 1860’s, the number of brokers increased into 60. In
1860-61, the American civil war broke out and cotton supply from United States
to Europe was stopped. This increased the brokers in India to about 200 to 250.
However by the end of the American Civil war in 1965, disastarous slumps
begain( for example, Bank of Bombay share that had reached Rs.2850 could
only be sold at Rs. 87).

At the end of Mexican civil war the brokers who thrived out of civil war in 1874
found a place in a street( now called the Dalal street) where they would
conveniently assemble and transact business. In 1887, they finally established in
Bombay, “The Native Share and stock Brokers Association”( which is attractively
known as “The Stock Exchange”).

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2.1.2 Stock Exchange
“Stock Exchange means any body of individuals whether incorporated or not,
consolidated for the purpose of assisting , regulating and controlling the business
of buying, selling and sealing with securities. It is a market where stocks, shares
and other securities are bought and sold and also to provide avenue for disposal
of securities, when owners feel like. It is an essential component of the economy
and indispensable for the proper functioning of corporate enterprise.

The business is done using a screen based trading technology through dually
authorized members of the exchange. The stock exchange is opened to anyone
big or small with money to invest or securities to sell. In modern capitalized
economy almost all commodities even in small are produced in large scale and
large scale means large amount of capital. The joint stock company or corporate
fund of organization is ideally suited for large amount of capital from all those
who have surplus fund. When a joint company issues stock and bonds, surplus
fund employed profitably in either of them according to convince and
temperament. The stock exchange enables the investigating to shift from one
business to another without any difficulty. An investor, who put his saving in a
companyby buying its securities, cannot get the amount back from the company
directly. The only way in which the capital invested in stock and shares of a joint
stock company may be realized by its owner is through the sale of those stock
and shares to others. The stock changes , but it circulates within the market only.

2.1.3 National stock exchange

National stock exchange(NSE) of India became operational in the capital market
segment on 3rd November 1994 in Mumbai. The genesis ot the NSE lies in the
recommendation of the Pherwani Committee. Apart from the NSE, it had
recommended for the establishment of the National Stock Market System.

The main objectives of NSE is

• To establish a nation wide trading facility for equities, debt and hybrids.

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 • To ensure equal access to investors all over the country through
appropriate communication network.
• To provide fair, efficient and transparent security market to investors by
using an electronic communication network.
• To enable shorter settlement cycle and book entry system.
• To meet current international standards of securities market.

2.1.4 Promoters of NSE

IDBI, ICICI, IFCI, LIC, OIC, SBI, Bank of Baroda, Canara Bank, Corporation
bank, Indian bank, Oriental bank of commerce, Union bank of India, Punjab
national bank, Infrastructure leasing and financial service, Stock holding
corporation of India and SBI capital market.

2.1.5 Membership criteria

Membership is based on factor such as capital adequacy, corporate structure,
track record, education, experience etc. Admission is a two stage process with
the applicant need to go through a written examination followed by an interview.
The exchange admits members separately to WDM segment and the Capital
market segment. Corporate members are admitted on the debt market segment
whereas individual and firms are also eligible on the capital market segment.

2.1.6 Trading System

The software in the NSE trading system is known as National Exchange for
automated trading(NEAT). The trade takes place through computers. The trading
members computer is connected with the central computer at NSE through
leased lines and VSAT, which are small dish antenna. Communication is carried
out with the help of satellites. Network management centre is setup to enable
remote diagnosing and solving problems related to network through out the day.
This helps the traders to carry out their activities with minimum interruption.

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2.1.7 Stock market indices
An Index is used to give information about the price movement of products in the
financial, commodities or any other markets. Financial Indices are constructed to
measure the price movement of stocks, bonds, T bills and other forms of
investments. Stock market indices are meant to capture the overall behavior of
equity market. A stock market is created by selecting a group of stocks that are
representative of the whole market or a specified sector or segment of the
market. An indices is calculated with reference to a base period and a base index
value.

2.1.8 Important Indian stock market Indices

• S&P CNXNIFTY
• BSE Sensex
• CNXMIDCAP
• BSE 100
• BSE 200
• NYSE Indexes
• Dow Jones Industrial average
• NASDAQ Index

2.2 Company Profile

2.2.1 Introduction
COCHIN STOCK EXCHANGE LTD, Is one of the premier stock exchanges in
India, established in the year 1978. The exchange had a humble beginning with
just 5 companies listed in 1978~79 and had only 4 members. Today the
exchange has more than 508 members and 240 listed companies. In 1980 the
exchange computerized its offices. In order to keep pace with the changing
scenario in the capital market, CSE took various steps including trading in
dematerialized shares. CSE introduced the facility for computerized trading

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–“Cochin Online Trading (COLT)” on March 17, 1997. CSE was one of the
promoters of “Interconnected Stock Exchange of India (ISE)”. The objective was
to consolidate the small, fragmented and less liquid markets into a national level
liquid market. With enforcement of efficient margin system and surveillance, CSE
has successfully prevented defaults. Introduction of the fast track system made
CSE the stock exchange with the shortest settlement cycle in the country at that
time. By the dawn of the new century, the regional exchanges faced a serious
challenge from the NSE and BSE. To face this challenge CSE promoted a 100%
subsidiary called the “Cochin Stock Brokers Ltd. (CSBL)’ and started trading in
the National Stock Exchange and Bombay stock Exchange.

CSBL is the first subsidiary of a stock exchange to get membership in both NSE
and BSE. CSBL also became a depository participant in the Central Depository
Services Ltd. The CSE has been playing a vital role in the economic
development of the country in general and Kerala in particular and striving hard
to achieve the following goals:
• Providing investors with high level of liquidity whereby the cost and time
involved in the entry and exit from the market are minimized.
• Bringing in high tech solution and making all operations transparent.
• Building infrastructure for capital market by turning CSE into a financial
supermarket
• Serve the investors of the region.
• Professional stock broking and management.
• Imparting capital market knowledge to all intermediates on a continuous
basis.
• The CE is directly under the control and supervision of Securities and
Exchange Board of India (SEBI) and is today a demutualized entity in
accordance with the CSE (Demutualization) scheme and notified by SEBI
on 29th of august 2005. Demutualization essentially means de-linking and
separation of ownership and trading rights and restructuring the board in

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 accordance with the provision of the scheme. The exchange has been
demutualized and the notification thereof published in the Gazette.

2.2.2 Management of CSE Ltd.

The policy decisions of the CSE are taken by the Board of Directors. The board
is constituted with 12 members of whom less than one-fourth are elected from
amongst the trading members of CSE, another one-fourth are public interested
directors selected by SEBI from the panel submitted by the exchange and the
remaining are share holder directors. The board appoints the executive director
who functions as an ex-officio member of the board and takes charge of the
administration of the Exchange.

3.2.3 Organisatinal structure

Board of Directors

Executive director

Systems
Legal Settlement Surveillance

Administration Legal and Marketing &

Listing Finance
Personal Secretarial Public Relations

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2.2.4 Various departments at CSE

Membership
The membership department screens application from prospective members to
ensure that they are eligible to be members of exchange as per provisions of the
Securities Contracts Regulations Act. It is also verified they are ‘Fit and Proper’
persons eligible to be member as per SEBI Regulation 2004. The eligible
application are processed and forwarded to SEBI for the purpose of obtaining
registration with SEBI. The department continuously follows up the status of the
applications with SEBI and provides necessary data if any required by SEBI. The
members are informed of their fee liability as and when information in this regard
is obtained from SEBI. The membership department also assist SEBI by
ensuring proper delivery of notices and letters issued by SEBI to the concerned
members. The changes in the status and constitution of the brokers are send for
the approval of the governing board of the Exchange and thereafter send to SEBI
and members are given necessary directions wherever required. Changes in
address and contact information are updated in the finance and accounting
system and SEBI intimated.

System
The system department is the heart of the various operations of the CSE. The
department provides the necessary technical support for the screen based
trading and the computerized functioning of all to other department.
The activities of the department includes:
• Development of software needed for the functions of the Exchange.
• Maintenance of Multex software, which enables online trading with NSE
and BSE.
• Maintenance of an efficient computer network for the smooth working of
the exchange.
• Providing the necessary services to the settlement and surveillance
departments.

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 • The support for maintenance of the depository participants accounts with
the CSBL DP.
The major office system software’s used are NESS and BOSS respectively for
NSE and BSE trades calculations. These software’s are developed in-house by
software professional at the exchange and are used to maintain the entire
records of all trades that occur each day.
It also does all the required calculations for the deductions and also generates
the reports required by the brokers and their clients.
The trading software used in CSBL is Multex, developed by CMC. The
advantage of using it is that both BSE and NSE scrips can be traded using this
facility.
CSBL has trading facility in equities through Multex to a large number of their
clients over the WAN. Currently, the clients are connected by VPN, VSAT etc.

Legal
Guided by the Officer-Legal, the Legal Department is primarily responsible for
advising the management about the merits and demerits of legal issues involving
the Exchange. The department consistently monitors the compliance parameters
in the terms of Companies Act, SEBI Act, Securities Contracts Regulation Act,
and other related statutes. Listing guidelines and related criteria stipulated by
SEBI, and the rules, regulations, directives and circulars issued by SEBI with
regards to trading in the capital market are consistently scrutinized and
necessary directions are given to the concerned departments to ensure strict and
continued compliance. Relevant developments are brought to the notice of the
members and the investing public. Officer-Legal is the Compliance officer as per
the provision of SEBI regulations and also functions as Secretary to the Board of
Directors. Other major activities undertaken by the department relate to Investor
Grievance Services, arbitration and Resolution of issue pertaining to declare
defaulters.

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Listing
The listing department guides prospective companies desirous of being listed on
the exchange by providing the knowledge base and information on the statutory
requirements that have to be compiled with. The major functions undertaken by
the department include post-listing monitoring and compliance with the listing
agreement, monitoring the listing agreement and reviewing the provisions of the
listing agreement from time to time with specific reference to SEBI
regulation/circulars that are in force. The department also ensures diligence in
scrutinizing listing applications and adhering t the listing norms.

Finance
The finance department controls the financial transactions of the exchange and is
the life line of the organization. The department is headed by a Finance Officer.
The activities of the department includes:
• Fund management
• Interaction with bankers
• Maintaining general account of the exchange
• Preparation of various financial statements
• Maintaining payrolls and cash registers
• Coordinating accounting transactions of different branches and
departments
• Taxations
• Budgeting and expense research

Settlement
Settlement Department is a key department of the exchange, dealing with cash
and securities. It assist the brokers in settling the matters related to their pay-in
and payout, recovery of dues and settlement issues related to bad deliveries.
This department is headed by a Deputy Manager assisted by two Senior Officer
who take care of the operations involved in the settlement activities in CSE. The
Exchange follows the T+2 settlement system.

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Marketing
The Marketing Department interacts with the brokers of the exchange, trading
both within the state and outside and collects their opinion and suggestions.
These are brought to the notice of the committee constituted for the purpose and
decisions of the committee are placed for approval of the governing of the
exchange. The efforts are aimed at improving the quality and efficiency of the
services offered. I addition the department conducts extensive surveys and
campaigns in remote areas ad wherever necessary, conducts awareness
programs about Capital Market. Experts with sufficient experience in the trade
brief the participants and address their queries. Talk shows and interviews are
conducted on television channels, clipping are displayed in theatres all with an
intension to increase public awareness and motivate their interest in capital
market. The marketing wing also coordinates the of campus programmes of
CSE. Institutes and organizes regular classes at authorized centers after
verifying the availability of suitable infrastructure and facilities.

Surveillance
The exchange has set up the surveillance department to keep a close watch on
price movement of scrip and to detect market abuse like price rigging, monitor
abnormal prices and volumes which are not consistent with the normal trading
patterns etc. The main objective of the department is to ensure a free and fair
market, to avoid manipulation and to manage risk. The surveillance functions at
the exchange has assumed greater importance in the last few years. SEBI has
directed the exchange to set up a separate surveillance department with staff
exclusively for this function.
The surveillance department
• Keeps a close watch on the price movement of the scrips
• Detects market manipulations like price riggings
• Monitors abnormal changes in price and volumes which are not
consistent with normal trading pattern

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 • Monitors the member brokers position to ensure that defaults do not
occour

The department conducts in-depth investigation based on preliminary enquires

made into trading of the scrip as also at the instance of SEBI. Conducting
investigation involves the following stages:-
• Identification of scrip based on the alerts thrown by the online system and
offline reports
• Identification of members from whom the client details have to be called
for.
• Preparation of company profile including Corporate news and Financial
results.
• Compilation of Client details
• Preparation of reports

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2.3 PROFILE OF THE SELECTED IT COMPANIES

3.3.1 INFOSYS
Infosys technologies limited, is a public limited and India's second largest
software exporter company incorporated in the year 1981 as Infosys consultants
private limited by Mr.N.R.Narayana Murthy at karnataka, who is chairman and
chief mentor of the company. It became public limited company in the year 1992.
It has received CMM-5 status and it functioning collaborated with ANALOG
DEVICES INC of USA. Infosys is a groundbreaking company in the field of
information technology and it enjoys the privilege of being a dept free company.
It's only the company to be part of the major global index. Company offers the
services of consulting, process re-engineering, modular global sourcing and
Business Process Outsourcing services. It has developed finacle, a universal
banking solution to large and medium size banks across India and oversees. The
company has entered in marketing and technical alliance with FileNet, IBM, Intel,
Microsoft, Oracle and System Application Products. Infosys is listed in BSE, NSE
and NASDAQ.

Infosys, the country's second-biggest IT/ITES services companies, which was the
first Indian company to be listed on the NASDAQ at the year 1999. Infosys also
forms a part of the NASDAQ-100 index. Continuously the year 2001, 2002 and
2003 company wins the National award for excellence in corporate governance
conferred by the Govt of India. In the year 2003 it acquired Expert Information
Services in Australia for $22.9 million. Its has five wholly owned subsidiaries
namely as Infosys technologies China, Infosys technologies Australia, Infosys
consultancy INC, Infosys BPO SRO and Infosys BPO Ltd previously known as
progeon. CRISIL assigned the ' CRISIL GVC level 1' rating for corporate
governance. In the year 2004 company crosses US $ 1 billion in revenue. 2005
was the year the largest international equity offering of US $ 1 billion from India
by Infosys and in 2006 company celebrated 25th year. Infosys selected as 'Best
Outsourcing Partner' by the readers of Waters, a publication covering the needs

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of chief information officers in the capital market firms. In 2007 it increased stake
value in progeon to 98.9 % after acquiring shares from Citicorp International
Financial Company and a subsequent buy back offer to its share holders. Infosys
had taken over Philips' finance and administration business process outsourcing
(BPO) centers spread across India, Poland and Thailand for $28 million. A
Finacle from Infosys completes Phase 1 of implementation in Stroyvestbank
subsidiary structure of URALSIB BANK.

Infosys Technologies has 47% of core business assets stagnating. The

company scanning the markets of Europe and Japan for acquisitions in the price
band of $200-$300 million to energies its non-linear business strategy as well as
to expand its geographic reach. Infosys set up various Special Economic Zone
that for the company has an additional tax benefit. It set up another Special
Economic Zone unit in Chandigarh which will be eligible for 100 % deduction of
profit from exports tax calculation for the first five years followed by 50%
deduction for next five years. Infosys has been pursuing its expansion plans over
the past few years. As of March 2007 it has a capital expenditure commitment of
Rs 655 crs, it is in the process of expanding its operations by adding amount
32,967 seats to its completed 58.488 seats. The entire capital expenditure was
funded out of internal cash flows. The future enhancement of the company is to
emerge the developing economies changing the business landscape with help of
accessible talent pools and the adoption of non-linear growth model, it is a long
term strategy. Infosys Technologies Ltd has partnered with ACDI/VOCA for
promotes broad-based economic growth and to develop information and
communication technology- enabled application to improve efficiencies in the
agro supply chain in India. As of April 2008 the company acquired Internet
Protocol (IP) from an Australian company to add more functionality to finacle.
The IP, that provides a comprehensive set of financial tools to company's existing
product line. As on May 2008 the company ranked third in the largest 2008
Global Outsourcing 100, compiled by the International Association of
Outsourcing Professionals (IAOP).

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2.3.2 TCS
Established in 1968, Tata Consultancy Services has grown to its current position
as the largest IT services firm in Asia based on its record of outstanding service,
collaborative partnerships, innovation, and corporate responsibility. TCS is
headquartered in Mumbai, and operates in more than 50 countries and has more
than 170 offices across the world. In the year 1979 it established its first office in
New York City. It is the world's first organization to achieve an enterprise-wide
Maturity Level 5 on quality improvement models, CMMI and P-CMM, using the
most rigorous assessment methodology, SCAMPISM. TCS Division of Tata Sons
Ltd was transferred to TCS as on April 2004 for a consideration of Rs.2300
crores and the company went to public in the same year 2004.

The company's major areas of business are comes under five services, such as
Consulting, Information Technology Services, Business Process Outsourcing,
Infrastructure Outsourcing, Engineering and Industrial Services which covers the
industries namely Banking and Financial Services, Energy and Utilities,
Government, Healthcare and Life Sciences, Hi Technology, Insurance,
Manufacturing, Retail, Telecom, Travel and Hospitality.

During the year 2004-05 the company has acquired WTI Advanced Technology
LTD and TCS Business Transformation Solutions Ltd (Previously, Phoenix
Global Solutions (India) LTD), subsequently these two companies have turned as
the subsidiaries of the company. In between 2005-06, the year covers the
acquisitions of three companies Comicrom S.A., Chile, Financial Network
Services (Holdings) Pty Ltd, Australia (FNS) and Swedish Indian IT Resources
AB (SITAR). Tata Infotech Limited and three wholly owned subsidiaries of the
company, viz Airline Financial Support Services (India) Ltd (AFSL), Aviation
Software Development Consultancy India Ltd (ASDC) and TCS Business
Transformation Solutions Ltd (TCS BTS) have amalgamated with the company
on April 2005. Apart from this the company made strategic alliances during the
year with Diligenta Limited for Life Insurance business and entered into a Joint

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Venture Agreement with the State Bank of India (SBI). The new company was
formulated and named C-Edge Technologies Limited (C-Edge) to provide
advanced technology solutions and world-class domain consulting for the
banking and financial services sector.

In the year of 2006, TCS formed a company as MP Online Limited, partnership

with the Government of Madhya Pradesh, offering a wide range of computer
enabled services in the State of Madhya Pradesh. The company, through its
wholly owned subsidiaries Tata Consultancy Services Asia Pacific Pte Ltd and
Tata Consultancy Services Malaysia Sdn Bhd, subscribed to 100% share capital
of PT Tata Consultancy Services, Indonesia, a Company formed to provide
consulting and IT related services in Indonesia. Through its wholly owned
subsidiary Tata Consultancy Services Netherlands B.V., acquired 75% equity
interest in Switzerland based TKS - Teknosoft S.A., for a consideration of Rs.
368.06 crores The company, through its wholly owned subsidiary TCS FNS Pty
Limited, acquired 100% equity interest in an Australia based company TCS
Management Pty Ltd., for a total consideration of Rs. 15.75 crores. TCS's share
capital of Tata Consultancy Services (China) Co., Ltd leads the company to
frame a partnership with Chinese companies to provide IT outsourcing services
and solutions. The Company, through its wholly owned subsidiaries Tata
Consultancy Services BPO Chile S.A. and TCS Inversiones Chile Limitada,
subscribed to 100 % share capital of Tata solution Center S.A., a Company
formed to provide BPO services in Ecuador. Another one of its wholly owned
subsidiary TCS FNS Pty Limited, subscribed to 100% share capital of Financial
Network Services Beijing Co. Ltd., a company formed to provide consulting and
IT related services in China and the company has increased its investment in
TCS Iberoamerica to Rs. 165.23 crore as on March 31, 2007

The company received International Credit Rating from Moody's Investors

Service and has assigned an investment-grade issuer rating of A3 as well an
indicative foreign currency debt rating of Baa1. TCS gathered various awards

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and recognitions, significant amongst which are Special Award by the UK Prime
Minister, Tony Blair 'Outstanding Contribution to UK Knowledge Industry' in 2005,
Company of the Year - 2006 from the Economic Times, Dataquest Best IT
Employer for 2006, CII-EXIM Bank Award for Business Excellence 2006, Golden
Peacock Global Award for Corporate Social Responsibility, Ranked among the
Top 10 US application management services vendors India's largest e-
governance initiative of the Ministry of Company Affairs, which is implemented by
TCS, Most Distinguished Achievement Award in Information Management
(APAC) - 2006' from IBM and Verizon's Supplier Excellence Award for the third
consecutive year. Eaton Premier Supplier Award 2007 for the Indirect Supplier
for Information Technology Services category honored by Eaton Corporation.

As on 2008 TCS has signed a new multi-year contract with Chrysler LLC to
provide a comprehensive portfolio of IT services, in March 2008 opened its North
America Delivery Center called TCS Seven Hills Park. Located in Milford, Ohio, a
suburb of Cincinnati, the facility sits on 220 wooded acres and is the largest TCS
facility in North America. As on May 2008 the company ranked sixth in the largest
2008 Global Outsourcing 100, compiled by the International Association of
Outsourcing Professionals (IAOP). In June of the year 2008, the company gets
$11.5 million transformational deal to design, install and integrate a tax
administration system for the Uganda Revenue Authority (URA). TCS is going
with certainty, lot of innovations and strategies to attain the vision of Global Top
10 by the year 2010.

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2.3.3 ORACLE
Oracle Financial Services Software Limited (erstwhile i-flex solutions) (OFSSL) is
a world leader in providing IT solutions to the financial services industry. The
Company was incorporated in September 27, 1989 as Citicorp Information
Technology Industries Ltd. The Company addressing the entire financial services
space through a comprehensive portfolio of products, IT services, consulting and
knowledge process outsourcing services. With the experience of delivering
value-based IT solutions to over 810 financial institutions across 130 countries.
OFSSL has 14 development centers across India, Singapore and the USA. The
Company has a strong global reach with a sales, marketing and support
presence in 27 overseas locations operating across four subsidiaries (i-flex
solutions inc. in the USA, i-flex solutions b.v. in the Netherlands, i-flex solutions
ltd. in Singapore and iPSL in India). In addition, 30 corporate business partners
and 32 implementation partners represent i-flex across the globe. The Company
also has strong alliance and/or implementation relationships with industry leaders
such as Hewlett-Packard, IBM, Sun Microsystems and Intel.

CITIL (Citicorp Information Technology Industries Limited), spun off from COSL
(Citicorp Overseas Software Limited), commences first year of operations in the
year 1992. In 1995, CITIL gains recognition for establishing world-class
processes and quality Standards, It attained SEI CMM Level 4, becomes the first
financial software firm in the world and one out of six companies worldwide to
achieved this distinction at that time. CITIL established the Center of Excellence
during the year 1996 for business intelligence to provide specialized consulting
and software products, as well as services in data warehousing and business
intelligence. A complete banking product suite for retail, consumer, corporate,
investment and internet banking, consumer lending, asset management and
investor servicing, including payments (SWIFTNet and SEPA) was launched in
the year 1997 under the name of FLEXCUBE. MicroBanker becomes the 6th
international banking product in the world to be used by 100 customers in 1998
and the FLEXCUBE starts gaining traction and international leadership.

24
During the year 1999, FLEXCUBE Information Center, a Web-enabled business
intelligence system was launched along with a Center of Excellence for CRM and
the Java Center for financial services also established. CITIL was renamed as i-
flex solutions limited in the year 2000. During the same year 2000, Center of
Excellence for e-services launched Separate business unit established to
address the Applications Services Provider (ASP) market. i-fl ex solutions b.v., a
100 percent subsidiary of the company opened in Amsterdam, The Netherlands.
The company's financial software development facilities were established in the
year 2001 at Pune and Chennai and fully owned subsidiaries set up in USA and
Singapore, i-flex solutions b.v. in Amsterdam, The Netherlands, becomes
operational, i-fl ex Consulting was launched. EBZ Online, a software company
was joined with the company during the year 2002 through which i-flex's product,
Flexcube, for made available to cooperative banks. Dotex International, a joint
venture company supported by NSE.IT and i-flex Solutions Ltd, signed a
memorandum of understanding (MoU) with BgSE Financials Ltd, a subsidiary of
the Bangalore Stock Exchange, to give Internet trading service to the members
of the exchange. The Company entered into capital market with Initial Public
Offering (IPO) of an issue of 3,961,700 equity shares. I-flex opened its first
Overseas Software Development Center in Singapore in the year 2002.

In the year 2003, the company's flagship product FLEXCUBE ranked the world's
No.1 selling Universal Banking Solution and during the same year 2003, I-flex
sets up development centre in New York, Wins a major order from
HypoVereinsbank Group (HVB Group), Germany, Inaugurated FLEXCUBE
Support & Prime Sourcing Solutions Centre in London and acquisition of Super
Solutions Corporation in all cash deal of .5 million was made. Waters Magazine
ranked Mantas as the Best Anti-Money Laundering Solution and Best
Compliance Solution for 2003.

25
Waters Magazine ranked Mantas as the Best Anti-Money Laundering Solution for
2003 and also for 2004. During the year 2004, i-flex opened its wholly owned
holding company in US, namely i-flex America, for carrying out all future
acquisitions in the USA. The Golden Peacock National Quality Award was
awarded to the company. i-flex Solutions ties up with Barbados-based first
Caribbean International for internet banking and e-finance platform of i-flex
Solutions. The core banking solution Flexcube had won The Banker Core
Banking Solution of the Year and Application of the Year'' awards. The Company
and YES Bank has signed Global Strategic Memorandum to collaborate on
technology led innovations to enhance quality and efficiency in banking products
and delivery processes. i-flex joined hands with People Soft to develop and
market an integrated solution for the banking industry.

Entered into strategic alliance with Castek Software Inc., a Toronto based
provider of insurance systems for the global Property & Casualty (P&C) in the
year 2005. The decade-old relationship between Oracle and i-flex was further
strengthened in 2005 at a strategic level. In August 2005, Oracle Corporation
bought Citigroup's 41 percent equity interest in i-flex and floated an open offer to
purchase up to an additional 20 percent ownership from existing shareholders. i-
flex assessed at CMMi Level 5 also certified BS 7799 compliant. BS 7799 is
security standards and policies addressing information security. In the same year
i-flex and EDB Business Partner ASA had entered into an agreement to jointly
offer comprehensive retail banking solutions to financial institutions in the Nordic
region. Reveleus was positioned in Gartner's 'Leaders Quadrant' in its 'Basel II
Risk Management Application Software Magic Quadrant for 2005' and '2006
Basel II Software Applications Magic Quadrant'. Reveleus was also 'Highly
Commended' for its Compliance Initiative Innovation in The Banker Technology
Awards for 2006. The Black Book of Outsourcing, ranked i-flex BPO as the top
outsourcing vendor to the Mortgage Banking Industry in 2006. The FLEXCUBE
10.0 was released in 2007, it helps financial institutions respond faster to market
dynamics and define and track processes, while ensuring compliance. The suite

26
also equipped with SWIFT 2007 enhancements and supports SEPA payment
processing. New Version of FLEXCUBE Core Banking for IBM System z active
from April 2008. During August of the year 2008, the company changed its name
from I-flex solutions Limited to Oracle Financial Services Software Limited.

FLEXCUBE, Reveleus, Daybreak, Mantas, PrimeSourcing, i-flex Consulting and

iPFB are trademarks of i-flex solutions and are registered in several countries.
Together, Oracle and i-flex solutions offer financial services institutions the
world's most comprehensive and contemporary banking applications and want to
embark technology footprint that address their complex IT and business
requirements.

27
2.3.4 HCL
HCL Technologies Limited was incorporated in 1991, as HCL Overseas Limited.
The certificate of commencement of business was received on 10th February
1992. On July 14, 1994, the name of the Company was changed to HCL
Consulting Limited. The company provides software-led IT solutions, remote
infrastructure management services and BPO. In 1996 the 50:50 joint venture
with Perot Systems Corporation was formed to provide access to high value
client base of Perot Systems under the name of HCL Perot Systems NV. HCL
Technologies focuses on Transformational Outsourcing, working with clients in
areas that impact and re-define the core of their business after its IPO in 1999
with aim of foray into the global IT landscape and in the same year again the
Company changed its name to HCL Technologies Limited. The company
encompasses global offshore infrastructure and its global network of offices in 18
countries to deliver solutions across selected verticals including Financial
Services, Retail & Consumer, Life Sciences & Healthcare, Hi-Tech &
Manufacturing, Telecom and Media & Entertainment (M&E).

HCL Tech started to create wholly owned subsidiaries to cater specific

geographic regions from the year 1999. HCL has the widest service portfolio
among Indian IT service providers, with each of its services having attained
critical mass. In the year of 2000 the company has set up a dedicated offshore
development centre in Chennai for KLA-Tencor Corporation, a supplier of
process control and yield management solutions for the semiconductor and
related microelectronics industry and HCL Comnet, the wholly owned subsidiary
of HCL Technologies in association with its new partner Globeset Inc for scouting
largest Internet Service Providers and payment gateways in India to introduce
Net security management solutions. The Company launched the Nokia
professional centre in New Delhi, second among the chain of centres across the
country. HCL Technologies has entered into a strategic alliance with Nasdaq-
listed Vitesse Semiconductor to develop software solutions for global networking
markets in the year 2001 and also entered into a strategic alliance with Toshiba

28
Information Systems (Japan) Corporation to set up a dedicated offshore software
development centre for developing embedded software for the Japanese
company. HCL Comnet Systems & Services Ltd., a fully owned subsidiary of
HCL Technologies was gone into the business of Web-enabling applications
through the launch of demand-chain management solutions.

In 2002 the company acquired Gulf Computers Inc, USA and formed a JV with
Answerthink, Inc., a leading US based provider of technology enabled business
transformation solutions to Global 2000 firms. A strategic technology joint venture
was made with Jones Apparel Group, Inc. Jones Apparel Group, Inc. a Fortune
500 Company in the same year and also entered into a joint venture with M.A.
Partners, a management consulting firm to address software services
opportunities in Global Finance Markets, especially in the areas of Investment
Banking, Asset Management and Private Banking. M.A. Partners brings a wealth
of domain expertise and clients including many of the top Global Investment
Banking firms to the JV. In the year 2003, BT Group UK's telecom service
provider gave a contract worth of $160 million for BPO service operations and
the company has set up an exclusive centre in Noida for exeucting the orders
given by BT Group. The software business of HCL Infosystems Limited was
transferred to HCL Technologies Limited additionally. HCL Comnet, a wholly-
owned flagship of HC Technologies, secured Rs 31 crore network management
order from National Insurance Corporation (NIC).

HCL Technologies sets up Insurance Solutions Center in Chennai and the

company has entered into a strategic tie-up with IBM Rational Software, a
division of IBM, to strengthen its software development capabilities during the
year 2004. The Company has been conferred the prestigious Excellence in
Education Award for 2004 by the Life Office Management Association (LOMA).
BPO delivery centre in Chennai gets BS7799 certification, by the British
Standards Institute (BSI) on August of the same year. The company has

29
Introduced Cross View; a framework based Computer Systems Validation (CSV)
methodology for the development of robust software applications in the Life
Sciences arena.

During the year 2005 SEBI ties up with HCL Technologies for market
surveillance and the company formed joint venture with NEC, Japan. The
company amalgamated its six wholly owned subsidiaries with company itself,
such subsidiaries are DSL Software Ltd, Shipara Technologies Ltd, HCL
Technologies BPO Services Ltd, HCL Technologies (Mumbai) Ltd, Aquila
Technologies Ltd and HCL Enterprise Solutions (India) Ltd and the course of
event the company acquired an Irish Call centre during February 2005 and this
acquisition establishes HCL's position as the single largest BPO Centre operation
on the Island of Ireland. HCL's Infrastructure Services Division ranked a 'Strong
Performer' in Remote Infrastructure Management by an International Research
Firm and made a strategic partnership with EXA, Japan in same year. In the year
of 2006 the company launched RoHS Compliance Management System for
Medical Device Users and entered $70 million outsourcing deal with Teradyne of
US. HCL developed Trusted ICT Infrastructure Platforms for BPO-ITE'S Segment
and has linked pact with Canada based electronics manufacturing services
company Celestica Inc to jointly design and manufacture electronic products for
global original equipment manufacturers (OEMs). The company has forayed into
an alliance with $200 million Saudi Arabian company namely Advanced
Electronics Company (AEC) to implement IT projects in West Asia in the year
2007 and formed a strategic alliance with Eckler to strengthen Insurance Domain
expertise. The company made US $15 million contract with Aleni Aeronautica, to
provide engineering services that will support the improvement of the C-27J
Spartan production line. HCL Venture Capital Ltd., a company incorporated in
Bermuda and downstream subsidiary of the company was merged with HCL
Bermuda Ltd and HCL Technologies (Mass) Inc., a company incorporated in
United States of America and a down stream subsidiary of the company was

30
merged with HCL America Inc in the year 2007.

As on January 2008, HCL's Electro Magnetic Compatibility (EMC) and Durability

Test Lab located in Chennai, the first of its kind private Technology facility sector
to obtained the ISO/IEC 17025 Accreditation from NABL (National Board for
Accreditation of Testing and Calibration Laboratories, India) and a new
partnership with Mark Logic Corporation, provider of the industry's leading XML
content server was made on same month of the year. As on February 2008 the
acquired Capital Stream, Inc., a US based leader in providing comprehensive
end-to-end lending and straight through processing solutions to commercial
banks and finance companies in North America worth about US $ 40 Million and
in same month company expanded global services partnership with SAP AG
(NYSE: SAP). During April 2008 HCL Technologies Ltd announced to launch of
its new SaaS Service Delivery Platform (SDP) AGORA - at Software 2008 in Las
Vegas and in the same month of the same year the company launched an
innovative on-demand software testing lab at Software 2008 that allows
Independent Software Vendors (ISVs) to reduce their software testing cycle
times and lower their capital expenditure on testing hardware and software.

31
2.3.5 WIPRO
Wipro Limited, the successful company crossed six decade of years. Wipro
though started as a edible oil producer way back in 1945 under the name
Western India Vegetable Products, a private limited company has transformed
itself into leading player in Fast Moving Consumer Goods and IT services &
Products business. It was incorporated at Karnataka by Mr. Azim H Premji who is
promoter and chairman of the company. Five of Wipro's manufacturing and
development facilities secured the Indian Standard Organization (ISO) 9001
certification during 1994-95. Company provides the integrated business,
technology and process solution on a global delivery platform to customers
across Americas, Europe, Middle East and Asia Pacific, they offer business value
to clients through process excellence and service delivery innovation such as
Information Technology services, Product Engineering services, Technology
Infrastructure services, Business Process Outsourcing services and consulting
services. 23 subsidiaries running under in Wipro. This company is listed in BSE ,
NSE and Newyork .

In February 2001, Wipro became the first software technology and services
company in India to be certified for ISO 14001 certification for complying with the
international standards for Environmental Management System (EMS) in three
major software development and technology centers in Bangalore and also
achieved ISO 9000 certification and they are ISO 14000 certificate holder also for
good citizenship. Wipro Technologies has won the 'Banker Technology Award'
for the year 2004 Instituted by the Financial Times in the 'Risk Management
Award' category. During December 2005 the company has signed a definitive
agreement to acquire mPower Inc, a US based company with a development
center in Chennai and MPACT Technology Services which is also based in
Chennai. Wipro received the BEST award from American society for training &
development (ASTD) for three consecutive years 2004, 2005 and 2006. Wipro
Ltd is a largest 3rd party Research & Development service provider in the world,
Wipro is among the top 3rd Indian BPO service providers by revenue identified

32
by NASSCOM, the IDC India noted among the top 2nd domestic IT services
companies in India. Wipro is the world first PCMM level 5 company and it is a
winner company of the Dale Carnegie Leadership award in 2007 for people
excellence. Wipro is a first company to be assessed at level 5 on CMMi for
process excellence as well as its a company to deploy six sigma in IT services at
first. Second time Wipro has announced that it has been recognized winner of
the 2007 global MAKE award, the 2007 Asian MAKE award fifth time in a row
and also received the 2007 Indian MAKE award third time organized by CII
(Confederation of Indian Industry).

2006-07 was the year for acquisition to Wipro, during the year company acquired
six companies namely Quntech Global Services, Saraware Oy, Enabler
Informatica S A, 3D Networks Pte Ltd, Hydrauto Engineering AB and Northwest
Switchgear. Wipro partnered with Motorola to form a joint venture namely
WMNETSERV, At the same time company invested Rs.16,684 million on fixed
assets during the year. Wipro has set up an overseas design center as Odyssey
21 for undertaking projects and product developments in advanced technologies
for overseas clients.

Wipro has been a pioneer in fostering a culture of Innovation. This culture

manifested in small and big acts of Innovation of wiproites everyday. In the year
2000 itself Wipro launched Innovation Initiative for business development and
right now they engaged across 55 CoE's and 30 innovation projects with over
500 peoples. Its not a edge, the companies future enhancement also to
continued focus on Innovation has caught the attention of stakeholders and
industry. Wipro wants to make a geographical footprint in Germany, Canada,
Japan and Middle East that is likely to become the next growth engines and
wants to frame a end-to-end solutions for business needs of customer. Wipro
plans to set up a Global IT Services Center in Sydney.

33
3. LITERATURE REVIEW

34
3. Review of literature

Fundamental analysis is a sock valuation method that uses financial and

economic analysis to predict the movement of stock prices. The fundamental
information that is analyzed can include a company’s financial reports, and non-
financial information such as estimates of the growth of demand for products sold
by the company, industry comparisons, and economy-wide changes, changes in
government policies etc. Security analysis is the initial phase of the portfolio
management process. This step consists of examining the risk-return
characteristics of individual Securities.

3.1 Fundamental analysis

An investor who would like to be rational and scientific in his investment activity
has to evaluate a lot of information about the past performance and the expected
future performance of the companies, industries and the economy as a whole
taking the investment decision. Such evaluation or analysis is called fundamental
analysis.

Fundamental analysis is really a logical and systematic approach to estimating in

the future dividends by a number of fundamental factor relating to the economy,
industry and company. Hence, the economy fundamentals, industry
fundamentals and company fundamentals have to be considered while analyzing
a security for investing purpose. It is in other words, a detailed analysis of the
fundamental factors affecting the performance of companies.

Each share is assumed to have an economics worth based on its present and
future earning capacity. This is called its intrinsic value or fundamental value. The
purpose of fundamental analysis is to evaluate the present and future earning
capacity of a share based on the economy, industry and company fundamentals
and there by asses the intrinsic value of the share. The investor can then
compare the intrinsic value of the share with the prevailing market price to arrive

35
at an investment decision. If the market price of the share is lower than its
intrinsic value, the investor would decide to buy the share as it is under priced.
The price of such a share is expected to move up in future to match with its
intrinsic value.

On the contrary, when the market price of a share is higher than its intrinsic
values, it is perceived to be over priced. The market price of such a share is
expected to come down in future and hence the investor would decide to sell
such a share. Fundamental analysis thus provides an analytical framework for
rational investment decision-making . This analytical framework known as E-I-C
framework, or economy–industry company analysis.
Fundamental analysis thus involves three steps:
1. Economy analysis
2. Industry analysis
3. Company analysis

3.1.1 Economy analysis

The performance of a company depends on the performance of the economy. If
the economy is booming, incoming rise and demand for goodwill increase, the
industries and companies in the general trend to be prosperous. On the other
and if the economy is in recession, the performance of the company will be
generally bad.

Growth rate of National Income

The rate of growth of the National Economy is an important variable to be
considered by an investor. GNP, NNP and GDP are the different measures of the
total income or total economic output of the country as a whole. The growth rate
of these measures indicate the growth rate of the economy. The estimate of
GNP, NNP, GDP and their growth rate are made available by the government
from time to time.

36
The estimated growth of the economy would be pointed towards the prosperity of
the economy. An economy typically passes through different phases of prosperity
known as the different stager of the economic or business cycle. The four stages
of the economic cycle are depression, recovery, boom and recession. The stage
of economic cycle through which a country passes has different impact on the
performance of industries and companies.

Infrastructure
The development of an economy depends very much on the infrastructure
available. Industry needs electricity for its manufacturing activities, road and
railways to transport raw materials and finished goods, communication channels
to keep in touch with suppliers and customers. The availability of infrastructure
facilities such as power, transportation and communication systems affect the
performance of companies. Bad infrastructure leads to inefficiencies, louder
productivity, wastage and delays. An investor should assess the status of the
infrastructure facilities available in the economy before finalizing his investment
plans.

Monsoon
The Indian economy is essentially an agrarian economy and agriculture is a
important sector of the Indian Economy. Because of the strong forward and
backward linkages between agriculture and industry, performance of several
industries and companies are dependent to the performance of agriculture to a
very great extend that depends on monsoon. The adequacy of the monsoon
detains the success or failure of the agriculture activities in India. Hence the
progress and adequacy of monsoon becomes a matter of great concern for an
investor in Indian content.

37
Economic and political stability
A stable political environment is necessary for steady and balanced growth. No
industry or company can grow and prosper in the midst of political turmoil. Stable
long term economic policies are what that is needed for industrial growth. Such
stable policies can emanate only through stable political system.

3.1.2 INDUSTRY ANALYSIS

An investor ultimately invests his money in the securities of one or more specific
companies. Each company can be characterized as belonging to an industry.
The performance of companies would therefore be influenced by the fortunes of
the industry to which it belongs. For this reason an analyst has to undergo an
industry analysis so as to study the fundamental factors affecting the
performance of different industries.

At any stage in the economy, there are some industries which are fast growing
while others are stagnating or declining. If an industry is growing, the companies
within the industry may also be prosperous. The performance of companies will
also depend on the state of the company to which it belongs. Industry analysis
refers to an evaluation of the relative strength and weakness of weakness of
particular industries.

An industry is generally described as a homogenous group of companies. We

may define an industry as a group of firms producing reasonably similar products
which serve the same needs of a common set of buyers. Industries are
traditionally classifies as cement industry, steel, cotton, textile, software industry
and so forth. However industry classification becomes difficult while dealing with
firms having a diverse product line. And such firms are now on the trend. Due to
the difficulties that they suffer, each country follows a standardized classification
to facilitate data collection. The reports can effect the growth of other industries.

38
Industry characteristics
In an industry analysis, there are a number of key characteristics that should be
considered by the analyst, These features broadly relate to the operational and
structural aspects of the industry. They have a bearing on the prospects of the
industry. Some of there are discussed below:

• Demand supply graph:

The demand for a product, usually tend to change at a steady rate. Whereas,
the capacity to produce the product tends to change at regular intervals,
depending upon the installation of additional production capacity. As a result
am industry is likely to experience undersupply and oversupply of capacity at
different times. Excess supply reduces the profitability of the industry through
a decline in the Unit prize realization.
• Labour condition:
The state of labour condition in the industry under analysis is an important
consideration in an economy such as ours where the labour union are very
powerful. If the labour in a particular industry is rebellious and is inclined to
resort to strikes frequently. The prospects of that industry cannot become
bright.
• Attitude of government
• The attitude of the government towards an industry has a significant
impact on its prospects. The government may encourage the growth of
certain industries can assist such industries through favorable legislation.

3.1.3 Company Analysis

Company analysis is the final stage of fundamental analysis. The economy
analysis provides the investors a broad outline of the prospects of growth in the
economy. The industry analysis helps the investor to select the industry in which
the investment would be rewarding. Now he should find the company in which,
he should invest his money. Company analysis gives an answer to this question.
Company analysis deals with the estimation of returns and risk of individual

39
shares. This calls for information. Many pieces of information influences the
investment decisions. Information regarding companies can be broadly classified
into two groups: internal and external. Internal information consist of data and
events made public by companies concerning their operations. The internal
information source includes annual reports to shareholders, public and private
statements of officers of the company, the companies financial statements, etc.
External sources of information are those generated independently outside the
company. Investment services and the financial press prepares these.

In company analysis, the analyst tries to forecast the future earnings of the
company because there is strong evidence and that earnings have a direct and
powerful effect upon share prices level, trend and stability of earnings of a
company, however depending upon a number of factors concerning the
operations of the company.

40
3.1.4 FINANCIAL TOOLS

Earnings Per Share (EPS) = Profit After Tax (PAT)

No. of Equity share

Dividend Per Share (DPS) = Amount declared as Dividend

No. of Equity shares

Dividend Payout Ratio = Dividend Per Share (DPS)

Earnings Per Share (EPS)

Return on Equity = Profit After Tax (PAT) * 100

Net worth * 100

Price Earning Ratio = Market price per share

EPS

3.1.5 INTRINSIC VALUE CALCULATION

Dividend Payout Ratio = Dividend Per Share(DPS)

Earnings Per Share(EPS)

Average DPOR for 5 years = Sum of DPOR for 5 years

Average Return on Equity = 1- Avg DPOR

41
Average return on Equity = Sum of ROE for years

Growth rate in Dividend = Avg retention ratio * Avg return on equity

and equity

Normalized average = Sum of price to equity ratio for 5 years

Projected earning per share = EPS for current year * ( 1+ growth rate)

Intrinsic value P/E ratio = Projected EPS * normalized average

Projected Dividend per share = DPS for current year * (1+ growth rate)

3.1.6 Financial statements

The prosperity of a company would depend upon its profitability and financial
health. The financial statements published by a company periodically helps us to
assess the profitability and financial health of the company. The two basic
financial statement provided by the company are the balance sheet and profit
and loss account. The first gives us the picture of the companies asset and
liabilities while the second gives us a picture of its earnings.

The balance sheet gives the list of assets and liabilities of a company on a
specific date. The major categories of assets are fixed assets and current assets.
Fixed assets are those assets, which are intended to be used up over a period of
years. Current assets are those assets that are intended to be converted into
cash in the near future (within 1 year). The major categories of liabilities are
outside liabilities and liabilities towards shareholders. The outside liabilities are
categorized as short term liabilities and long term liabilities. The short term
liabilities which are expected to be paid off within the next 1 year are known as

42
the current liabilities. The balance sheet indicates the financial position of a
company on a particular date namely, the last date of the accounting year.

The profit and loss account also called income statement, reveals the revenue
earned, the
Cost incurred and the resulting profit or loss of the company for one accounting
year. The profit after tax divided by the number of shares gives the Earnings per
Share, which is a figure in which most investors are interested. The profit and
loss account summarizes the activities of the company during an accounting
year.

43
3.2 Technical Analysis

Technical analysis is an alternative approach to fundamental analysis for the

study of stock price behavior. Technical Analyst believes that the share price
movement are systematic and exhibit certain consistent patterns. He studies past
movements in the share price to identify trend and pattern, and then try to
predict the future price movements. The current market price is compared with
the future predicted price to determine the extend of miss-pricing. Technical
analysis is an approach which concentrates on the price movements and ignores
the fundamentals in the share.

Technical analysis really just studies the 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.
• Technical analysis is a method of evaluating securities by analyzing the
statistics generated by market activity. It is based on three assumptions.
1. The market discounts everything
2. Price moves in trends
3. History tends to repeat itself
• Technicians believe that all the information they need about a stock can
found in its chart
• Technical traders take a short-term approach to analyze the market .
• Criticism of Technical analysis stems from the efficient market hypothesis,
which states that the market price is always the correct one, making any
historical analysis useless.
• One of the most important concepts in technical analysis is that of a trend,
which is the general direction that a security is headed. There are three
types of trends:
1. Upward trend
2. Downward Trend

44
 3. Sideways or Horizontal trend
• A trend line is a simple charting technique that adds a line to a chart to
represent the trend in the market or a stock.

Share price are determined by the demand and supply forces operating in the
market. These demand and supply factors are in turn influenced by a number of
fundamental factors as well as psychological or emotional factors. Many of these
factors cannot be quantified. The combined impact of all these factors is reflected
in the share price movement.
The technical analyst therefore concentrates on the movement of share price and
analyses the price and volume of individual securities as well as market index.

3.2.1 Steps in Technical Analysis:

1. Study the past movement in share price and identify the trends and
establish patterns.
2. Look at the current movement in the share price and identify the trends
and establish patterns. With this the future price movement is predicted.
The rationale behind the Technical Analysis is that share price moves in
trend or waves which may be upward or downward. It is believed that the
present trends are influenced by the past trends. The technical analyst,
therefore analyses the price and volume movement of individual securities
as well as the market index. Thus technical analysis is really a study of
past or historical price volume so as to predict the future stock.

45
3.2.2 The basic principle behind technical analysis:

1. The market value of a share is related to the demand and supply factors
operating in the market.
2. There are both rational factors which surrounds the supply and demand
factors of security.
3. Security prices behaves in a manner that their movements are continuous
in particular direction for some length of time
4. Trends in stock prices have been seen to change when there is shift in
demand and supply.
5. The shift in demand and supply factors can be detected through charts
prepared specially to show market action.

3.2.3 TOOLS USED

1. Moving Average Crossover

2. MACD
3. Momentum
4. Stochastic
5. Relative Strength Index(RSI)

46
MOMENTUM

Momentum is a simple technical analysis indicators showing the difference

between today's closing price and the close N days ago. Momentum is the
absolute difference:

Rate of change scales by the old close, so as to represent the increase as a

fraction,

"Momentum" in general refers to prices continuing to trend. The momentum and

ROC indicators show trend by remaining positive while an uptrend is sustained,
or negative while a downtrend is sustained. A crossing up through zero may be
used as a signal to buy, or a crossing down through zero as a signal to sell. How
high (or how low when negative) the indicators get shows how strong the trend
is?

STOCHASTIC

The stochastic indicator has been developed by Georges Lane. This indicator
has been build based on the following concept:

• In a positive trend, if the price is close to his maximum value, the intra day
closing price will tend to be closer and closer to his intra day high.
• In a negative trend, if the price is close to his minimum value, the intra day
closing price will tend to be closer and closer to his intra day low.

47
This system uses two lines: %K and %D.

With: n the chosen lag.

Ct the stock price at the date t.
Bn the lowest price during the last n days.
Hn the highest price during the last n days.

The stochastic %K is: %K= 100 * {(C-Bn)/(Hn-Bn)}

The second step is to compute the %D.

%D is the moving average at j days of the numerator of %K (Nj) divided by

the moving average of the denominator of %K (Dj).

The stochastic indicator is interpreted like the RSI. The sale signal is given when
both lines are over 80% and the purchase signal when both lines are under 20%.

The lag used for n in %K is often 5 days but (9,11 and 14 days are used as well).
The lag used for j in %D is often 3

MOVING AVERAGE CROSSOVER

Moving average crossovers are a common way traders use Moving Averages. A
crossover occurs when a faster Moving Average (i.e. a shorter period Moving
Average) crosses either above a slower Moving Average (i.e. a longer period
Moving Average) which is considered a bullish crossover or below which is
considered a bearish crossover.

48
The chart below of the S&P Depository Receipts Exchange Traded Fund (SPY)
shows the 50-day Simple Moving Average and the 200-day Simple Moving
Average; this Moving Average pair is often looked at by big financial institutions
as a long range indicator of market direction:

Note how the long-term 200-day Simple Moving Average is in an uptrend; this is
a signal that the market is quite strong. Generally, a buy signal is established
when the shorter-term 50-day SMA crosses above the 200-day SMA and
contrasts, a sell signal is indicated when the 50-day SMA crosses below the 200-
day SMA.

In the chart above of the S&P 500, both buy signals would have been extremely
profitable, but the one sell signal would have caused a small loss. Keep in mind,
that the 50-day, 200-day Simple Moving Average crossover is a very long-term
strategy.

49
Moving Average crossovers are important tools in a traders toolbox. In fact
crossovers are included in the most popular technical indicators including the
Moving Average Convergence Divergence (MACD) indicator

RELATIVE STRENGTH INDEX(RSI)

The relative Strength Index is a financial technical analysis momentum oscillator
measuring the velocity and magnitude of directional price movement by
comparing upward and downward close to close movement. It was first
introduced by Wells Wilder. It is a powerful indicator used to identify the inherent
strength and weakness of a particular scrip or market. This is a powerful indicator
that signals buying and selling opportunities ahead of the market. The name
“relative strength Index” is slightly misleading, as the RSI does not compare the
relative strength of two securities, but rather the internal strength of a single
security.

• RSI for security is calculated by the following formulae:

RSI = 100 – [100/(1+RS)]

Where RS = Avg gain per day / Avg loss per day

The most commonly used time period for calculation of RS is 14 days. For the
calculation a 14 day RSI, the gain per day or loss per day is arrived at by
comparing the closing price of a day with that of the previous day for a period of
14 days. The gains are added up and divided by 14 to get the average gain per
day. The average gain per day and average loss per day are used in the above
formula for calculating the RSI for a day. In this way RSI values can be
calculated for a number of days. After calculating such data for a number of days,
graph can be plotted.

MOVING AVERAGE CONVERGENCE DIVERGENCE(MACD)

50
Developed by Gerald Appel, Moving Average Convergence / Divergence
(MACD) is one of the simplest and most reliable indicators available. MACD uses
moving averages, which are lagging indicators, to include some trend-following
characteristics. These lagging indicators are turned into a momentum oscillator
by subtracting the longer moving average from the shorter moving average. The
resulting plot forms a line that oscillates above and below zero, without any upper
or lower limits. MACD is a centered oscillator and the guidelines for using
centered oscillators apply.

The most popular formula for the "standard" MACD is the difference between a
security's 26-day and 12-day Exponential Moving Averages (EMAs). This is the
formula that is used in many popular technical analysis programs, including
SharpCharts, and quoted in most technical analysis books on the subject. Appel
and others have since tinkered with these original settings to come up with a
MACD that is better suited for faster or slower securities. Using shorter moving
averages will produce a quicker, more responsive indicator, while using longer
moving averages will produce a slower indicator, less prone to whipsaws. For our
purposes in this article, the traditional 12/26 MACD will be used for explanations.
Later in the indicator series, we will address the use of different moving averages
in calculating MACD.

Of the two moving averages that make up MACD, the 12-day EMA is the faster
and the 26-day EMA is the slower. Closing prices are used to form the moving
averages. Usually, a 9-day EMA of MACD is plotted along side to act as a trigger
line. A bullish crossover occurs when MACD moves above its 9-day EMA, and a
bearish crossover occurs when MACD moves below its 9-day EMA. The Merrill
Lynch (MER) chart below shows the 12-day EMA (thin blue line) with the 26-
day EMA (thin red line) overlaid the price plot. MACD appears in the box below
as the thick black line and its 9-day EMA is the thin blue line. The histogram
represents the difference between MACD and its 9-day EMA. The histogram is

51
positive when MACD is above its 9-day EMA and negative when MACD is below
its 9-day EMA

52
MACD measures the difference between two Exponential Moving Averages
(EMAs). A positive MACD indicates that the 12-day EMA is trading above the 26-
day EMA. A negative MACD indicates that the 12-day EMA is trading below the
26-day EMA. If MACD is positive and rising, then the gap between the 12-day
EMA and the 26-day EMA is widening. This indicates that the rate-of-change of
the faster moving average is higher than the rate-of-change for the slower
moving average. Positive momentum is increasing, indicating a bullish period for
the price plot. If MACD is negative and declining further, then the negative gap
between the faster moving average (blue) and the slower moving average (red)
is expanding. Downward momentum is accelerating, indicating a bearish period
of trading. MACD centerline crossovers occur when the faster moving average
crosses the slower moving average.

53
4. RESEARCH METHODOLOGY

54
4.1 RESEARCH METHODOLOGY

Research is a scientific and systematic search for pertinent information on a

specific topic. Research is an art of scientific investigation. Research considered
as an effort to gain new knowledge. Research finds out the solution for the
problem. Research is essentially an investigation, a recording and analysis of
evidence for purpose of gaining knowledge. It demands accurate observation
and experimental evidences. The collected data is used for the new purpose. A
good research should be systematic, logical, empirical and replicable.

Research methodology is a scientific and systematic way to solve research

problems. Researcher has to design his methodology. Research methodology
deals with and takes into consideration the logic behind the method. An
extensive literature survey is undertaken to understand the concept of financial
performance. It also deals with objective of research study, the method of
defining the problem, type of data collected, method used for collecting and
analyzing data.

4.2 TYPES OF RESEARCH

The purpose of research is to discover answer to question through the
application of scientific procedures. The main aim of it is to find out the truth
which is hidden and which is to be discovered. There are various types of
researches. The type of research used in the study is Historical research.

HISTORICAL RESEARCH: - Historical research is based on historical data. It

attempt to find out what happened in the past and to reveal reasons for why and
how things happened.

55
4.3 METHODS OF DATA COLLECTION

SECONDARY DATA:
The nature of data collected for the data is secondary. Secondary data are
those, which have already collected tabulated and presented in some forms by
some one else for some other purpose. Secondary data are already available
data. Researchers have to modify such data for their individual requirement. In
this case researcher is certainly not confronted with the problem that usually
associated with the collection of original data. The researchers have to scrutinize
the secondary data. The sources of secondary data in this project are:
• Books
• Websites
• Magazines

SAMPLING:
The sample stocks were selected by considering various stocks having high
market capitalization in the IT sector. The five Banks selected for the study are:
1 Infosys Technologies
2 Tata Consultancy Services
3 Oracle
4 Wipro
5 HCL Technologies

SOURCES:
Market capitalization given in the official site of Bombay Stock Exchange as on
10thJan, 2009.

56
5. DATA ANALYSIS AND INTERPRETATION

57
5.1 INFOSYS TECHNOLOGIES

Fundamental analysis

Table 1. BOOK VALUE

ITEMS 2009 2008 2007 2006 2005
Book
Value(Rs) 311.35 235.84 195.14 249.89 194.15
Market : High 2614.90 2017.00 2439.00 3400.00 3039.70
1101.00 1040.00 1511.15 1850.00
Low 1572.10
EPS 97.74 72.5 64.35 81.41 68.96
DPS 23.50 13.25 11.50 7.50 5.75

Table 2. PAY OUT RATIO

ITEMS 2009 2008 2007 2006 2005
EPS 97.74 72.5 64.35 81.41 68.96
DPS 23.50 13.25 11.50 7.50 5.75
Pay-out ratio .24 .18 .18 .09 .08

Table 3. RETURN ON EQUITY

ITEMS 2009 2008 2007 2006 2005
Share Capital 286 286 286 138 135
Reserve and
Surplus 17523.00 13204.00 10876.00 6759.00 5107.00
Net worth 17809.00 13490.00 11162.00 6897.00 5242.00
PAT 5819 4470 3783 2421 1904
ROE .33 .33 .34 .35 .21

58
Table 4. RATE OF GROWTH
ITEMS 2009 2008 2007 2006 2005
Sales 20264 15648 13149 9028 6860
PAT 5819 4470 3783 2421 1904
EPS 97.74 72.5 64.35 81.41 68.96
DPS 23.50 13.25 11.50 7.50 5.75

Table 5. RATIOS
ITEMS 2009 2008 2007 2006 2005
Current Ratio 3.97 3.85 3.75 2.77 2.19
Interest
Coverage
Ratio 3370.5 5118 4153 2737 2230
Debit Equity 0 0 0 0 0
Ratio

Table 6. RETURN ON ASSET

YEAR PAT TOTTAL ASSET ROA
2009 5819 17809.00 .3267
2008 4470 13490.00 .3313
2007 3783 11162.00 .3389
2006 2421 6897.00 .3510
2005 1904 5242.00 .3632

59
Table 7. RETURN ON CAPITAL EMPLOYED
YEAR EBIT TOTAL CAPITAL ROCE
EMPLOYED
2009 7435 17262.60 .4307
2008 5664 13641.62 .4152
2007 4622 10050.01 .4599
2006 3146 6977.16 .4509
2005 2498 4758.10 .525

Table 8. PRICE EARNNG RATIO

YEAR EPS MARKET PRICE PRICE EARNING
PER SHARE RATIO
2009 97.74 1857.95 19.01
2008 72.5 1528.50 21.08
2007 64.35 1975.08 30.69
2006 81.41 2486.05 30.54
2005 68.96 2444.85 35.45

Fig 1. The market price of shares in 5 years

3000

2500

2000

Series1
1500
Series2
1000

500

0
2005 2006 2007 2008 2009

60
CALCULATION OF INTRINSIC VALUE

1) Average dividend pay out ratio = .24 + .18 + .18 + .09 + .08 / 5
= 0.154

2) Average retention ratio = 1- 0.154

= 0.846

3) Average return on equity = .33+.33+.34+.35+.21/5

= 0.312

4) Growth in equity = 0.312*.846

= 0.263952

5) Normalized avg PE ratio =19.01+21.08+30.69+30.54+35.45/5

= 27.354

6) Long term growth in dividend & equity = 27.354* .846

= 23.141484

7) Projected EPS = 97.74 * (1+0.263952)

= 123.53866848

8) Intrinsic value = 123.53866848* 27.354

= 3379.27673760192

9) Projected DPS = 23.5 * (1+0.263952)

= 29.702872

61
Technical analysis

Fig 2. PRICE CHART

INTERPRETATION:
The trend line is connecting November 09 low and January 10 low. This forms
the support line for the shares.

62
Fig 3. MACD

INTERPRETATION:

MACD signals a long term bullishness for Infosys. It is in the high value and will
tend to be in it for some time.

63
Fig 4. MOMENTUM

INTERPRETATION:
Momentum was coming down but now is in the verge of climbing up. This signals
the buy signal.

64
Fig 5. MOVING AVERAGE CROSSOVER

INTERPRETATION:

The two line, red representing 20 days and black representing 50 days and blue
is the share price. Here the red line is now over the blue line indicating price
going up.

65
Fig 6. RELATIVE STRENGTH INDEX

INTERPRETATION:
The RSI line is coming down from over bought to neutral. Now the line is going to
reverse signaling a buy signal.

66
Fig 7. STOCHASTICS

INTERPRETATION:
The graph is coming down from over bought. In a few days the price is going to
go up signaling a buy signal after waiting for 2 to 3 days.

67
5.2 TCS

Fundamental analysis

Table 9. BOOK VALUE

ITEMS 2009 2008 2007 2006 2005
Book
Value(Rs) 136.38 111.43 82.35 114.64 69.17
Market : High 805.00 1078.00 1399.00 2099.00 1750.85
355.25 418.00 935.00 900.00 1091.00
Low
EPS 45.53 43.69 36.66 53.63 36.6
DPS 14.00 14.00 11.50 13.50 11.50

Table 10. PAY OUT RATIO

ITEMS 2009 2008 2007 2006 2005
EPS 45.53 43.69 36.66 53.63 36.6
DPS 14.00 14.00 11.50 13.50 11.50
Pay-out ratio .31 .32 .31 .25 .31

Table 11. RETURN ON EQUITY

ITEMS 2009 2008 2007 2006 2005
Share Capital 197.86 197.86 97.86 48.93 48.01
Reserve and
Surplus 13,248.39 10,806.95 7,961.13 5,560.40 3,273.04
Net worth 13446.30 11004.86 8058.99 5609.33 3321.05
PAT 4696.21 4508.76 3757.29 2716.87 1831.42
ROE .35 .41 .47 .48 .55

68
Table 12. RATE OF GROWTH
ITEMS 2009 2008 2007 2006 2005
Sales 22406.08 18292.68 14942.09 11236.01 8051.11
PAT 4696.21 4508.76 3757.29 2716.87 1831.42
EPS 45.53 43.69 36.66 53.63 36.6
DPS 14.00 14.00 11.50 13.50 11.50

Table 13. RATIOS

ITEMS 2009 2008 2007 2006 2005
Current Ratio 1.89 1.99 2.08 1.96 1.15
Interest
Coverage
Ratio 691.82 1464.12 1216.94 685.71 204.09
Debit Equity
Ratio 0 0 0.01 0.02 0.15

Table 14. RETURN ON ASSET

YEAR PAT TOTTAL ASSET ROA
2009 4696.21 13486.67 .3482
2008 4508.76 11023.11 .4090
2007 3757.29 8109.73 .4633
2006 2716.87 5644.83 .4813
2005 1831.42 3441.79 .5321

69
Table 15. RETURN ON CAPITAL EMPLOYED
YEAR EBIT TOTAL CAPITAL ROCE
EMPLOYED
2009 5564.59 13249.02 .42
2008 5466.06 10443.37 .5234
2007 4517.52 7443.60 .6069
2006 3336.22 4922.86 .6777
2005 2255.8 2053.15 1.0987

Table 16. PRICE EARNNG RATIO

YEAR EPS MARKET PRICE PRICE EARNING
PER SHARE RATIO
2009 45.53 580.13 12.74
2008 43.69 748.00 17.12
2007 36.66 1167.00 31.83
2006 53.63 1499.00 27.95
2005 36.6 1420.93 38.82

Fig 8. The market price of shares in 5 years for TCS

2500

2000

1500
Series1
Series2
1000

500

0
2005 2006 2007 2008 2009

70
CALCULATION OF INTRINSIC VALUE

1) Average dividend pay out ratio = .31+.32+.31+.25+.31 /5

= 0.3

2) Average retention ratio = 1-.3

= 0.7

3) Average return on equity =.35+.41+.47+.48+.55/5

= 0.452

4) Growth in equity = 0.452 * .7

= 0.3164

5) Normalized avg PE ratio = 12.74+17.12+31.83+27.95+38.82/5

= 25.692

6) Long term growth in dividend & equity = 25.692 * 0.7

= 17.9844

7) Projected EPS = 45.53 * (1+.3164)

= 59.935692

8) Intrinsic value = 59.935692*25.692

= 1539.87

9) Projected DPS = 14 * (1+.3164)

= 18.4296

71
Technical analysis

Fig 9. PRICE CHART

INTERPRETATION:
Trend line is drawn connecting Oct 09 and Jan10. This forms the support line for
the price chart of TCS. If it comes down the support line then it would be a sell
signal.

72
Fig 10. MACD

INTERPRETATION:

MACD signals a long term bullishness for TCS. It is in the high value and will
tend to be in the same trend for a few days.

73
Fig 11. MOMENTUM

INTERPRETATION:

Momentum is now climbing so it is a buy signal for TCS.

74
Fig 12. MOVING AVERAGE CROSSOVER

INTERPRETATION:

Here the red line is now over the black line for a long time, indicating share price
going up.

75
Fig 13. RELATIVE STRENGH INDEX

INTERPRETATION:

The RSI line is coming down from over bought to neutral. Now the line is going to
reverse signaling a buy signal.

76
Fig 14. STOCHASTICS

INTERPRETATION:

The graph is coming down from over bought. In a few days the price is going to
go up signaling a buy signal after waiting for 2 to 3 days.

77
5.3 ORACLE

Fundamental analysis

Table 17. BOOK VALUE

ITEMS 2009 2008 2007 2006 2005
Book
Value(Rs) 418.98 335.88 283.18 178.65 150.27
Market : High 2364.70 1664.00 2630.00 2068.90 1088.00
428.00 405.00 1225.00 840.00 541.10
Low
EPS 83.06 49.06 42.59 30.86 25.69
DPS 0 0 0 5.00 5.00

Table 18. PAY OUT RATIO

ITEMS 2009 2008 2007 2006 2005
EPS 83.06 49.06 42.59 30.86 25.69
DPS 0 0 0 5.00 5.00
Pay-out ratio 0 0 0 .16 .29

Table 19. RETURN ON EQUITY

ITEMS 2009 2008 2007 2006 2005
Share Capital 41.88 41.87 41.64 38.14 37.44
Reserve and
Surplus 3,467.53 2,770.75 2,316.67 1,324.59 1,087.75
Net worth 3509.42 2812.65 2398.48 1362.73 1125.19
PAT 695.71 410.87 354.67 240.8 197.64
ROE .20 .15 .15 .18 .18

Table 20. RATE OF GROWTH

ITEMS 2009 2008 2007 2006 2005
Sales 2212.62 1792.97 1552.34 1153.82 902.86
PAT 695.71 410.87 354.67 240.8 197.64
EPS 83.06 49.06 42.59 30.86 25.69
DPS 0 0 0 5.00 5.00

78
Table 21. RATIOS
ITEMS 2009 2008 2007 2006 2005
Current Ratio 4.58 3.99 3.34 3.29 3.69
Interest
Coverage
Ratio 0 0 0 0 0
Debit Equity
Ratio 0 0 0 0 0

Table 22. RETURN ON ASSET

YEAR PAT TOTTAL ASSET ROA
2009 695.71 3509.42 0.1982
2008 410.87 2812.65 0.1461
2007 354.67 2398.48 0.1479
2006 240.8 1362.73 0.1767
2005 197.64 1125.19 0.1757

79
Table 23. RETURN ON CAPITAL EMPLOYED
YEAR EBIT TOTAL CAPITAL ROCE
EMPLOYED
2009 732.3 3160.55 .2317
2008 431.53 2605.86 .1656
2007 381.04 1880.75 .2026
2006 285.55 1244.23 .2295
2005 247.11 1045.75 .2363

Table 24. PRICE EARNNG RATIO

YEAR EPS MARKET PRICE PRICE EARNING
PER SHARE RATIO
2009 83.06 1396.35 16.81
2008 49.06 1034 21.08
2007 42.59 1927.5 45.26
2006 30.86 1454.95 47.15
2005 25.69 814.55 31.71

Fig. 15 The market price of shares in 5 years for Oracle

2500

2000

1500
Series1
Series2
1000

500

0
2005 2006 2007 2008 2009

80
CALCULATION OF INTRINSIC VALUE

1) Average dividend pay out ratio = 0+0+0+.16+.29/5

= 0.09

2) Average retention ratio = 1- 0.09

= 0.91

3) Average return on equity = .20+.15+.15+.18+.18/5

= 0.172

4) Growth in equity = .91 * .172

= 0.15652

5) Normalized avg PE ratio = 16.81+21.08+45.26+47.15+31.71/5

= 32.402

6) Long term growth in dividend & equity = 32.402 * .91

= 29.48582

7) Projected EPS = 83.06*(1+0.15652)

= 96.0605512

8) Intrinsic value = 96.0605512 * 32.402

= 3112.5539799824

9) Projected DPS = 0 *(1+0.15652)

=0

81
Technical analysis

Fig 16. PRICE CHART

INTERPRETATION:

The trend line is connecting Feb 09 low and July09. This forms the support line
for the shares.

82
Fig 17. MACD

INTERPRETATION:

MACD signals a long term bullishness for Oracles.It is at the highest values and
will tend to be in it for some time.

83
Fig 18. MOMENTUM

INTERPRETATION:

Momentum was coming down but now is in the verge of climbing up. This signals
the buy signal.

84
Fig 19. MOVING AVERAGE CROSSOVER

INTERPRETATION:

The red line has crossed over the blue line in December showing a price rise in
the share.

85
Fig 20. RELATIVE STRENGTH INDEX

INTERPRETATION:

The RSI shows a bent and will rise in two to three days indicating a buy signal for
Oracle.

86
Fig 21. STOCHASTIC

INTERPRETATION:

The graph is coming down from over bought. In a few days the price is going to
go up signaling a buy signal after waiting for 2 to 3 days.

87
5.4 HCL

Fundamental analysis

Table 25. BOOK VALUE

ITEMS 2009 2008 2007 2006 2005
Book
Value(Rs) 52.04 48.22 51.6 79.64 89.6
Market : High 377.45 333.80 715.00 706.65 555.00
89.10 102.50 260.25 362.00 295.00
Low
EPS 13.69 10.19 15.37 17.5 8.18
DPS 7.00 9.00 8.00 16.00 16.00

Table 26. PAY OUT RATIO

ITEMS 2009 2008 2007 2006 2005
EPS 13.69 10.19 15.37 17.5 8.18
DPS 7.00 9.00 8.00 16.00 16.00
Pay-out ratio .51 .88 .52 .91 1.96

Table 27. RETURN ON EQUITY

ITEMS 2009 2008 2007 2006 2005
Share Capital 134.05 133.27 132.74 64.69 63.84
Reserve and
Surplus 3,353.72 3,079.85 3,292.28 2,511.18 2,796.14
Net worth 3488.24 3214.83 3425.02 2575.87 2859.98
PAT 997.31 780.65 1101.82 638.38 329.27
ROE .29 .24 .32 .25 .12

88
Table 28. RATE OF GROWTH
ITEMS 2009 2008 2007 2006 2005
Sales 4675.09 4615.39 3768.62 3032.92 1447.01
PAT 997.31 780.65 1101.82 638.38 329.27
EPS 13.69 10.19 15.37 17.5 8.18
DPS 7.00 9.00 8.00 16.00 16.00

Table 29. RATIOS

ITEMS 2009 2008 2007 2006 2005
Current Ratio 1.37 1.24 1.22 0.93 0.77
Interest
Coverage
Ratio 43.42 41.35 91.8 46.33 61.3
Debit Equity
Ratio 0.08 0.01 0.01 0.02 0.04

Table 30. RETURN ON ASSET

YEAR PAT TOTTAL ASSET ROA
2009 997.31 4001.97 0.2492
2008 780.65 3240.16 0.2409
2007 1101.82 3465.91 0.3179
2006 638.38 2589.25 0.2466
2005 329.27 2956.67 0.1114

89
Table 31. RETURN ON CAPITAL EMPLOYED
YEAR EBIT TOTAL CAPITAL ROCE
EMPLOYED
2009 1219.79 3620.63 .3369
2008 894.32 3802.38 .2352
2007 1190.66 3027.36 .3933
2006 666.57 3132.38 .2128
2005 344.53 2672.85 .1289

Table 32. PRICE EARNNG RATIO

YEAR EPS MARKET PRICE PRICE EARNING
PER SHARE RATIO
2009 13.69 233.28 17.04
2008 10.19 218.15 21.41
2007 15.37 487.63 31.73
2006 17.5 534.33 30.53
2005 8.18 425 51.96

Fig 22. The market price of shares in 5 years

2500

2000

1500
Series1
Series2
1000

500

0
2005 2006 2007 2008 2009

90
CALCULATION OF INTRINSIC VALUE

1) Average dividend pay out ratio = .51+.88+.52+.91+1.96/5

= 0.956

2) Average retention ratio = 1-0.956

= 0.044

3) Average return on equity = .29+.24+.32+.25+.12/5

= 0.244

4) Growth in equity = 0.244 * .0044

= 0.0010736

5) Normalized avg PE ratio = 17.04+21.41+31.73+30.53+51.96/5

= 30.534

6) Long term growth in dividend & equity = 30.534* .044

= 1.343496

7) Projected EPS = 13.69* (1+0.0010736)

= 13.704697584

8) Intrinsic value = 13.704697584*30.534

= 418.459236029856

9) Projected DPS = 7 * (1+0.0010736)

= 7.0075152

91
 Technical analysis

Fig 23. PRICE CHART

INTERPRETATION:

The support line is drawn connecting Oct 09 low and Dec 09 low.

92
Fig 24. MACD

INTERPRETATION:

The MACD line is coming down from the high values but is still in the safe region
of buying the share.

93
Fig 25. MOMENTUM

INTERPRETATION:

Momentum was coming down but now is now climbing up. This signals the
bullishness of the shares.

94
Fig 26. MOVING AVERAGE CROSSOVER

INTERPRETATION:

Here the red line is now over the blue line which has cut over in the month of
December indicating price going up. This should sustain for some time.

95
Fig 27. RELATIVE STRENGTH INDEX

INTERPRETATION:

The RSI line is coming down from over bought to neutral. Now the line is going to
reverse signaling a buy signal in two to three days.

96
Fig 28. STOCHASTIC

INTERPRETATION:

The graph is coming down from over bought. In a few days the price is going to
go up signaling a buy signal after waiting for 2 to 3 days.

97
5.5 WIPRO

Fundamental analysis

Table 33. BOOK VALUE

ITEMS 2009 2008 2007 2006 2005
Book
Value(Rs) 85.42 79.05 63.86 45.03 69.54
Market : High 699.00 537.90 690.00 614.00 776.00
195.00 181.70 425.00 383.00 350.05
Low
EPS 19.62 19.94 18.61 13.47 20.55
DPS 4.00 6.00 6.00 5.00 5.00

Table 34. PAY OUT RATIO

ITEMS 2009 2008 2007 2006 2005
EPS 19.62 19.94 18.61 13.47 20.55
DPS 4.00 6.00 6.00 5.00 5.00
Pay-out ratio .2038 .3009 .3224 .3712 .2433

Table 35. RETURN ON EQUITY

ITEMS 2009 2008 2007 2006 2005
Share Capital 293 346.3 291.8 285.15 140.71
Reserve and
Surplus 12,220.40 11,260.40 9,025.10 6,135.30 4,751.73
Net worth 12,514.90 11,610.70 9,320.40 6,420.45 4,892.44
PAT 2973.8 3063.3 2842.1 2020.48 1494.82
ROE .24 .26 .30 .31 .31

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Table 36. RATE OF GROWTH
ITEMS 2009 2008 2007 2006 2005
Sales 21612.8 17658.1 13758.5 10264.09 7276.18
PAT 2973.8 3063.3 2842.1 2020.48 1494.82
EPS 19.62 19.94 18.61 13.47 20.55
DPS 4.00 6.00 6.00 5.00 5.00

Table 37. RATIOS

ITEMS 2009 2008 2007 2006 2005
Current Ratio 2.11 2.15 1.57 1.46 1.32
Interest
Coverage
Ratio 19.03 30.71 442.14 748.5 316.29
Debit Equity
Ratio 0.37 0.19 0.02 0.01 0.02

Table 38. RETURN ON ASSET

YEAR PAT TOTTAL ASSET ROA
2009 2973.8 17528.80 0.1697
2008 3063.3 15433.10 0.1985
2007 2842.1 9558.40 0.2973
2006 2020.48 6470.61 0.3123
2005 1494.82 4954.53 0.3017

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Table 39. RETURN ON CAPITAL EMPLOYED
YEAR EBIT TOTAL CAPITAL ROCE
EMPLOYED
2009 3744.7 16481.95 .2272
2008 3586.5 12496.52 .287
2007 3183.4 8014.60 .3972
2006 2342.81 5712.78 .4101
2005 1761.75 4281.29 .4115

Table 40. PRICE EARNNG RATIO

YEAR EPS MARKET PRICE PRICE EARNING
PER SHARE RATIO
2009 19.62 447 22.78
2008 19.94 359.8 18.04
2007 18.61 557.5 29.96
2006 13.47 498.5 37.01
2005 20.55 563.03 27.40

Fig 29 The market price of shares in 5 years for Wipro

2500

2000

1500
Series1
Series2
1000

500

0
2005 2006 2007 2008 2009

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CALCULATION OF INTRINSIC VALUE

1) Average dividend pay out ratio = 2038+.3009+.3224+.3712+.2433/5

= 0.28832

2) Average retention ratio = 1- 0.28832

= 0.71168

3) Average return on equity = .24+.26+.30+.31+.31/5

= 0.284

4) Growth in equity = 0.284* .71168

= 0.20211712

5) Normalized avg PE ratio = 22.78+18.04+29.96+37.01+27.40/5

= 27.038

6) Long term growth in dividend & equity = 27.038 * 0.71168

= 19.24240384

7) Projected EPS = 19.62*(1+.71168)

= 33.5831616

8) Intrinsic value = 33.5831616 * 27.038

= 908.0215233408

9) Projected DPS = 4*(1+.71168)

= 6.84672

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Technical Analysis

Fig 30. PRICE CHART

INTERPRETATION:

The trend line is connecting Octobe 09 low and January 10 low. This forms the
support line for the shares.

102
Fig 31. MACD

INTERPRETATION:

MACD signals a long term bullishness for Wipro. It is in the high value and thus
signals a bullishness of the share of Wipro.

103
Fig 32. MOMENTUM

INTERPRETATION:

Momentum was coming down but now is in the verge of climbing up. This signals
the buy signal.

104
Fig 33. MOVING AVERAGE CROSS OVER

INTERPRETATION:

Here the red line is over the black line indicating price going up. This indicates a
buy signals foe share of Wipro.

105
Fig 34. RELATIVE STRENGTH INDEX

INTERPRETATION:

The RSI line is coming down from over bought to neutral. Now the line is going to
reverse signaling a buy signal after 1 or 2 days.

106
Fig 35. STOCHASTICS

INTERPRETATION:

The graph is coming down from over bought. In a few days the price is going to
go up signaling a buy signal after waiting for 2 to 3 days.

107
6. SUMMARY FINDINGS AND CONCLUSION

108
6.1 SUMMARY

India has emerged as a leading offshore software development centre in little

more than a decade. This achievement has been made possible by domestic
regulation, entrepreneurial flair, and the soaring global demand for high quality,
low cost software and services. For India, the software industry has become a
beacon of success. It has [proved that, given the right framework, India can
compete globally.

The success of India's software development industry reflects a number of

factors. I particular, faced with a growing shortage of software engineers in the
west, hundreds o companies have turned to India's computer software and
services companies for the IT skills they need to maintain and enhance their
competitiveness. Because of high level growth potential in the IT and ITE sector,
investor attention has been gaining towards such companies This study is a
humble attempt to identify the investment potential of five major IT sector
companies from Indian capital market.

6.2 FINDINGS

Company Name Intrinsic value Market value as Interpretation

on 29th Jan 2010
Infosys 3379.28 2476.70 Buy
TCS 1539.87 735.45 Buy
Oracle 3112.55 2,165.20 Buy
Wipro 908.02 647.40 Buy
HCL 418.46 346.45 Buy

• For all the companies like Infosys, TCS, Oracle, HCL and Wipro the intrinsic
value is higher than the market value, which gives a buy signal. These

109
 securities are under priced. The share price of these companies may rise in
the future as these securities have high intrinsic value.
• The Return on Equity of Infosys, TCS, HCL and Wipro is decreasing,
whereas for Oracle it is a decreasing trend in the past and now is in the state
of increasing indicating an increase in profitability. EPS of Infosys, TCS, and
Oracle is increasing whereas for HCL, EPS is decreasing. For Wipro it is a
stable EPS.
• Current ratio of Infosys, TCS, Wipro Oracle and HCL is 2.77, 1.96, 1.46, 6.5,
and 3.24 respectively. The current ratio of all companies is above the bench
mark of 2:1.This indicates that liquidity and short term solvency of all
companies are satisfactory.

6.3 Conclusion
The IT industry plays a vital role in the growth of Indian industries. The Indian IT
companies not only contributes to export but also attracts new forign investments
in the country. It was expected that the IT industry would grow to take a major
percent of export. The IT sector is a wonderful area for investors.

For this study 5 major IT companies with the largest market capitalization was
selected and their data was analysed. It was seen that for all the major
companies selected that is Infosys, TCS, Oracle, HCL and Wipro, the calculated
intrinsic value was higher than the current market value. This shows that the
buying of such shares will be profitable for the investors. Also the tools used in
technical analysis shows that all the companies under study is in a state of
growth.

110
BIBLIGRAPHY

REFERENCE BOOKS
1. Prassana chandran, Investment analysis and Portfolio
management, New Delhi: Tata Mc Graw- Hill Publishing Company Limited
2002.
2. Avadhani V A, Investment management, Mumbai : Himalaya
Publishing House, 1998
3. Donald E. Fischer and Ronald. J. Jordan, Security Analysis and
Portfolio Management New Delhi: Prentice-Hall of India Private
Limited.1998.
4. S. Kevinn, Portfolio Management, New Delhi: Prentice Hall of India
Private Ltd.1998.

NEWS PAPERS AND JOURNALS

5 Chartered Financial Analysis. Vol.10, December 2005.
6 The Hindu Business Line.
7 Economic Time.
8 Dalal Street

WEB SITES

• www.capitaline.com
•www.nseindia.com
•www.bseindia.com
•www.indiabulls.com
•www.cochinstockexchange.com
•www.rediffmoney.com
•www.moneycontrol.com
•www.wikepedia.com

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