Performance of Selected Securities in Comparison With Market Index-Vishwas HK-04120

“The performance of selected securities in comparison with market index”
A DISSERTATION SUBMITTED IN PARTIAL FULFILLMENT

OF THE REQUIREMENTS FOR THE AWARD OF
MBA DEGREE OF BANGALORE UNIVERSITY.
SUBMITTED BY
Vishwas H.K.
Reg. No – 04XQCM6119
UNDER THE GUIDANCE OF

Prof. Santhanam
M. P. BIRLA INSTITUTE OF MANAGEMENT

(ASSOCIATE BHARATIYA VIDYA BHAVAN)
BANGALORE – 560001
1
DECLARATION
This is to certify that the project titled “The performance of selected
securities in comparison with market index” submitted by me in partial

fulfillment of the requirement of Master of Business Management course, is
based on research work done by me under the guidance of Prof. Santhanam ,
M. P. Birla Institute of Management. This project has not previously formed
the basis for the award of any degree or diploma.
Place: Bangalore Vishwas H.K.

Date:
2
3
GUIDE CERTIFICATE
I hereby certify that the research work embodied in the dissertation entitled “The
performance of selected securities in comparison with market index” has been
undertaken and completed by Vishwas H.K. under my guidance and supervision.
I also certify that he has fulfilled all the requirements under the covenant governing
the submission of dissertation to the Bangalore University for the award of MBA
degree.
Place: Bangalore Prof. Santhanam

Date:
4
PRINCIPAL CERTIFICATE
I hereby certify that this dissertation is an offshoot of the research work undertaken
and completed by Vishwas H.K. under the guidance of Prof. Santhanam, faculty
member of M.P.B.I.M. Bangalore.
.
Place: Bangalore (Dr. N. S. Malavalli)
Date: Principal, MPBIM
5
ACKNOWLEDGEMENTS
I am happy to express my gratitude to Dr. N. S. Malavalli, (Principal, M. P. Birla

Institute of Management), for his encouragement, guidance and many valuable ideas
imparted to me for my project.
I extend my sincere thanks to Prof. Santhanam MPBIM, Bangalore for providing me

all the information required and the guidance throughout the project without which
this project would not have been possible.
I would also like to sincerely thank all my lecturers and my friends for their help in
completing my project successfully.
6
MARKET INDEXES
Introduction:
People from different walk of life use and are affected by

market indexes. Investors, both individual and institutional, used
the market index as a bench mark against which, they evaluate the
performance of their own or institutional portfolio.
The technicians or the chartists often base their decisions to

buy and sell on the patterns emerging out of the time series data of
market indexes. Even the economists and statisticians use stock
market indexes to study the trend of growth patterns in the
economy, to analyze as well as forecasts business cycles and to
correlate stock indexes to economic activity. The most important
index in financial market is the stock index, which uses a set of
stocks that are representative of the whole market, or a specified
sector, to measure the change in overall behavior of the markets, or
sector over a period of time. The final use of the market index is in
portfolio analysis. In discussions of the market model and
systematic it will be evident that the relevant risk of a security is
determined by the relationship between that securities return and
the return on the market.
7
An index is a number used to represent the changes in a set
of values between a base time period and another time period. A
stock index is a number that helps measure the levels of the
market. Stock index is a derivative asset because it derives its
existence and value from independent stocks issued by
corporations. It is the simplest derivative because it is structured as
merely same average of specified underlying stocks without any
complicated payoff.
Most stock indices attempt to be proxies for the market they

exist in. Returns on the index thus are supposed to represent
returns on the market that is the returns that an investor can get if
he has the portfolio representing the entire market.
8
Major stock indexes in India:
. BSE-SENSEX, first compiled in 1986 is a "Market
Capitalization-Weighted" index of 30 component stocks
representing a sample of large, well established and financially
sounds companies. The base year of BSE-SENSEX is 1978-79.
The index is widely reported in both domestic and international
markets through print as well as electronic media. BSE-SENSEX is
not only scientifically designed but also based on globally accepted
construction and review methodology. The "Market Capitalization-
Weighted" methodology is a widely followed index construction
methodology on which majority of global equity benchmarks are
based.
Since then, the stock market in the country has passed

through both good and bad periods. The journey in the 20th
century has not been an easy one. Till the decade of eighties, there
was no measure or scale that could precisely measure the various
ups and downs in the Indian stock market. The Stock Exchange,
Mumbai (BSE) in 1986 came out with a Stock Index that
subsequently became the barometer of the Indian Stock Market.
The growth of equity markets in India has been phenomenal

in the decade gone by. Right from early nineties the stock market
witnessed heightened activity in terms of various bull and bear
runs. More recently, the bourses in India witnessed a similar frenzy
in the 'TMT' sectors. The BSE-SENSEX captured all these
9
happenings in the most judicial manner. One can identify the
booms and bust of the Indian equity market through BSE-
SENSEX.
The “Index Committee” of the Exchange reviews all BSE-

Indices periodically. The committee frames the broad policy
guidelines for the development and maintenance of all BSE
indices. The Index Cell of the Exchange carries out the day to day
maintenance of all indices and conducts research on development
of new indices
The Index was initially calculated based on the "Full Market

Capitalization" methodology but was shifted to the free-float
methodology with effect from September 1, 2003. The "Free-float
Market Capitalization" methodology of index construction is
regarded as an industry best practice globally. All major index
providers like MSCI, FTSE, STOXX, S&P and Dow Jones use the
Free-float methodology.
Sensex Calculation Methodology
Sensex is calculated using the "Free-float Market

Capitalization" methodology. As per this methodology, the level of
index at any point of time reflects the Free-float market value of 30
component stocks relative to a base period. The market
capitalization of a company is determined by multiplying the price
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of its stock by the number of shares issued by the company. This
market capitalization is further multiplied by the free-float factor to
determine the free-float market capitalization
Understanding Free-float Methodology
Concept:
Free-float Methodology refers to an index construction

methodology that takes into consideration only the free-float
market capitalization of a company for the purpose of index
calculation and assigning weight to stocks in Index. Free-float
market capitalization is defined as that proportion of total shares
issued by the company that are readily available for trading in the
market.
National stock exchange indices:
With commencement of derivatives trading in India, foreign

bourses have evinced interest to introduce trading in derivatives
based on Indian indices. Under an agreement, Singapore exchange
derivatives trading Ltd., (SGX-DT) was granted a license to trade
futures and options contracts based on S&P CNX Nifty index.
SGX-DT launched the SGX S&P CNX Nifty index futures
contract on sep 25, 2000. the contract is based on the S&P CNX
Nifty index, which is owned by IISL, a subsidiary of NSE. The
11
SGX S&P CNX Nifty index futures is traded in US $, with a
contract size equivalent to US $ 20 multiplied by the S&P CNX
future index. The trading of nifty future SGX was introduced for
enabling international market participants gain exposure to the
Indian stock market in a highly cost effective manner. With the
growing no of global investors getting exposure to the Indian
market place, especially in stocks related to technology, internet
and pharmaceuticals, the contracts will help participants to
effectively trade as well as hedge their portfolio.
S&P CNX Nifty, which comprises of 50 largest and most

liquid stocks, was introduced in April 1996. It has a historical time
series dating back to January 1990. It accounted for 51.2% of total
market capitalization of CM segment of NSE as at end June 2001.
CNX Nifty junior introduced in December 1996 is built out of the
next 50 large and liquid stocks. S&P CNX Nifty was introduced by
the NSE keeping in mind that it would be used for modern
applications such as index funds and index derivatives besides
reflecting the stock market accurately. It has become the most
popular and widely used indicator of the stock market in the
country.
These indices are monitored and updated dynamically and

are reviewed regularly. These are maintained professionally to
ensure that if continues to be a consistent benchmark of the equity
market. This involves inclusion and exclusion of stocks in the
12
index and the day today tracking and giving effect to corporate
actions on individual stocks. The composition of Nifty is reviewed
every quarter. This helps in maintaining liquidity of the index
while preventing too many changes making the index unsuitable.
The index is calculated afresh every time a trade takes place in an
index stocks. It is calculated unlike online and disseminated over
trading terminals across the country.
Correlation analysis:
Correlation analysis measures the relationship between two

items, for example, a security’s price and an indicator. The
resulting value (called the “correlation coefficient”) shows if
changes in one item (e.g., an indicator) will result in changes in the
other item (e.g., the securities prices). When comparing the
correlation between two items, one item is called the “dependent”
item and the other the “independent” item. The goal is to see if a
change in the independent item (which is usually an indicator) will
result in a change in the dependent item (usually a securities price).
This information helps to understand an indicators predictive
ability.
The correlation coefficient can range between + or –

1.0(plus or minus one). A coefficient of + 1.0, a “perfect positive
correlation”, means that changes in the independent item will result
in an identical change in the dependent item (e.g., a change in the
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indicator will result in an identical change in the securities price).
A coefficient of -1.0, a “perfect negative correlation”, means that
changes in the independent item will results in an identical changes
in the dependent item, but the change will be in the opposite
direction. A coefficient of zero means, there is no relationship
between the two items and that a change in the independent item
will have no effect in the dependent item.
A low correlation coefficient (e.g., less than+-0.10)

suggests that the relationship between two items is weak or non-
existent. A high correlation coefficient (i.e., closer to plus or minus
one) indicates that the dependent variable (e.g., the security’s
price) will usually change when the independent variable (e.g., an
indicator) changes.
The direction of the depended variables changes depends

on the sign of the coefficient. If the coefficient is a positive
number, than the dependent variable will move in the same
direction as the independent variable, if the coefficient is negative
than the dependent variable will move in the opposite direction of
the independent variable.
Correlation analysis can be used in two basic ways, to

determine the predictive ability of an indicator and to determine
the correlation two securities. When comparing the correlation
between an indicator and a securities price, a high positive
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coefficient (e.g., more than + 0.70) tells that a change in the
indicator will usually predict a change in securities price. A high
negative correlation (e.g. less than – 0.70) tells that when the
indicator changes, the securities price will usually move in the
opposite direction. A low coefficient (e.g., close to zero) indicates
that the relationship between the securities price and the indicator
is not significant.
Correlation analysis is also valuable in gauging the

relationship between two securities. Often, one securities price
“leads” or predict the price of another security. For example the
correlation coefficient of gold verses the dollar shows a strong
negative relationship. This means that an increase in the dollar
usually predicts a decrease in the price of the gold.
Relative Strength, comparative

Overview
Comparative Relative Strength compares two securities to

show how the securities are performing relative to each other. Be
careful not to confuse Comparative Relative Strength with the
Relative Strength Index.
Interpretation
Comparative Relative Strength compares a security's price

change with that of a "base" security. When the Comparative
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Relative Strength indicator is moving up, it shows that the security
is performing better than the base security. When the indicator is
moving sideways, it shows that both securities are performing the
same (i.e., rising and falling by the same percentages). When the
indicator is moving down, it shows that the security is performing
worse than the base security (i.e., not rising as fast or falling
faster).
Comparative Relative Strength is often used to compare a

security's performance with a market index. It is also useful in
developing spreads (i.e., buy the best performer and short the
weaker issue).
Calculation
The Comparative Relative Strength indicator is calculated

by dividing one security's price by a second security's price (the
"base" security). The result of this division is the ratio, or
relationship, between the two securities.
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RESEARCH METHODOLOGY
Research design simply means a search for facts – answer to

questions and solutions to problems. A research design is a
purposeful scheme of action proposed to be covered out in a
sequence during the process of research focusing on the problem to
be tackled. It is a guideline for the researcher to enable him to keep
track of his actions and to know whether he was moving in the
right direction in order to achieve his goal. The design has a
specific presentation of the various steps in the process of the
research.
For the purpose of this study, the following methodology

was adopted:
 Identification of the study period.

 Identification of certain industries that are considered to be
leading indicators of stock market and identifying one
company each from these industries.
 Collection of monthly closing price of equity stocks of
companies in the above industries.
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 Conducting serial correlation tests on the stock prices for
twelve months and thus co-efficient of correlation is found
out.
 Collection of BSE indices closing values for the same period
on a monthly basis and comparing individual stocks with
their respective indices.
STATEMENT OF PROBLEM
Several investors have gained as well as lost in the stock

market. One way to determine the stock price is fundamental
analysis, which in turn is composed of economy, industry and
company. The other way is technical analysis, which says that the
past trends will repeat in the future.
The question that arises here is that whether security moves

with the market index, so that losses and gains can be estimated
with the movement of the market index. The relationship between
the security and market index is done by correlation, relative
strength index and moving average method.
Therefore in this study the researcher has tried to find out;
 The study period

 The economic indicator of the stock market
 Conduct a serial correlation analysis to determine whether
the relationship exist or not
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 Whether ordinary investor has out performed or over
performed with scrips is checked with moving average
 To determine the indicator that is a combination of security
and market index, this is done by drawing the RSI curve.
OBJECTIVES OF THE STUDY
The main objective of the study is to test “The performance

of selected securities in comparison with market index”. The
research means that security prices are the reflection of market
index. With this, the research work deals with the following
objectives:
 Understanding the performance of selected securities in

comparison with market index.
 Provide guidance for the investors in determining what types

of analysis is useful.
 To study the literature behind market index.
 To carry out correlation analysis.
 To find out regression equation.
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 To determine whether speculator in India can invest in
security by tracing market indices.
SCOPE OF THE STUDY
One of the most important functions of the market index is

to show, in which direction the set of scrips are heading towards.
The market index as a bench mark against which, the investor
evaluate the performance of their own or institutional portfolio.
Market indices are one of the economic indicators, if the index is
heading upwards, it shows that economy is on boom, investor’s
purchasing power is high, and market is bullish. If index is heading
downwards, it signifies slack period in the economy, in this period
investor is bearish. If the historical data is projected it shows future
trends, by the help of this, investor can forecast and take decisions
accordingly to buy or to sell or to hold the securities. This research
seeks to investigate and constructively contribute to help:
 The investors in understanding the performance of selected

securities in comparison with market index.
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 It also helps the investor to understand the working of
market index and other related concepts.
 It serves as a reference for further research.
REVIEW OF LITERATURE
One of the dominant themes in the academic literature since

the 1960’s has been the concept of a capital market. As it is a well-
researched area abundant literature is available for it. For the
purpose of this study, the following books were referred:
 “Security analysis and portfolio management”, fifth edition,

Balla.
 “Investments”, sixth edition, Jack Clark Francis.
 “Investment analysis and portfolio management”, ninth
edition, Prasanna Chandra. Tata McGraw-Hill publishing Co
Ltd., New Delhi.
 “Financial management”, seventh edition, R K Sharma and
Shashi K Gupta, Kalayani Publishers.
 Journals
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 Capital Market,
 Emerging trends in financial markets,
 Outlook- money
 Dailies
 Business Line
 Economic Times
 Financial Express
 Business Standard
DEFINITION OF CONCEPTS
 Stock market: The financial market for small, medium and

long term securities.
 Market index: A stock index is a number that helps

measure the levels of the market. Stock index is a derivative
asset because it derives its existence and value from
independent stocks issued by corporations
 Equity: The net worth of a firm consisting of paid up equity

capital plus, reserves and surplus.
 Portfolio: A combination of assets
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 Correlation Analysis: It is the statistical tool used to
describe the degree to which one variable is linearly related
to another.
SAMPLING METHOD
A sample is a small representation of lot of population

selected at random. The random of drawing a sample from large
population is called as sampling. The sampling method adopted in
this study is judgment sampling. Sampling data in this study
comprised of five stocks listed on the Bombay Stock Exchange for
the period from December 2004 to May 2006. Each series consists
of 18-montly observation made at each month end closing price for
each stock dominated in Indian rupees. The sample stocks were
selected from the specified group of Bombay Stock Exchange. The
selection of the stocks was also based on the fact that the data set
continuously available through the period considered that is from
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December 2004 to May 2006. For the purpose of this study, the
share price series are adjusted for rights and bonds.
DATA COLLECTION TOOL
This study is by and large a desk job work. Both primary

and secondary data are collected for the study purpose. Conducting
interviews with stockbrokers collects the primary data. Secondary
data is collected from different sources, which are as follows:
 Textbooks and journals- as stated under review of literature.
 Websites- equitymaster.com, capitalmarket.com,

bseindia.com, indiainfoline.com
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 News papers – Economic Times, Business Line, Financial
Express.
 Stock Exchange – BSE, BgSE. and NSE.
LIMITATIONS OF THE STUDY
Though sincere attempts have been made during the

research work, certain limitations cannot be avoided, they are:
 Difference in definitions.
 The research work does not considered other type of

securities such as Debentures, short term and long term
loans etc.
25
 Accuracy of testing the performance of selected securities in
comparison with market index depends on the experience of
the researcher. Here the researcher lacks it.
LAYOUT OF THE CHAPTERS
Chapter 1: Introduction
This chapter includes the general introduction to market
index and leading stock index in India. The chapter gives an over
all idea about market indices.
Chapter 2: Design of the study
This chapter deals with the various aspects of research
methodology, viz., statement of the problem, scope and objectives
of the study, review of literature, definition of concepts, sampling
26
methods, tools for collection of data and analysis, limitation of the
study.
Chapter 3: study of industrial sectors to which selected
securities belong
This chapter contains historical background and trends of
the industries under study.
Chapter 4: Analysis
This chapter contains an analysis of the data with reference
to the objectives. The entire data is summarized into tables and
charts.
Chapter 5: summary of the study
This chapter contains the executive summary of the
dissertation, valid findings of the study
INDUSTRIAL BACKGROUND OF THE STUDY
ALUMINIUM
The most commercially mined aluminum ore is bauxite, as it

has the highest content of the base metal. The primary aluminum
production process consists of three stages. First is mining of
bauxite, followed by refining of bauxite to alumina and finally
smelting of alumina to aluminum. India has the fifth largest
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bauxite reserves with deposits of about 3 bn tones or 5% of world
deposits. India's share in world aluminum capacity rests at about
3%. Production of 1 tone of aluminum requires 2 tones of alumina
while production of 1 tone of alumni
The aluminum production process can be categorized into

upstream and downstream activities. The upstream process
involves mining and refining while the downstream process
involves smelting and casting & fabricating. Downstream-
fabricated products consist of rods, sheets, extrusions and foils.
Power is amongst the largest cost component in

manufacturing of the non-ferrous metal, as the production process -
- smelting -- involves electrolysis. Consequently, manufacturers
are located near cheap and abundant sources of electricity such as
hydroelectric power plants. Alternatively, they could set up captive
power plants, which is the pattern in India. Indian manufacturers
are the lowest cost producers of the base metal due to access to
captive power, cheap labour and proximity to abundant supply of
raw material – bauxite
The Indian aluminum sector is characterized by large

integrated players like Hindalco and National Aluminum Company
(Nalco). The other producers of primary aluminum include Indian
Aluminum (Indal), now acquired by Hindalco. Bharat Aluminum
(Balco) and Madras Aluminum (Malco), the erstwhile PSUs, have
been acquired by Sterlite Industries. Consequently, there are only
three main primary metal producers in the sector.
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The per capita consumption of aluminum in India continues
to remain abysmally low at under 1 kg as against nearly 20 kgs in
the US and Europe, 15 kgs in Japan, 10 kgs in Taiwan and 4 kgs in
China. The key consumer industries in India are electricals
(power), transportation, consumer durables, packaging and
construction. Of this, power is the biggest consumer (over 1/3rd of
total) followed by transportation (about 18% of total). However,
internationally, the pattern of consumption is in favour of
transportation, primarily due to large-scale aluminum consumption
by the aviation industry.
The metal has a long working life due to its propensity for
recycling. Recycled metal requires significantly less amounts of
energy for manufacturing of primary aluminum. Just to put things
in perspective, the recycling of aluminum scrap requires 5% of the
energy required for primary smelting, which is astoundingly lower,
considering that power is such a high cost component
Key points:
Supply: Supply of aluminum is in excess and any deficit can be

imported at low rates of duty. Currently, domestic production
comfortably meets domestic requirements.
Demand: Demand for aluminum is estimated to grow at 6%-8%

per annum in view of the low per capita consumption in India.
Also, demand for the metal is expected to pick up as the scenario
improves for user industries, like power and transportation, which
closely track economic growth.
29
Barriers to entry: Large economies of scale. Consequently, high
capital costs.
Bargaining power of suppliers: Being a commodity, customers

enjoy relatively high bargaining power, as prices are determined on
demand and supply.
Bargaining power of customers: Being a commodity, customers

enjoy relatively high bargaining power, as prices are determined on
demand and supply.
Competition: Competition is primarily on quality and price, as

being a commodity, differentiation is difficult. However, the recent
spate of consolidation has reduced the competitive pressure in the
industry
Prospects:
Globally, newer packaging applications and increased usage

in automobiles is expected to keep the international demand
growth for aluminum between 3% - 4% in the long-term. Asia will
continue to be the high consumption growth area led by China,
which has been and is expected to continue to register double-digit
growth rates in aluminum consumption in 2005.
30
With key consuming industries forming part of the domestic
core sector, the aluminum industry is sensitive to fluctuations in
performance of the economy. Electricals and transportation
account for more than 50% of domestic aluminum consumption.
With the Government focusing towards attaining GDP growth
rates above 8%, the key consuming industries are likely to lead the
way, which could positively impact aluminum consumption.
Domestic demand growth is estimated to average in the region of
about 6% - 8% over the longer-term, though FY05 would be
another year of above average growth.
Being a commodity, international prices on the London

Metal Exchange (LME) are closely linked to the demand-supply
position and consequently global inventory levels. Volatility in
domestic prices is lower compared to international prices, as Indian
manufacturers adjust prices only when a clear trend is visible on
the LME. However, with reduction in import duties in Interim
Budget '05, the buffer on international prices will reduce leading to
31
stronger linkage with international markets. Consequently,
volatility in domestic markets could increase.
The improvement in the economy in FY05 had its positive

impact on the aluminum industry, which can be gauged from the
fact that production and consumption increased by nearly 20% last
fiscal. During FY05, the Index of Industrial Production (IIP) grew
by 6.8%, which was an improvement over FY03's 5.8% growth.
We reckon domestic demand in the current fiscal to remain firm.
Over the past few years, mergers & acquisitions (M&A)

have led to three main groups in the domestic aluminum industry
A.V. Birla, Sterlite and the Government run Nalco. Further
consolidation in the domestic market is likely to augur well for the
industry. With lesser competition, companies could assert greater
control over pricing. In this context, the approach adopted by the
incumbent government towards privatization, which has put on the
back burner the divestment of state-owned Nalco, has provided a
sort of a setback to the consolidation in the sector. Consolidation in
any industry not only helps it to compete better but also improve
overall efficiencies.
While there was no specific announcement made in Interim

Budget 2005 pertaining to the aluminum industry, reduction in
peak customs duty from 25% to 20% is a cause for concern.
Lowering of duties reduces the net tariff protection for domestic
aluminum producers. With reduction in import duties, domestic
realization of aluminum majors, namely Hindalco, Nalco and
32
Indal, is likely to be under pressure, as the buffer on international
prices is reduced. Moreover, with greater linkage to international
prices, volatility in financials could increase. However, producers
are moving downstream to negate the higher volatility.
Further, though the interim budget did not announce any

specific measures for the aluminum sector, the increased thrust on
infrastructure spending will benefit the industry in the long run.
Spending on infrastructure sectors and the announcement that
mega power status would now be given to all power projects is a
positive for the aluminum industry. It must be noted that the power
sector accounts for over 1/3rd of the domestic aluminum
consumption. Power, transportation and construction, which are
the key aluminum-consuming industries, are likely to reap the
benefits of government spending.
CONSUMER PRODUCTS
The consumer product sector mainly consists of personal

care, cosmetics and home products segments. The sector can be
further sub-divided into dental care products, soaps, detergents,
surface cleaning products, skin care, and hair care products.
The sector is divided into two distinct segments - the

premium segment catering mostly to urban higher/upper middle
class and the popular segment with prices as low as 25%-30% of
33
the premium segment, catering to mass segments in urban and
rural markets. The premium segment is less price sensitive and
more brand conscious.
India's rural markets have seen a lot of activity in the last

few years. Since penetration levels are pretty high in most
categories, future growth can come only from deeper rural
penetration. FMCG majors are aggressively looking at rural India
since it accounts for 70% of the total Indian households.
The industry is volume driven and is characterized by low

margins. The products are branded and backed by marketing,
heavy advertising, slick packaging and strong distribution
networks. Also, raw material prices play an important role in
determining the pricing of the final product.
Despite the strong presence of MNC players, the

unorganized sector has a significant presence in this industry. In
most categories, unorganized sector is almost as big as the
organized sector, if not bigger.
Brand building and extensive distribution network is a key

factor. A successful brand is a precious asset, which could fetch a
price many times the cost of assets required to make the product. A
study conducted by A&M-ORG-MARG reflects that the share of
branded goods is high for a number of daily used products, and the
share of unbranded products is shrinking, albeit slowly.
34
The industry is very clearly sold on Dr. C. K. Prahlad's
concept of 'value at the bottom of the pyramid'. They recognize
that India is a value led market. There are numerous examples of
buoyant growth if the price proposition is right (telecom, home
loans, consumer durables). Therefore, the focus was on improving
efficiencies, reducing costs, improving supply chain efficiencies to
look at giving value to consumers, in a bid to bring about internal
factors led growth.
Key points:
Supply: Abundant supply in metros. Distribution networks are

Beefed up to penetrate the rural areas.
Demand: At an average GDP growth of 5.5% until FY2009, the

present consumer demand is set to boom by almost 60% over this
period.
Barriers to entry: Huge investments in promoting brands, setting

up distribution networks and intense competition.
Bargaining power of suppliers: Many established players have a

slight edge in bargaining power given the competition among
suppliers. Also, some of the companies have backward integrated,
which reduces the supplier's clout.
Bargaining power of customers: In case of branded products,

there is little that the consumer can influence, but intense
35
competition within the FMCG companies results in value for
money deals for consumers (e.g. buy one, get one free concept).
Competition: Competition is based mainly on product attributes.

However, in a bid to increase penetration in the nascent market,
companies often compete on pricing by offering discounts and
freebies. Foreign products are becoming increasingly visible in
urban domestic markets.
Prospects:
As per NCAER estimates, the ratio of the consuming class

to total households will touch 46% by FY07 (17.4% in FY95).
With per capita consumption low in most categories and
expectations of the consuming class growing in significant
numbers (as per NCAER estimates), the FMCG sector in India has
immense growth potential in the long term.
While the homegrown companies are looking to expand

beyond the Indian shores, the MNC subsidiaries are likely to look
for greater leverage of the parent strengths. Since India is a big
potential market, none of the big MNC's can afford to ignore the
region for long. The decade ahead is likely to see more MNC's
looking to enter India, as organized
Category Market Size Major players Growing
36
(Rs bn) at
Soaps & 90 HLL (50% share) 2%-5%

detergents
Shaving 12 Gillette (40% share) 12%-15%

products
Hair colour 3 Godrej Consumer 15%-20%

(45% share)
Hair Oils 12 Marico, Dabur 5%-6%
Oral care 30 Colgate (50%), HLL 2%-5%

(33%)
Skin care 9 HLL (55% share) 6%-8%
It is likely that companies will opt for consolidation to

generate growth. Bigger players are consolidating both brands and
the distribution networks. The P&G - Gillette merger globally is
likely to set the tone for the Indian shores as well.
The industry grouse of double taxation etc is likely to go

away in a few years as VAT gets implemented. The Finance
Minister himself has indicated his support for 'single country tax'.
Though VAT in its current avatar is not without flaws, here too the
movement can only be forward.
Another key positive for the sector is the current

government's focus on rural India. The aim is to make India the
37
hub of agri-processing. The e-choupal (ITC) and Shakti (HLL)
initiatives by corporate is likely to shape the dynamics of what
farmers produce going forward, with improved efficiency. The
interest of Group's like Bharti and Reliance in investing in this
sector points to the potential.
Companies are increasingly using information technology

for supply chain management. This is likely to result in a reduction
in inventory levels and an improvement in the working capital
cycle. The aim is to evolve just in time delivery systems. This will
benefit companies by controlling costs and improving margins.
Some MNCs have set up 100% subsidiaries (for example

Procter & Gamble), which is a cause for concern for the listed
subsidiaries, as new product launches are largely set to take place
through these subsidiaries.
The rising penetration of satellite and cable networks will

also fuel demand for a wide variety of consumer products. E-
commerce will bring in procurement efficiencies and will reduce
overheads finally allowing the companies to reduce their prices.
With new brands being launched rapidly and competition
becoming very aggressive, only those companies, who can spend
on research and development to innovate and develop new
products and processes, will gain in the long term.
38
PHARMACEUTICALS
The Indian Pharmaceutical industry is highly fragmented

with about 10,000 manufacturing units (300 in the organized
sector). The top ten companies make up for more than third of the
market. The revenues generated by the industry are approximately
US$ 5 bn and growing at an average rate of 9% over last five
years. While formulations account for around 35% of this industry,
bulk drugs make up for the balance. The Indian pharma industry
accounts for about 1% of the world's pharma industry in value
terms and 8% in volume terms, which suggest that it has a huge
potential to grow in value term. However, the annual per capita
drug expenditure is still amongst the lowest in the world.
Per Capita Health per 1000 people

Expenditure (US$)
India 94 0.8
Brazil 453 3.1
China 143 2.9
Malaysia 189 2
USA 3950 3.7
In recent past Indian companies have targeted international

markets and have extended their presence there. While some
companies are doing bulk drug exports some have moved up in the
39
value chain and export formulations and generic products. The
total exports from the country were more than at Rs 225 bn in the
year 2005. The country also offers excellent exports opportunities
for clinical trials, R&D, custom synthesis, technical services like
Bioinformatics.
The fortunes of Indian pharma industry are significantly

influenced by regulations. Indian companies capitalized on the
absence of product patents in the country and mastered the art of
making generics version of the patented drugs at very low cost.
However, by virtue of India being a member of the World Trade
Organization (WTO) and a signatory to the General Agreement on
Tariffs and Trade (GATT) it is bound recognize product patents,
latest by 2005.
The drug price control order (DPCO) continues to be a

menace for the industry. The pricing authority arbitrarily sets
prices of drugs that fall within its ambit without giving due
consideration even to the costs of production. There are three tiers
of regulations -on bulk drugs, on formulations and on overall
profitability. This has made the profitability of the sector
susceptible to the whims and fancies of the pricing authority.
Consequently, MNCs show reluctance in launching patented drugs
from their parent's product portfolio, thereby, affecting their
market share. However, off late, some MNCs have started making
aggressive product launches. Although government has brought
40
down the DPCO cover from 74 to 25 drugs in the new DPCO, the
same has not been brought into effect due to impending litigation.
However, once implemented, this could increase profitability of
companies having relatively older portfolios particularly MNCs.
While the average R&D spending in India for the industry

has been around Rs 6.6 bn, as a whole which is a meager 2% of
sales, the spend of the top five companies is about 6%. Despite
growing at a CAGR of 35% over last five years, the ratio is still
way below the global average of 15-20% of sales. However,
despite the low R&D spending as comparison to global
benchmarks, Indian companies are stepping up their research
activities to make themselves more self sufficient in terms of
product development ahead of the year 2005 deadline. Companies
like Dr. Reddy's and Ranbaxy have already achieved reasonable
measure of success in their R&D efforts.
Another peculiar feature of the domestic R&D initiative is a

lack of facilities and resources to develop a molecule, conduct
trials and then launch the product. On an average it costs roughly
US$ 350 m to US$ 500 m for a New Chemical Entity (NCE) to
pass through the various stages of clinical trials. Although Indian
companies with their expertise in chemistry are able to synthesize
molecules, the huge costs involved in conducting clinical trials and
launching the drug has prompted them to depend on international
peers to undertake the more expensive clinical trials and product
41
launches in return for upfront and milestone payments (ex
Ranbaxy out-licensed one of its urology molecules to Schwarz
Pharma and Dr Reddy's out licensed a molecule to Novo Nordisk).
Indian companies are thus able to mitigate the risk involved in new
drug discovery. However, off-late, Indian companies like Dr.
Reddy's have indicated plans of conducting clinical trials on their
own.
Key points:
Supply: Higher for traditional a therapeutic segment, which is

typical of a developing market. However, relatively lower for
lifestyle segment.
Demand: Very high for certain diseases, will change as life

expectancy, literacy increases.
Barriers to entry: Licensing, distribution network, patents, plant

approval by regulatory authority.
Bargaining power of suppliers: Distributors are increasingly

pushing generic products in a bid to earn higher margins.
Bargaining power of customers: High, a fragmented industry has

ensured that there is widespread competition in almost all product
segments.
42
Competition: High. Very fragmented industry with the top 300 (of
10,000 manufacturing units) players accounting for 85% of sales
value. Consolidation in the industry is likely to intensify.
Prospects:
While FY05 recorded a good growth and the markets grew

by about 8% mainly driven by high growth in lifestyle segment
such as CVS (17%), CNS (9%), anti-diabetic (12%) and
respiratory (9%) therapeutic segments. However, intense
competition ensured that the values of the products to decline. In
fact the growth in volume terms was about 2% more than growth
in value terms. In the year while Indian companies performed very
well both in exports as well as the domestic markets, performance
of the MNC's was not very impressive. However, in the longer run,
Indian companies would face fresh competition from MNCs, as
they would make aggressive new launches once product patents
are recognized post 2005.
The life style segments such as cardiovascular, anti-diabetes,

anti-ulcer and anti-depressants will continue to be lucrative and
fast growing. Growth in domestic sales in the future will depend on
the ability of companies to launch/shift products in relatively fast-
growing therapeutic segments. These are likely to be the key
earnings drivers. Here again, in view of the competition from
43
MNCs post 2005 and rise in the number of new entrants, the
current margins may not be sustainable in the long run.
The DPCO is likely to be significantly diluted soon though
there is litigation pending over it in supreme court. In case the new
order is passed the pressure on pricing of MNC pharma products is
likely to go away. Companies with high DPCO coverage currently
and strong brands in place are expected to benefit.
A new concept that is gaining momentum in the pharma

industry is contract research and contract manufacturing. Given the
low cost, high quality advantage, Indian companies are poised to
benefit from contract research business on behalf of multinationals.
As for contract manufacturing, large global pharmaceutical
companies are finding it profitable to outsource production. To
cash in on these opportunities much large production houses in the
country are becoming US FDA compliant.
The penetration of health insurance is abysmally low in the

country. The entry of private players would not only bring in
quantum leap in the health insurance business but also increase
capital inflows into this sector. With drug prices expected to
increase post 2005, health insurance could provide a cushion
against it and thus maintain the demand for drugs.
On the exports front, the global generics market is growing

at the rate of 10% to 12% and drugs having estimated sales of over
44
US$ 55 bn expected to go off patent in the next few years. This
coupled with the fact that the US government is facilitating a
speedy introduction of generic drugs into the market, increasing
the number of generics drugs in its Mediclaim policy, bodes well
for generic exporters. However the opportunity here may not be as
big as stated above, because the prices fall drastically once the
drug goes off patent.
BANKING
With the economic growth picking up pace and the

investment cycle on the way to recovery, the banking sector has
witnessed a transformation in its vital role of intermediating
between the demand and supply of funds. The revived credit off
take (both from the food and non food segments) and structural
reforms has paved the way for a change in the dynamics of the
sector itself. Besides gearing up for the compliance with Basel
accord, the sector is also looking forward to consolidation and
investments on the FDI front.
45
Public sector banks have been very proactive in their
restructuring initiatives be it in technology implementation or
pruning their loss assets. Windfall treasury gains made in the
falling interest rate regime were used for writing off the doubtful
and loss assets. Incremental provisioning made for asset slippages
have safeguarded the banks from witnessing a sudden impact on
their bottom lines.
Retail lending (especially mortgage financing) formed a

significant portion of the portfolio for most banks and the entities
customized their products to cater to the diverse demands. With
better penetration in the semi urban and rural areas the banks
garnered a higher proportion of low cost deposits thereby
economizing on the cost of funds.
46
Apart from streamlining their processes through technology
initiatives such as ATMs, telephone banking, online banking and
web based products, banks also resorted to cross selling of
financial products such as credit cards, and mutual funds and
insurance policies to augment their fee based income.
Key points
Supply: The Reserve Bank of India (RBI) controls liquidity.
Demand: India is a growing economy and demand for credit is

high though it could be cyclical.
Barriers to entry: Licensing requirement, investment in

technology and branch network.
47
Bargaining power of suppliers: High during periods of tight
liquidity. Trade unions in public sector banks can be anti reforms.
Depositors may invest elsewhere if interest rates fall.
Bargaining power of customers: For good creditworthy

borrowers bargaining power is high due to the availability of large
number of banks
Competition: High- There is public sector banks, private sector

and foreign banks along with non-banking finance companies
competing in similar business lines.
Prospects:
RBI's soft interest rate policy has helped increase the

liquidity in the market, however credit off take has not exactly
been robust. Going forward, the scenario is set to change in favour
of higher credit off take due to expected improvement in
agricultural output on the back of good monsoons as well as
revival in the Indian industry. However the same cannot be said for
the interest rate regime. Higher inflation and the prospect of the US
raising interest rates may necessitate a hike in interest rates in the
domestic markets also. This may in turn curb the growth of the
credit in the economy. Hence while the growth in credit may still
be robust, a higher interest rate scenario may however limit the
potential.
48
While the new law regarding securitization and foreclosure
of assets may take a while to bear any large benefits, currently the
benefits of increased power in the hands of the lender are making
the borrowers to come to the negotiating table. FY04 saw a
scenario where the borrowers were forced to negotiate with the
lenders, which consequently led to the borrowers returning some of
the dues to the lenders. Going forward the new law will bring
about greater accountability within the system and ensure that
borrowers do not take undue advantage of the system. Already an
asset reconstruction company has been set up by SBI in partnership
with other institutions like ICICI Bank and IDBI. If properly
implemented, this new law may lead to significant benefits for the
banking sector as a whole.
Currently the banking sector in the country is strongly

fragmented and hence with further policy changes taking place in
the sector, consolidation is likely to take place at a faster rate.
However this is subject to the removal of the ceiling on voting
rights will ensure that private sector and foreign banks will be in a
much better position to carry out acquisitions in the banking sector.
A hike in FDI capital limits in the sector would further go a long
way in the process of consolidation.
In terms of credit growth, going forward India's core sector

is witnessing a revival of sorts. The manufacturing sector
especially led by steel and cement industries has shown significant
improvement in FY05. We expect the trend to continue. Hence as
49
corporate growth picks up lending too is likely to see an up tick.
Retail credit off-take is expected to remain strong going forward
with the housing finance industry, the main contributor to credit
off-take from this segment, expected to grow between 20%-25% in
the next 3-4 years.
TELECOM
Although India's teledensity has improved from 3.64% in

March 2001 to over 7.5% in March 2004, we are way behind other
developing nations and also the Asian economies. The total annual
telecom revenue is estimated to be around Rs 435 bn and the sector
can broadly be divided into three segments, basic telephony,
cellular telephony and the Internet.
The cellular telephony segment has emerged as the fastest

growing segment in the Indian telecom industry. In fact, the
segment achieved a landmark in FY03 when for the first time;
more cellular subscribers were added than fixed line subscribers. A
50
slew of tariff reduction in the past 18 months has helped the
segment to gain in popularity. The cellular segment is playing an
important role in the industry by making itself available in the rural
and semi urban areas where teledensities are the lowest and where
the fixed line services will take some time to come because of high
capital investments required building a network.
As far as the internet services are concerned, currently there

are about 130 ISPs (internet service providers) who cater to an
estimated 9.8 m users through 1.7 m connections. Currently, two
firms, Videsh Sanchar Nigam Ltd (VSNL) and Satyam Infoway
Ltd (Sify) dominate the internet services landscape by accounting
for nearly 66% of the market.
On the international basic telephony front, the end of

VSNL's monopoly in 2002 brought two private players in the
international basic telephony business and the immediate effect
was the fall in tariffs. In the first six months only, the tariffs fell by
50% and the trend is likely to continue. With the most favored
customer status given to VSNL by fixed line majors like BSNL
and MTNL going away in FY04, the segment witnessed fierce
competition
In order to ensure fair competition and protection of

consumer interests, Telecom Regulatory Authority of India (TRAI)
was established in 1997 for providing a policy framework and
guiding the companies in the right direction. Although, TRAI has
had few successes to its credit, there are a couple of issues like the
51
current WLL row and the controversy regarding the move toward
an unification licensing regime (under this, one player can provide
all the services viz. Basic, cellular, International Long Distance,
National Long Distance in one circle or nationally) which need to
be resolved quickly so that it benefits both the companies and the
consumers.
Key points
Supply: Intense competition has resulted in prompt service to the

subscribers. However, smaller towns and villages continue to have
waiting periods on account of non-availability of adequate
infrastructure.
Demand: Given the low penetration levels in the country and

continuously falling tariffs, demand will continue to remain higher
in the foreseeable future across all the segments.
Barriers to entry: High capital investments, older and well-

established players who have a nation wide network, license fee,
continuously evolving technology and falling tariffs.
Bargaining power of suppliers: The suppliers to fixed line

providers have low bargaining power on account of monopoly of
BSNL and MTNL. In the cellular services, CDMA suppliers have
significant bargaining power, as it is a proprietary technology.
52
Bargaining power of customers: A wide variety of choices
available to customers both in fixed as well as mobile telephony
have resulted in increased bargaining power for the customers.
Competition: The entry of fourth cellular player and

commencement of WLL services has resulted in intense
competition in the bigger cities. Reducing tariffs will hurt the new
entrants, as they will be unable to recover their high capital
investments.
Prospects:
As far as the fixed line business goes, the low penetration

levels in the country and the increasing demand for data based
services such as the internet will act as major catalysts in the
growth of this segment, which is expected to touch 66 m
subscribers by 2005. The huge market share of public sector
behemoths, MTNL and BSNL (together they account for 97% of
the total fixed line connections) is unlikely to dwindle significantly
in the near term. This is on account of high capital investments
required in setting up a nation wide network. As a result, the
private sector players will have to rely on key business centers and
pockets of high urbanization for their growth.
Increasing choice and one of the lowest tariffs in the world

have made the cellular services an attractive proposition for the
average consumer. The segment has grown at over 160% in FY03
53
and almost 65% of the incremental subscribers in the telecom
sector were mobile phone users as compared to fixed line users. It
is being estimated that during the tenth five-year plan, around 31.6
m subscribers would jump onto the cellular bandwagon all over
India and this would entail an investment to the tune of Rs 252.4
bn. However, if the industry has to achieve the growth target and
attract the necessary investments, further policy measures like hike
in FDI limits may have to be implemented.
The International Long Distance (ILD) telephony business is

expected to witness increased competition with the entry of private
players. Already, private players like Bharti and Data Access have
started providing ILD services and this has pulled the tariffs down
by 50%. A couple of other players have also acquired the license
and are most likely to roll out their services in the near future.
Although this would result in depressed revenues in the near term,
low tariffs would ultimately result in increased volumes and higher
usage. Therefore we feel that instead of a single player calling the
shots, there will be enough room for every ILD service provider to
grow.
The segment of International Long Distance was witness to

another action recently, when Reliance Infocom acquired FLAG,
an international provider of wholesale telecom network transport
and communications. Thus VSNL, which was the sole provider of
international bandwidth till a year back, will face increased
competition as a result of the FLAG deal.
54
The Internet services market is not growing as fast as was
expected. The high growth in the region of 50% seems to be a
thing of the past as the number of subscribers is growing by less
than 10% on a quarter-to-quarter basis. High charges seem to be
the major impediment for growth. A majority of the access charge
goes toward paying for the local telephone charge and these
telephone companies refuse to share the revenues or reduce the
charges. However with the entry of private players into the
business of fixed telephony, the charges are expected to come
down. The government's decision to allow voice-based services on
Internet is also likely to boost the prospects of the ISP industry.
AUTOMOBILES
The Indian automotive industry consists of five segments:

commercial vehicles; multi-utility vehicles & passenger cars; two-
wheelers; three-wheelers; and tractors. With 5,822,963 units sold
in the domestic market and 453,591 units exported during the first
nine months of FY2005 (9MFY2005), the industry (excluding
tractors) marked a growth of 17% over the corresponding previous.
The two-wheeler sales have witnessed a spectacular growth trend
since the mid nineties.
Two-wheelers: Market Size & Growth
In terms of volume, 4,613,436 units of two-wheelers were sold in

the country in 9MFY2005 with 256,765 units exported. The total
55
two-wheeler sales of the Indian industry accounted for around
77.5% of the total vehicles sold in the period mentioned.
Demand Drivers
The demand for two-wheelers has been influenced by a number of

factors over the past five years. The key demand drivers for the
growth of the two-wheeler industry are as follows:
▪ Inadequate public transportation system, especially in the semi-

urban and rural areas;
▪ Increased availability of cheap consumer financing in the past 3-

4 years;
▪ Increasing availability of fuel-efficient and low-maintenance

models;
▪ Increasing urbanisation, which creates a need for personal

transportation;
▪ Changes in the demographic profile;
▪ Difference between two-wheeler and passenger car prices, which

makes two-wheelers the entrylevel vehicle;
▪ Steady increase in per capita income over the past five years; and
▪ Increasing number of models with different features to satisfy

diverse consumer needs.
56
INFRASTRUCTURE
According to the India infrastructure Report (IIR),
currently 5.5 percent of the GDP is invested in the infrastructure
sector. This needs to be increased to 7 percent within the next three
years and 8 per cent by 2005-06, by which time the annual level of
investment in infrastructural facilities is projected to treble or rise
even more, from the current level of Rs. 6000 billion (US$52
billion) by 2005-2006.
The total infrastructure investment requirements for the
next five years again have been estimated in the report at about Rs.
4000-4500.
The task of finding such large amounts and thereafter deploying

them productively calls for a close partnership between the public
and private sectors, with a vital role reserved for foreign capital.
To finance this large short fall, the domestic saving rate needs to
be increased by a minimum of 26.7%. besides this has to be
supplemented at the margin by FDI. However, this "margin is
indeed very important since the role of foreign investment has to
be read not only as a gap filler between saving and investment but
also as a means for bringing better technology and management.
MEDIA
The Indian entertainment and media (E&M) industry is poised to
grow at 19 per cent compound annual growth rate (CAGR) to
reach Rs 837.4 billion by 2010 from Rs. 353 billion (Rs 35,300
57
crore).
The television segment is slated to grow from its present size of Rs

148 billion to Rs 427 billion by 2010, according to a Federation of
Indian Chambers of Commerce and Industry ( FICCI) and
PricewaterhouseCoopers (PwC) report.
Economic growth, rising income levels, consumerism, coupled

with technological advancements and policy initiatives taken by
the Indian government, which are encouraging the inflow of
investment, will prove to be the key drivers for the entertainment
and media industry.
The industry has been forecast to outperform the economic growth

in each year till 2010.
Today media penetration is poor in lower socio-economic classes,

but efforts to increase it even slightly are likely to deliver much
higher results, simply due to the absolute numbers being large,” he
added.
Strong economic growth, rising consumer spending and regulatory

corrections are drawing foreign investments in most segments of
the E&M industry, especially the print media.
58
ANALYSIS
This chapter concentrates on testing the performance of

selected securities with market index. This is done by employing
statistical or technical tools viz., correlation analysis, relative
strength index and moving average. In this study, an attempt is
made to test the responsiveness of the selected security to the
market index (BSE sensex). For this proposes of testing five major
59
scrips were considered from five different industries (aluminum
consumer goods, pharmaceutical, banking, and telecom).
In the below given tables and graphs, correlation co-efficient

was calculated by taking price movements and index movements,
strength of security were studied by drawing relative strength
index and return on security is compared with market return by
moving average.
Correlation co-efficient = (covariance of market and stock) / (SD

Of stock * SD of market)
Relative strength index = (security price / market indicator)
Monthly moving average= (opening price / base price) * 100
Table showing price movement and RSI for HINDALCO
Month Hindalco Sensex RSI

Dec-04 134.21 6602.69 0.020327
Jan-05 122.33 6555.94 0.018659
Feb-05 131.18 6713.86 0.019539
Mar-05 121.69 6492.82 0.018742
Apr-05 111.6 6154.44 0.018133
May-05 106.33 6715.11 0.015834
Jun-05 112.95 7193.85 0.015701
Jul-05 119.5 7635.42 0.015651
Aug-05 134.94 7805.43 0.017288
60
Sep-05 138.32 8634.48 0.016019
Oct-05 107.33 7892.32 0.013599
Nov-05 125.85 8788.81 0.014319
Dec-05 143.4 9397.93 0.015259
Jan-06 164.8 9919.89 0.016613
Feb-06 153.3 10370.24 0.014783
Mar-06 182.45 11279.96 0.016175
Apr-06 224.4 12042.56 0.018634
May-06 229.75 12359.7 0.018589
After collecting monthly closing price correlation for the

above series of data was computed. +0.90 was the resulting
correlation. This means there is a perfect positive correlation
between security and market index.
Graph showing price movements for HINDALCO
61
250 14000
12000
200
10000
150
8000
Hindalco
Sensex
6000
100
4000
50
2000
0 0
4 5 5 5 5 5 5 5 5 5 5 5 6 6 6 6
c - 0 J a n - 0 e b - 0 a r - 0 A p r - 0 a y - 0 5 J u n - 0 J u l - 0 u g - 0 e p - 0 O c t- 0 N o v - 0 e c - 0 J a n - 0 e b - 0 a r - 0 A p r - 0 a y - 0 6
De F M M A S D F M M
Graph showing RSI for HINDALCO
62
0.025
0.02
0.015
0.01
0.005
04 05 05 -0
5 5 5 05 5 5 05 5 05 05 06 0 6
-0
6 6 6
c- n- b- ar r- 0 -0 n- l-0 g-
0
p- ct
-0 v- c- n- b- ar r- 0 -0
Ja Fe Ap ay Ju Ju No Ja Fe Ap ay
De M M Au Se O De M M
Table & graph showing monthly moving for HINDALCO
Month Hindalco Sensex

Dec-04 100 100
Jan-05 91.1482 99.29196
Feb-05 97.74234 101.6837
Mar-05 90.67134 98.33598
Apr-05 83.15327 93.2111
May-05 79.22659 101.7026
Jun-05 84.15915 108.9533
Jul-05 89.03956 115.641
Aug-05 100.5439 118.2159
Sep-05 103.0624 130.7722
Oct-05 79.97169 119.5319
Nov-05 93.77096 133.1095
Dec-05 106.8475 142.3349
Jan-06 122.7926 150.2401
Feb-06 114.224 157.0608
Mar-06 135.9437 170.8389
Apr-06 167.2007 182.3887
May-06 171.1869 187.1919
63
200
180
160
140
120
Hindalco
100
Sensex
80
60
40
20
04 05 05 -0
5 5 5 05 l-0
5 05 05 5 05 05 06 06 -0
6 6 6
c- n- b- ar r- 0 -0 n- g- p- ct
-0 v- c- n- b- ar r- 0 -0
Monthly moving average shows that if an investor has invested Rs

100, in both the index and in security. At the end of the period, the
security fetches Rs 71 where as market average return is Rs 87.
64
Table showing price movement and RSI for HLL
Month HLL Sensex RSI

Dec-04 143.5 6602.69 0.021734
Jan-05 159.85 6555.94 0.024382
Feb-05 144 6713.86 0.021448
Mar-05 131.75 6492.82 0.020292
Apr-05 137.7 6154.44 0.022374
May-05 143.15 6715.11 0.021318
Jun-05 163.6 7193.85 0.022742
Jul-05 166.95 7635.42 0.021865
Aug-05 165.65 7805.43 0.021222
Sep-05 181.15 8634.48 0.02098
Oct-05 161.4 7892.32 0.02045
Nov-05 181.95 8788.81 0.020702
Dec-05 197.25 9397.93 0.020989
Jan-06 194.8 9919.89 0.019637
Feb-06 241.95 10370.24 0.023331
Mar-06 272.3 11279.96 0.02414
Apr-06 287.95 12042.56 0.023911
May-06 284.85 12359.7 0.023047
The resulting correlation from the above data is +0.972 this

means there is appositive correlation but not the perfect one.
65
Graph showing price movements for HLL
250
200
150
HLL
Sensex
100
50
0
4 05 05 -0
5
r- 0
5
-0
5 05 l-0
5 05 05 05 05 5 06 06 -0
6
r- 0
6
-0
6
c-0 n- b- ar ay n- Ju g- p- c t- v- c-0 n- b- ar ay
De Ja Fe M Ap M Ju Au Se O No De Ja Fe M Ap M
Graph showing RSI for HLL
0.03
0.025
0.02
0.015 RSI
0.01
0.005
04 05 05 -0
5 5 5 05 l-0
5 05 05 5 05 05 06 06 -0
6 6 6
c- n- b- ar r- 0 -0 n- g- p- ct
-0 v- c- n- b- ar r- 0 -0
66
Table & graph showing monthly moving for HLL
HLL Sensex
Dec-04 100 100
Jan-05 111.3937 99.29196
Feb-05 100.3484 101.6837
Mar-05 91.81185 98.33598
Apr-05 95.95819 93.2111
May-05 99.7561 101.7026
Jun-05 114.007 108.9533
Jul-05 116.3415 115.641
Aug-05 115.4355 118.2159
Sep-05 126.2369 130.7722
Oct-05 112.4739 119.5319
Nov-05 126.7944 133.1095
Dec-05 137.4564 142.3349
Jan-06 135.7491 150.2401
Feb-06 168.6063 157.0608
Mar-06 189.7561 170.8389
Apr-06 200.662 182.3887
May-06 198.5017 187.1919
0.03
0.025
0.02
0.015 RSI
0.01
0.005
04 05 05 -0
5 5 5 05 l-0
5 05 05 5 05 05 06 06 -0
6 6 6
c- n- b- ar r- 0 -0 n- g- p- ct
-0 v- c- n- b- ar r- 0 -0
The graph shows that, if Rs 100 is invested in December

2004 in HLL is now 98 where as the bench mark BSE Sensex
67
recorded a rise of 87. There fore the over all market has been
bullish, HLL has under performed.
Table showing price movement and RSI for RANBAXY
Month Ranbaxy Sensex RSI

Dec-04 625.7 6602.69 0.094764
Jan-05 542.48 6555.94 0.082746
Feb-05 509.9 6713.86 0.075947
Mar-05 501.93 6492.82 0.077305
Apr-05 456.43 6154.44 0.074163
May-05 550.5 6715.11 0.081979
Jun-05 528.83 7193.85 0.073511
Jul-05 470.6 7635.42 0.061634
Aug-05 525.3 7805.43 0.067299
Sep-05 491.25 8634.48 0.056894
Oct-05 350.85 7892.32 0.044455
Nov-05 385.15 8788.81 0.043823
Dec-05 362.35 9397.93 0.038556
Jan-06 399.1 9919.89 0.040232
Feb-06 429.4 10370.24 0.041407
Mar-06 431.6 11279.96 0.038263
Apr-06 472.55 12042.56 0.03924
May-06 506.55 12359.7 0.040984
The resulting co-efficient of correlation from the above data

is -0.398.
By seeing the RSI in the above table we can say the security
performed well in starting of the period but gradually it is loosing
its ground.
68
Graph showing price movements for RANBAXY
700 14000
600 12000
500 10000
400 8000
Ranbaxy
Sensex
300 6000
200 4000
100 2000
0 0
4 5 05 5 5 5 5 5 5 5 5 5 5 6 06 6 6 06
-0 -0 b- -0 -0 -0 -0 l-0 -0 -0 -0 -0 -0 -0 b- -0 -0 y-
ec an ar pr ay un Ju ug ep ct ov ec an ar pr
D J Fe M A M J A S O N D J Fe M A M
a
Graph showing RSI for RANBAXY
0.1
0.09
0.08
0.07
0.06
0.05
0.04
0.03
0.02
0.01
04 05 05 -0
5 5 5 05 l-0
5 05 05 5 05 05 06 06 -0
6 6 6
c- n- b- ar r- 0 -0 n- g- p- ct
-0 v- c- n- b- ar r- 0 -0
69
Table & graph showing monthly moving for RANBAXY
Monthly Ranbaxy Sensex

Dec-04 100 100
Jan-05 86.6997 99.29196
Feb-05 81.49273 101.6837
Mar-05 80.21895 98.33598
Apr-05 72.9471 93.2111
May-05 87.98146 101.7026
Jun-05 84.51814 108.9533
Jul-05 75.21176 115.641
Aug-05 83.95397 118.2159
Sep-05 78.51207 130.7722
Oct-05 56.0732 119.5319
Nov-05 61.55506 133.1095
Dec-05 57.91114 142.3349
Jan-06 63.78456 150.2401
Feb-06 68.62714 157.0608
Mar-06 68.97874 170.8389
Apr-06 75.52341 182.3887
May-06 80.95733 187.1919
200
180
160
140
120
Ranbaxy
100
Sensex
80
60
40
20
04 05 05 -0
5 5 5 05 l-0
5 0 5 05 5 05 05 06 06 -0
6 6 6
c- n- b- ar r- 0 -0 n- g- p- ct
-0 v- c- n- b- ar r- 0 -0
Rs 100 invested in this scrip in December 2004 is now worth

Rs 80 the bench mark BSE Sensex recorded a rise of 87%.
70
Table showing price movement and RSI for ICICI
Month ICICI Bank Sensex RSI

Dec-04 370.75 6602.69 0.056151
Jan-05 360.6 6555.94 0.055004
Feb-05 380.75 6713.86 0.056711
Mar-05 393 6492.82 0.060528
Apr-05 360.2 6154.44 0.058527
May-05 392.05 6715.11 0.058383
Jun-05 421.55 7193.85 0.058599
Jul-05 536 7635.42 0.070199
Aug-05 481.7 7805.43 0.061713
Sep-05 600.35 8634.48 0.069529
Oct-05 497.7 7892.32 0.063061
Nov-05 537.15 8788.81 0.061117
Dec-05 584.7 9397.93 0.062216
Jan-06 609.15 9919.89 0.061407
Feb-06 615.1 10370.24 0.059314
Mar-06 589.25 11279.96 0.052239
Apr-06 590.25 12042.56 0.049014
May-06 638.6 12359.7 0.051668
The resulting correlation from above data is +0.891 this

means the security is having a perfect positive correlation with
market index.
71
Graph showing price movements for ICICI
700 14000
600 12000
500 10000
400 8000
ICICI Bank
Sensex
300 6000
200 4000
100 2000
0 0
04 -0
5
-0
5
-0
5
-0
5 05 -0
5
l-0
5
-0
5
-0
5 5 05 05 -0
6 06 -0
6 6 6
c- ar pr y- ct
-0 v- c- b- ar r- 0 -0
an eb a un Ju ug ep No an Fe Ap ay
De J F M A M J A S O De J M M
Graph showing RSI for ICICI
0.08
0.07
0.06
0.05
0.04
0.03
0.02
0.01
04 05 05 -0
5 5 5 05 l-0
5 05 05 5 05 05 06 06 -0
6 6 6
c- n- b- ar r- 0 -0 n- g- p- ct
-0 v- c- n- b- ar r- 0 -0
72
Table & graph showing monthly moving for ICICI
Month ICICI Bank Sensex

Dec-04 100 100
Jan-05 97.26230614 99.29196
Feb-05 102.6972353 101.6837
Mar-05 106.0013486 98.33598
Apr-05 97.15441672 93.2111
May-05 105.7451113 101.7026
Jun-05 113.7019555 108.9533
Jul-05 144.5718139 115.641
Aug-05 129.925826 118.2159
Sep-05 161.9285233 130.7722
Oct-05 134.2414026 119.5319
Nov-05 144.881996 133.1095
Dec-05 157.70735 142.3349
Jan-06 164.3020904 150.2401
Feb-06 165.9069454 157.0608
Mar-06 158.934592 170.8389
Apr-06 159.2043156 182.3887
May-06 172.2454484 187.1919
200
180
160
140
120
ICICI Bank
100
Sensex
80
60
40
20
04 05 05 -0
5 5 5 05 l-0
5 05 05 5 05 05 06 06 -0
6 6 6
c- n- b- ar r- 0 -0 n- g- p- ct
-0 v- c- n- b- ar r- 0 -0
73
This graph shows that Rs 100 is invested in this security is
now worth 172. The benchmark BSE Sensex too recorded a rise
with 87%.
Table showing price movement and RSI for BHARTI TELE
Month Bharthi Sensex RSI

Dec-04 215.6 6602.69 0.032653
Jan-05 230.35 6555.94 0.035136
Feb-05 225.1 6713.86 0.033528
Mar-05 206.85 6492.82 0.031858
Apr-05 207.15 6154.44 0.033659
May-05 224.05 6715.11 0.033365
Jun-05 242.85 7193.85 0.033758
Jul-05 283.1 7635.42 0.037077
Aug-05 315.45 7805.43 0.040414
Sep-05 348.5 8634.48 0.040361
Oct-05 322.65 7892.32 0.040882
Nov-05 357.55 8788.81 0.040682
Dec-05 345.7 9397.93 0.036785
Jan-06 355.6 9919.89 0.035847
Feb-06 361.3 10370.24 0.03484
Mar-06 412.85 11279.96 0.0366
Apr-06 407.95 12042.56 0.033876
May-06 421.85 12359.7 0.034131
The resulting co-efficient of correlation from the above data

is +0.95 this means the scrip has the perfect positive correlation
and the security is closely related to the market index.
74
Graph showing price movements for BHARTI TELE
450 14000
400
12000
350
10000
300
8000
250
Bharthi
Sensex
200
6000
150
4000
100
2000
50
0 0
04 05 0 5
-0
5 5 5 05 l-0
5 05 05 5 05 05 06 06 -0
6 6 6
c- n- b- ar r- 0 -0 n- g- p- ct
-0 v- c- n- b- ar r- 0 -0
Graph showing RSI for BHARTI TELE
0.045
0.04
0.035
0.03
0.025
0.02
0.015
0.01
0.005
04 05 05 -0
5 5 5 05 l-0
5 05 05 5 05 05 06 06 -0
6 6 6
c- n- b- ar r- 0 -0 n- g- p- ct
-0 v- c- n- b- ar r- 0 -0
75
Table & graph showing monthly moving for BHARTI TELE
Month Bharthi Sensex

Dec-04 100 100
Jan-05 106.8414 99.29196
Feb-05 104.4063 101.6837
Mar-05 95.94156 98.33598
Apr-05 96.08071 93.2111
May-05 103.9193 101.7026
Jun-05 112.6391 108.9533
Jul-05 131.308 115.641
Aug-05 146.3126 118.2159
Sep-05 161.6419 130.7722
Oct-05 149.6521 119.5319
Nov-05 165.8395 133.1095
Dec-05 160.3432 142.3349
Jan-06 164.9351 150.2401
Feb-06 167.5788 157.0608
Mar-06 191.4889 170.8389
Apr-06 189.2161 182.3887
May-06 195.6633 187.1919
250
200
150
Bharthi
Sensex
100
50
04 05 05 -0
5 5 5 05 l-0
5 05 05 5 05 05 06 0 6
-0
6 6 6
c- n- b- ar r- 0 -0 n- g- p- ct
-0 v- c- n- b- ar r- 0 -0
76
From the above Graph and Table the investor who invested
Rs.100.00 in this security in December-2004 is now worth for
Rs.195. Where BSE sensex is raised by Rs 87.
Table showing price movement and RSI for Bajaj Auto
Month Bajaj Sensex RSI

Dec-04 1131.2 6602.69 0.171324
Jan-05 1039.2 6555.94 0.158513
Feb-05 1033.4 6713.86 0.15392
Mar-05 1082.1 6492.82 0.166661
Apr-05 1082.7 6154.44 0.175922
May-05 1230.55 6715.11 0.183251
Jun-05 1383.6 7193.85 0.192331
Jul-05 1449.1 7635.42 0.189787
Aug-05 1412.4 7805.43 0.180951
Sep-05 1694.3 8634.48 0.196225
Oct-05 1707.2 7892.32 0.216312
Nov-05 2009.95 8788.81 0.228694
Dec-05 2001.1 9397.93 0.21293
Jan-06 2154.65 9919.89 0.217205
Feb-06 2601.25 10370.24 0.250838
Mar-06 2746.25 11279.96 0.243463
Apr-06 3011.1 12042.56 0.250038
May-06 3130.35 12359.7 0.253271
The resulting co-efficient of correlation from the above data is

+0.99 this means the scrip has the perfect positive correlation and
the security is closely related to the market index.
Graph showing price movements for BAJAJ AUTO
77
3500 14000
3000 12000
2500 10000
2000 8000
Bajaj
Sensex
1500 6000
1000 4000
500 2000
0 0
04 -0
5
-0
5
-0
5 5 5 5
-0
5 05 0 5 5 05 05
6 06 -0
6 6 06
c- ar r- 0 -0 -0
ul g- p- ct
-0 v- c- -0 b- ar pr
-0 y-
an eb Ap ay un No an Fe a
De J F M M J J Au Se O De J M A M
Graph showing RSI for BAJAJ AUTO

0.3
0.25
0.2
0.15
0.1
0.05
04 05 05 -0
5 5 5 05 l-0
5 05 05 5 05 05 06 06 -0
6 6 6
c- n- b- ar r- 0 -0 n- g- p- ct
-0 v- c- n- b- ar r- 0 -0
Table & graph showing monthly moving for BAJAJ AUTO
Month Bajaj Sensex

Dec-04 100 100
Jan-05 91.86704 99.29196
Feb-05 91.35431 101.6837
Mar-05 95.65948 98.33598
Apr-05 95.71252 93.2111
May-05 108.7827 101.7026
78
Jun-05 122.3126 108.9533
Jul-05 128.1029 115.641
Aug-05 124.8586 118.2159
Sep-05 149.779 130.7722
Oct-05 150.9194 119.5319
Nov-05 177.683 133.1095
Dec-05 176.9006 142.3349
Jan-06 190.4747 150.2401
Feb-06 229.9549 157.0608
Mar-06 242.7732 170.8389
Apr-06 266.1864 182.3887
May-06 276.7283 187.1919
300
250
200
Bajaj
150
Sensex
100
50
04 05 05 -0
5 5 5 05 l-0
5 05 05 5 05 05 06 06 -0
6 6 6
c- n- b- ar r- 0 -0 n- g- p- ct
-0 v- c- n- b- ar r- 0 -0
This graph shows that Rs 100 is invested in this security is now

worth 276. The benchmark BSE Sensex too recorded a rise with
87%.
79
Table showing price movement and RSI for L&T
Month L&T Sensex RSI

Dec-04 984.55 6602.69 0.149113
Jan-05 1005.25 6555.94 0.153334
Feb-05 1088.25 6713.86 0.16209
Mar-05 999.5 6492.82 0.153939
Apr-05 966.6 6154.44 0.157057
May-05 1048 6715.11 0.156066
Jun-05 1132.25 7193.85 0.157391
Jul-05 1268 7635.42 0.166068
Aug-05 1334.1 7805.43 0.170919
Sep-05 1518.95 8634.48 0.175917
Oct-05 1398.75 7892.32 0.177229
Nov-05 1685.15 8788.81 0.191738
Dec-05 1845.15 9397.93 0.196336
Jan-06 2172.1 9919.89 0.218964
Feb-06 2396.95 10370.24 0.231137
Mar-06 2432.7 11279.96 0.215666
Apr-06 2714.8 12042.56 0.225434
May-06 2719.55 12359.7 0.220034

80
Graph showing price movements for L&T
3000 14000
12000
2500
10000
2000
8000
L&T
1500
Sensex
6000
1000
4000
500
2000
0 0
4 05 05 5 5 5 05 5 5 5 5 5 5 06 06 6 6 6
-0 n- b- -0 -0 -0 n- l-0 -0 -0 -0 -0 -0 n- b- -0 -0 -0
ec ar pr ay Ju ug ep ct ov ec ar pr ay
D Ja Fe M A M Ju A S O N D Ja Fe M A M
Graph showing RSI for L&T
0.25
0.2
0.15
0.1
0.05
04 05 05 -0
5 5 5 05 l-0
5 05 05 5 05 05 06 06 -0
6 6 6
c- n- b- ar r- 0 -0 n- g- p- ct
-0 v- c- n- b- ar r- 0 -0
81
Table & graph showing monthly moving for L&T
Month L&T Sensex

Dec-04 100 100
Jan-05 102.1025 99.29196
Feb-05 110.5327 101.6837
Mar-05 101.5185 98.33598
Apr-05 98.17683 93.2111
May-05 106.4446 101.7026
Jun-05 115.0018 108.9533
Jul-05 128.7898 115.641
Aug-05 135.5035 118.2159
Sep-05 154.2786 130.7722
Oct-05 142.07 119.5319
Nov-05 171.1594 133.1095
Dec-05 187.4105 142.3349
Jan-06 220.6186 150.2401
Feb-06 243.4564 157.0608
Mar-06 247.0875 170.8389
Apr-06 275.7402 182.3887
May-06 276.2226 187.1919
300
250
200
L&T
150
Sensex
100
50
04 05 05 -0
5 5 5 05 l-0
5 05 05 5 05 05 06 0 6
-0
6 6 6
c- n- b- ar r- 0 -0 n- g- p- ct
-0 v- c- n- b- ar r- 0 -0

87%.
82
Table showing price movement and RSI for ONGC
Month ONGC Sensex RSI

Dec-04 819.95 6602.69 0.124184
Jan-05 818.6 6555.94 0.124864
Feb-05 852.7 6713.86 0.127006
Mar-05 885.3 6492.82 0.136351
Apr-05 811.2 6154.44 0.131807
May-05 922.75 6715.11 0.137414
Jun-05 1027.45 7193.85 0.142823
Jul-05 938.5 7635.42 0.122914
Aug-05 981.85 7805.43 0.125791
Sep-05 1061 8634.48 0.122879
Oct-05 929.05 7892.32 0.117716
Nov-05 1029.65 8788.81 0.117155
Dec-05 1174.25 9397.93 0.124948
Jan-06 1237.3 9919.89 0.124729
Feb-06 1136.4 10370.24 0.109583
Mar-06 1311.35 11279.96 0.116255
Apr-06 1307.8 12042.56 0.108598
May-06 1379.35 12359.7 0.111601

Graph showing price movements for ONGC

1600 14000
1400
12000
1200
10000
1000
8000
ONGC
800
Sensex
6000
600
4000
400
2000
200
0 0
04 05 0 5
-0
5 5 5 5
l-0
5 05 05 5 05 05
6 06 -0
6 6 6
c- n- b- ar r- 0 -0 -0 g- p- ct
-0 v- c- -0 b- ar r- 0 -0
Ja Fe Ap ay un Ju No an Fe Ap ay
De M M J Au Se O De J M M
83
Graph showing RSI for ONGC
0.16
0.14
0.12
0.1
0.08
0.06
0.04
0.02
04 05 05 -0
5 5 5 05 l-0
5 05 05 5 05 05 06 06 -0
6 6 6
c- n- b- ar r- 0 -0 n- g- p- ct
-0 v- c- n- b- ar r- 0 -0
Table & graph showing monthly moving for ONGC
Month ONGC Sensex

Dec-04 100 100
Jan-05 99.83536 99.29196
Feb-05 103.9941 101.6837
Mar-05 107.97 98.33598
Apr-05 98.93286 93.2111
May-05 112.5373 101.7026
Jun-05 125.3064 108.9533
Jul-05 114.4582 115.641
Aug-05 119.7451 118.2159
Sep-05 129.3981 130.7722
Oct-05 113.3057 119.5319
Nov-05 125.5747 133.1095
Dec-05 143.21 142.3349
Jan-06 150.8994 150.2401
Feb-06 138.5938 157.0608
Mar-06 159.9305 170.8389
Apr-06 159.4975 182.3887
May-06 168.2237 187.1919
84
200
180
160
140
120
ONGC
100
Sensex
80
60
40
20
04 05 05 -0
5 5 5 05 l-0
5 05 05 5 05 05 06 0 6
-0
6 6 6
c- n- b- ar r- 0 -0 n- g- p- ct
-0 v- c- n- b- ar r- 0 -0

87%.
85
Table showing price movement and RSI for TCS
Month TCS Sensex RSI
Dec-04 1335.45 6602.69 0.202258
Jan-05 1300.4 6555.94 0.198354
Feb-05 1380.9 6713.86 0.205679
Mar-05 1432.05 6492.82 0.220559
Apr-05 1131.1 6154.44 0.183786
May-05 1334.25 6715.11 0.198694
Jun-05 1358.1 7193.85 0.188786
Jul-05 1268.8 7635.42 0.166173
Aug-05 1404.85 7805.43 0.179984
Sep-05 1482.35 8634.48 0.171678
Oct-05 1401.25 7892.32 0.177546
Nov-05 1521.1 8788.81 0.173072
Dec-05 1702.85 9397.93 0.181194
Jan-06 1670.4 9919.89 0.168389
Feb-06 1700.8 10370.24 0.164008
Mar-06 1915.5 11279.96 0.169814
Apr-06 1979.35 12042.56 0.164363
May-06 2019.45 12359.7 0.16339

Graph showing price movements for TCS
2500 14000
12000
2000
10000
1500
8000
TCS
Sensex
6000
1000
4000
500
2000
0 0
04 05 0 5
-0
5 5 5 05 l-0
5 05 05 5 05 05 06 06 -0
6 6 6
c- n- b- ar r- 0 -0 n- g- p- ct
-0 v- c- n- b- ar r- 0 -0
86
Graph showing RSI for TCS
0.25
0.2
0.15
0.1
0.05
04 05 05 -0
5 5 5 05 l-0
5 05 05 5 05 05 06 06 -0
6 6 6
c- n- b- ar r- 0 -0 n- g- p- ct
-0 v- c- n- b- ar r- 0 -0
Table & graph showing monthly moving for TCS

Month TCS Sensex
Dec-04 100 100
Jan-05 97.37542 99.29196
Feb-05 103.4033 101.6837
Mar-05 107.2335 98.33598
Apr-05 84.69804 93.2111
May-05 99.91014 101.7026
Jun-05 101.6961 108.9533
Jul-05 95.00917 115.641
Aug-05 105.1968 118.2159
Sep-05 111 130.7722
Oct-05 104.9272 119.5319
Nov-05 113.9017 133.1095
Dec-05 127.5113 142.3349
Jan-06 125.0814 150.2401
Feb-06 127.3578 157.0608
Mar-06 143.4348 170.8389
Apr-06 148.216 182.3887
May-06 151.2187 187.1919
87
200
180
160
140
120
TCS
100
Sensex
80
60
40
20
04 05 05 -0
5 5 5 05 l-0
5 05 05 5 05 05 06 06 -0
6 6 6
c- n- b- ar r- 0 -0 n- g- p- ct
-0 v- c- n- b- ar r- 0 -0

87%.
88
Table showing price movement and RSI Zee Tele
Month Zee Sensex RSI

Dec-04 171.55 6602.69 0.025982
Jan-05 154.75 6555.94 0.023605
Feb-05 142.3 6713.86 0.021195
Mar-05 138.9 6492.82 0.021393
Apr-05 131.2 6154.44 0.021318
May-05 139.2 6715.11 0.020729
Jun-05 155.45 7193.85 0.021609
Jul-05 189.35 7635.42 0.024799
Aug-05 190.05 7805.43 0.024348
Sep-05 172.8 8634.48 0.020013
Oct-05 140.6 7892.32 0.017815
Nov-05 154.45 8788.81 0.017573
Dec-05 156.8 9397.93 0.016685
Jan-06 164.7 9919.89 0.016603
Feb-06 176.6 10370.24 0.017029
Mar-06 239 11279.96 0.021188
Apr-06 265 12042.56 0.022005
May-06 277.55 12359.7 0.022456

Graph showing price movements for Zee Tele
89
300 14000
12000
250
10000
200
8000
Zee
150
Sensex
6000
100
4000
50
2000
0 0
04 -0
5
-0
5
-0
5 5 5 5
-0
5 05 0 5 5 05 05
6 06 -0
6 6 06
c- ar r- 0 -0 -0
ul g- p- ct
-0 v- c- -0 b- ar pr
-0 y-
an eb Ap ay un No an Fe a
De J F M M J J Au Se O De J M A M
Graph showing RSI for Zee Tele
0.03
0.025
0.02
0.015
0.01
0.005
04 05 05 -0
5 5 5 05 l-0
5 05 05 5 05 05 06 06 -0
6 6 6
c- n- b- ar r- 0 -0 n- g- p- ct
-0 v- c- n- b- ar r- 0 -0
Table & graph showing monthly moving for Zee Tele
Month Zee Sensex

Dec-04 100 100
Jan-05 90.20694 99.29196
Feb-05 82.94958 101.6837
90
Mar-05 80.96765 98.33598
Apr-05 76.47916 93.2111
May-05 81.14252 101.7026
Jun-05 90.61498 108.9533
Jul-05 110.376 115.641
Aug-05 110.784 118.2159
Sep-05 100.7287 130.7722
Oct-05 81.95861 119.5319
Nov-05 90.03206 133.1095
Dec-05 91.40192 142.3349
Jan-06 96.007 150.2401
Feb-06 102.9437 157.0608
Mar-06 139.318 170.8389
Apr-06 154.4739 182.3887
May-06 161.7896 187.1919
200
180
160
140
120
Zee
100
Sensex
80
60
40
20
04 05 05 -0
5 5 5 05 l-0
5 05 05 5 05 05 06 06 -0
6 6 6
c- n- b- ar r- 0 -0 n- g- p- ct
-0 v- c- n- b- ar r- 0 -0

87%.
91
The following table shows the Correlation Co-efficient, Regression
Equation and the Standard error of the estimate
Correlation Regression Standard error of

Company co-efficient Equation the Estimate
Hindalco 0.9013 Y=2.009+0.811x 11.8235
HLL 0.9722 Y=16.183+1.139x 8.3188
ICICI
Bank 0.8917 Y=29.533+0.816x 12.5516
Ranbaxy -0.3989 Y=95.23-0.151x 10.5355
Bharathi 0.95 Y=0.559+1.105x 11.0118
Bajaj
Auto 0.9901 Y=103.808+2.029x 8.6974
L&T 0.9917 Y=106.165+2.089x 8.1741
ONGC 0.9646 Y=34.584+0.714x 5.9165
TCS 0.9608 Y=35.616+0.609x 5.323
ZEE 0.8354 Y=13.53+0.692x 13.8044
92
SUMMARY OF FINDINGS
Executive summary
The objective of the present study was to test the

performance of selected security in compression with market
index. In fact, the test for dependency of security with market
index is true or fails. The test for selected security is done by serial
correlation tests where as test for relationship comparing market
value of security with market index does.
93
The study period was from first December 2004 to May
2005.The monthly closing price of five companies of Ten different
industries were taken for testing and monthly moving average was
taken to find the return to investor if he has invested Rs 100.00 on
security and sensex. Lastly relative strength index was drawn to
find the movement of security with index.
Serial monthly closing price of security and monthly closing

value of Bombay Stock Exchange Index (BSE- Sensex) were taken
to compare by using the tools like co-efficient of correlation,
monthly moving average and Relative Strength index.
SUMMARY OF FINDINGS
Findings of the study are as follows;
HINDALCO
It is found that there is perfect positive relationship, as the

co-efficient of correlation of this security is greater than +0.901.
The monthly moving average shows that the security is not
performing better than the BSE Sensex.
HINDUSTHAN LEVER LIMITED
94
As the correlation co-efficient of this security is +0.977
There is a dependency between price of security and market index.
The monthly moving average shows that the over all market has
been bullish and HLL is also coping with the Sensex. The RSI
indicator is not much volatile.
RANBAXY
The correlation co-efficient of this security is -0.398 so there

exist a Negative relationship. The monthly moving average shows
that the security has Under performed the market . The RSI is
constantly moving down.
ICICI BANK
The correlation co-efficient is more than the +0.70 i.e, +0.89

hence we can say that there is very close relationship between
security and market index. The monthly moving average of this
security is more bullish than the sensex. The RSI is moving up.
BHARTI TELE
Here, it has been found that correlation co-efficient is higher

than the +0.70. The monthly moving average of this security is
more bullish than the sensex. The RSI is moving in the same
direction with market index.
95
BAJAJ AUTO
Here, it has been found that correlation co-efficient is higher than

the +0.70 that is 0.99. The monthly moving average of this
security is more bullish than the sensex. The RSI is moving in the
same direction with market index.
L&T
As the correlation co-efficient of this security is +0.99There is a
dependency between price of security and market index. The
monthly moving average shows that the over all market has been
bullish and L&T’s RSI is also not much volatile.
ONGC

the +0.70 that is 0.96. The monthly moving average of this security
is more bullish than the sensex. The RSI is moving in the same
TCS
The correlation co-efficient of the stock is +0.96 which means the
stock is closely correlated with its index.
ZEE
the +0.70 that is 0.96. The monthly moving average of this security
96
is more bullish than the sensex. The RSI is moving in the same
CONCLUSION
HINDALCO
From the study it is found that there is a perfect positive

relationship between security and market index as the correlation is
+0.90. The security is not performing better than market index. We
can see in monthly moving average curve that it is slightly down to
the market index. The RSI shows no much variation. So here it is
97
concluded that the investor, no doubt earns return, but not to the
extent of market average return.
HLL
From the findings it is seen that the dependency is there but

not the perfect one. Even though there is dependency, this security
has under performed. The RSI is moving up and down, which
means there is no consistency in the return on investment. By
taking the above information in mind, one can say that investing in
this type of security is not a healthy decision.
RANBAXY
Here it is found that the relationship between security and market
index is Negatively correlated and its RSI is also continuously
going down where as Sensex is going up word.
ICICI BANK
Here it is found that there is perfect positive relationship as

it recorded a correlation of +0.89. The security is also out
performance the market index and RSI is moving up words. So
here it is concluded that the investor can invest in this security will
get return more then the market index.
98
BHARTI TELE
Here it is found that there is perfect positive relationship as

it recorded a correlation of +0.95.The security is also out
BAJAJ AUTO
Here it is found that there is perfect positive relationship as it
recorded a correlation of +0.99.The security is also out
L&T
recorded a correlation of +0.99.The security is also out
ONGC
recorded a correlation of +0.96. And the RSI is also not much
99
volatile, so here it is concluded that the investor can invest in this
security will get return more then the market index.
TCS
recorded a correlation of +0.96. And the RSI is also not much
volatile, so here it is concluded that the investor can invest in this
security will get return more then the market index.
ZEE
recorded a correlation of +0.835 and its RSI is continuously
gaining movement with sensex.
From the above it is found that one out of TEN observation

does not provide proof that the security is not performing with
market index and four out of ten observation shows the
performance but not as the percentage movement of market index.
The other four out of ten observation shows the performance of
security is better than the market index. So here it is concluded that
100
nine out of ten securities is much better or relatively less but
moving up with market index. These securities proved that the
moment of security is according to market index.
RECOMANDATION:
In this study the researcher test the efficiency of the selected

security against the market index. From that study it is found that
the selected security are moving with market index in the same
101
direction and not in the opposite direction. In the present stock
market it is found that the investor can invest in security by seeing
the past value trend of the market index.
It is also recommended that the investor can get higher

returns than the market index if the correlation is more that + .90
and if the correlation is more than + .70 but less than the +. 90 can
get the handsome amount of return to their investment but not to
the extent of average market return. Investing in securities whose
correlation is less than +. 70 are not worthwhile.
BIBLIOGRAPHY
 “Security analysis and portfolio management”, fifth edition,

Balla.
 “Investments”, sixth edition, Jack Clark Francis.
102
 “Investment analysis and portfolio management”, ninth
edition, Prasanna Chandra. Tata McGraw-Hill publishing Co
Ltd., New Delhi.
 “Financial management”, seventh edition, R K Sharma and
Shashi K Gupta, Kalayani Publishers
 Journals:
 Capital Market,
 Emerging trends in financial markets,
 Outlook- money
 Dailies:
 Business Line
 Economic Times
 Financial Express
 Business Standard
 Websites:
 equitymaster.com,
 capitalmarket.com,
 bseindia.com,
 indiainfoline.com
103
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“The performance of selected securities in comparison with market index”

A DISSERTATION SUBMITTED IN PARTIAL FULFILLMENT

UNDER THE GUIDANCE OF

M. P. BIRLA INSTITUTE OF MANAGEMENT

This is to certify that the project titled “The performance of selected

securities in comparison with market index” submitted by me in partial

Place: Bangalore Vishwas H.K.

Place: Bangalore Prof. Santhanam

I am happy to express my gratitude to Dr. N. S. Malavalli, (Principal, M. P. Birla

I extend my sincere thanks to Prof. Santhanam MPBIM, Bangalore for providing me

People from different walk of life use and are affected by

The technicians or the chartists often base their decisions to

Most stock indices attempt to be proxies for the market they

Since then, the stock market in the country has passed

The growth of equity markets in India has been phenomenal

The “Index Committee” of the Exchange reviews all BSE-

The Index was initially calculated based on the "Full Market

Sensex Calculation Methodology

Sensex is calculated using the "Free-float Market

Understanding Free-float Methodology

Free-float Methodology refers to an index construction

National stock exchange indices:

With commencement of derivatives trading in India, foreign

S&P CNX Nifty, which comprises of 50 largest and most

These indices are monitored and updated dynamically and

Correlation analysis measures the relationship between two

The correlation coefficient can range between + or –

A low correlation coefficient (e.g., less than+-0.10)

The direction of the depended variables changes depends

Correlation analysis can be used in two basic ways, to

Correlation analysis is also valuable in gauging the

Relative Strength, comparative

Comparative Relative Strength compares two securities to

Comparative Relative Strength compares a security's price

Comparative Relative Strength is often used to compare a

The Comparative Relative Strength indicator is calculated

Research design simply means a search for facts – answer to

For the purpose of this study, the following methodology

 Identification of the study period.

Several investors have gained as well as lost in the stock

The question that arises here is that whether security moves

Therefore in this study the researcher has tried to find out;

 The study period

OBJECTIVES OF THE STUDY

The main objective of the study is to test “The performance

 Understanding the performance of selected securities in

 Provide guidance for the investors in determining what types

 To study the literature behind market index.

 To carry out correlation analysis.

 To find out regression equation.

SCOPE OF THE STUDY

One of the most important functions of the market index is

 The investors in understanding the performance of selected

 It serves as a reference for further research.

One of the dominant themes in the academic literature since

 “Security analysis and portfolio management”, fifth edition,

 Stock market: The financial market for small, medium and

 Market index: A stock index is a number that helps

 Equity: The net worth of a firm consisting of paid up equity

 Portfolio: A combination of assets

A sample is a small representation of lot of population

DATA COLLECTION TOOL

This study is by and large a desk job work. Both primary

 Textbooks and journals- as stated under review of literature.