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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

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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 non-
diversifiable 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 Public company BSE:HEROHONDA
M

Founded January 19, 1984 in Gurgaon,


Haryana, India

Headquarters Haryana, India

Key people Om Prakash Munjal, Founder

Mr. Brijmohan Lall Munjal,


Chairman
Mr. Toshiaki Nakagawa, Joint
Managing Director

Mr. Pawan Munjal, Managing


Director, CEO
Industry Automotive
Products Motorcycles, Scooters
Revenue U$ 2.8 billion
Website www.HeroHonda.com

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 2-
wheeled 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

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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

3.2

3.3 MAHINDRA & MAHINDRA LTD.

Mahindra & Mahindra Limited


Type Public

Founded 1945

Key people Keshub Mahindra (Chairman), Anand


G.Mahindra (Vice-Chairman & Managing
Director)

Industry Automotive and Tractor

Products utility vehicles


commercial vehicles
tractor

Revenue 1596.90 M (2004)]

Employees 11,600

Website http://www.mahindra.com/

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 Public (NYSE: TTM)

Founded 1960

Headquarters India

Industry automotive

Products commercial vehicles

Revenue $5.383 billion USD

Website 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 Public (BSE MARUTI, NSE MARUTI)

Founded 1981

Headquarters Gurgaon, Haryana, India

Key people Shinzo Nakanishi, Chairman


Jagdish Khattar, MD

Industry Automotive

Products Maruti
Suzuki

Revenue ~$2.5 billion (2005)

Employees 3,334

Slogan Count on us.

Website 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 Public (NYSE: WIT)

Founded 1945

Headquarters Bangalore, India

Key people Azim Premji, Chairman and Managing


Director

Industry Information technology services

Revenue $3.47 billion USD

Net income $677 million USD

Employees 61,000+ (2006)

Slogan Applying Thought

Website 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.

28
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

29
3.7 SIEMENS AG

Siemens AG
Type Public (Aktiengesellschaft)
(ISIN: DE0007236101, FWB: SIE, NYSE: SI)

Founded 1847 in Berlin, Germany

Headquarters Munich, Germany

Key people Klaus Kleinfeld,


Chairman & CEO

Industry Conglomerates

Products Communication Systems


Power Generation
Industrial Automation and Control
Lighting
Medical Equipment
Transportation and Automotive
Water Technologies
Financing
Building Technologies
Business Services
Home Appliances
Construction

Revenue € 87.325 billion (2006)

Employees 480,000 (2007)

Slogan Global Network of Innovation

Website www.siemens.com

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]

30
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.

31
3.8 SATYAM COMPUTER SERVICES LTD

Satyam Computer Services Ltd.

32
Type Public (NYSE: SAY)

Founded (1987)

Headquarters Hyderabad, Andhra Pradesh, India

Key people Ramalinga Raju , Chairman


Byrraju Rama raju, MD

Industry Information Technology

Revenue Over 1 billion (1096.30 million) USD


(2006) (Google Finance Quote)

Employees 38,908

Slogan What Business Demands

Website 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 high-
status award.

3.9 INFOSYS TECHNOLOGIES LTD

Infosys Technologies Ltd.


Type Public (NASDAQ: INFY)

34
Founded July 2, 1981

Headquarters Electronics City, Hosur Road,


Bangalore, India

Key people 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)

Industry Software services

Products Finacle (a financial software package for


the banking industry)

Services Information technology services and


solutions

Revenue $3.1 billion USD

Employees ~72,241 (As on March 31, 2007)

Slogan Powered by Intellect, Driven by Values

Website www.infosys.com

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

35
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

36
Founded 1968

Headquarters Mumbai, India

Key people Ratan Tata, Chairman of the Board,


S. Ramadorai, CEO & MD

Industry Information Technology

Revenue US $ 4.3 Billion (Q4-FY 06-07)

Employees ~89425(Jan 2007)

Slogan Experience Certainty

Website 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

37
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.

38
39
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

40
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 30-35%


Industry factors 15-20%
Company factors 30-35%
Other factors 15-25%

41
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.

42
ECONOMIC ANALYSIS

4.2 ECONOMIC ANALYSIS

43
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

44
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 Share in GDP


2003-2004 27
2004-2005 27.3
2005-2006 29.5
2006-2007 31.1

Source: - Central statistical organization

Graph 4.1 showing the contribution of industry to GDP over the years.

32
31.1
31
30 29.5
29
28
27.3 growth rate
27 27

26
25
24 45
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07
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.

46
Years Share in GDP
2003-2004 51.8
2004-2005 52.2
2005-2006 54
2006-2007 56.3

Source: - Central statistical organization

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

57
56.3
56
55
54 54
53
52.2 grow th rate
52 51.8
51
50
49
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Comment

47
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

48
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”

49
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

50
4) Tata Motors
5) Maruti Udyog
6) Ashok Leyland

Table 4:3
Table below showing the total production of automobiles over the years.

Years Total production


2000-2001 4759392
2001-2002 5316302
2002-2003 6759392
2003-2004 7229443
2004-2005 8461000
2005-2006 9802915
2006-2007 10792108

Table 4:4
Table below showing the growth rate of Automobile industry over the years.

Years Growth rate %


2000-2001 2.0
2001-2002 11.7
2002-2003 18.1
2003-2004 15.1
2004-2005 16.8
2005-2006 15.86

Graph 4:3
Graph below showing the growth rate of automobile industry.

51
20
18.1
16.8 15.86
15.1
15
11.7
10
grow th rate

5
2
0
2000-01 2001-02 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.

52
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 Growth rate %


2000-2001 31.3
2001-2002 16.4
2002-2003 21.1
2003-2004 21.9
2004-2005 25.4
2005-2006 38.2
2006-2007 39.0

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

53
40 38.2 39
35
31.3
30
25.4
25 21.9
21.1
20
16.4 growth rate
15
10
5
0
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

54
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

55
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

56
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.

58
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:

59
1. CAGR - Compounded Annual Growth Rate
2. P/E - Price – to – Earnings Ratio
3. EPS - 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

60
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.

61
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 CAGR (%)


Bajaj Auto 4.352
Hero Honda Motors 4.266
Mahindra and Mahindra 4.185
Maruthi Udyog 9.110
Tata Motors .268
Infosys 11.01
Satyam Computers 5.36
Siemens .184
TCS 5.17
Wipro 5.99

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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 EPS


Bajaj Auto 76.53
Hero Honda Motors 48.36
Mahindra and Mahindra 31.58
Maruthi Udyog 23.88
Tata Motors 35.22
Infosys 64.50
Satyam Computers 35.26
Siemens 86.62
TCS 95.03
Wipro 57.38
Source: Secondary Data

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 Quality of

Earnings
Bajaj Auto .370
Hero Honda Motors .365
Mahindra and Mahindra .338
Maruthi Udyog .353
Tata Motors .315
Infosys .789
Satyam Computers .436
Siemens .375
TCS .538
Wipro .421
Source: Secondary Data

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

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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 2006-
2007

Company Name P/E

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Bajaj Auto 35.5
Hero Honda Motors 14.57
Mahindra and Mahindra 22.80
Maruthi Udyog 33.3
Tata Motors 20.33
Infosys 31.02
Satyam Computers 12.87
Siemens 14.14
TCS 13.18
Wipro 9.512
Source: Secondary Data

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 .

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• 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 2006-
2007.
• 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.

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• 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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