A STUDY ON THE ANALYSIS OF PRICE MOVEMENT OF SHARES AND COMPANY PERFORMANCE WITH RESPECT TO INFORMATION TECHNOLOGY AND AUTOMOBILE

INDUSTRIES

CHAPTER 1

INTRODUCTION

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1.1 INTRODUCTION
This dissertation named “A study on the correlation between price movement of the shares and the annual performance of the company with reference to the information technology and the automobile industry” analyses the various features the impact of price movements of the shares of the performance of the particular companies. The IT and the automobile companies trading in NSC nifty are taken for my study. For that i followed the major steps of the economy, industry and company and also various tools and variables used for the analyzing the unaudited quarterly financial reports. REASONS FOR THE PRICE MOVEMENT OF SHARES A specific may have a temporarily high price when for what ever reason, there has been a high demand for it. This demand may have nothing to do with the company it self but may rather relate to, for example an institute investor trying to diversify out risk. There are various reasons for the price movement of the shares :• The market expects the earnings to rise rapidly in the future. For example a gold mining company which has just begun to mine may not have made money yet but next quarter it will most likely find the gold and make a lot of money. The same applies to pharmaceutical companies often a large amount of their revenue comes from the best few patented products, so when a promising new product is approved, investors may buy up the stock. • The company was previously making a lot of money, but in the last year or quarter it had a special one time expense (called a “charge”) which lowered the earnings significantly. Stock holders understanding (possibly incorrectly) that this was a one time issue, will still buy stock at the same price as before, and only sell at the least that same price.

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Hype for the stock has caused people to buy the stock for a higher price than they normally would. This is called bubble. One of the most important uses of the P/E metric is to decide whether a stock is undergoing a bubble or anti-bubble by the comparing its P/E to similar companies. Historically, bubbles have been followed by crashes. As such prudent investors try to stay out of them

The P/E ratio (price-to-earnings ratio) of a stock (also called its "earnings

multiple", or simply "multiple", "P/E", or "PE") is a measure of the price paid for a share relative to the income or profit earned by the firm per share. A higher P/E ratio means that investors are paying more for each unit of income. It is a valuation ratio included in other financial ratios. The reciprocal of the P/E ratio is known as the earnings yield.

The price per share (numerator) is the market price of a single share of the

stock. The earnings per share (denominator) is the net income of the company for the most recent 12 month period, divided by number of shares outstanding. The EPS used can also be the "diluted EPS" or the "comprehensive EPS". • For example, if stock A is trading at $24 and the Earnings Per Share for the most recent 12 month period is $3, then the P/E ratio is 24/3=8. Stock A said to have a P/E of 8 (or a multiple of 8). Put another way, the purchaser is paying $8 for every one dollar of earnings. • By relating price and earnings per share for a company, one can analyze the market's valuation of a company's shares relative to the wealth the company is actually creating. • One reason to calculate P/Es is for investors to compare the value of stocks. If one stock has a P/E twice that of another stock, all things being equal, it is a less attractive investment. Companies are rarely equal, however, and comparisons between industries, countries, and time periods may be misleading. • The company has some sort of business advantage which seems to ensure that it will continue make money for a long time with very little risk. Thus investors are willing to buy the stock even at a higher price for the piece of mind that they all not loose their money.

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A large amount of money has been inserted into the stock market, out of proportion of the growth of the companies across the same time period. Since there are only limited amount of stocks to buy, supply and demand dictate that the price of the stocks must go up. This factor can make comparing P/E ratios over time difficult.

WHAT IS A PRICE?
To begin, we must first understand what price is, Financial theorists define stock price at the present value of all future earnings expectation of the company, dividend by tis number of shares outstanding. What this means is the earning capacity of the company is what defines the price. Often, companies can get significant value out of a relatively small investments in the assets because the ability for those assets to make money is significant. Even companies that loose money today can have a high share price because price is based on the future earnings of the company. No enterprise is in the business to loose money, so the expectation is that every business will make money some day. So long as there is a potential for the future revenue streams to shareholders, there will be a price there some one will pay for the shares. The earnings that a company could make in the future, the growth that the company could realize and the time to the realization of those goals are factors which affect the estimate that market makes on the earnings potential

THE MARKET MECHANISM
The value of the publicity traded shares is liquidity. Publicity traded companies are worth more than private ones simply because there is greater access to buyers and sellers, and market efficiency can better determine share price. The stock market provides value to any company that chooses to list its shares because the company gains liquidity. In a theoretical sense, any time some one buys the shares of the company in the market, they 5

are effectively stating that they believe the shares of the company are undervalued. The fact that they are buying implies a belief and expectation that the shares will increase in the future. At the same time, the person who is selling the share is experiencing the opposite belief. By selling, they imply that the stock is over valued and the expectation that the stock will go lower in the future. In this way, the stock market is forum for debate on what the value of the company and its shares. FACTORS CAUSING MOVEMENTS IN STOCK PRICE There are four factors that cause movements in stock price. 1. New information 2. Uncertainty 3. Psychological factors a) Fear b) Greed 4. Supply and Demand

1. New information In any financial ext book it may only find this factor mentioned as the determinant of share price. Information is the key as it gives the market a reason to value a stock at a particular price level. The market will price the stock based on all the information that the public is aware of. As new information comes into the public realm, the market will adjust the prices up and down based on how the market perceives the information will effect the future earnings capacity of the company. It is important to know how information flows from company to the public. The public is supposed to learn new information through the insurance of news. The reality is that the information usually makes it out before the news is released. Rumors play a big part in the flow of information, particularly today when technology allows for the rapid and wide

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discrimination of the information. That close to the company has access to privileged information that they will act upon by buying and selling in the market. The ramification of this is that investors who wait for news to make investment decisions often get into the stocks long after the information contened in the news has already been priced in. “Buy on rumer, and sell on news” is a saying that has grown popular because it is often the case that stocks move up in anticipation of positive news and then sell off when expectation is answered by the news released. Technical analysis is very important because it provides tools that allows investors to identify the signs that new information is been stocked into the market before the news is released. Stocks that trade abnormally often do so because of the significant new information, both positive and negative. In this way technical analysis helps to reveal fundamental changes in the company before the broader market is aware of it. 2. Uncertainty: When the company will make in the future is far from certain. For this reason, we should expect the stocks to bounce around a little bit because of the nervousness of the market about the future of the company. The uncertain future of the company will bring some volatility in share prices even during a period in which there is no new information. Companies that have established a performance record will tend to show less volatility as determined by uncertainty. General motors which is a well established company with many years of revenues, will show less volatility then an upset company that has not yet had an opportunity to establish a track record of revenues and earnings. Because of uncertainty these stock will trade difficultly and will provide different kinds of trading opportunities.

4. Psychological factors

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Humans are behind the activities of the trading market. That means human characteristics are also factors in how share prices move. Understanding human psychology is extremely important in evaluating investment opportunities because human psychology creates and accentuates many of the opportunities that investors can capitalize on. For example greed often causes stocks to go higher than they deserve to go. By deserve I mean that they go higher than the present value of the future earnings potentials can justify. New information can cause a freeze in the market that makes investors loose sight of rational valuation and simply buy the for the fear of being left behind. Fear and greed present incorrect valuations in the market that can exist relatively for a short period but long enough for smart investors for capitalizing on. Emotion in the market can be viewed for the amplification I pulled and the stocks moves back to where it should reside based on the information of the company. 5. Supply and Demand While popular stocks like dell and general motors trade millions of shares every day, the majority of the stocks that we can choose to invest do not have much liquidity. As a result stocks that trade smaller value of shares are subjected to fluctuation because of supply and demand. If a large share holder wants to sell a large number of shares into the market with weak liquidity, the share holder can dramatically move share price. Supply and demand can take the short term balance out of the market and present opportunities for investors to see that the balance is restored. Investors can anticipate abnormal supply and demand verities can price reflects all the information which is known about the company and the ability to make money in the future. As information about the company’s prospects is made public, prices will change. Uncertainty of the failure can bring added volatility which psychological factors can amplify the effect of new information. Finally supply and demand can cause fluctuations not motivated by new information.

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REASONS FOR THE COMPANIES TO CARE ABOUT THEIR STOCK PRICES Companies live and die by their stock price, yet for the most part they don’t participate in trading their stocks within the market. Companies receive money from the securities market only when they first sell the security to the public in the primary market, which is commonly referred to an initial public offer 1.Those in Management are often Shareholders Too The first and most obvious reason why those in management care about the stock market is that they typically have a monetary interest in the company. It's not unusual for the founder of a public company to own a significant number the outstanding shares, and it's also not unusual for the management of a company to have salary incentives or stock options tied to the company's stock prices. For these two reasons, management acts as stockholders and thus pay attention to their stock price. 2.Wrath of the Shareholders Too often investors forget that stock means ownership. The job of management is to produce gains for the shareholders. Although a manager has little or no control of share price in the short run, poor stock performance could, over the long run, be attributed to mismanagement of the company. If the stock price consistently underperforms the shareholders' expectations, the shareholders are going to be unhappy with the management and look for changes. In extreme cases shareholders can band together and try to oust current management in a proxy fight. To what extent shareholders can control management is debatable. Nevertheless, executives must always factor in the desires of shareholders since these shareholders are part owners of the company. 3. Financing Another main role of the stock market is to act as a barometer for financial health. Analysts are constantly scrutinizing companies and reflecting this information onto its traded securities. Because of this, creditors tend to look favorably upon companies whose

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shares are performing strongly. This preferential treatment is in part due to the tie between a company's earnings and its share price. Over the long term, strong earnings are a good indication that the company will be able to meet debt requirements. As a result, the company will receive cheaper financing through a lower interest rate, which in turn increases the amount of value returned from a capital project. Alternatively, favorable market performance is useful for a company seeking additional equity financing. If there is demand, a company can always sell more shares to the public to raise money. Essentially this is like printing money, and it isn't bad for the company as long as it doesn't dilute its existing share base too much, in which case issuing more shares can have horrible consequences for existing shareholders. 4. The Hunters and the Hunted Unlike private companies, publicly traded companies, if they allow their share price to decline substantially, stand vulnerable to takeover by another company. This exposure is a result of the nature of ownership in the company. Private companies are usually managed by the owners themselves, and the shares are closely held. If private owners don't want to sell, the company cannot be taken over. Publicly-traded companies, on the other hand, have shares distributed over a large base of owners who can easily sell at any time. To accumulate shares for the purpose of takeover, potential bidders are better able to make offers to shareholders when they are trading at lower prices. For this reason, companies would want their stock price to remain relatively stable, so that they remain strong and deter interested corporations from taking them. On the other side of the takeover equation, a company with a hot stock has a great advantage when looking to buy other companies. Instead of having to buy with cash, a company will simply issue more shares to fund the takeover. In strong markets this is extremely common - so much that a strong stock price is a matter of survival in competitive industries.

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5.Ego Finally, a company may aim to increase share simply to increase their prestige and exposure to the public. Managers are human too, and like anybody they are always thinking ahead to their next job. The larger the market capitalization of a company, the more analyst coverage the company will receive. Essentially, analyst coverage is a form of free publicity advertising and allows both senior managers and the company itself to introduce them to a wider audience. For these reasons, a company's stock price is a matter of concern. If performance of their stock is ignored, the life of the company and its management may be threatened with adverse consequences, such as the DETERMINING THE SHARE PRICES Share prices in traded company are determined by market supply and demand, and thus depend upon the expectations of the buyers and sellers. Among these the following are important while investing • • • • • The company’s future and recent performance Perceived risk New product lines Prospects for the companies of this type, the “market sector” Prevailing moods and fashions.

1.2 SUBJECT BACK GROUND OF THE STUDY
The impact of the price movement of the shares on annual performance of the companies continuous to be an important research question in finance. Some companies enjoy high price o earnings ratio and other growth measures, while the

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measure remains negligible for others, the result is that the investor needs t be more contingent that even before the reasons the possibility underlying abbreviations in connections between stock price movements and annual performance. Investors should consider whether the companies share is a good value, it is not always that the stock should always be purchased of good performance of companies and sold on bad performance. This paper attempt to find the price movement of the shares and the performance of their respective companies. It is apparently that there are extremely wide day-to-day changes in the price quote on most of the stock exchanges. It is not possible to say whether it is economic or psychological realities which are the major causes of the price fluctuatons in the stock markets. This is an important issue, as it brings into account the analyzing the annual performance of companies and the price movements of the shares of that particular companies to the investors.

1.3 NEED FOR THE STUDY
• Investor’s wealth is precious. Hence needs to analyze the prevailing economic conditions of the country and also the shares of the respective companies. • Investment is the commitment of fund expectation with some positive rate o return and is always associated with risk, may be diversifiable nondiversifiable or both for reducing the risk and increasing the return, analyzing the securities, considering the price movement of the shares and performance of the companies is a must. • As each investor has his own preference and choice of investments, considering the shares and the relative movement of he shares and price movements with companies performances enables of getting better portfolio. • Portfolio management is assuming importance and more and more people are showing interest in investing in companies which are doing good.

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CHAPTER 2

RESEARCH DESIGN

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2.1 INTRODUCTION
Research Design is the basic frame work which provides the guidelines for research. The research design specifies the method for data collection analysis. There are mainly two methods of collecting data, primary and secondary data collection..

2.2 STATEMENT OF THE PROBLEM
There was a research topic by V.C. Varma and others which concludes that price movement of shares has absolutely no correlation with the annual performance of their respective companies. This as a topic puts me in the interest of the researcher to investigate and research in detail the status of the same as applicable to selected stocks and their performance.

2.3 REVIEW OF LITERATURE
Amongst the literature of the most relevance to the price movement of shares and company performance is the research topic by V.C.Varma. This provides a qualitative explanation of the price fluctuations. He proposes that investor reacts due to the psychological or sociological beliefs, exert a greater influence on the price movement of the shares then good economic sense arguments, Varma believes that investor attitudes are of greater importance in determining the price levels. He claims that substantial change can be explained by a collective change of mind by the investing public which can only be explained by the thoughts and beliefs on future events, is its psychology.

2.4 OBJECTIVES OF THE STUDY
• To study the analysis of price movement of shares and company performance with respect to Information Technology and Automobile Industry.

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To study the various factors affecting the price movement of shares and company performance.

2.5 SCOPE OF THE STUDY
This study is done mainly under the IT and Automobile Industry trading in Secondary Markets, so this study cannot be generalized. 35% of the share price movements depend on the companies potential growth through analysis of growth measurements provided valuable insights.

2.6 OPERATIONAL DEFINATIONS Fundamental analysis:
It is really a logical and systematic approach to estimate the future dividends and share price is determined by a number of fundamentals, industry, company and economic fundamentals.

Unaudited quarterly financial analysis:
Variables like compounded annual growth rate of sales, earnings per share, price-to earnings are used for the analysis of the company performance.

2.7 METHODOLOGY
. This study entitled ‘A study on the analysis of price movement of shares and annual performance of the companies with reference to IT and Automobile Industry’. Secondary Data has been collected from • • • • Ministry of Statistics Various books on Portfolio Management Magazines, Journals and Papers on Portfolio Management Websites of Companies

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2.8 TOOLS OF DATA COLLECTION
There are two types of data collection method, primary and secondary data collections. Secondary data is collected from various books, journals, annual reports of the companies quarterly financial results and various other articles.

2.9 FIELD WORK
Field work of the study is related to collecting the data about economy, industries and companies. Government policies towards the selected industries and companies are also collected. Information regarding companies has been collected through websites, economic times, magazines and papers.

2.10 METHOD OF ANALYSIS
The dissertation is fully based on the analysis of various factors of growth. For analyzing the performance of the company quarterly financial reports are analyzed by using variables such as CAGR, EPS, P/E, and Quality of Earnings ratio.

2.11 LIMITATIONS OF THE STUDY
• • • Since the study is restricted to one month there are time constrains Since this is done under IT and Automobile Industry, there is geographic constraints. Variables like CAGR, EPS, P/E, and Quality of Earnings ratio are used for recommending good company but there are other factors like labour strikes,

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internal management policies, poor employer employee relationship also affect company performance.

2.12 CHAPTER SCHEME
Chapter 1: Introduction deals with the Introduction to the topic, Market mechanism, Reasons for the price movement of shares. It also consists of subject background of the study and need for the study also. Chapter 2: Research Design deals with statement of the problem, review of literature, objectives of the study, scope of the study, methodology, tools of data collection and limitations. Chapter 3: Company Profile gives the profile of the IT and Automobile companies taken for the study. Chapter 4: It deals with Analysis and Interpretation of Data Chapter 5: It consists of Summary of Findings, Conclusion and Recommendations

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CHAPTER 3 COMPANY PROFILE

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3.1 BAJAJ AUTO
Bajaj Auto is a major Indian automobile manufacturer. It is India's largest and the world's 4th largest two- and three-wheeler maker. It is based in Pune, Maharashtra, with plants in Waluj near Aurangabad, Akurdi and Chakan, near Pune. Bajaj Auto makes and exports motorscooters, motorcycles and the auto rickshaw. It is widely believed that Bajaj is headed for a de-merger into 2 separate companies: Bajaj Auto and Bajaj Finance. It is expected that sum of the parts created, will be worth more that the current whole, as was the case in the de-merger of Reliance Industries. Company's history Bajaj Auto came into existence on November 29, 1945 as M/s Bachraj Trading Corporation Private Limited. It started off by selling imported two- and three-wheelers in India. In 1959, it obtained license from the Government of India to manufacture two- and three-wheelers and it went public in 1960. In 1970, it rolled out its 100,000th vehicle. In 1977, it managed to produce and sell 100,000 vehicles in a single financial year. In 1985, it started producing at Waluj in Aurangabad. In 1986, it managed to produce and sell 500,000 vehicles in a single financial year. In 1995, it rolled out its ten millionth vehicle and produced and sold 1 million vehicles in a year.

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3.2 HERO HONDA MOTORS

Hero Honda Motorcycle Ltd.
Type Founded Headquarters Key people Public company BSE:HEROHONDA M January 19, 1984 Haryana, India Haryana, India Om Prakash Munjal, Founder Mr. Brijmohan Lall Munjal, Chairman Mr. Toshiaki Nakagawa, Joint Managing Director Mr. Pawan Munjal, Managing Director, CEO Industry Products Revenue Website Automotive Motorcycles, Scooters U$ 2.8 billion www.HeroHonda.com in Gurgaon,

Hero Honda Motorcycles is the World's biggest manufacturer of motorcycles (by quantity). Hero Honda is a 50:50 joint venture that began in 1984 between the Hero group of India and Honda from Japan. It has been the world's biggest manufacturer of 2wheeled motorized vehicles since 2001, when it produced 1.3 million motorbikes in a single year. Hero Honda's Splendor is the world's largest selling motorcycle. Its 2 plants 20

are in Dharuhera and Gurgaon, both in Haryana, India. It specializes in dual use motorcycles that are low powered but very fuel efficient

Company Profile “Hero”, is the brand name used by the Munjal brothers in the year 1956 with the flagship company Hero Cycles. The two-wheeler manufacturing business of bicycle components had originally started in the 1940’s and turned into the world’s largest bicycle manufacturer today. Hero, is a name synonymous with two-wheelers in India today. The Munjals roll their own steel, make free wheel and other critical bicycle components and have diversified into different ventures like product design. The Hero Group philosophy is: “To provide excellent transportation to the common man at easily affordable prices and to provide total satisfaction in all its spheres of activity”. The Hero group vision is to build long lasting relationships with everyone (customers, workers, dealers and vendors). The Hero Group has a passion for setting higher standards and “Engineering Satisfaction” is the prime motivation, way of life and work culture of the Group. In the year 1984, Mr. Brijmohan Lal Munjal, the Chairman and Managing Director of Hero Honda Motors (HHM), headed an alliance between the Munjal family and Honda Motor Company Ltd. (HMC). HHM Mission Statement is: “We, at Hero Honda, are continuously striving for synergy between technology, systems, and human resources to provide products and services that meet the quality, performance, and price aspirations of our customers. While doing so, we maintain the highest standards of ethics and societal responsibilities, constantly innovate products and processes, and develop teams that keep the momentum going to take the company to excellence in the new millennium”. This alliance became one of the most successful joint ventures in India, until the year 1999 when HMC had announced a 100% subsidiary, Honda Motorcycle & Scooter India (HMSI). This announcement caused the HHM stock price to decrease by 30 percent that

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same day. Munjal had to come up with some new strategic decisions as, HMSI and other foreign new entry companies were causing increased intensity of rivalry for HHM

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3.3 MAHINDRA & MAHINDRA LTD.

Mahindra & Mahindra Limited
Type Founded Key people Public 1945 Keshub Mahindra (Chairman), Anand G.Mahindra (Vice-Chairman & Managing Director) Automotive and Tractor utility vehicles commercial vehicles tractor 1596.90 M (2004)] 11,600 http://www.mahindra.com/

Industry Products

Revenue Employees Website

Mahindra & Mahindra Limited (M&M) is a major automaker in India. It is the flagship company of the Mahindra Group. The company was set up in 1945 as Mahindra & Mohammed.[3] It traded steel with suppliers in England and the United States. M&M began by assembling complete knock down (CKD) Jeeps in 1949. It expanded to indigenous manufacture of Jeep vehicles with a high level of local content under license from Kaiser Jeep and later American Motors (AMC).

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M&M soon branched out into manufacturing agricultural tractors and light commercial vehicles (LCVs). It later expanded its operations to secure a significant presence in many more important sectors. The company has now transformed itself into a group that caters to the Indian and overseas markets with a presence in vehicles, farm equipment, information technology, trade and finance related services, as well as infrastructure development. By 2005, M&M had become the largest producer of SUVs in India. The company has recently started a separate sector, the Mahindra Systems and Automotive Technologies (MSAT), to focus on developing components and offering engineering services. M&M has two main operating divisions:

The Automotive Division which manufactures utility vehicles, light commercial vehicles and three wheelers The Tractor (Farm Equipment) Division makes agricultural tractors and implements that are used in conjunction with tractors, and has also ventured into manufacturing of industrial engines

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3.4 TATA MOTORS LTD
Tata Motors Limited
Type Founded Headquarters Industry Products Revenue Website Public (NYSE: TTM) 1960 India automotive commercial vehicles $5.383 billion USD www.tatamotors.com

Tata Motors Limited, formerly known as TELCO (TATA Engineering and Locomotive Company), is India's largest passenger automobile and commercial vehicle manufacturing company. It is also the world's 5th largest commercial vehicle manufacturer. It is part of the Tata Group. Tata Motors is widely credited for putting India on the automotive map by designing and developing its own range of cars. Tata Motors date back to 1945 when they started making Trains. Tata Motors was first listed on the NYSE in 2004. Tata Motors had created the wealth Rs 320bn during 2001-2006 and stood among top 10 wealth creators in India. It has its manufacturing base in Jamshedpur, Lucknow and Pune. In 2004 it also bought Daewoo's truck manufacturing unit in South Korea. In March 2005, it acquired a 21% stake in Hispano Carrocera SA, giving it controlling rights in the company. Tata Motors and the Fiat group have signed a new memorandum of understanding (MoU) to establish a 50:50 joint venture to

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manufacture passenger vehicles, engines and transmission systems for both domestic and export markets Tata Motors is a company of the Tata and Sons Group, founded by Jamshetji Tata. It is currently headed by Ratan Tata. The company has the workforce 0f 22000 employees working in its three plants and other regional and zonal offices across the country. Tata Motors' range of passenger cars is still not comprehensive by international standards. In commercial vehicles Tata Motors commands an imposing 65% market share in the domestic heavy commercial market. The company is trying to modernise its range of commercial vehicles. Tata Motors hived off its vehicle finance business into a separate subsidiary, TML Financial Services (TMLFS), in September 2006.

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3.5 MARUTI UDYOG LTD

Maruti Udyog Ltd
Type Founded Headquarters Key people Industry Products Revenue Employees Slogan Website Public (BSE MARUTI, NSE MARUTI) 1981 Gurgaon, Haryana, India Shinzo Nakanishi, Chairman Jagdish Khattar, MD Automotive Maruti Suzuki ~$2.5 billion (2005) 3,334 Count on us. http://www.marutiudyog.com/

Maruti Udyog Limited is a publicly listed company in India. It is a leading four-wheeler automobile manufacturer in South Asia. Suzuki Motor Corporation of Japan has the controlling stake in the company. It was the first company in India to mass-produce and sell more than a million cars. It is largely credited for having brought in an automobile revolution to India. To this day it is the market leader in India in its segment

The old logo of Maruti Udyog Limited later the logo of Suzuki Motor Corp. was also added to it

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Maruti Udyog Ltd is one of India's leading automobile manufacturers and the market leader in the car segment, both in terms of volume of vehicles sold and revenue earned. 18.28% of the company is owned by the government, and 54.2% by Suzuki of Japan. The Indian government held an Initial Public Offering of 25% of the company in June of 2003. Maruti Udyog Limited (MUL) was established in February 1981, though the actual production commenced in 1983. Through 2004, Maruti has produced over 5 Million vehicles. Marutis are sold in India and various several other countries, depending upon export orders. Cars similar to Marutis (but not manufactured by Maruti Udyog) are sold by Suzuki in Pakistan and other South Asian countries. The company annually exports more than 30,000 cars and has an extremely large domestic market in India selling over five hundred thousand cars annually. Maruti 800, till 2004, was the India's largest selling compact car ever since it was launched in 1983. More than a million units of this car have been sold worldwide so far. Currently, Maruti Alto tops the sales charts. Due to the large number of Maruti 800s sold in the Indian market, the term "Maruti" is commonly used to refer to this compact car model. Till recently the term "Maruti", in popular Indian culture, was associated to the Maruti 800 model.

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3.6 WIPRO TECHNOLOGIES

Wipro Technologies.
Type Founded Headquarters Key people Industry Revenue Net income Employees Slogan Website Public (NYSE: WIT) 1945 Bangalore, India Azim Premji, Chairman and Managing Director Information technology services $3.47 billion USD $677 million USD 61,000+ (2006) Applying Thought www.wipro.com

Wipro Technologies (NYSE: WIT) is an IT service company established in 1980 in India. It is a subsidiary of Wipro Limited (incorporated 1946, in operation since 1945). It is headquartered in Bangalore. It is the third largest IT services company in India. It has 68,000 employees as of Apr 2007, inclusive of its BPO arm which it acquired in 2002. Wipro Technologies has over 300 customers across USA, Europe and Japan including 50 of the Fortune 500 companies. Some of its customers are Boeing, Cisco, Ericsson, IBM, Microsoft, Prudential, Seagate, Sony and Toshiba. It is listed on the New York Stock Exchange and is part of its TMT (technology media telecom) index.

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With revenue in the excess of US $3 billion, Wipro is one of India's major information technology companies. Wipro has dedicated development centers and offices across India, Europe, North America and Asia Pacific. The current Chairman, Managing Director and majority stake owner is Azim Premji. From inception, the software and hardware divisions have been headed by him. History Wipro was set up in Amalner, Maharashtra in 1945. Primarily an edible oil factory, the chief products were Sunflower Vanaspati and 787 laundry soap (a by-product of the Vanaspati operations). The company was called Western India Vegetable Products Limited, with a minor presence in Maharashtra and Madhya Pradesh. In the 1970s and 1980s it began to expand and made forays into computing. In 1975, Wipro marketed India's first homegrown PC. Wipro was the sole representative for Sun Microsystems in India, before the Sun liaison office was set up in India, in the early nineties. In 1995, it received ISO 9001 quality certification. In 1997, Wipro received CMM level 3 certification from the Software Engineering Institute. In 1998, it was certified at CMMi level 5. In 2001, it was awarded the PCMM level 5 certification. In the same year, Business Today rated it as India's most valuable company. In June 2001, it was ranked among the top 100 best performing technology companies globally by BusinessWeek. In November 2002, it was ranked among the top 10 software services companies in the world by the same magazine. As of 2004, it was the 4th largest company in the world in terms of market capitalization in IT services. Wipro and its success in handling outsourced information technology from U.S. businesses is detailed in Thomas L. Friedman's best-selling novel

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3.7 SIEMENS AG
Siemens AG
Type Founded Headquarters Key people Industry Products Public (Aktiengesellschaft) (ISIN: DE0007236101, FWB: SIE, NYSE: SI) 1847 in Berlin, Germany Munich, Germany Klaus Kleinfeld, Chairman & CEO Conglomerates Communication Systems Power Generation Industrial Automation and Control Lighting Medical Equipment Transportation and Automotive Water Technologies Financing Building Technologies Business Services Home Appliances Construction € 87.325 billion (2006) 480,000 (2007) Global Network of Innovation www.siemens.com

Revenue Employees Slogan Website

Siemens AG (ISIN: DE0007236101, FWB: SIE, NYSE: SI) is one of the world's largest technology companies. Siemens has six major business divisions: Communication and Information; Automation and Control; Power; Transportation; Medical; and Lighting. Siemens' international headquarters are in Berlin and Munich, Germany. Siemens AG is listed on the Frankfurt Stock Exchange and also on the New York Stock Exchange since March 12, 2001. Worldwide, Siemens and its subsidiaries employ 480,000 people in 190 countries and reported global sales of €87.325 billion in fiscal year 2006.[2]

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History Siemens was founded by Werner von Siemens on October 1, 1847, based on the telegraph he had invented that used a needle to point to the sequence of letters, instead of using the Morse code. The company – then called Telegraphen-Bauanstalt von Siemens & Halske – took occupation of its workshop on October 12. In 1848, the company built the first long-distance telegraph line in Europe, spanning 500 km from Berlin to Frankfurt am Main. In 1850 the founder's younger brother, Sir William Siemens (born Carl Wilhelm Siemens), started to represent the company in London. In the 1850s, the company was involved in building long distance telegraph networks in Russia. In 1855, a company branch opened in St Petersburg, headed by another brother, Carl von Siemens. In 1881, a Siemens AC Alternator, driven by a watermill, was used to power the world's first electric street lighting in the town of Godalming, United Kingdom. The company continued to grow and diversified into electric trains and light bulbs. In 1890, the founder retired and left the company to his brother Carl and sons Arnold and Wilhelm. Siemens & Halske (S&H) was incorporated in 1897. In 1919, S&H and two other companies jointly formed the Osram lightbulb company. A Japanese subsidiary was established in 1923. During the 1920s and 1930s, S&H started to manufacture radios, television sets, and electron microscopes. Before World War II Siemens was involved in the secret rearmament of Germany. During the Second World War, like many big companies in Germany at the time, Siemens supported Hitler and participated in the "Aryanizing" of businesses. Siemens used slave labor from concentration camps to build electric switches for military uses. Siemens had many factories in and around famous extermination camps such as Auschwitz. In one example, almost 100,000 men and women from Auschwitz worked in a Siemens factory inside the extermination camp, supplying the electricity to the camp.

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3.8 SATYAM COMPUTER SERVICES LTD
Satyam Computer Services Ltd.

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Type Founded Headquarters Key people Industry Revenue Employees Slogan Website

Public (NYSE: SAY) (1987) Hyderabad, Andhra Pradesh, India Ramalinga Raju , Chairman Byrraju Rama raju, MD Information Technology Over 1 billion (1096.30 million) USD (2006) (Google Finance Quote) 38,908 What Business Demands www.satyam.com Chinese Version French Version German Version Japanese Version Portuguese Version Korean Version

Satyam Computer Services Ltd. is a consulting and information technology (IT) services company based in India. Satyam Computer Services Ltd. is headquartered at Hyderabad, India. It was founded by B.Ramalinga Raju in 1987, Satyam meaning "truth" in Sanskrit. It offers a variety of IT services spanning across different industry verticals. Satyam's network spans 55 countries, across six continents. The company employs 40,000+ IT professionals across development centers in India, the United States, the United Kingdom, the United Arab Emirates, Canada, Hungary, Singapore, Malaysia, China, Japan and Australia. It serves over 489 global companies, 156 of which are Fortune 500 corporations. Satyam has strategic technology and marketing alliances with over 50 companies. Apart from Hyderabad, it has development centers in India at Chennai, Bangalore, Pune, Mumbai, Nagpur, Delhi, Kolkata, and Bhubaneswar.

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October 19, 2006 - Satyam Q2 Results Declared-- Profit Increased by 34.7% YoY, with total 34,908 Leaders.(Every Satyamite is a Leader)

Satyam has been accorded the prestigious recognition by Most Admired Knowledge Enterprise (MAKE) as a top Asian Knowledge Organization. The MAKE Awards are given to leading Asian organizations that leverage enterprise knowledge to create value through innovation, product or service excellence, and operational effectiveness.

Satyam’s best-of-breed training programs and learning interventions for Associates were accorded the prestigious [[American Society for Training & Development’s (ASTD)\\ BEST Awards-recognition. Satyam was ranked 15th in the ASTD’s Fourth Annual BEST Awards program, and is among the 39 organizations from India, South Africa, and the United States to receive this highstatus award.

3.9 INFOSYS TECHNOLOGIES LTD Infosys Technologies Ltd.
Type Public (NASDAQ: INFY)

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Founded Headquarters Key people

July 2, 1981 Electronics City, Hosur Road, Bangalore, India N. R. Narayana Murthy (Co-founder, Chairman of the Board and Chief Mentor) Nandan Nilekani (Co-founder and Executive Co-Chairman) S. "Kris" Gopalakrishnan (Co-founder, CEO and MD) S. D. Shibulal (Co-founder and COO) Software services Finacle (a financial software package for the banking industry) Information technology services and solutions $3.1 billion USD ~72,241 (As on March 31, 2007) Powered by Intellect, Driven by Values www.infosys.com

Industry Products Services Revenue Employees Slogan Website

Infosys Technologies Limited (NASDAQ: INFY) is an information technology (IT) services company founded in Pune, India in 1981 by N. R. Narayana Murthy and six of his colleagues. In 1983, Infosys moved its headquarters to Bangalore, the capital of Karnataka. It operates nine development centers in India and has over 30 offices worldwide. Annual revenues for fiscal year 2007 exceeded US$3.1 billion with a market capitalization of over US$30 billion. With over 72,000 employees worldwide, Infosys is one of India's largest IT companies.

History Infosys was founded on July 2, 1981 by seven software professionals: N. R. Narayana Murthy, Nandan Nilekani, N. S. Raghavan, S. Gopalakrishnan, S. D. Shibulal, K. Dinesh and Ashok Arora. Murthy started the company by borrowing Rs.10,000 from his wife

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Sudha Murthy. The company was incorporated as "Infosys Consultants Pvt Ltd.", with Raghavan's house in Matunga, north-central Mumbai as the registered office. In 1999 Infosys attained a SEI-CMM Level 5 ranking and became the first Indian company to be listed on NASDAQ. In 2001 it was rated "Best Employer in India" by Business Today, and in 2002 Business World named Infosys "India's Most Respected Company". Infosys won the Global MAKE (Most Admired Knowledge Enterprises) award, for the years 2004 and 2003, being the only Indian company to win this award.

3.10 TATA CONSULTANCY SERVICES
TATA CONSULTANCY SERVICES
Type Public

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Founded Headquarters Key people Industry Revenue Employees Slogan Website

1968 Mumbai, India Ratan Tata, Chairman of the Board, S. Ramadorai, CEO & MD Information Technology US $ 4.3 Billion (Q4-FY 06-07) ~89425(Jan 2007) Experience Certainty http://www.tcs.com

Tata Consultancy Services Limited (TCS Limited) is an Indian information technology, consulting, services and business-process outsourcing organization which commenced operations in 1968. As of 2006, it is Asia's largest IT services firm with annualised revenues of over US $4 billion (estimated for FY 2006-07) and has the largest number of employees among all the Indian IT companies with strength of over 87,000. For fiscal year 2005-06, it posted a net profit of Rs. 3,709 crore. TCS is part of one of Asia's largest conglomerates and most respected groups, the Tata Group, which has interests in areas such as energy, telecommunications, financial services, chemicals, engineering and materials. History Tata Consultancy Services was established in 1968. Mr. Fakir Chand Kohli, an electrical engineer, was brought in as the first General Manager of Tata Consultancy Services, from the Tata Electric Companies (and now The Tata Power Company Limited), where he was a Deputy General Manager. TCS' first software export project was undertaken in 1974 when it converted the Hospital Information System from Burroughs Medium Systems COBOL to Burroughs Small Systems COBOL. This project was carried out entirely in TCS Mumbai on the ICL 1903 Computer. A team of more than 12 people delivered this project to their first US based

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customer, and thus the Indian Software Export Industry was born. By mid 1970s it had spread its reach to Britain, Switzerland and the Netherlands. In 1979, TCS was the first Indian software firm to open overseas office in New York. In 1980, TCS and a sister Tata firm accounted for 63 % of the Indian software industry exports, $4 million shared by 21 firms. New players like Datamatics, Patni Computers have started to evolve in 1980’s. In 1984, TCS set up its office in Export Processing Zone – Mumbai. The early 1990s saw a tremendous surge in TCS's business, which also resulted in a massive recruitment drive by the company. In early and mid-1990s, TCS re-invented itself to become a software products company. In the late 1990s, to accelerate its revenue growth, TCS decided to employ a three-pronged strategy – developing new products with high revenue earning potential, tapping domestic and other fast growing markets and focusing on inorganic growth through mergers & acquisitions. In late 1998, the company decided to concentrate on new revenue opportunities including Y2K and Euro conversion. E-business was a major area of focus in the late 1990s. TCS started a project aimed at removing illiteracy in India with a pilot project in Andhra Pradesh. In 2001, Tata Consultancy Services (TCS) commissioned the latest 64-bit zSeries eServer from IBM, thereby becoming the first organization in the ASEAN and South Asia region to adopt the latest technology in mainframe computing. In 2004, TCS became a public listed company. In fiscal 2006 the Company's profit before taxes and exceptional items aggregated Rs. 3,074.35 crore as compared to Rs. 2,308.65 crore in the previous fiscal 2005 - a growth of 33.17%. In 2006, Tata Infotech Limited and three wholly-owned subsidiaries of the company, namely 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.

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CHAPTER 4

DATA ANALYSIS AND INTERPRETATION

4.1 IMPORTANCE OF EIC ANALYSIS
The primary motive of buying a share is to sell it subsequently at a higher price. In many cases, dividends are also expected. Thus the dividend and price changes constitute the return from investing in shares. These values can only be estimated and not

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predicted with certainty. These values are primarily determined by the performance of the company, which in turn is influenced by the performance of the industry to which the company belongs and the general economic and socio political scenario of the country. 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 expected future performance of companies, industry and economy as a whole. Such valuation or analysis is called fundamental analysis. FUNDAMANAL ANALYSIS –MEANING Fundamental analysis is really a logical and systematic approach to estimate the future dividends and share price. It is based on the basic premise that share price is determined by a number of fundamentals; industry fundamentals, company fundamentals have to be considered while analyzing a security for investment purpose. Fundamental analysis is in other words a detailed analysis of the fundamental factors affecting the performance of the companies. The intrinsic value of an equity share depends on a multiple factors. The earning of the company, the growth rate and risk factor exposure of the company has a direct bearing on the price of shares. These factors in turn rely on the host of other factors like economic environment in which they function, the industry they belong to, and finally the company’s own performance. So, it is mandatory to the investor to analyze broadly the economic, industry factors before investment. Research also found the stock price changes could be attributed to the following factors. Economic wide factors Industry factors Company factors Other factors 30-35% 15-20% 30-35% 15-25%

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ECONOMY – INDUSTRY – COMPANY ANALYSIS FRAMEWORK The multiple factors affecting the performance of a company can be classified as: (A) Economic wide factors such as growth rate of economy, inflation rate, foreign exchange rate ….etc which affects all companies. (B) Industry wide factors such as demand and supply gap of industry, hr emergence of substitute product, changes in government policy relating to the industry…..etc. (C) Company specific factors such as the age of its plant the management, brand image of its products, the labour management relations ……etc. These factors are likely to make a company’s performance quite different from that of its compatriots in the same industry.

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ECONOMIC ANALYSIS

4.2 ECONOMIC ANALYSIS

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The level of economic activity has as impact on price movement of share and company performance in many ways. If the company grows rapidly, the industry can be expected to show rapid growth and vice-versa. When the level of economic activity is high stock prices are high reflecting the prosperous outlook for sales and profits of the firms.
SECTORS OF INDIAN ECONOMY

There are three major sectors of Indian Economy. They are; 1) Agriculture 2) Industry 3) Services Since IT and Automobile industry are taken for my study only that industries are studied in detail.

4.2.1 CONTRIBUTION OF INDUSTRY TO THE ECONOMY
Index of industrial production which measures the overall industrial growth rate was 10.1% in October 2005 as compared to 6.2% in October 2004. The largest sector

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here holds the textile industry. Automobile sector has also demonstrated the inherent strength of Indian labour and capital. Below table and graph shows the contribution from industry to GDP over the years. Table No: 4.1 Table showing the contribution of industry to GDP over the years.

Years 2003-2004 2004-2005 2005-2006 2006-2007

Share in GDP 27 27.3 29.5 31.1

Source: - Central statistical organization

Graph 4.1 showing the contribution of industry to GDP over the years.
32 31 30 29 28 27 26 25 24 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 27 27.3 growth rate 29.5

31.1

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Comment Contribution to GDP from the industrial sector is increasing slowly over the years. This is the second largest contribution to GDP.

4.2.2 CONTRIBUTION OF SERVICES TO GDP OVER THE YEARS
The services sector is the fastest growing sector. It has the largest share in the GDP accounting for about 48% in 2000. Business services, communication, financial services, community services, hotels and restaurants and trade services are among the fastest growing sectors. Table 4:2 Table showing contribution of services sector to GDP over the years.

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Years 2003-2004 2004-2005 2005-2006 2006-2007

Share in GDP 51.8 52.2 54 56.3

Source: - Central statistical organization

Graph: 4.2 Graph showing contribution of services sector to GDP over the years.

57 56 55 54 53 52 51 50 49 51.8 54 52.2

56.3

grow th rate

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Comment

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Service sector contribution is increasing in rapid speed. Because performance of IT companies in India banks is good over the years. This has been reflecting in growth of service sector.

INDUSTRY ANALYSIS

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4.3 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 as industry. The performance of companies would, therefore, be influenced by the fortune of the industry to which it belongs. For this reason as analyst has to study the fundamental factors affecting the performance of different countries. An industry is a group of firms that have similar technological structure of production and produce similar products. An industry is defined as “ a group of firms producing reasonably similar products, which serve the same needs of a common set of buyers”

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CLASSIFICATION OF SECTORS / INDUSTRIES A) Manufacturing Sectors 1) Auto and ancillary industry 2) Cement industry 3) Oil and Natural Gas industry 4) Pharmaceutical industry 5) Steel industry B) Service sectors 1) Computer and Information Technology Industry

4.3.1 AUTOMOBILE INDUSTRY
India, the world’s largest democracy, having a very large pool of scientific and engineering talent in the world has marched forward is critical areas of development. The country in the process of integrating world economy. The well developed Indian automotive industry with the deep forward and backward linkage fulfills this catalytic role by producing a wide variety of vehicles; such as passengers car, light and heavy commercial vehicles, multi-utility vehicles such as jeeps, scooters, motorcycle, three wheeler, tractors etc. Major players in Auto and Ancillary industry 1) Bajaj Auto 2) Hero Honda motors 3) Mahindra and Mahindra

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4) Tata Motors 5) Maruti Udyog 6) Ashok Leyland Table 4:3 Table below showing the total production of automobiles over the years.

Years 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007

Total production 4759392 5316302 6759392 7229443 8461000 9802915 10792108

Table 4:4 Table below showing the growth rate of Automobile industry over the years. Years 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 Graph 4:3 Graph below showing the growth rate of automobile industry. Growth rate % 2.0 11.7 18.1 15.1 16.8 15.86

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20 15 11.7 10 5 2 0 2000-01 2001-02

18.1 15.1

16.8

15.86

grow th rate

2002-03

2003-04

2004-05

2005-06

Comment: Automobile Industry is growing over the years. But in the year 2005 – 2006 the Industry recorded a growth rate of 15.86% which is lower than the previous year 2004 – 2005 which recorded a growth rate of 16.8%.

4.3.2 IT INDUSTRY
Information technology is as effective tool in catalyzing economic activity, efficient governance and H.R development India, is emerging as a leader in the field of I.T industry. India has immense potential to emerge as global players, however, Indian I.T companies need manufacture their own hardware products. India’s success in software and service sectors because of attributed industry knowledge and expertise of cutting edge technologies is significant. The Indian software and services export was Rs 78,230 in 2004-2005 as compared to Rs 58,240 in 2003-2004, as increase of 34%. This segment will continue to show robust growth in future also.

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India sustained leadership over other competing offshore sourcing destination is driven by strong fundamentals comprising a large and growing pool of qualified manpower, keen focus on defining and adhering to global equity standards, the demonstrated emphasis on information security, the improving level and strong government support focused on improving basic infrastructure and developing policies and as effective regulatory regime that favor the growth of the industry. Indian ITCS-BPO sector industry continues to grow from strength to strength, witnessing high level of activity both onshore as well as offshore. Attribution level last years remained high, between 25-40% as demand for trained talent out spaced supply. Indian IT to be 55$ billion industry by 2008. The Indian IT industry witness a CAGR of 23.1% between 2003 and 2008 with exports growing 25.3% and domestic market 18.5%. The Indian IT industry will grow to Rs 2, 47,000Crore by the end of 2008 from Rs 87000Crore in 2003 according to IDC.

Table 4:5 Table showing the growth rate of IT industry over the years. Years 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 Growth rate % 31.3 16.4 21.1 21.9 25.4 38.2 39.0

Graph: 4.4 Graph showing the growth rate of IT industry over the years.

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40 35 30 25 20 15 10 5 0 16.4 31.3 21.1 21.9 25.4

38.2

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growth rate

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Comments: The performance of IT industry is growing high. By 2008 the revenues is expected to be at $ 10-80 billion.

COMPANY ANALYSIS

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4.4 COMPANY ANALYSIS
Company analysis is a study of the variable that influences the future of a firm both qualitatively and quantitatively. It is a method of assessing the comparative position of a firm, its earning and profitability, the efficiency with which it operates its financial position and its future with respect to the earning of its shareholders. The fundamental nature of this analysis is that each share of a company has as intrinsic value which is dependent on the company’s financial performance, quality of management and record of its earning and dividend. They believe that the market price of a in a period of time will move towards its intrinsic value. If the market price of a share is lower than the intrinsic value, as evaluated by the fundamental analysis, then the share is supported to be undervalued and it should be purchased, but its current market price shows that it is more than the intrinsic value, then a according to the theory , the share should be sold. The accuracy of a financial statement is usually identified if a qualified charted accountant has certified the statements. In India, all firms have to get their documents legally audited by a charted accountant before they are made available for public

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presentation. Care must be taken to see that a responsible auditor has certified the accounts of the firm. Every investor in his own interest should see that the financial statement ate complete in all the aspect. A standard should be such that it can assist financial analysis and it also taken into consideration as many factor as possible. One of the changes is price level change. Financial statement, which taken into, account as many changes as possible to give account to the investor, should be considered a good statement, but it is rather difficult to find out whether statement is complete because it works within the framework of the rules that have been established for it. When income is one of the best method of finding out the future of the firm. It gives the past records of the firm and this becomes a base for making predictions for making savings and its significance is to asses the earning of the firm.

ANALYSIS USING GROWTH RATIOS

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INTRODUCTION
Financial statements are an important source of information for the evaluating the performance and prospects of a firm. If properly analyzed and interpreted, the financial statements can provide valuable insights into a firms performance. Analyzing the financial statements is of the interest of the lenders, investors, security analysis, managers and others. Financial analysis may be done for many purposes which may range from a single analysis of a short term liquidity portion of the firm to a comprehensive assignment of strengths and the weakness of the firm in various areas. It is helpful in assigning corporate excellence, judging creditworthiness, forecasting bond ratings, evaluating intrinsic value of equity shares, predicting bankruptcy and assessing market risk.
UNAUDITED QUARTERLY FINANCIAL RESULTS

A listed company is required to furnish unaudited financial results on a quarterly basis, within a month of the expiry period to the stock exchanges where the company is listed from this it is possible to interpret the performance of the company. Further, the 57

company is required t

advertise the details within 48 hours of disclosure. The

advertisement must be published at least in one of the national level news paper published from the registered office of the company is located. The quarterly financial report include • • • • • • • • Net sales / income from operations Other income Total expenditure Interest Gross profit / loss after interest but before depreciation and tax. Provision for taxation Net profit / loss Paid – up equity capital and reserves excluding revaluation results ( as per the balance sheet of the previous accounting year) The pro-forma requires a company to give the financial results for the quarters ended, for the corresponding quarter of the previous accounting year. The listing agreement stipulated certain conditions to maintain the quality of such disclosures.

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4.5 VARIABLES USED FOR THE STUDY
By considering certain key items such as Sales, net income, earnings per share, P/E ratio etc, it is easy to find out if the company is just keeping pace with inflation or is experiencing real growth. Common growth rate calculations include compounded annual growth rate and average growth rate. An approximately accurate report of actual performance can be obtained from a company’s financial statements still there differences in factors that affect a company’s performance this year as compare to last year. My study is confined to IT and Automobile companies listed in NSE Nifty. The variable that I have taken for the study are:

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1. CAGR 2. P/E 3. EPS

- Compounded Annual Growth Rate - Price – to – Earnings Ratio - Earnings per share

4. Quality of Earnings

4.5.1 CAGR- COMPOUND ANNUAL GROWTH RATE
The Compound Annual Growth Rate is the inters rate at which a given present value would grow to a given future value in a given amount of time. Compoud annual growth rate is also called cumulative annual growth rate. Formula is

CAGR = ( Fv/pv)1/n -1
Where Fv = future value Pv = present value N= number of years

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Compound annual growth rate is an average growth rate over a period of several years. It is a geometric average of annual growth rates. It measres the rate of change of a value between two points in time CAGR is used to describe the growth over a period of time of some element of the business, usually revenue, although other measures. CAGR is widely used in growth industry.

4.5.2 EARNINGS PER SHARE
The portion of a company’s profit allocated t each outstanding share of common stock is earnings per share. EPs serves as a indicator of a company’s profitability EPS= Equity earnings / Net income No: of shares outstanding.

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The most important item which the investors must take care to evaluate the earning that a shareholder receives on his hare. The investor should also analyze the no: of equity shares which have the privilege of conversions or options. He may also calculate the price of convertible securities from the income statement may be used.

4.5.3 QUALITY OF EARNINGS RATIO
Quality of Earnings refers to the probability of earnings trends continuing and extend to which earnings could represent distributable cash.

Quality of Earnings Ratio = Net profit after taxation Cash flow from operating activities
An erratic earning performance over a period of time, over a period of years is less desirable than a study level of earnings. A history of increasing earnings ratio is preferable. Quality of earnings has got a correlation with the share prices. Financial analysts often express the opinion that the earnings of one company are of a higher quality than the earnings of other similar companies. The concept arise because each 62

companies management can choose from a variety of accounting principles. In judging the quality of earnings the financial analysts should consider whether the accounting principles selected by the management leads to a conservative measurement of earnings.

4.5.4 PRICE TO EARNINGS RATIO
The P/E ratio of a stock is a measure of the price paid for a share relative to the income or profit earned by the firm per share. A higher P/E ratio means that investors are paying for each unit of income. It is the broadest and most widely used overall measure of performance.

P/E ratio = market price per share Net income per share

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This measure involves an amount not directly controlled by the company: the market price of its common stock. Thus the P/E ratio is the best indicator of how investors judge the performance of different companies and market mechanism.

ANALYSIS USING GROWTH MEASURES
4.6 Table showing the compounded annual growth rate of revenue of the companies for the year 2006 – 2007

Company Name
Bajaj Auto Hero Honda Motors Mahindra and Mahindra Maruthi Udyog Tata Motors Infosys Satyam Computers Siemens TCS Wipro

CAGR (%)
4.352 4.266 4.185 9.110 .268 11.01 5.36 .184 5.17 5.99 64

Source: Secondary Data Comment: Infosys recorded a high CAGR of 11.01 % while Siemens recorded CAGR of .184 % which is the lowest of 10 companies.

CAGR should be used because Arithmetic averaging of growth numbers gives incorrect results. Although no historical data is a substitute for a forecast the CAGR is the better indication of the trend. Using this formula an investor can calculate what is the annual rate of rate of return was for any particular investment. CAGR is used in business to describe the growth over a period of time of some element of the business, revenue, sales etc… Thus CAGR of Infosys represents the smoothed annualized gained over the investment horizon. Maruthi udyog also recorded a CAGR of 9.11 % over the year 2006 and 2007.

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4.7 Table showing EPS of companies for the Year 2006- 2007

Company Name
Bajaj Auto Hero Honda Motors Mahindra and Mahindra Maruthi Udyog Tata Motors Infosys Satyam Computers Siemens TCS Wipro Source: Secondary Data

EPS
76.53 48.36 31.58 23.88 35.22 64.50 35.26 86.62 95.03 57.38

Comment: Earnings Per Share is generally consider to be the single most important variable in determining the share price. Here the table shows that TCS has the high EPS of 95.03 Rupees for the year 2006 -2007. The number of shares used for the calculation can be either basic or the shares that could potentially enter the market. Two companies could generate the same EPS number but one could do so with less equity.

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4.8 Table showing the Quality of earnings of the companies for the year 2006-2007

Company Name
Bajaj Auto Hero Honda Motors Mahindra and Mahindra Maruthi Udyog Tata Motors Infosys Satyam Computers Siemens TCS Wipro
Source: Secondary Data

Quality of Earnings
.370 .365 .338 .353 .315 .789 .436 .375 .538 .421

Comment: Infosys recorded a high quality of earnings of .789 while Tata Motors has the lowest quality of earnings of .315.

The quality of earnings helps to know what are the profits a company is generating and operating cash flows helps to determine the percentage of cash generated from operating activity. An investor should always go for a firm with good earning quality. Earnings are 67

set to be of high quality if they can be distributed in cash and are derived primarily from continuing operation that are not volatile and the methods used in measuring profits are conservative. Conversely earnings are said to be of low quality if they have only a small percentage of distributable cash, are derived from non operating sources and are computed using accounting methods.

4.9 Table showing the Price to Earnings Ratio of Companies over the year 20062007

Company Name

P/E
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Bajaj Auto Hero Honda Motors Mahindra and Mahindra Maruthi Udyog Tata Motors Infosys Satyam Computers Siemens TCS Wipro
Source: Secondary Data

35.5 14.57 22.80 33.3 20.33 31.02 12.87 14.14 13.18 9.512

Comment: Wipro has the lowest P/E ratio of 9.512 while Bajaj Auto recorded a P/E of 35.5 The lowest P/E stocks dramatically outperform the higher P/E ratio stocks. Portfolio with the lowest P/E ratio is having the higher return than the market return. A higher P/E ratio means that investors are paying more for each unit of income. It is better to analyze the industry and the company performance before going for investment.

CHAPTER 5

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SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS

5.1 FINDINGS:

Infosys recorded a high CAGR while Siemens recorded CAGR which is the lowest of 10 companies for the year 2006-2007. TCS has the high EPS for the year 2006 -2007 while Maruthi Udyog recorded the lowest EPS for the year 2006-2007 . 70

Infosys recorded a high quality of earnings while Tata Motors has the lowest quality of earnings for the year 2006-2007. Wipro has the lowest P/E ratio while Bajaj Auto recorded a P/E for the year 20062007. Since the share prices are moving over the month it is impossible to predict a generalized value for the variables. From the industry analysis it is clear that the growth rate of IT and Automobile industry is increasing. Besides the factors used for analysis there are several other factors like labour strikes management, employee employer relationship which judge the performance of companies.

• •

5.2 CONCLUSION:
Investors are interested in predicting the future behaviour of stock market. The efficient market hypothesis is yet to be acclaimed in the age of IT and Globalization. The existence of market for securities is of advantage to both the issuers and investors. To investors it gives an opportunity to select an optimal investment strategy. This paper

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presents an explicit model for the role of price movement of shares with the annual performance of companies. Studying the fundamental factors which influence the market price and also the performance of the company is a part of any investor before going for investment. The investor should look at the price movements of the particular company over the years and should go for better portfolio.

5.3 RECOMMENDATIONS:
• • Besides looking at the company performance the investor should analyse the economy and the industry as a whole. It is better to invest in companies with good market value, good performance in revenue and should consider the various factors affecting the performance before investing. 72


I would recommend Infosys as good for investment because as it has high quality of earnings and high compounded annual growth rate. Even though the industry may perform well, several ratios like, financial ratios, growth ratios, sales etc.. should be properly analyzed with reference to that company and also with the industry.

As P/E ratio is directly related to market price per share and the Earnings per share while looking at the P/E ratio one should analyze the return and go for better portfolio.

A higher P/E ratio indicates that the stocks are extremely overvalued. If the firm does not earn a huge growth of earnings it will increase the amount paid by each investor to the share.

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BIBLIOGRAPHY

Books:
• • • Jain Rajiv, A premium of Guide to Investor, 2004 Narora M N, Management Accounting, Himalaya Publishing House, 2003 Chandra Prasanna, Investment Analysis and Portfolio Management, Himalaya Publishing house, 2003

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Chandra Prasanna, Financial Management, Tata McGraw Hill publishing company Ltd., 6th Edition, 2004.

Journals:
• • • ICFAI, Chartered Financial Analyst, Feb 2006 ICFAI, Chartered Financial Analyst, Jan 2006 ICFAI, Security Analysis, 2006

Website:
• •

www.economictimes.com www. earningsindia.com www.nseindia.com

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