This action might not be possible to undo. Are you sure you want to continue?
Submitted in partial fulfillment of the requirements for the Post Graduate Diploma in Management
SUBMITTED TO: BIJOY SIR
SUBMITTED BY: Group: 1 AMRITA KUMARI (62)
New Delhi Institute of Management Page 1
KHUSHBU KUMARI (70) NIDHI GUPTA (87) POOJA RANI (93) SUMIT SRIVASTAVA (117)
This journey into project methodology would have been a travesty had it not been for the guidance, assistance, encouragement and moral support from many. It would be unjust if we do not commence this study by acknowledging their efforts. First of all we would like to thank BIJOY SIR, for his able support during the course of our project. His innovative ideas provided us clarity of thought essential in completing this project. His uncompromising demand for logical conclusions, quality of presentation, originality of work and novelty of ideas has benefited every single page of this study. We shall always remain grateful to him and no words of thanks can compensate for the liberty that we had been given to encroach upon whatever little spare time he had at their disposal. Finally, we would like to thank all those who contributed, in whatever way, to the successful completion of the project
New Delhi Institute of Management
Table of Contents
Acknowledgement Chapter 1. Executive Summary…………………………………………..………………..4 Chapter 2. Introduction…………………………………………………........................…5 Chapter 3. Economic Analysis………………………………………………………….…6 3.1 Global Economy………………………………................................6 3.2 Indian Economy……………………………………………….……6 3.3 Economic Indicators……………………………………….....…….7 Chapter 4. Industry Analysis……………………………………………………………...13 4.1 Industry Overview………………………………………………...13 4.2 Porter’s Five Forces Model………………………………………..14 4.3 SWOT Analysis…………………………………………………....16 4.4 BCG Matrix………………………………………………………..18 4.5 Industry Life Cycle………………………………………………...19 4.6 Industry Index Analysis…………………………………………....20 Chapter 5. Company Analysis…………………………………………………………......21 5.1 Company Overview…………………………………………...…...21 5.2 Ratio Analysis………………………………………………...…....23 5.3 Chairman’s Profile………………………………………….……...25 5.4 Future Projects……………………………………………………..26
New Delhi Institute of Management
Chapter 6. Comparative Analysis……………….................................................................27 . Chapter 7. Technical Analysis…………………………………..........................................28
7.1 7.2 7.3 7.4 7.5 7.6 7.7 7.8
The DOW Theory……………………………………………..…...28 Elliott Wave Theory………………………………………………..30 Comparison of BSE SENSEX with share prices of ONGC……….31 Analysis of Chart Patterns……………………….………………...32 Bollinger Band Analysis…………………………………………...33 MACD Analysis…………………………………………………...34 Exponential Moving Average……………………………………...35 Relative Strength Index…………………………………………....36
Chapter 8. Recommendations & Suggestions…………………………...............................37 Chapter 9. Conclusion……………………………………………………......................….38 Chapter 10. Bibliography………………………………………………….....................….39 Annexures Abbreviations
The project Equity Analysis of ONGC involves a complete research on ONGC and understands the movement of company’s shares listed in BSE and NSE. ONGC is the biggest company in India in terms of profit generation. The project is broadly divided into two analyses: fundamental and technical analysis. The fundamental analysis answers the question whether the share is worth investing or not at the present time as compared to its competitors. In Fundamental analysis, the performance of the company in the last year is considered. The performance of the company is a crucial factor behind taking the decision of investment in that particular company on a long term basis. Every investor wants to get the maximum return on his/her investment and that’s why it is always good to see the growth prospects of the company in the future. The fundamental analysis gives vital information about the valuation of the company, whether the company is undervalued or overvalued. As far as ONGC is concerned, it has got very strong fundamentals which are very crucial for the long term prospect of the company.
New Delhi Institute of Management Page 4
As far as fundamentals are concerned, the share is good to invest in, and will yield a good return after a period of at least 10-12 months. The risk in the scrip is also relatively low and the kind of investment that the company is planning to make will surely help the company improve its earnings or sales. This will enhance the EPS ratio for the company and the overall valuation of the company is going to be attractive. Also, with the proposed hike in the Gas price by the government is only going to help the company to improve its income and further strengthen its balance sheet and these are all positive signals for the company as well as the investors who are willing to invest for long term in the market. Overall, the scrip is a good buy but only after the current correction phase is over from the market. The technical analysis on the other hand, answers the question like when to buy and when to sell. A good technical analysis helps to gain in either movement of the price of the share. The technical analysis is carried out mainly on the belief that the trends repeat themselves. The technical indicators are pointing towards a strong possibility of upcoming secondary trend in the scrip. The scrip has gained more than 50% over its value from March this year. This is too fast a recovery and the valuations are a bit on the higher side right now, but after the secondary phase of correction the scrip is going to move up as positive global and Asian cues will help the Indian stock market to march further in the north direction and the scrip having a good correlation with the sensex is surely going to appreciate further from this level. Therefore, the scrip is going to provide a good investment opportunity for the investors who are willing to take a long position on the scrip.
Introduction: OIL and GAS Sector
The oil and gas history in India dates back to 1867, with the discovery of oil deposits in Makum, near Margherita, Assam. The oil and gas sector in India has since witnessed the birth of numerous oil and gas companies. The oil & gas fields both on shore and offshore provides mass employment opportunities and also contribute in a wholesome way in increasing the oil & gas reserves of India. The oil & gas prices are still a matter of utmost concern for the Government of India. The Global Scenario: - Globally, the oil & gas sector is dominated by certain large private companies who have a presence in almost all segments of the oil & gas value chain. Historically, oil price has been the single most important challenge facing the global oil industry. The problem is all the more acute as the large private companies account for only a small share of world oil production even as oil prices remain unpredictable and prone to wide
New Delhi Institute of Management Page 5
This means that OPEC remains an important influence on the oil market. which sit at OPEC`s table as observers . several of the major oil producers immediately need to address the drying output. while production yield is decreasing by 8%. However. Given this backdrop. is also declining . the advanced economies as a group are still projected not to show a sustained pickup in activity until the second half of 2010. Algeria . not enforce a price floor. largely concentrated in northern Sumatra region. high-frequency data point to a return to modest growth at the global level (Figure 2-AnnexureI). Every year demand for oil is increasing by 1.5 percent in New Delhi Institute of Management Page 6 . during which the global economy contracted almost as fast as during the fourth quarter of 2008. consistent with the April 2009 WEO forecast. Accordingly. as well as Mexico and Russia. Since then Indonesia’s production. The production of OPEC members such as Iran. has come to a standstill. with the sole exception of Saudi Arabia. the recession is not over and the recovery is likely to be sluggish. and increasingly relying on technological innovations and other cost cutting measures to lower their own production costs. has indeed reduced its market power from the levels of the 1990s. Indonesia is not the only oil exporting nation exporting nation experiencing production problems. That said. global activity is forecast to contract by 1. Mexico seem to be facing problems in their quest to bridge this gap. (Figure 1-Annexure I). global oil majors are now increasingly benchmarking their production costs against the oil production costs of the OPEC (Organization of Petroleum Exporting Countries). However.5%. Malaysia.fluctuations. The Asian financial crisis in 1997-98 also shattered the confidence of the nation and investment in oil exploration has stagnated. Indonesia’s crude oil output has fallen to low levels to ageing oil fields. Indonesia the only South East Asian nation in the Organization of Petroleum Exporting Countries (OPEC) is struggling to keep up with its oil production quotas within the OPEC and reduced to the status of a net oil importer. OPEC`s lack of meaningful excess capacity. According to the US Energy Information Administration (EIA).4 percent in 2009 and to expand by 2. helped by unprecedented macroeconomic and financial policy support. OPEC as a whole controls roughly 40% of global oil production and 65% of known oil reserves. Following a disappointing first quarter. Economic Analysis Global Economy: The world economy is stabilizing. Nigeria and Venezuela. but its effectiveness will increasingly be measured by the ability to restrain further increase in oil prices.
according to Human Development Report.7 per cent in 2008-09. showing a growth rate of 5.3 per cent over the corresponding quarter of previous year. The Confederation of Indian Industry (CII) pegs the GDP growth at 6. respectively. Despite robust economic growth.2010.7 per New Delhi Institute of Management Page 7 .6 percentage point higher than envisaged in the April 2009 WEO (Table1Annexure II). The World Fact Book.8-3 per cent. real GDP growth is projected at 2.5-8 per cent. Quarterly gross domestic product (GDP) at factor cost at constant (1999-2000) prices for Q3 of 200809 is estimated at US$ 171. This scenario factors in sectoral growth rates of 2. more than double the same poverty rate in China. Ministry of Statistics and Programme Implementation. industry and services. Source: WEO July. Let’s take a look at the Macroeconomic Indicators that affects the Indian Economy and the Oil & Gas Industry as well. Despite the global slowdown. China. 09: IMF The Indian Economy: Indian Economy has covered a long ground since it was liberalized in 1991. Today. as well as to gauge a country's standard of living. Gross Domestic Product: GDP is commonly used as an indicator of the economic health of a country. according to the CIA.1 per cent in 2009-10. The higher annual average growth rate for 2010 largely reflects carryover from a mark up in growth during the final half of 2009. India continues to face several major problems. 5-5. The Indian economy is the twelfth largest in the world by market exchange rates and the fourth largest in the world by GDP measured on purchasing power parity (PPP) basis behind only the USA.6 percent in the April WEO forecast. the Indian economy is estimated to have grown at close to 6.57 billion in Q3 of 2007-08. as against US$ 162.9 percent in 2010. On a fourth-quarter-over-fourth quarter basis. approximately 80% of its population lives on less than $2 a day (PPP). It is slated to overtake Japan and become the third major economic power in the next ten years. the Gross Domestic Product (GDP) at factor cost at constant (1999-2000) prices is estimated at 6. for agriculture. UN published in 2007/08.5 per cent and 7. The recent economic development has widened the economic inequality across the country. and Japan. As per the Revised Estimates (RE) of Central Statistical Organization (CSO). Despite sustained high economic growth rate. compared with 2.24 billion. which is 0.
Ministry of Finance.8 and 7. a movement that had begun to affect profitability and competitiveness of the export sector. The annual average exchange rate during 2008-09 worked out to Rs. There was a deceleration in the growth of cement and finished steel reflecting the negative sentiments in the construction and manufacturing sectors. community.99 New Delhi Institute of Management Page 8 . 51.20 per US dollar in March 2009.9 per cent in 2007-08. 46. 51. hotels and restaurants. 45.9 per cent in Industry and 9.8 per cent in the third and in the fourth quarters of 2008-09 (compared to 9. Agriculture growth also turned negative adding a further dampener.6 per cent in Q3 and Q4 of 2007-08). The exchange rate was Rs.4-Annexure III).3 and 8.0 per cent in 2007. The performance of six core industries comprising crude oil. construction.3Annexure III).09.2 per cent depreciation during the fiscal 2008-09. The growth in index for crude oil turned negative 1. For the year as a whole.23 per US dollar in March 2009.7 per cent respectively. mainly due to a step up in government expenditure. reflecting 21.1 per cent and 10. trade. 3. coal. the nominal value of the rupee declined from Rs.9 per cent respectively during 2007-08 (QE). rupee began a slow decline. see Table 1.6 per cent in Agriculture and allied activities.cent in 2008-09 as compared to 9.36 per US dollar in March 2008 to Rs. 8. On the other hand. The growth fell to 5.4 per cent in 2007-08. 39. The third quarter witnessed a sharp fall in the growth of manufacturing.7 per cent as compared to 5.54 per US dollar in August 2006 to Rs.9 per cent. 40.08 (Quick Estimate. Economic Survey 2008-09 Exchange Rate: The surge in the supply of foreign currency in the domestic market led inevitably to a rise in the price of the rupee. petroleum refinery products. The rupee gradually appreciated from Rs. The last quarter saw an added deterioration in manufacturing due to the deepening impact of the global crisis and a slowdown in domestic demand (Table 1. electricity. At disaggregated level the growth during 2008-09 (RE) comprises of growth of 1. In the first two quarters of 2008.8 per cent as compared to positive 0.37 in January 2008. cement and finished steel (carbon) grew at 2. social and personal services showed a large increase from the second quarter. the growth in GDP was 7. The slowdown in growth of GDP is more clearly visible from the growth rates over successive quarters of 2008-09. The global financial crisis however reversed the rupee appreciation and after the end of positive shock around January 2008.7 per cent in Services as compared to 4. Source: Monthly Economic Report June 09.
RBI gradually tightened the monetary measures and hiked the key rates like CRR. The monetary measures are taken by RBI from time to time to ensure the smooth functioning of Indian Economy. the reverse repo rate has been brought down by 275 basis points and the actual/potential liquidity injection/availability was over Rs. The liquidity enhancing measures taken by the RBI since mid-September 2008. the main objective of the monetary policy has been to control the inflation and ensure availability of credit to the common people.700 crore (excluding Rs. 40. Monetary Policy Developments: In India.1. Since September 2008. the exchange rate seems to be in the range of Rs. But the scenario changed from September 2008 and the impact of recession started being visible in the Indian market as well. which was evident in the large and regular absorption of the surplus from the system through LAF by the Reserve Bank.61. This was quite evident in the last year when the prices of commodities were rising to an unsustainable level. 47-49.5% of GDP at current market prices for 2008-09 amounts to Rs. This fiscal stimulus at 3.per US dollar compared to Rs.7 per cent in 2007-08 to 6. the government took several fiscal policy decisions since October last year to revive the demand in the Indian economy. This fiscal accommodation led to an increase in fiscal deficit from 2. the policy repo rate has been reduced by 425 basis points. The Fiscal packages announced by the government did play a big role in achieving the growth rate of 6. The exchange rate has had a very big impact on the financial health of the Indian companies.7% this fiscal and huge New Delhi Institute of Management Page 9 . Repo Rate to suck the excess liquidity out of the system to ensure that it doesn’t reach to an unmanageable level. Source: 1st Quarter Review of Monetary Developments. The difference between the actuals of 2007-08 and 2008-09 constituted the total fiscal stimulus. To counter the negative fallout of the global slowdown on the Indian economy.5. Currently.000 crore under SLR reduction). RBI Fiscal Policy Developments: Because of recession. The Repo Rate and the CRR were hiked to 9% in August last year. ensured availability of ample liquidity in the banking system.26 per US dollar in 2007-08.86. 40. This was the first time since October 2000 that repo has touched 9 per cent while CRR touched 9 per cent for the first time since late November 1999.000 crore. The RBI stepped in again and took several measures to gain control over the situation. the Government responded by providing three focused fiscal stimulus packages in the form of tax relief to boost demand and increased expenditure on public projects to create employment and public assets.2 per cent of GDP in 2008-09.
The extension of tax holiday under Section 80-IB on natural gas production with retrospective effect is expected to lead to better response to future NELP rounds. Given the expected increase in oil and gas production.7 per cent of GDP). the government has reiterated its commitment of creating a National Gas Grid. the allowance of 100 per cent deduction for all capital expenditure on pipelines operating on a common carrier principle (both oil and gas). the increase in MAT rate from 10 per cent to 15 per cent is expected to lead to higher initial tax outflow. while repayments stood at US$ 45. Thus. software services exports (4. New Delhi Institute of Management Page 10 .8 per cent of GDP) were much lower as compared with the previous year mainly due to net outflows under portfolio investment. banking capital and short term trade credit.6 per cent of GDP during 2008-09.1 per cent of GDP) and private transfer receipts (4.. NRI deposits witnessed higher inflows since September 2008 responding to the hikes in ceiling interest rates on such deposits.government spending is expected to revive the demand in the economy to a considerable extent. Notwithstanding the adverse impact of the global crisis.0 per cent of GDP) were higher during 2008-09 than the previous year. Further.8 billion during 2008-09. Source: RBI Bulletin July 2009. inflows under foreign direct investment (FDI) to India were higher during 2008-09 than the previous year reflecting the attractiveness of India as a long-term investment destination.7 billion during 2008-09.3 per cent of GDP) led to a higher current account deficit (CAD) of 2. Net capital inflows (0. excluding valuation) declined mainly due to higher current account deficit coupled with lower net capital inflows. In the capital account. will ensure a better reach for distribution of the same. Although the MAT credit period has been extended from 7 years to 10 years. the large trade deficit (10.e. The foreign exchange reserves on BoP basis (i.5 billion. Balance of Payment: Despite higher net invisibles surplus (7. Source: Union Budget 2009-10 Union Budget 2009-10: The impact of the Union Budget 2009-10 is expected to be marginally positive for the oil and gas sector. Despite apprehensions in the second half of 2008-09 on the availability of shortterm trade credit due to tightness in the global credit markets. The gap between the disbursements and repayments of short-term trade credit to India was limited to an outflow of US$ 5. the gross disbursements reached US$ 39. financing of short-term trade credit did not pose much of a problem in India.
the oil import payments came down significantly. respectively. Production as measured by Gross Domestic Product (GDP). in the first half of 2008-09.7 per cent in 2007-08). during the second half of 2008-09 as against an increase of 32. the merchandise trade performance suffered drastically during the second half of 2008-09 leading to sharp decline in exports and imports.3 per barrel).0 per cent and 16.5 per barrel during the first half of 2008-09 led to an increase in oil import payments during this period.4 per cent during 2008-09 (28. On the other hand.2 per cent in 2008-09 as compared with 34. According to the data available from the DGCI&S. posted a lower growth of 5.2 per cent in 2008-09 from 33. a recession is a general slowdown in economic activity over a sustained period of time.9 per cent in Q3 of 2008-09 collapsed in Q4 of 2008-09 witnessing a sharp decline of 35.9 per cent. According to the DGCI&S data. India’s merchandise exports.9 per cent in the corresponding period of the previous year). respectively.6 per cent. With the decline in oil prices during the second half of 2008-09 (average of US$ 48. In absolute terms.5 billion (37. out of the total increase in imports of US$ 36.3 billion in 2008-09 over the previous year. The fall in exports was more pronounced in the Q4 of 2008-09 at 27.Foreign Trade: Due to sharp decline in exports during the second half of 2008-09.6 per cent in the previous year. During recessions. however. oil imports contributed to an increase of US$ 13. For the full year 2008-09. Monsoon If in a country there is a healthy monsoon this would lead to increase in the income of the farmers due to which they will be able to save more as such India has more than 60% of people engaged in agriculture thus leading to increased demand for oil and oil products.6 per cent as compared with a decline of 10.4 per cent and 53. growth in imports. many macroeconomic indicators vary in a similar way. oil imports accounted for about 32. or a business cycle contraction.1 per cent.3 per cent in 2007-08). both exports and imports declined by 20. after slowing down to 8.2 billion as compared with US$ 79. Reflecting the impact of the global financial crisis.4 per cent of total imports during 2008-09 (31.8 per cent observed in Q3 of 2008-09. the oil import payments were higher at US$ 93. Source: RBI Bulletin July 2009. Recession In economics. New Delhi Institute of Management Page 11 . on a BoP basis. The growth in non-oil imports slowed down to 13. The sharp increase in oil prices averaging US$ 116.7 billion in the previous year.
employment. suffered during the second half of the year. The graph below shows the growth (in %) in IIP from April 2008. While some segments. With the projected rise in demand in the economy and the improving global financial condition. four periods since 1985 qualify: 1990–1993. 1998. By this measure. 2008 the two parameters were said to be positively correlated with a correlation co efficient of close to 0. Economists at the International Monetary Fund (IMF) state that a global recession would take a slowdown in global growth to three percent or less. The deceleration of growth in 2008-09 was spread across all sectors except mining & quarrying and community. capacity utilization. Over the period of analysis. Official economic data shows that a substantial number of nations are in recession as of early 2009. Index of Industrial Production: There is visible link between trends in IIP and the growth in revenues of the CNX-500 companies over the past six years. The improved earnings will definitely push the IIP numbers in the north direction. dated April 6. the manufacturing sector is poised for a good show in the coming months. Meeting these challenges will be critical for improving India’s social and human development indicators and the quality of life. The correlation indicates that if the IIP numbers point to a possible slowdown. 2001–2002 and 2008–2009. unless higher agricultural growth or a far superior performance from the services sector offsets such a slowdown. IIP and revenue growth have moved mostly in tandem. household incomes and business profits all fall during recessions.79. social and personal services. both the parameters have made a sharp comeback. then corporate earnings numbers may well be headed the same way. with only a few quarters of divergence.7 per cent in 2008-09. According to an article published in Business Line. The economy continues to face wide-ranging challenges— from improving its social and physical infrastructure to enhancing the productivity in agriculture and industry and addressing environmental concerns. accelerating sharply since 2005. and 2008 saw many other nations follow suit. the Indian economy has withstood the adverse global economic situation and posted a growth rate of 6. The fallout of the global financial crisis on the Indian economy has been palpable in the industry and trade sectors and has also permeated the services sector. the latest numbers only confirms this correlation as the positive numbers of IIP in the past few months are preceded by a surge in the stock market. The global financial meltdown and consequent economic recession in developed economies have clearly been major factor in India’s economic slowdown. From a period of slow growth in early 2001. The US entered a recession at the end of 2007. IIP Growth Rate (in %) April 08 – June 09 New Delhi Institute of Management Page 12 . investment spending. especially the export-oriented industries.
The inflation has been more or less under control over the past decade but rise in the prices of fuel and the food articles last year pushed the inflation rate to an unprecedented high level of 12. This was unsustainable level of inflation and ultimately it started coming down and entered into negative territory for the first time in more than 30 years. This further pushed the price of other commodities and the inflation reached to 16 year high level of 12. This was the time when the price of crude oil reached to a peak of $145 per barrel and the government had no other price but to hike the price of fuel for the Indian consumers also as India imports about 70% of its annual fuel demand.nic. The graph below shows the trend in Inflation from January 2008.11% (the average of 52-week inflation rate) and was even higher if we consider the period Jun-Oct last year when the average was 12. The average inflation rate for the year 2008 was seen at 9.91% for the week ended 02nd August.09% with the figure of inflation for the entire period was in double-digit.91%. 2008. Source: Department of Economic Affairs New Delhi Institute of Management Page 13 . The RBI has followed a policy of keeping the inflation in the range of 4-5% over the past decade.in Inflation: A moderate amount of inflation is important for the proper growth of an economy like India because it attracts more private investment.Source: mospi.
27 BCM.24 per cent of the total exports in 2007-08. with a share of 3 per cent of the global capacity.50 MT in 2008-09. according to a Deutsche Bank report. The overall number of blocks brought under exploration now exceeds 200. Petroleum exports have also emerged as the single largest foreign exchange earner. India is likely to boost its refining capacity by 45 per cent or 65.10 MT in 2007-08. Consumption: India's domestic demand for oil and gas is on the rise. Policy New Delhi Institute of Management Page 14 . The projected production of crude oil during the 11th Five-Year Plan (2007-2012) is 206.63 billion during April-December 2008.11 MT in 2007-08 to from 33. The production of natural gas went up to 32. refining and marketing of petroleum products and gas constitutes over 15 per cent of the GDP. from 32.84 billion cubic metres tonnes (BCM) in 2008-09. The petroleum and natural gas sector which includes transportation. In November 2008.40 BCM in 2007-08. India is emerging as the global hub for oil refining with capital costs lower by 25 to 50 per cent over other Asian countries. Growth continued in 2008-09 with the export of petroleum products touching US$ 23.Industry Analysis Overview of the Industry: The oil and gas industry has been instrumental in fuelling the rapid growth of the Indian economy. the fifth largest country in the world in terms of refining capacity.3 mtpa over the next five years.58 mm tone in 2011-12. Refinery production in terms of crude throughput increased to 160.76 MMT.5 billion. The allocation is likely to bring in investments worth US$ 1. Production • • • • Domestic production of crude oil fell from 34. demand for oil and gas is likely to increase from 176.40 million tonnes of oil equivalent (mm tone) in 2007-08 to 233.77 MT in 2008-09 as compared to 156. As per the Ministry of Petroleum. the Cabinet Committee on Economic Affairs awarded 44 oil and gas exploration blocks under the seventh round of auction of the New Exploration Licensing Policy (NELP-VII). Already. accounting for 17. while that of natural gas is 255. The eighth round of auction is going to be later this year. Indian companies plan to increase their refining capacity to 242 mtpa by 2011-12 from about 149 mtpa in 2007.
These would be very high capital requirements as well as access to New Delhi Institute of Management Page 15 .org Porter’s Five Forces Model Threat of new entrants: Due mostly to the industry that ONGC is in. petrochemicals. There is really not much of a threat because there are two main barriers to entry that would be stopping potential threats. Petroleum and Natural Gas Regulatory Board Bill to be enacted shortly will result in the setting up of an Independent Regulator for Oil & Gas. Natural Gas Pipeline Policy to be enacted shortly. Industry is expected to grow at a CAGR of about 8% to 10% .in. For entry into petroleum product marketing/retail. Over 120MMSCMD of additional demand for Natural Gas in the next five years. The only real threat that might arise would be another government funded Oil and Gas company. it’s hard for there to be many new entrants.investmentcommission.• • • • • 100% FDI is allowed in petroleum refining. Virtual administrative price control of government over most petroleum products. Recent gas finds and increased use of gas for power generation. fertilisers and city gas distribution • Content Source: www. The reason for this is that a government would not have as hard a time raising funds and gaining access to resources. rapidly growing vehicle population and better road infrastructure will drive consumption of petroleum products. Outlook • • • • High GDP growth rate. The only other threat may not be from new entrants but from smaller competitors who already have access to resources and distribution channels. Over 190 MMT of refining capacity required by 2010. an investment in an upstream venture of over $450 million is required. This is assuming that the company would be researching and developing on domestic soil. ibef. petroleum product and gas pipelines and marketing/retail through the automatic route.
a lot of the Indian companies are integrating backwards into E&P activities. With the price of oil as high as New Delhi Institute of Management Page 16 . Bargaining Power of Suppliers: ONGC is a vertically integrated company that really deals in all areas from finding the product to refining the product to selling the product. While over a long period of time it may be possible to find other fuels it is not really feasible in the short term.Cost disadvantages independent of scale. This is something that would be very difficult for a new entrant to try and gain. Bargaining Power of Buyers: Not too critical for most companies as refining operations are a part of the complete supply chain. none of them are big enough to impact the demand of the petroleum products. All of these reasons make it very hard for the buyer to have much bargaining power at all. With this being said there is not much to worry about the bargaining power of the suppliers. The industry that ONGC is a part of is different than many other industries. with the refining operations supplying the product to the marketing company. It is different in the fact that people really cannot go without their product. When looking at the individual buyer they have almost no bargaining power because they are only buying such an extremely small portion of the industries total output. There is research being done to try and find substitutes. This has been seen in the US in the last few years. Gas companies can keep the prices high and consumers will still pay the high prices. solar power etc exist as substitutes. Due to crude price volatility and supply risks. As stated above there is not a real alternative to oil at this time. Threat of Substitutable Products: Although gas. However in case of standalone companies (which may no longer apply) long term contracts have to be signed with the marketing companies. The margins in such cases are dependent on such long term contracts. Going along with the high cost of capital are the cost disadvantages. The companies already in the industry already have the access to raw materials as well as desirable locations. Every part of Oil and Gas Exploration and Development is costly and not something that would be worth the costs as a new entrant into the industry. Supplier power is high as the net margins are strongly dependent on the price of the crude. Even though this industry if very attractive because of the high profits it would be very hard for a company to have enough capital to get in the market. Another reason for this lack of bargaining power is that as of right now there is not a real alternative to Oil.
Intensity of Rivalry among Competitors: The rivalry in the industry was low till as the industry was tightly regulated by the government. ONGC is currently in 14 different companies whereas Exxon Mobile is in 20 different countries. It does not seem that at this time there is a huge threat of this happening but it is definitely a possibility that any player in the market must be aware of. This is where the main players in this market must be careful. it is only giving more reason to try and find other fuel sources.it is at this time. However. many people will go towards those alternatives. the level competition has increased with Reliance and other MNC becoming more aggressive. The prices are staying fairly high now because people really don’t have a choice and must pay. New Delhi Institute of Management Page 17 . If other fuel sources do come out that are less costly. While Exxon may be a larger company now ONGC is growing and is becoming a very important global player. The largest competitors in this industry for ONGC are Exxon Mobile and Royal Dutch Shell.
Through a large base of operation. Moreover any undue and sustained pressure creates due impact on the government as well. This gives the company an added advantage over the other domestic players who are mainly confined to the domestic market. No other company in India operates even 50 per cent of this route length. The policy making also becomes easier due to the same reason. This led the company have great infrastructure with the governments support. This enables the company to stay ahead of its competitors. API gravity range 26°-46° and hence attract a premium in the market. These people are at the helm of any decision making regarding the policy of the company. with sulphur percentage ranging from 0. Growing Demographics: The Company has a strong presence in 18 countries through its ONGC Videsh Ltd. under the New Exploration Licensing Policy (NELP) of the Indian Government. Maximum number of Exploration Licenses. • • • • • Weaknesses: New Delhi Institute of Management Page 18 . including nearly 3800 kilometers of sub-sea pipelines. Having an international presence also increases company’s credibility and provides sufficient resources and capital to invest in other projects. Efficient and Professional management Team: The management team of ONGC comprises of some eminent figures of the industry who has got wealth lot of experience in running the Business and some of them has been successful entrepreneur as well.SWOT Analysis of ONGC Strengths: • State-owned: One of the biggest advantages & strength of the company is that it is state owned. including competitive NELP rounds: ONGC has bagged 85 of the 162 Blocks (more than 50%) awarded in the 6 rounds of bidding. (OVL) and is a major global player in oil exploration industry. Good Quality of Product: All crudes are sweet and most (76%) are light.02-0. Strong Infrastructure: ONGC owns and operates more than 15000 kilometers of pipelines in India.10. the company is able to produce oil & gas at lowest cost.
This will definitely add to the production capacity of the company in a long way. Low Production from aging Reservoirs: ONGC is facing difficulties to produce oil from aging reservoirs. Because of Huge govt. Threats: • Ever Changing Government Policy: The policy of the government keeps changing over the period of time and any unfavourable change from the company’s perspective may be damaging for the company. So this is going to be a great concern for the company as far as securing the energy needs of the country is concerned. This will help the company to gain the lost ground due to huge decrease in the crude oil price last year. of India and sometime it proved to be fatal for company’s profit and growth prospects. of India control on ONGC many important decisions are being taken by govt. if the government decides to subsidise the diesel further. the government’s decision to provide certain amount of money to the huge loss making petroleum companies from ONGC has an adverse impact on the net profit of the company. The aggressive bidding policy adopted by the Chinese companies might result in either huge escalation in the cost or the company might even loose the bid altogether. • • New Delhi Institute of Management Page 19 . The company is required to do a lot of investment in this area.• State-owned: The control of state sometimes proves to be a weakness for company as well. Rapid Change in Technology: The Company could fall behind technology with everything changing so quickly this day and age. For example. Increased Economic Activity: The economy all over the world is showing signs of recovery and because of that the crude oil prices will appreciate in the coming months. China’s Growing Demand: The Chinese company are directly competing with ONGC in several parts of the world. For example. this will put an extra pressure to the profit of the company. • Opportunities: • • Expansion of offshore operations: The oil reserves in some African countries are still unexplored and ONGC has a great opportunity to tap these markets to meet growing needs petroleum in India.
it is better for the company. It is based on product life cycle theory. or if the product's/company’s market grows faster. There are many reasons behind positioning the company in the category of star. an unfavourable policy change vis-a-vis Indian government might adversely impact the future prospects of the company. Therefore. But this is not going to be realised in the near future and the replacement of oil & natural gas. The Boston Consulting Group Matrix has 2 dimensions: market share and market growth.• Threat of Alternative Fuel: The Company may face some real threat from alternative fuels in the next decade or so. Change in Policy by Foreign Governments: The foreign policy of different governments keep changing over the period of time and this does have a significant impact on the bidding policy or the tender invited by the government in that particular country. The basic idea behind it is: if a product/company has a bigger market share. Oil and Natural Gas Corporation (ONGC) falls under the category of Star. The Oil exploration industry has been one of the key drivers of growth for the entire economy as they provide major chunk of the revenue to the exchequer of India. • BCG Matrix Analysis for ONGC: The BCG Matrix method is the most well-known portfolio management tool. It was developed in the early 70s by the Boston Consulting Group. These can be grouped in the following manner: New Delhi Institute of Management Page 20 .
ONGC is comfortably placed at the top in the industry though it is expected to get tough competition from Reliance with the KG D-6 discovery.1 company in India as far as oil exploration is concerned. ONGC achieved sales revenue of Rs. Talking about the overseas business. Rajasthan which is further going to strengthen the market share of the company.252 million. 282. It is the highest profit making corporation in India far ahead than its nearest competitor Reliance Industries Ltd. 1 each in East Timor and Australia. which has got only 33 blocks. • Hence. the company also jointly found oil reserves in Barmer. the company has got an upper hand here and recently.3% but the net profit dipped by a considerable 21.• Relative Position (Market Share): ONGC is the no. It contributes 77% of India's crude oil production and 81% of India's natural gas production. Also. the kind of growth in demand in Oil and Gas expected in the coming months as the global economy is pressing hard for recovery will further benefit the company. the turnover for the company did increase greater than ONGC to 8. 2 each in Oman. ONGC’s position as the star is justified. 639. The amount of investment being done in the exploration business is going to fructify in coming years and that will put the company and the industry as a whole on quite a firm footing. IOC and others the profit will be in positive zone. Comparing these figures with RIL. under the New Exploration Licensing Policy (NELP) of the Indian Government.000 square kilometers . with 44 Oil & Gas projects (7 of them producing) in 18 countries.439 million. ONGC is ahead in terms of the profitability too. Clearly. a 6% increase compared to the previous year. (OVL) is the biggest Indian multinational. But the leadership position is not under threat in at least 10 years considering the amount of investment the company is doing in this field in international as well as in the domestic market. The net profit however slowed down by 3% but mainly on account of sharing huge burden of under recoveries of the Oil Marketing Companies (OMCs). Kurdistan and Colombia.5%. And if we add the amount given to OMCs like HPCL. Clearly.3 in Yemen (1 producing and 2 exploratory). Compare this to RIL. OVL has a committed overseas investment of over 5 billion US dollars whereas for RIL. Hence. the international business comprises 11 blocks with acreage of about 80. ONGC has bagged 85 of the 162 Blocks (more than 50%) awarded in the 6 rounds of bidding. to the extent of Rs. New Delhi Institute of Management Page 21 . Business Growth rate: Despite the fact that the world economy was in doldrums for more than a year and continues to be sluggish. ONGC’s wholly-owned subsidiary ONGC Videsh Ltd.
there is a lot of scope for further investment in this industry. the industry as a whole may be supplanted by a new one. The industry is not going to enter into the stage of maturity any soon as there are many huge oil reserves still left unexplored in the African region on which many big players are keeping a constant eye.Growth is no longer the main focus. Barriers to entry become very high.Product innovation declines. forcing smaller players to be acquired or exit altogether.Revenues declining. The CAGR of 5% in sales by ONGC shows that there is still a lot of scope left in the industry. establishing the range and boundaries of the industry itself. Industry Index Analysis: New Delhi Institute of Management Page 22 . the industry is going to be a crucial driver for growth for the country and the future prospects are quite bright. from the first product entry to its eventual decline. Cost or Shakeout Phase .9% for the FY 2008 for ONGC which is again quite commendable. as large-scale consolidation occurs. There are typically five stages in the industry lifecycle. Overall. process innovation begins and a "dominant design" will arrive.Industry Life Cycle A concept relating to the different stages an industry will go through. Moreover. However. economies of scale are achieved. Decline . market share and cash flow become the primary goals of the companies left in the space. Innovation Phase . Even in India.alternative product design and positioning. the return on Capital Employed was 49. (Source: Investopedia) • • The Oil & Gas Exploration Industry is clearly into the third stage of Industry Life Cycle as there is hardly any space for smaller player in the global market. Maturity . They are defined as: • • • Early Stages Phase . the government needs to take some concrete steps in order to revive the OMCs as they are suffering from huge losses and the proposed deregulation of price of Petrol and Diesel by the government is a step in the right direction.Companies settle on the "dominant design".
com The above graph shows the performance of several indices on BSE for the last five years. the oil & gas sector has been one of the star performers among the different indices giving returns of 264.14% equity stake in this company. It is also one of the Navratna Company in India. It is the highest profit making corporation in India. It was set up as a commission on August 14. Indian government holds 74. 1956. it is suitable for those kinds of investors who are willing to invest in the market for a long period of time. and contributes 77% of India's crude oil production and 81% of India's natural gas production.Source: moneycontrol. This shows that the sector is very good for those investors who are interested in investing in the market for the long term. Hence. Company Analysis A Brief Overview of the Company: Oil and Natural Gas Corporation Limited (ONGC) (incorporated on June 23.94% just behind the capital goods sector which outperformed the other sectors by a huge margin and gave a return more than 400%. The sector therefore outperformed the sensex in the long run. The sensex on the other hand gave a return of 200.65% over the period of 5 years. It is a Fortune Global 500 company ranked 335th. ONGC is one of Asia's largest and most active New Delhi Institute of Management Page 23 . 1993) is India’s most valuable public sector (petroleum) company. No other sector in the market has given a return of more than 200% apart from Bankex. Clearly.
11 per cent. Post 1990. 781 billion. Financial Highlights (2008-09): • • • • ONGC posted a net profit of Rs.26 billion despite volatile oil markets and crude prices. (OVL). 2 percent of shares through competitive bidding were disinvested. 161. ONGC also went to global fields through its subsidiary. In 200203 ONGC took over Mangalore Refinery and Petrochemicals Limited (MRPL) from Birla Group and announced its entrance into retailing business. With this. Further expansion of equity was done by 2 percent share offering to ONGC employees.companies involved in exploration and production of oil. (GAIL) agreed to have cross holding in each other’s stock. in the Persian Gulf off the coast of Iran. Indian Oil Corporation (IOC) and Gas Authority of India Ltd. It is involved in exploring for and exploiting hydrocarbons in 26 sedimentary basins of India. ONGC was re-organized as a limited company and after conversion of business of the erstwhile Oil & Natural Gas Commission to that of Oil and Natural Gas Corporation Ltd in 1993. Another big leap was taken in March 1999. Additionally. 280 billion to the exchequer Representing India’s Energy Security: ONGC has single-handedly scripted India’s hydrocarbon saga by: New Delhi Institute of Management Page 24 . In 2009. the liberalized economic policy was brought into effect. Consequently the Government sold off 10 per cent of its share holding in ONGC to IOC and 2. Sakhalin and Sudan and earned its first hydrocarbon revenue from its investment in Vietnam. with up to 1 billion barrel reserves of heavy crude.5 per cent to GAIL. when ONGC. the Government holding in ONGC came down to 84.1 billion cubic feet of natural gas from the Farzad B gas field. It produces about 30% of India's crude oil requirement. ONGC has made major investments in Vietnam. subsequently partial disinvestments of government equity in Public Sector Undertakings were sought. As a result. ONGC discovered a massive oil field. Practically Zero Debt Corporate Contributed over Rs. ONGC Videsh Ltd. ONGC also signed a deal with Iran to invest US$3 billion to extract 1. Net worth Rs.
Iran. revenues. 6 out of the 7 producing basins have been discovered by ONGC: out of these In-place hydrocarbons in domestic acreages. with 44 Oil & Gas projects (7 of them producing) in 18 countries. Ultimate Reserves are 2. ONGC has bagged 85 of the 162 Blocks (more than 50%) awarded in the 6 rounds of bidding. In terms of profits. ONGC maintains its top rank from India. Iraq. Cuba. under the New Exploration Licensing Policy (NELP) of the Indian Government. Nigeria. New Delhi Institute of Management Page 25 .61 billion tonnes of In-place hydrocarbon reserves with more than 300 discoveries of oil and gas. assets and market valuation during the last fiscal. from 111 fields.273 Million Metric Tonnes (MMT) of crude and 463 Billion Cubic Meters (BCM) of Natural Gas. Egypt. Sudan. Venezuela and United Kingdom. Nigeria Sao Tome JDZ. as per Platts 250 Global Energy Companies List for the year 2008 based on assets. profits and return on invested capital (ROIC). based on sales.36 Billion Metric tonnes (BMT) of Oil plus Oil Equivalent Gas (O+OEG). OVL has a committed overseas investment of over 5 billion US dollars. Libya. (OVL) is the biggest Indian multinational.• • • • Establishing 6. ONGC is the only Company from India in the Fortune Magazine’s list of the World’s Most Admired Companies 2007.e. Vietnam. Congo. i. Colombia. ONGC’s wholly-owned subsidiary ONGC Videsh Ltd. Russia. profits. in fact. Global Ranking: • • • ONGC ranks as the Numero Uno Oil & Gas Exploration & Production (E&P) Company in the world. Occupies 152nd rank in “Forbes Global 2000” 2009 list (up 46 notches than last year) of the elite companies across the world. Syria. Turkmenistan. Cumulatively producing 788. Brazil. Myanmar.
It is calculated by the formula: EPS = (NI – Dividend on Preferred Stocks) / Average outstanding Shares P/E Ratio: P/E ratio is a valuation ratio of a company's current share price compared to its per-share earnings. Hence. 97. Now. it is more than 15. The PAT for the company fell from Rs.Ratio Analysis: Earnings per Share (EPS): EPS means the portion of a company's profit allocated to each outstanding share of common stock. This shows that the company is way ahead from its competitors in providing earning per share. The EPS for the company fell by 3.07. 2009. The following graph shows the EPS and P/E Ratio of ONGC for the last 5 years.016 million to Rs. Talking of P/E Ratio. Still. the P/E ratio doesn't tell us the whole story by itself. It is calculated as: P/E ratio = Market price per share / EPS In general. a high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E. It's usually more useful to compare the P/E ratios of one company to other companies in the same industry. 161. P/E Ratio is going to improve in the coming months. it also fell in the current Financial Year (Market Price has been taken on 31st March of each FY).71% mainly on account of the fall in PAT by 3%. Earnings per share serve as an indicator of a company's profitability. Operating Profit Margin: New Delhi Institute of Management Page 26 .263 and this dragged down the EPS but still it is substantially higher than every other company of this sector apart from RIL which has an EPS of Rs.22 respectively in the first week of September. 167.38 and 16. However. in this level the P/E ratio is at par with RIL and GAIL which have a P/E Ratio of more than 21. but that was largely because of the sharp decline in the share price of the scrip but as the price of scrip moved up in the recent months the P/E ratio is expected to see sharp moment upwards.
BVPS provides a snap shot of a firm's current situation. the company has an OPM much greater than its nearest rivals RIL and GAIL which have OPM of 14. Return on Capital Employed: ROCE indicates the efficiency and profitability of a company's capital investments. It i calculated as: ROCE = EBIT / (Total Assets – Current Liabilities) ROCE should always be higher than the rate at which the company borrows. So the company’s share price might see an appreciation in the long run. of shares outstanding The graphical depiction of the above three ratios are given below: The OPM has come down over the years because of the competitive nature of the industry as well as the burden of OMCs on the company. Finally. Book value per share is one factor that investors can use to determine whether a stock is undervalued or overvalued.40% for this year. but considerations of the firm's future are not included. A higher profit margin indicates a more profitable company that has better control over its costs compared to its competitors. or net profits divided by sales. It measures how much out of every dollar of sales a company actually keeps in earnings.96 for FY 08.A ratio of profitability calculated as net income divided by revenues. the BVPS is proving for the past two years and this clearly shows that the value of common equity is enhancing and it is far better than the BVPS for RIL of 12.45% and 11. The ROCE for the company is decreasing though but it is still better than any other player in this sector providing the shareholder a true worth for their investment. Book Value per Share: It is a financial measure that represents a per share assessment of the minimum value of a company's equity. Besides that. otherwise any increase in borrowing will reduce shareholders' earnings. Profit margin is very useful when comparing companies in similar industries. New Delhi Institute of Management Page 27 . It is calculated as: BVPS = Value of Common Equity / No.
and an Associate Member of the Indian Institute of Bankers. In these five years. before he joined ONGC in July 1988 as Joint Director (Finance). in recognition to his individual contributions. India’s most recognized award for excellence in the financial field. viz. however. one of the latest being in November 2006. The Indian Road Construction Company. Under his stewardship. ONGC board cleared investment proposals worth over Rs 34. the highest-ever Credit Rating assigned by Moody’s to any Indian Corporate. (OVL). Several awards have come his way. which grew from less than 6 billion US dollars to around 20 billion US dollars. Excellence in Finance in PSU in December 2005. CNBC TV-18 CFO Award 2006 for excellence in Oil and Allied services category. Being on the Board of ONGC since 1st March 2002 and holding the additional charge of CMD of ONGC since May 2006. The next six years in the construction company (four years in the Middle East) saw him pilot many important projects single-handedly. before taking over as Director (F) on the Board of parent ONGC. by International Market Assessment (IMA). In 2006-07. He was also on the Board of ONGC Videsh Ltd.Non Financial Analysis Chairman’s Profile: R S Sharma is Chairman & Managing Director of ONGC. R S Sharma is a Fellow Member of the Institute of Cost & Works Accountants of India. is Sharma’s thrust on augmenting capex investment. India’s biggest multinational. in association with BNP Paribas. R S Sharma has been credited to have brought in numerous business improvements in ONGC. Sun Micro Systems and CNBC TV-18. which was sick when ONGC acquired it. posted at Assam. His run-up to this career peak commenced 35 years ago in 1972 with the Union Bank of India. leveraging strengths to build up its fortunes over the last few years. he played an important role in providing value dimensions to ONGC’s business. After serving there in Credit Appraisal and related spheres for a decade. the banker relocated to Baghdad. Sharma played a pivotal role in financial engineering of ONGC’s other subsidiary MRPL also. Mr. to head the Finance function of another public enterprise. ONGC was assigned Baa1 Credit Rating.000 crores. The topping of the cake. for growth. New Delhi Institute of Management Page 28 . He was also conferred with India CFO Award 2005.
The new stimulation Bessel will increase the productivity of oil and gas wells by removing the drilling induced damage.000 barrels per day in the first half of next year. The following are some details of future projects of ONG: 1. The board of the state-run firm approved the development of the B-22 cluster and the B193 cluster at an estimated cost of Rs 8. The investment would help produce 10 million tonne of oil and 11.Future Projects The Oil & Gas industry is quite dynamic in nature.697 billion on 28 August 2009. The commercial production at the Mangla filed in the Barmer basin began in August 2009 with an initial capacity of 30.50 lakh bopd to 1. the only stimulation Bessel owned by ONGC. At present.000 barrels of oil per day (bopd) to two lakh bopd.26 crore with foreign exchange component of $1. According to a press release dated July 23.000 crore) to scale up the production capacity of their oil fields at Barmer in Rajasthan by 25. Oil and Natural Gas Corporation (ONGC) will invest Rs 8.75 lakh bopd. ONGC is planning to jointly invest 4 billion(Rs 20. 3. well stimulation jobs are done by Samudra Nidhi. While the gas production will commence by 2011.78 Crore to be executed in 39 months (38 months for New Delhi Institute of Management Page 29 . The board also approved procurement of second generation stimulation Vessel equipped with state-of-the-art technology for the Mumbai offshore at an estimated cost of Rs 764. increasing the effective well bore radius and changing the flow regime into the well bore.1 crore.5 billion cubic metres of gas over a 15-year period. They had earlier revised their production target from 1.000 bopd. 2. The new vessel will not only augment the stimulation job but will gradually replace Samudra Nidhi. ONGC holds 30% participating interest in this project. erstwhile considered to be taken up separately. The idea of combining two projects by way of offloading the process requirement and related facilities. This is quite a significant development as oil from Rajasthan will account for over 20% of India’s domestic oil production. would amount to a savings of about $133 million. It needs constant investment to stay ahead in this industry.554 crore in producing crude oil from two clusters of marginal fields in the western offshore by 2012. a company release said. oil production is to begin by 2012.554. 2009 ONGC Board approved setting up of Polypropylene Unit by MRPL integrated with its Phase-3 refinery project at a total project cost of Rs 1803. The production will be increased by a further 100.
New Delhi Institute of Management Page 30 .000 TPA of Polymer grade Propylene product.mechanical completion and 1 month for commissioning). The capacity of the plant is 440.
despite the strong fundamentals ONGC has not been able to outperform RIL in terms of providing the shareholders a better return on their investment. ONGC could not march with the market and hence was outperformed by RIL.Comparative Analysis ONGC v/s RIL: Source: Yahoo Finance The above figure gives a comparative performance of RIL and ONGC for the last five years. Clearly. New Delhi Institute of Management Page 31 . This is mainly because RIL is more responsive towards the sensex and during the period of July 2006 to December 2008.
GAIL. one should go for ONGC rather than its PSU counterparts as the return are higher in this scrip with almost same level of risk. HPCL. This shows that in order to diversify the portfolio. IOC over the last five years. New Delhi Institute of Management Page 32 . the scrip did perform better than PSUs in the same sector viz.Source: Yahoo Finance However.
The volumes started declining again but after that the scrip continued its march in the upward direction. These editorials reflected Dow’s beliefs on how the stock market behaved and how the market could be used to measure the health of the business environment. There are six basic tenets of Dow Theory. The first Bull trend that started after the listing of the scrip lasted till 10th May. 4. The share was listed on BSE in March 2004 on and after that the scrip saw a continuous Bullish trend. 2006. But the scrip also witnessed some secondary movement during its northward march which is shown in the graph. The major secondary trend during this upward march were the correction during the month of July 2005 when the scrip shed more than 54% of what it had gained in the past three months from mid April to June 2006. New Delhi Institute of Management Page 33 . Dow believed that the stock market as a whole was a reliable measure of overall business conditions within the economy and that by analyzing the overall market. 6. These are: 1.01.3% of the total gain since August 2005. 5. 2.2006 when the scrip witnessed selling pressure and it lost 45. one could accurately gauge those conditions and identify the direction of major market trends and the likely direction of individual stocks.2006 to 01.Technical Analysis Application of Dow Theory: Dow Theory was formulated from a series of Wall Street Journal editorials authored by Charles H. Dow from 1900 until the time of his death in 1902. however during this time it also saw Secondary Trend that resulted in some serious correction in the price of the scrip. The second major correction trend was during the period of 25.03. The stock market discounts all news The market has three movements Market Trends have three phases Trends are confirmed by volume Stock market averages must confirm each other Trends exist until definitive signals prove that they have ended Trend Analysis of the scrip: ONGC The Red lines indicate the Bearish Trend while the Green lines symbolize the Bull trend in the scrip. 3.
1200 mark again but the volumes were still on the lower side and finally the scrip gave up its upward motion and the bear took control of the scrip. But the scrip couldn’t sustain that level of valuation and the correction started in the price of the share. The scrip crossed its resistance level on 18th march. 960 – Rs. However.95. 800 mark on 20th August. At this time the market was quite volatile as everybody was uncertain about the severity of the recession on the Indian Economy.2 that means a decline of more than 48% which was almost equal to the level seen in January 2005.1. 2009. 762. However. 762. 2007. 2007 to 27th October. the secondary trend started from 08th June. the scrip was traded in the range of Rs. The primary Bear trend was confirmed by the huge decline in volume seen in the recent months. 2006 lasted for almost 2 months and the scrip gained almost 50% and crossed Rs. 600 mark. 650 and Rs.2 to Rs. first in the month of December itself when the scrip covered much of the lost ground and touched Rs. The next Bear Trend unleashed at the start of November. Finally. 2007 but the correction period was very short and the scrip picked its motion again and continued its upward motion till it breached Rs. 2007 when the devil named recession was about to enter into the market. 1366. Finally. 2007 because of which the scrip saw its value declining from Rs. 2007 and after that it saw a very small period of correction and the scrip shed 162 points and reached below Rs. 1175 mark on 29th May.After the long Bull Run on the sensex the scrip finally gave up its upward march and the bear took the control of the scrip that lasted till 16 th March. 1300 mark on 1st November. During this phase the scrip saw two major secondary trends. the dust settled on 16th March. a correction of more than 54%. 1300 mark again but the recession hit the Indian market in January 2008 and the scrip could remain unaffected from the impact of the recession. an increase of almost 80% from the level seen in March 2007. 2008 during which the scrip lost more than 700 points to reach below Rs. 860 for the three months duration from 25th April to 25th July. Its value declined to below Rs. the market activities picked up and so did the scrip. In the next three and a half months the scrip remained volatile and being traded between Rs. The Bear trend lasted for almost one full year from 3rd November. 2008 when it touched s. After that the scrip looked exhausted and shed almost 1200 points New Delhi Institute of Management Page 34 . 1484 to Rs. The next Uptrend in the scrip lasted for almost 9 months and the scrip saw its value appreciated from the bottom of Rs. Finally. 1000 mark again. 800 mark and then the scrip witnessed another secondary trend from mid June 2008 to the end of September. due to some positive global as well domestic cues. 2009 and started its upward march till it crossed Rs. 2007 and the upward trend started from the next week of March. 2007 after a span of almost 14 months. 620. the selling pressure ensured that the scrip reached to its bottom of Rs. 720 with the former figure being the support level while the latter being the resistance level.
New Delhi Institute of Management Page 35 . 630 is on a upper growth trajectory which is going to sustain over the long run. In 1939. Also. 2009. In recent times. the scrip has shown a primary uptrend for a period of at least 12 months once the volumes started accelerating. Elliott detailed the Elliott Wave Theory.before picking its upward motion again form 23rd June. Application of Elliott Wave Theory: 5 3 1 B C 4 2 A Operation of Elliot Wave R. Elliott believed markets had well-defined waves that could be used to predict market direction. N. It reached its 52 week high figure of Rs.4 on 21st August. 2009. This pattern is becoming visible here and the scrip after reaching to the level of Rs. the scrip is again looking exhausted and there are some definite signs of decline in the value of the scrip but this is definitely going to be a secondary trend as the stock market is poised for an upward trend. which states that stock prices are governed by cycles founded upon the Fibonacci series (1-2-3-5-8-13-21…). 1191.
According to the Elliott Wave Theory.77 and the total Weightage in the Sensex is 4. stock prices tend to move in a predetermined number of waves consistent with the Fibonacci series. Moreover. The scrip didn’t show the Elliot wave pattern over this period of five years so prominently and the scrip has got its own pattern of movement. it can be said that Elliot wave theory doesn’t have a major say in predicting the future pattern of the scrip. Elliott believed the market moved in five distinct waves on the upside and three distinct on the downside.8% (as on 31/03/09. Source: Bseindia. The Beta value affirms the positive correlation between the scrip and the Sensex but it is not highly correlated with the market and has a tendency to underperform than the market on upward movement while it outperform the market if the sentiment in the market is gloomy. While the market showed a steady upward movement from July 2006 and there was a primary Bull New Delhi Institute of Management Page 36 . Therefore. the scrip has got a unilateral type of movement on either side upward or downward.com). Specifically. the scrip has performed at par with the sensex and the rise/fall in value of either of the two is the same. Till January 2006. However. It is quite evident from the graph shown above. Comparison of BSE Sensex with Share Prices of ONGC Analysis: The scrip has a Beta value of 0. from 2006 onwards this pattern somehow started disappearing and the scrip has shown sharper movement than the sensex on the downside while the movement on the upper side has been sluggish as compared to the sensex.
Then a fresh spurt in the volume level drove the prices again and the Head was formed and the period of formation was from February 14. However. But as discussed earlier it takes a New Delhi Institute of Management Page 37 . Then the pattern finally becoming evident as the volumes were relatively lower in the right shoulder and the bear trend was looking certain in the scrip. the sensex is looking exhausted and so does the scrip as the volume is falling. The first pattern that is. This resulted in the formation of a bubble that couldn’t sustain and finally burst and that resulted in a bearish trend for more than a year. 2006 to June 12. for the past two weeks. 2008 just before the stock market crash. Head and Shoulder Pattern appeared after a long Bull trend in the scrip since it was listed on the stock exchange. This was the time when the market was touching a new high. 2005 and it ended on February 13. 2006. The two chart patterns that are shown here are very prominent reversal patterns for the stock market. In the right most part of the a pattern is indicated which is taking the shape of Head and Shoulder and might just well be another sign of reversal. 2006 that means a period of 6 months. 2007 to January 14. However.Trend in the market. (This is depicted in the graph below). the scrip couldn’t catch up the market till September 2008 and remained volatile during this period without showing much movement on either side. The formation of left shoulder started on December 5. Just before the development of this pattern the volumes were drying up and then as the volumes started picking up. The next pattern that is quite visible in the graph is double top pattern that was developed during October 15. This might be an encouraging signs for the investors who are thinking of taking a long position on this share as the market is expected to go up backed by the revive in the Indian Economy and the positive Global cues that is coming in recent times. the first shoulder was formed. Analysis of Chart Patterns The above graph shows the working of different chart patterns on the scrip for the last five years. This might be an indicator of further correction in the market and the scrip will move accordingly though the quantum of movement of in the scrip will be slightly greater than the movement in the sensex. the scrip has shown good response to the movement of the market in the recent times.
a close watch is the need of the hour. The following graph shows the share price movement of ONGC from Sep. 2009. Use of Technical Indicators Bollinger Band Analysis: Bollinger Bands are curves drawn in and around the price structure that define high and low on a relative basis. The base of the bands is a simple moving average. By definition. 2004 to August 31. New Delhi Institute of Management Page 38 . A measure of volatility. is used to set the width of the bands making them fully adaptive to changing market conditions. prices are high at the upper band and low at the lower band. The purpose of Bollinger Bands is to provide a relative definition of high and low. The defaults are bands spread above and below a 20-day simple moving average by two standard deviations. 6. standard deviation.considerable amount of time for the completion of this pattern and therefore. This definition can aid in rigorous pattern recognition and is useful in comparing price action to the action of indicators to arrive at systematic trading decisions.
Aug 07. it is looking quite probable that the scrip is poised to show a downward correction in its price as the Bands are closing at the rightmost end of the graph and the scrip has already touched the upper Band. Aug 08. New Delhi Institute of Management Page 39 . the Red Line the Signal or Trigger Line while the Blue Line indicates the MACD line in the lower panel of the Graph. Divergence. is going to shed some points in the coming days. The default MACD is represented as the difference between a 26-day and 12-day EMA of the price. and May 09). Oct 06. This is quite significant pattern and going by this historical evidence. Whenever the scrip has touched the upper Band. is also plotted as a histogram. Oct 07. there is one more thing to note in this graph is that the movement of the scrip (either way) is quite sharp whenever it touches either of the two Bands when there is a wide gap between the two bands and the movement is comparatively less sharp in the case of narrow Gap between the two Bands. is plotted on top of the MACD to indicate buy/sell opportunities. the difference between the MACD and the signal. most probably. The downward movement might not be too much because the Gap between the two bands is relatively narrower. A 9day EMA of the MACD. But the scrip. The MACD is most effective in wide-swinging trading markets. it has shown downward movement and whenever the scrip has touched the lower Band. MACD Analysis: Moving Average Convergence Divergence (MACD) is a trend-following momentum indicator that shows the relationship between two moving averages of prices.Source: Yahoo Finance The scrip has shown a very interesting movement right from the beginning of the graph. In the given figure. (See May 06. though the duration of the movement has been varying over the period of time. it has shown upward movement in most of the cases. Also. referred to as the signal (or trigger) line.
This time too. The scrip has responded according to the movement of Signal Line that means whenever the MACD falls below signal line. This allows investors to track and respond quickly to recent price trends that might take more time to appear in an SMA.Source: Yahoo Finance Going by the basic MACD trading rule. the MACD line has fallen below the Signal Line (see the rightmost part in the lower panel of the graph) and this indicates a future downward correction in the price of the scrip. the scrip has sown downward movement and vice-versa. one can easily make out form this graph that the indicator is giving the sell signal to the investor. The formula for an EMA is: New Delhi Institute of Management Page 40 . Exponential Moving Average Analysis An EMA differs slightly from a Simple Moving Average (SMA) in that it gives extra weight to more recent price data.
The catching up phase in upward movement is supported by a significant rise in the volume while during the catch up phase in downward movement the volumes has come down quite significantly. it smooths out a data series. Like an SMA.EMA = price today * K + EMA yesterday * (1-K) where K = 2 / (N+1). This clearly indicates the further downward movement in the scrip in the coming trading sessions. making it easier to spot trends. New Delhi Institute of Management Page 41 . the volumes are drying up for the scrip. The red line in the graph represents the EMA line.e. 10 weeks as it shows the behaviour of the scrip over the last 5 years more precisely than 200 days moving average. While the scrip is trying to catch the EMA line which is on the lower side. the exponential moving average has been taken for 50 days i. Source: Yahoo Finance In the above graph. (See the Histograms on the rightmost part of lower panel of the graph). The recent trend is no exception from the past trends. The scrip has shown consistent movement around the EMA line and has catch up with the line within 3 months if it has deviated too much on the either side.
This time too when the scrip crossed the upper boundary of 75 on RSI this May. Therefore. New Delhi Institute of Management Page 42 . The scrip crossed 60 a fortnight ago when it reached to a 52 week high figure and then there is a clear evident of secondary movement in the price of the scrip. The Relative Strength Index is a price-following oscillator that ranges between 0 and 100. he recommended using a 14-day Relative Strength Index. Source: Yahoo Finance The scrip has got a history of trading in the range of 30 to 75 (RSI) for the last five years and it has corrected itself each time the movement is beyond 75 or below 30. the scrip will move up after a bit of correction in the coming weeks. When Wilder introduced the Relative Strength Index.Relative Strength Index (RSI): The Relative Strength Index (RSI) measures the price of a security against its past performance in order to determine its internal strength (in an attempt to quantify the security’s price momentum). Since then. the 9-day and 25-day Relative Strength Indexes have also gained popularity. it corrected its upward movement and finally the movement is settled around 50 on RSI.
it can be recommended to add to the portfolio to reduce the risk as the market price of the share will appreciate in the coming times. therefore. interest rates will not play a spoilsport. The other thing that can be recommended here is that despite correlations (whether positive or negative) the scrip has got a particular pattern of movement of its own which it follows continuously therefore sometimes the trend in the market doesn’t necessarily reflect the trend in that particular scrip. market right now is not a broad market where the either movement is supported by most of the scrips. Therefore. The scrip doesn’t show any sudden upward or downward movement and either movement use to be gradual in nature for this scrip. ONGC is a kind of share which gives a decent return to the investors without putting them into too much of a risk. GDP growth rate. it needs just one push from the global market to set the Indian Stock Market on a high trajectory yet again. This is because of the fact that right now the market is too volatile to invest and basically. for the investors who missed the opportunity to invest in the market when it was in the bottom in March.Recommendations & Suggestions The Indian stock market has recovered from the impact of recession and the confidence of the investors and FIIs is restoring in the market again. instead it is a market where one has to see a particular stock to trade and the investor can’t bet big on the sensex as a whole. The positive Global cues that are expected to come from various quarters will help the economy revive in a big way and the market is going to react in the same enthusiastic manner. Though the market is looking a bit exhausted for the past one week because of the volatility it has shown in the past one week. The market has seen the bottom phase the uptrend that started this March is expected to continue providing some key economic factors like Monsoon. the coming weeks will set the tone for them. Finally. New Delhi Institute of Management Page 43 .
2009): Rs.20 Recommended Action: Take a short position for the next two weeks.60 crore and Rs.14 crore.300 but there is not much for the investor left in this scrip as it has already touched its 52 week high point and there is not much scope on the upside. 1.210 But the investor must invest at least for 9 – 10 months to get some decent return out of this scrip. 1. the FIIs have been net sellers in the equity market worth Rs. While in the previous three months.03 crore for the months of June. the scrip might reach to the level of Rs.185. So an investor should go for an IT or an auto company where the prices are going to appreciate in a New Delhi Institute of Management Page 44 . July and August 2009. But the correction will not be too much and the scrip will be able to regain its position after going through a short phase of correction. 1. 85. 1. This might be the right time to exit for them as the valuation of the companies are touching new highs after seeing those bottoms. Current Price of the Scrip (as on 31. the investors who are willing to invest in the scrip should wait till the next big movement in the scrip and then only they should go for either Long or short position for the scrip. However.08. In the span of next 6 months. 1.000 crore in the past three months alone.364. The DIIs have invested to the tune of about 13. May be now is the time for the DIIs to cash in on their earlier investment and this might lead to a great selling pressure on the market and some of the index companies in which these people have a holding. the DIIs have been investing in the market in a big way.Conclusion The scrip is definitely poised for a downward movement from this level and the correction is definitely on the cards. 3767. A very interesting pattern is being seen in the stock market for the Last three months. Target Price: Rs.120 Stop Loss: Rs.
New Delhi Institute of Management Page 45 .big way as the encouraging news coming from different quarters for these two sectors.
in http://scribd.yahoo.nic. Kevin Financial Management: I M Pandey Financial Management: Dr.com http://planningcommission.com http://bseindia.com http://www.com http://www.com http://www.nic. M Y Khan Annual Reports of ONGC Websites: • • • • • • • • • • • • • • • • http://www.finance.wikipedia.rediff.in http://nseindia.ongcindia.org.org New Delhi Institute of Management Page 46 .thehindubusinessline.com/Economics/GDP-Growth.money.com http://www.in http://labour.com http://rbi.nic.com http://www.com http://www.Bibliography Books: Investment Analysis and Portfolio Management: Prasanna Chandra Portfolio Management: S.aspx? Symbol=RUB http://www.moneycontrol.imf.tradingeconomics.in http://indiabudget.google.org/external/pubs/ft/weo/2009 http://www.
Annexure I New Delhi Institute of Management Page 47 .
Annexure II New Delhi Institute of Management Page 48 .
New Delhi Institute of Management Page 49 .
Annexure III Table 1.3: Rate of growth at factor cost at 1999-2000 prices (per cent) New Delhi Institute of Management Page 50 .
Table 1.4: Rate of growth at factor cost at 1999-2000 prices (per cent) Abbreviations MMSCMD: Metric Million Standard Cubic Meters Per Day MMT: Metric Million Tone BCM: Billion Cubic Metres MTs: Metric Tonne MTPA: Million Tonne Per Annum PNGRB: Petroleum & Natural Gas Regulatory Board New Delhi Institute of Management Page 51 .
FDI: Foreign Direct Investment TPA: Tones Per Annum New Delhi Institute of Management Page 52 .
This action might not be possible to undo. Are you sure you want to continue?
We've moved you to where you read on your other device.
Get the full title to continue reading from where you left off, or restart the preview.