A Summer Internship Project Report on for an Indian Investor Investment Avenues

and Security Analysis
Concluded at:

Birla Sun Life Insurance Pvt. Ghatkopar, Mumbai

Under the guidance of Mr. Nikesh Ruparal And Mr. Jitendra Bafna
Submitted By Arun Thakur KHR2009PGDMF050 Arjun Vig KHR2009PGDMF109

Submitted To

Prof. S. Suryanarayan
ITM Business School, Kharghar

Prof. Priyanka Agarwal
ITM Business School, Kharghar,


(2009 – 2011)

Investment Avenues for an Indian Investor and Security Analysis

We would like to extend our thanks to ITM Business School, Navi Mumbai for given us the platform for corporate interaction through this summer internship project which has helped us to understand the duties & responsibility that comes with a job. Moreover, I would like to extend my thanks and appreciation to Birla Sun Life Insurance Company, Ghatkopar for giving us the opportunity and a platform to work in a healthy and knowledgeable corporate working environment. Through Birla Sun Life, we got the opportunity to meet some wonderful and highly intellectual people. We would like to thank Mr. Harsahad Surve, Branch Manager, for his warm welcome to the organisation and introducing us to the various phase of the corporate front. Mr. Nikesh Ruparal, Birla Sun Life - Wealth Management team, made himself available despite his busy schedule in order to guide, mentor and motivate us in this project. This project couldn’t have taken its current form without his guidance. Through him we met Mr. Jitender Bafna, who directed and challenged our intellect intensively. With help of these two great personalities and there intellect we learned some of the most valuable lessons of our corporate lives. Finally, we would like to thank Prof. S. Suryanarayan and Prof. Priyanka Agarwal our project guide for his patience and guidance. People we would like to thanks and show our appreciation are numerous and we extend our heartfelt thanks to one and all.

Arun Thakur KH2009PGDMF050 Institute for Technology and Management Kharghar, Navi Mumbai

Arjun Vig KH2009PGDMF109 Institute for Technology and Management Kharghar, Navi Mumbai

ITM Business School, Kharghar

Page 2

Investment Avenues for an Indian Investor and Security Analysis

Prof. S. Suryanarayan 2010 Institute of Technology and Management, Business School, Kharghar, Navi Mumbai Prof Priyanka Agarwal Institute of Technology and Management, Business School, Kharghar, Navi Mumbai Sir/ Madam This report is a result of our efforts put forward through Birla Sun Life Insurance Company, Ghatkopar, Mumbai, and submitted as part of the partial fulfillment of ‘Post graduate diploma in management studies’. The report entitled “Investment Avenues for an Indian investor and Security analysis – A Study project report” is a study and analyses based report of the current scenario of the Indian economy, prominent industries and investment opportunities in the Indian Market for a common man. The report also includes a research on investor behavior in India. We would like to thank you and company project guides, Mr. Nikesh Ruparal and Mr. Jitender Bafna for guidance, mentoring and motivation. Yours Sincerely, Dated: 4th July

Arun Thakur KH2009PGDMF050 Institute for Technology and Management Kharghar, Navi Mumbai

Arjun Vig KH2009PGDMF109 Institute for Technology and Management Kharghar, Navi Mumbai

ITM Business School, Kharghar

Page 3

the most compelling reason for investors to be in India is that it provides a high return on investment. such as: Safe/Low Risk Investment Avenues: ITM Business School. expected. when economic reforms were initiated with the progressive opening of the economy to international trade and investment.a. with the economy recording an average annual GDP growth of over 6. While its size and growth potential make India attractive as a market. India is a fast-growing economy with a dynamic and robust financial system. annum. Understand investor perception and investment idea of the equity share market. entrepreneurship and risk taking. Scope of this study project is limited to the Indian listed companies in the equity market.5% in the past decade. Developing a basic understanding and potential of the Indian market. An Indian investor has few but strong investment options. the dotcom bust and rising oil prices have had no significant impact on India’s growth. Being a democracy ensures a stable policy environment and its independent institutions guarantee the rule of law. India is a free-market democracy with a legal and regulatory framework that rewards free enterprise. Kharghar High Risk Investment Avenues: Page 4 . India is in the global arena for increased foreign investment . Going forward.Investment Avenues for an Indian Investor and Security Analysis Executive summary India’s competitiveness from a natural and human resources standpoint is making it the destination of choice for investors.both through the Equity markets termed Foreign Institutional Investment (FII) and Foreign Direct Investment (FDI). Events such as the Asian currency crisis. This highly diversified economy has shown rapid growth and remarkable resilience since 1991. envisaging and developing knowledge of offering various investment avenues. the country is targeting an average GDP growth rate of over 8% per GDP growth of over 8% p.

This document also holds a brief on Aditya Birla Group and Birla Sun life Insurance. Software solutions and Telecom. While there is much overlap between the analytical tools used in security analysis and those used in corporate finance. warrants. Automobile. debt. is been done. Along with this security analysis of the Indian stocks. whereas corporate finance tends to take an inside perspective such as that of a corporate financial manager. This effort was undertaken in order to learn the investment perspective of a common man of the Indian Equity market and other investment avenues. Banking. This is supported by technical analysis of 8 different companies from the automobile and software sectors with the learned strategies in the two month duration of summer internship at Birla Sun Life Insurance Company. Along with a fundamental approach for analyzing the Indian economy and industries in four major sectors. Security analysis is about valuing the assets. ITM Business School. • Gold/Silver • • • • This report understand these avenues and its future in the Indian market. As such. and equity of companies from the perspective of outside investors using publicly available information.Investment Avenues for an Indian Investor and Security Analysis • Savings Account • Bank Fixed Deposits • Public Provident Fund • National Savings Certificates • Post Office Savings • Government Securities Moderate Risk Investment Avenues: • Mutual Funds • Life Insurance • Bonds & Debentures • Equity Share Market • Commodity Market • FOREX Market Traditional Investment Avenues: • Real Estate (property). Kharghar Page 5 . The security analyst must have a thorough understanding of financial statements. the ability to value equity securities requires cross-disciplinary knowledge in both finance and financial accounting. which are an important source of this information. security analysis tends to take the perspective of potential investors.

.......................................................................................................................................................................................................................... 13 Objective & scope...................................2 LETTER OF TRANSMITTAL.............................................13 Introduction .............................47 Technical Analysis ............................................................................. 6 Aditya Birla Group..............................................47 Fundamental Analysis...................................45 Security Analysis..........................76 Company Analysis...................................4 Table of Contents..................................17 Moderate Risk Investment Avenues..................................................................................................................................................85 Research Design of the Study of Indian Investor Perception........................10 Investment Avenues for an Indian Investor and Security Analysis..................................................................................116 The methodology adopted includes............................................................................... 14 Avenues of Investment.42 Bombay Stock Exchange (BSE) of India.................................................................................. Ltd.............................................................39 Indian stock market & regulators..........................................................................................................3 Executive summary............................................................................................... 8 Birla Sun Life Insurance Co.......................................................................................................................................................................................................................43 Securities and Exchange Board of India (SEBI)................... 135 Limitation of the project................................................................................ Kharghar Page 6 ..44 Insurance Regulatory and Development Authority (IRDA)...................................................................................................................................15 Traditional Investment Avenues.....15 Safe/Low Risk Investment Avenues....................... 116 Findings.............................................................................................................136 Bibliography...............................116 Sources of Data................................................ 137 ITM Business School.........................................................................................................................................................23 High Risk Investment Avenues..................42 National Stock Exchange (NSE) of India.......116 Survey Results.....................................................................................................................................................................................................................................................Investment Avenues for an Indian Investor and Security Analysis Table of Contents ACKNOWLEDGEMENT..................................................................................................................................................116 Analysis of questionnaire and interpretation..............................................................................................................................................

....Investment Avenues for an Indian Investor and Security Analysis ....................................................................... 138 Investor Behavior Questionnaire.................................. 137 Appendix I...................................................................... Kharghar Page 7 ..............................................................................................................................................138 ITM Business School...

the Aditya Birla Group is:  A metals powerhouse. Switzerland. Australia.000 employees. belonging to 30 different nationalities. No. It is one of the three biggest producers of primary aluminum in Asia. Singapore. Laos. Dubai. the Aditya Birla Group is in the League of Fortune 500. It is anchored by an extraordinary force of 130. In India. RBL Group and Fortune magazine. the Group has been adjudged the best employer in India and among the top 20 in Asia by the HewittEconomic Times and Wall Street Journal Study 2007. branded apparel company  The second-largest producer of viscose filament yarn  The second-largest in the chlor-alkali sector  Among the top five cellular operators  Among top 10 Indian BPO companies by revenue size  Among the top five asset management and private sector life insurance companies  Among the top three supermarket chains in the retail business Beyond business ITM Business School. In the year 2009.Investment Avenues for an Indian Investor and Security Analysis Aditya Birla Group A US$ 29 billion corporation. Egypt. Bangladesh. The Group operates in 25 countries – India. Over 60 per cent of the Group's revenues flow from its overseas operations. among the world's most cost-efficient aluminum and copper       producers. Luxembourg. Kharghar Page 8 . with the largest single location copper smelter. USA. Myanmar. Italy. Thailand. Philippines. China. Germany. in a study conducted by Hewitt Associates. the Group was ranked among the top six great places for leaders in the Asia-Pacific region. Indonesia. Vietnam. The tenth-largest cement producer Among the best energy-efficient fertiliser plants In India:  Largest cement producer  Largest premium. France. Hindalco-Novelis is the largest aluminum rolling company. 1 in viscose staple fiber. The fourth-largest producer of insulators The fourth-largest producer of carbon black The fifth-largest producer of acrylic fibre. Malaysia and Korea. UK. Brazil. Globally. Canada. Hungary.

In India. ITM Business School. Of these. the Group has been and continues to be involved in meaningful welfare-driven initiatives that distinctly impact the quality of life of the weaker sections of society in India. the Group's social projects span 2. It reaches out to six million people annually through the Aditya Birla Centre for Community Initiatives and Rural Development. infrastructure and espousing social causes . South-East Asia and Egypt.Investment Avenues for an Indian Investor and Security Analysis Transcending business for over 50 years now.000 students receive merit scholarships.000 children receive free education.000 patients are given extremely subsidised medical care.000 children in India's interiors. The Group runs 42 schools. Kharghar Page 9 . education. An additional 8. Rajashree Birla. sustainable livelihood. spearheaded by Mrs. which provide quality education to over 45. The Group transcends the conventional barriers of business and reaches out to the marginalised because of its conviction of bringing in a more equitable society. Its focus is healthcare. 18. Likewise at its 18 hospitals in India.500 villages. more than 500.

offers a formidable protection for its customers’ future. Kharghar Page 10 . and money at all stages and under all circumstances. BSLI has the best Turn Around Time according to LOMA on all claims Parameters. BSLI has ensured that it has lowest outstanding claims ratio of 0. BSLI also enjoys the prestige to be the originator of practice to disclose portfolio on monthly basis. product range. while as on March 31. helped BSLI cover more than 2 million lives since it commenced operations and establish a customer base spread across more than 1500 towns and cities in India. reach and ears on ground. a well known and trusted name globally amongst Indian conglomerates and Sun Life Financial Inc. health plan and retirement plan) that the company offers.00% for FY 2008-09. With an experience of over 9 years. Birla Sun Life Insurance Company Limited (BSLI) is a joint venture between the Aditya Birla Group. It was the first Indian Insurance Company to introduce “Free Look Period” and the same was made mandatory by IRDA for all other life insurance companies. This impressive combination of domain expertise. Ltd.Investment Avenues for an Indian Investor and Security Analysis Birla Sun Life Insurance Co. pure term plan. BSLI has several firsts to its credit. Known for its innovation and creating industry benchmarks. To ensure that our customers have an impeccable experience. Additionally. 8165 crs as on February 28. To establish credibility and further transparency. The AUM of BSLI stood at Rs. accident.  Enhance the financial future of our customers including enterprises ITM Business School. 2009.000 empanelled advisors. which gets further accentuated by the complete bouquet of insurance products (viz. life stage products. 2000 crs. These category development initiatives have helped BSLI be closer to its policy holders’ expectations. Vision  To be a leader and role model in a broad based and integrated financial services business. Such services are well supported by sound financials that the Company has. The local knowledge of the Aditya Birla Group combined with the domain expertise of Sun Life Financial Inc.. health. Mission  To help people mitigate risks of life. the extensive reach through its network of 600 branches and 1. 2009. leading international financial services organization from Canada. BSLI pioneered the launch of Unit Linked Life Insurance plans amongst the private players in India. Add to this.75. Company Profile Established in 2000. BSLI has contributed significantly to the growth and development of the life insurance industry in India and currently ranks amongst the top 5 private life insurance companies in the country. the company has a robust capital base of Rs. Additionally.

4763 crores. Products ITM Business School. Chartered in 1865. Indonesia. In FY 2008-09. the consolidated revenues of ABFSG from these businesses crossed Rs. distribution & wealth management. Aditya Birla Finance. security based lending. Ireland.Investment Avenues for an Indian Investor and Security Analysis Values Integrity Commitment Passion Seamlessness  Speed     Aditya Birla Group through Aditya Birla Financial Services Group (ABFSG). including Canada. India. Kharghar Page 11 . As of December 31. the Sun Life Financial group of companies had total assets under management of $381 billion. private equity and retail broking. 2008. registering a growth rate of 36%. The seven companies representing ABFSG are Birla Sun Life Insurance Company. Aditya Birla Money. the United States. insurance broking. the United Kingdom. Aditya Birla Capital Advisors and Apollo Sindhoori Capital Investment. Hong Kong. has a strong presence across various financial services verticals that include life insurance. China and Bermuda. Japan. the Philippines. Sun Life Financial and its partners today have operations in key markets worldwide. fund management. Birla Sun Life Asset Management Company. Sun Life Financial is a leading international financial services organisation providing a diverse range of protection and wealth accumulation products and services to individuals and corporate customers. Birla Insurance Advisory & Broking Services.

Kharghar Page 12 .Investment Avenues for an Indian Investor and Security Analysis ITM Business School.

  constitute   the  market   for   branded   consumer   goods   ­   estimated   to   be   growing   at   over   8%   per   annum.termed Foreign Institutional Investment (FII) and Foreign Direct Investment (FDI).5% in the past decade.both through the Equity markets . • Foreign investment is welcome. the country is targeting an average GDP GDP growth of over 8% p. This highly diversified economy has shown rapid growth and remarkable resilience since 1991. • One of the largest economies in the world. While its size and growth potential make India attractive as a market. • Strategic location ­ access to the vast domestic and South Asian market. approval is required but is automatic in sixty categories of  Industries. growth rate of over 8% per annum. India is a fast-growing economy with a dynamic and robust financial system. with the economy recording an average annual GDP growth of over 6. the dotcom bust and rising oil prices have had no significant impact on India’s growth. the most compelling reason for investors to be in India is that it provides a high return on investment. India is a free-market democracy with a legal and regulatory framework that rewards free enterprise. Going forward. Events such as the Asian currency crisis. when economic reforms were initiated with the progressive opening of the economy to international trade and investment. Kharghar Page 13 .  Demand for several consumer products is growing at over 12% per annum.Investment Avenues for an Indian Investor and Security Analysis Investment Avenues for an Indian Investor and Security Analysis Introduction India’s competitiveness from a natural and human resources standpoint is making it the destination of choice for investors. expected. There are several good reasons for investing in India. Being a democracy ensures a stable policy environment and its independent institutions guarantee the rule of law.a. ITM Business School. • Skilled man­power and professional managers are available at competitive cost. • A   large   and   rapidly   growing   consumer   market   up   to   300   million   people. India is in the global arena for increased foreign investment . entrepreneurship and risk taking.

• Policy   environment   that   provides   freedom   of   entry. royalty and dividends. • Free and full repatriation of capital. Objective & scope Developing a basic understanding and potential of the Indian market. can be one which is lower between the rates prevailing  in any one of the two countries and the treaty rate. Vibrant capital market with over 9. envisaging and developing knowledge of offering various investment avenues.  • Foreign brand names are freely used. • Well developed R&D infrastructure and technical and marketing services. Scope of this study project is limited to the Indian listed companies in the equity market. technical fee.   investment.000 listed companies and  market capitalisation of US $600 billion.   choice   of  technology. • Rich base of mineral and agricultural resources. production. Well balanced package of fiscal incentives. • Corporate Tax applicable to the foreign companies of a country with which agreement for  avoidance of Double Taxation exists. • Long history of market economy infrastructure • Sophisticated financial sector. Kharghar Page 14 . import and export. • A stable parliamentary democracy. engineers. • One of the largest pools of scientists. Understand investor perception and investment idea of the equity share market. • No income tax on profits derived from export of goods.Investment Avenues for an Indian Investor and Security Analysis • One   of   the   largest   manufacturing   sectors   in   the   world. technicians and managers in the world.   spanning   almost   all   areas   of  manufacturing activities. ITM Business School.   location. • Complete exemption from Customs Duty on industrial inputs and Corporate Tax Holiday for  five years for 100 per cent Export Oriented units and units in Export Processing Zones.

with hotels all over the country witnessing their highest-ever occupancy rates. It is attracting investors by offering a possibility of stable income yields. residential. there is an up shooting demand for 200 million sq. healthcare etc. The commercial property market has been growing at an annual rate of approximately 30% over the past eight years across major locations in India. • Government Securities • Gold/Silver Moderate Risk Investment Avenues: • Mutual Funds • Life Insurance • • • Bonds & Debentures • • Traditional Investment Avenues Real Estate (property) The potential of India's property market has a revolutionizing effect on the overall economy of India as it transforms the skyline of the Indian cities mobilizing investments segments ranging from commercial. Moreover. retail. Another emerging trend in real estate sector in India is investment in the hospitality or hotel industry. The exceptional boom in inbound tourism and the IT sector has also led to an unprecedented shortage of rooms. has presently emerged as one of the most dynamic and fast paced industries of our times with several players entering the market. ITM Business School. Retail. tax structuring benefits and higher security in comparison to other investment options. But maximum growth is attributed to its growth from the booming IT sector. hospitality.Investment Avenues for an Indian Investor and Security Analysis Avenues of Investment An Indian investor has few but strong investment options Safe/Low Risk Investment Avenues: High Risk Investment Avenues: • Savings Account • Equity Share Market • Bank Fixed Deposits • Commodity Market • Public Provident Fund • FOREX Market • National Savings Traditional Investment Avenues: Certificates • Post Office Savings • Real Estate (property). ft over the next five years. Apart from the IT and ITES industry influencing the Indian real estate sector. since an estimated 70 per cent of the new construction is for the IT sector. A survey by the Federation of Indian Chambers of Commerce and Industry (FICCI) and Ernst & Young has predicted that Indian real estate industry is poised to emerge as one of the most preferred investment destinations for global realty and investment firms in the next few years. one of India's largest industries. industrial. India is also getting into the knowledge based manufacturing industry on a large scale. Kharghar Page 15 . moderate capital appreciations.

According to the data released by the Department of Industrial Policy and Promotion (DIPP). both qualitatively and quantitatively.4 billion from April 2000 to March 2010 wherein the real estate and the housing sector witnessed FDI amounting US$ 2. Domestic consumption is dictated by monsoon. integrated townships and commercial complexes etc.inviting real estate investments Not surprisingly. Also. Indian real estate sector is slated to mark the growth to $40-50 billion in the next five years. India is the world's largest consumer of gold in jewellery as investment. assaying. India is witnessing developments of hi tech cities. 13 banks are active in the import of gold. as compared to the rest of the world. making them into standard bars in India. Along with curtailing the risk factor. In July 1997 the RBI authorized the commercial banks to import gold for sale or loan to jewellers and exporters. Kharghar . Facilities for refining. multiplex. FDI . most foreign investors have aimed India in a big way. This reduced the disparity between international and domestic prices of gold from 57 percent during 1986 to 1991 to 8. In the cities gold is facing competition from the stock market and a wide range of consumer goods. Page 16 ITM Business School.the emerging investment option Moreover. housing and real estate sector including cineplex. it provides the participating companies an exit route.5 percent in 2001. and a SEZ developer is entitled for tax exemptions like a 10-year corporate tax holiday.8 billion in the fiscal year 2009-10. Gold and Silver • • • • • • • Gold is valued in India as a savings and investment vehicle and is the second preferred investment after bank deposits. as real estate sector expands beyond the city limits with government promoting industrial belts. At present. largely through joint ventures. a trend that has been embraced by most Indian cities.Investment Avenues for an Indian Investor and Security Analysis SEZs . Indian jewellery off take is sensitive to price increases and even more so to volatility. real estate developers are eyeing special economic zones (SEZs) as an extension of their business. Several upcoming special economic zones are also expected to provide the momentum to the commercial office space development in related area where the land comes cheaper. On the whole. are insignificant. The gold hoarding tendency is well ingrained in Indian society. harvest and marriage season. attracted a cumulative foreign direct investment (FDI) worth US$ 8.

In India silver price volatility is also an important determinant of silver demand as it is for gold.a.400 tons down 25 % from record 4. Accounts for about 20% of world consumption India is the fastest growing jewellery market in the world o Branded jewellery likely to be the fastest growing segment in domestic sales o Expected to grow at 40% p. India is the largest consumer of gold jewellery in the world. CIS. At present the ITM Business School. Around 50% of India's silver requirements last year were met through imports of Chinese silver and other important sources of supply being UK. These accounts are one of the most popular deposits for individual accounts. up by close to 200% year-onyear to 150 tons. Indian industrial demand in 2002 is estimated at 1375 tons down by 13 % from 1. India is still one of the largest users of silver in the world. However. plating of jewelry and silverware and jari. to US$2. banks have every right to enforce such boundaries if it is felt that the account is being misused as a current account. Japan and the United States. ranking alongside those Industrial giants. These accounts provide cheque facility and a lot of flexibility for deposits and withdrawal of funds from the account. By contrast with United States and Japan.Investment Avenues for an Indian Investor and Security Analysis • • • • • • • • • Silver imports into India for domestic consumption in 2002 was 3. Indian industrial offtake for fabrication in hardcore industrial applications like electronics and brazing alloys accounts for only 15 % and the rest being for foils for use in the decorative covering of food. but no bank enforces these.579 tons in 2001.2 billion by 2010 o Exports expected to grow from US$17 billion in 2006 to over US$25 billion by 2012 Safe/Low Risk Investment Avenues Savings Account and Bank Fixed Deposits As the name denotes. Kharghar Page 17 .540 tons in 2001. Australia and Dubai. In spite of this fall. Open General License (OGL) imports are the only significant source of supply to the Indian market. Non-duty paid silver for the export sector rose sharply in 2002. this account is perfect for parking your temporary savings. Most of the banks have rules for the maximum number of withdrawals in a period and the maximum amount of withdrawal.

The position of account is depicted in a small book known as 'Pass Book'. therefore. Normally.a. This account gives the customer a nominal rate of interest and he can withdraw money as and when the need arises. Deposits can be withdrawn before the period is over. Therefore if an individual has 5 deposits and the aggregate interest earned on these is Rs. Rate of interest differs from Bank to Bank. 7000 though in each individual deposit.Investment Avenues for an Indian Investor and Security Analysis interest on these accounts is regulated by Reserve Bank of India. the depositors are supposed to continue such Fixed Deposits for the duration of time for which the depositor decides to keep the money with the bank. When the interest rates were regulated by RBI all banks used to have the same interest rate structure. The rate of interest for Fixed Deposits (FD) differs from bank to bank. However.e. Kharghar Page 18 . tax must be deducted at source. The present trends indicate that private sector and foreign banks offer higher rate of interest. Presently Indian banks are offering 3. 2000. pre plans a length of time for which the depositor decides to keep the money with the Bank and the rate of interest payable to the depositor is decided by this tenure. however. interest should not exceed Rs. Tax deduction Banks should deduct tax at source on interest paid in excess of Rs. in case of need. 5000 per annum to any depositor. The returns on the money kept in Savings Bank account will be less but the freedom to withdraw is the highest The term "fixed" in Fixed Deposits denotes the period of maturity or tenor. the amount of interest payable to the depositor. Such accounts should be treated as a temporary parking area because the rate of interest is much less than Fixed Deposits. shift this money to Fixed Deposit. does not mean that the depositor loses all his rights over the money for the duration of the tenor decided. it will go up if market interest rate goes and it will come down if the market rates fall. Therefore. the depositor can ask for closing the fixed deposit in advance by paying a penalty. the rate is highest for deposits for 3-5 years. This. the bank must issue a fixed deposit that should state the following things on its face: • Date of issue • Due date • Amount ITM Business School. Fixed Deposit. However. in such cases goes down. Soon some banks have even introduced variable interest fixed deposits. This is not per deposit but per individual. Operation While opening a fixed deposit account. As soon as one’s savings accumulate to an amount which he can spare for a certain period of time. interest rate on such deposits. The rate of interest in such deposits will keep on varying with the prevalent market rates i. Every Banks offer fixed deposits schemes with a wide range of tenures for periods from 7 days to 10 years.50% p.

Renewal Deposits can be renewed on maturity on the request of the depositor. Normally. The bank cannot do so without the customer’s instruction. Banks are permitted. On maturity. If the deposit matures on a Sunday/ holiday/ any nonworking days. the customer would have to request the bank to do so. If the depositor does not renew or claim the deposit on its maturity. but are ready to save a small amount every month. The deposit would be paid back on the succeeding working day. Interest on renewal Interest on renewal will be on the original deposit at the rate applicable to the period for which the deposit has actually run. the deposit will be designated as an overdue deposit in the books of the bank. In such case. Deposits may be renewed before maturity in the following cases: • If the deposit is renewable before the date of maturity • If the period of renewal is longer than the remaining period of the original deposit. Interest for the period from the date of renewal will be allowed at the rate existing on the date of renewal. Recurring Deposit Account These kinds of deposits are most suitable for people who don’t have lump sum amount of savings. the bank should pay interest at the originally contracted rate on the deposit amount for the Sunday/ holiday/ non business day.Investment Avenues for an Indian Investor and Security Analysis • • • Rate of interest Period of deposit Amount at maturity Early withdrawal Sometimes a customer may want to withdraw his deposit before maturity. The Reserve Bank states that penal interest must not be charged if the deposit is reinvested in a fresh deposit immediately. such deposits earn interest on the amount deposited through monthly installments at the same rates as of Fixed Deposits / Term ITM Business School. at their discretion. Maturity The deposit matures at the end of the period for which it has been placed. Normally the instruction would be in the account opening instructions. to allow early withdrawal and they can charge a penal interest for early encashment. the depositor should instruct the bank to renew the deposit. The bank cannot close and repay the deposit if the depositor does not make a demand. he can ask for it to be paid to him either by a cheque/ draft or credited to an account he has. Kharghar Page 19 . The rate of interest that will be paid is the rate for the period the deposit has been with the bank. Banks may prohibit premature withdrawal of large deposits held by entities other than individuals and HUFs if such depositors have been so advised at the time the account was opened. If the depositor does not want to renew the deposit.

An individual can have only one PPF account.70. The account holder can retain the account after maturity for any period without making any additional deposits. the year of opening the account and adding 15 years to it. which is compounded annually. the person has to deposit a fixed amount of money every month any default in payment within the month attracts a small penalty. A Pass book issued where the person can get the entries for all the deposits made by him / her and the interest earned. Interest is calculated on the lowest balance between the fifth day and last day of the calendar month and is credited to the account on March 31 every year. the effective period works out to 16 years i. HUF. is a savings cum tax saving instrument PPF is a long-term. However. The aggregate annual contribution by an individual on account of himself. government-backed small savings scheme of the Central government started with the aim of providing old age income security to the workers in the unorganized sector and selfemployed individuals. Any individual (salaried or non-salaried) can open a PPF account. have also introduced a flexible / variable Recurring deposit. Early withdrawal of accumulated amount permitted is usually allowed but penalty may be imposed for early withdrawals.. Even NRIs can open PPF account. some Banks besides offering a fixed installment Recurring deposit. So to derive the maximum. Public Provident Fund. Post Office Savings and National Savings Certificate Public Provident Fund. The balance in the account will continue to earn interest at normal rate as admissible on PPF account till the account is closed. Currently. Under these flexible RDs the person is allowed to deposit even higher amount of installments. People who are interested in liquidity or small-term gains would not be excited about PPF because the duration for the investment is 15 years. Nomination facility is also available. He/ She may also subscribe on behalf of a minor. However. the deposits should be made between 1st and 5th day of the month. AOP and BOI. Under these types of deposits. ITM Business School.e. These are best if one wish to create a fund for his child's education or marriage of his daughter or buy a car without loans. there are nearly 30 lakh PPF account holders in India across banks and post offices.Investment Avenues for an Indian Investor and Security Analysis Deposits.000 otherwise the excess amount will be returned without any interest. The contribution made in the 16th financial year will not earn any interest but one can take advantage of the tax rebate. These accounts can be opened in single or joint names. Kharghar Page 20 . These accounts are normally allowed for maturities ranging from 6 months to 120 months. Currently. Also. two adults cannot open a joint PPF account. with an upper limit fixed for the same. popularly known as PPF. The account holder has an option to extend the PPF account for any period in a block of five years after the minimum duration elapses. the interest rate offered through PPF is around 8 per cent. his minor child and HUF/AOP/BOI (of which individual is member) cannot exceed Rs.

etc. FCI bonds. In early 2005. Generally coupon rate is fixed throughout the life of the bond. National Saving Certificates (NSCs). acknowledging the Government’s debt obligation. the issuer has no more compulsions to the bond holders after the maturity date. • Long term (bonds): maturities greater than 10 years. Coupon Coupon is the interest payment that the issuer pays to the bond holders. physical bonds were issued which coupons had attached to them. are called risk-free instruments. a market developed in Euros for bonds with a maturity of fifty years.) but they are usually not fully tradable and are not eligible for meeting the SLR requirement. In the market for government securities. which are called the State Development Loans (SDLs).Investment Avenues for an Indian Investor and Security Analysis Government Securities A Government security is a tradable security issued by the Central Government or the State Governments. with original maturities of less than 1 year) or long term (usually called Government bonds or dated securities with original maturity of one year or more).) or special securities (Oil bonds. though debt securities with a term of less than one year are generally designated money market instruments rather than bonds. Maturity date It is the date on which the issuer has to repay the principal amount. less issuance fees. Kharghar Page 21 . Such securities can be short term (usually called Treasury Bills. The maturity can be any length of time. On coupon dates the bond holder would give the coupon to a bank in exchange for the interest payment. The net proceeds that the issuer receives are thus the issue price. hence. It can also vary with a money market index. Government of India also issue savings instruments (Savings Bonds. fertilizer bonds. which will normally be approximately equal to the principal amount. In India. and some even do not mature at all. Government securities carry practically no risk of default and. etc. Few bonds have been issued with maturities of up to one hundred years. the Central Government issues both Treasury Bills and bonds or dated securities while the State Governments issue only bonds or dated securities. Most bonds have a term of up to 30 years. and which has to be repaid at the end. there are three groups of bond maturities: • Short term (bills): maturities up to 1 year. As long as all payments have been made. power bonds. or it can be even more exotic. Features of Government Securities Principal or face amount It is the amount on which the issuer pays interest. Issue price It is the price at which investors buy the bonds when they are first issued. • Medium term (notes): maturities between 1 and 10 years. The name coupon originates from the fact that in the past. ITM Business School. The length of time until the maturity date is called as the term or tenure or maturity of a bond. like LIBOR.

1992)  Dividends received from a co-operative society  Income from investments in UTI (up to assessment year 1999-2000)  Interest on deposits with a banking company or a co-operative bank  Interest on deposits with a co-operative society made by a member of the society  Interest on deposits with housing boards  Interest from deposits made under A. Coupon date These are the dates on which the issuer pays the coupon to the bond holders. Development Bonds and 7 year National Rural Development Bonds  Interest on Post Office Term Deposits. In the central and state securities and commercial laws apply to the enforcement of these agreements. VII and VIII). any institution or any public sector company. such as actions that the issuer is obligated to perform or is prohibited from performing. which means that they pay a coupon every six months. A list of such deposits is mentioned hereunder:  Interest on Government Securities. National Savings Certificate (issues VI.D.T. Development Bonds. Kharghar Page 22 . Benefits of Government Securities  Holders of certain bonds are eligible to claim deduction from their taxable income. In the India most bonds are semi-annual.P.S.  Interest on deposits with a financial corporation which is engaged in providing long-term finance for industrial development in India and which is entitled for deduction under Section 36(l)(viii) [up to assessment year 1999-2000. with amendments to the governing document usually requiring approval by a majority (or super-majority) vote of the bondholders.Investment Avenues for an Indian Investor and Security Analysis Indentures and Covenants An indenture is a formal debt agreement that creates the terms of a bond issue. (I. Recurring Deposits Accounts and National Savings Schemes (as referred to in National Savings Scheme Rules. (C. D. while covenants are the clauses of such an agreement. The terms may be changed only with great difficulty while the bonds are outstanding. which are interpreted by courts as contracts between issuers and bondholders.) Act & C.E.) Act  Interest on notified debentures of any co-operative society. Covenants state the rights of bondholders and the duties of issuers. the corporation is approved by Central Government ITM Business School.

The Total Assets under Management in India of all Mutual funds put together touched a peak of Rs.Investment Avenues for an Indian Investor and Security Analysis  Interest on deposits with a public company formed and registered in India with the major object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes and which is eligible for deduction under Section 36(l) (viii) [up to assessment year 1999-2000. bonds. ITM Business School. Mutual funds have a fund manager who invests the money on behalf of the investors by buying / selling stocks.  Rate of interest and tenor of the security is fixed at the time of issuance and is not subject to change (unless intrinsic to the security like FRBs). Buying shares directly from the market is one way of investing. India has around 1000 mutual fund schemes.  Ample liquidity as the investor can sell the security in the secondary market  Interest payment on a half yearly basis on face value  No tax deducted at source  Can be held in D-mat form.  Interest on deposits under Post Office (Monthly Income Account) Rules. But this requires spending time to find out the performance of the company whose share is being purchased. at the end of August 2008. 5.  Redeemed at face value on maturity  Maturity ranges from of 2-30 years.  Interest on deposits with Industrial Development Bank of India. the company is approved by the Central Government under Section 36(l)(viii)].535 crs. Moderate Risk Investment Avenues Mutual Funds A mutual fund is a professionally managed type of collective investment scheme that pools money from many investors and invests it in stocks. Kharghar Page 23 . Income in respect of units of mutual fund specified under Section 10(23D).  Issued at face value  No default risk as the securities carry sovereign guarantee. but this number has grown exponentially in the last few years. bonds and debentures. short-term money market instrume nts and other securities.  Securities qualify as SLR investments (unless otherwise stated.  Interest on deposits under National Deposit Scheme.44.

Kharghar Page 24 . whether he has enough experience in the financial sector. bonds and other securities thus diversifying the investor’s portfolio across different companies and sectors. The AMC functions under the supervision of its Board of Directors. Mutual Funds in India follow a 3-tier structure. It is also less expensive to invest in a mutual fund since the minimum investment amount in mutual fund units is fairly low (Rs.Investment Avenues for an Indian Investor and Security Analysis understanding the future business prospects of the company. his networth etc. get access to so much of details before investing in the shares. The AMC’s Board of Directors must have at least 50% of Directors who are independent directors. This diversification helps in reducing the overall risk of the portfolio. Sponsor is not the Trust. 500 or so). Another reason why investors prefer mutual funds is because mutual funds offer diversification. 500 an investor may be able to buy only a few stocks and not get the Mutual Fund Operation Flow Chart desired divers ification. Sponsor is not the Mutual Fund. They invest in a mutual fund scheme which in turn takes the responsibility of investing in stocks and shares after due analysis and research. the sponsor creates a Public Trust (the Second tier) as per the Indian Trusts Act. However. which is the market regulator and also the regulator for mutual funds SEBI checks whether the person is of integrity. hence the Trustees are the people authorized to act on behalf of the Trust. Once the Trust is created. The Sponsor approaches the Securities & Exchange Board of India (SEBI). The Trustees role is not to manage the money. Trusts have no legal identity in India and cannot enter into contracts. it is registered with SEBI after which this trust is known as the mutual fund. It is important to understand the difference between the Sponsor and the Trust. Trustees appoint the Asset Management Company (AMC). whether the money is being managed as per stated objectives. bonus issue history of the company etc. There is a Sponsor (the First tier). 1882. finding out the track record of the promoters and the dividend. to manage investor’s money. It is the Trust which is the Mutual Fund. who thinks of starting a mutual fund. Trustees may be seen as the internal regulators of a mutual fund. An investor’s money is invested by the mutual fund in a variety of shares. Once SEBI is convinced. The investor need not bother with researching hundreds of stocks. i. and also ITM Business School. With Rs.e. many investors find it cumbersome and time consuming to pore over so much of information. These are some of the reasons why mutual funds have gained in popularity over the years. The AMC has to be approved by SEBI. Investors therefore prefer the mutual fund route. An informed investor needs to do research before investing. The AMC in return charges a fee for the services provided and this fee is borne by the investors as it is deducted from the money collected from them. They are two separate entities. It leaves it to the mutual fund and it’s professional fund management team. Their job is only to see. Contracts are entered into in the name of the Trustees.

ITM Business School. Kharghar Page 25 . It is the AMC.Investment Avenues for an Indian Investor and Security Analysis under the direction of the Trustees and SEBI. In order to do this the AMC needs to follow all rules and regulations prescribed by SEBI and as per the Investment Management Agreement it signs with the Trustees. floats new schemes and manages these schemes by buying and selling securities. which in the name of the Trust.

Investment Avenues for an Indian Investor and Security Analysis ITM Business School. Kharghar Page 26 .

Investment Avenues for an Indian Investor and Security Analysis Types of Mutual Fund ITM Business School. Kharghar Page 27 .

Investors who need some income to supplement their earnings Balanced Schemes Aim to provide both growth and income by periodically distributing a part of the income and capital gains they earn. Kharghar Page 28 . Some close-ended schemes give you an additional option of selling your units to the Mutual Fund through periodic repurchase at NAV related prices. Close-Ended Schemes Schemes that have a stipulated maturity period (ranging from 2 to 15 years) are called close ended schemes. They invest in both shares and fixed income securities in the proportion ITM Business School. By Investment Objective Growth Schemes Aim to provide capital appreciation over the medium to long term. These schemes normally invest a majority of their funds in equities and are willing to bear short term decline in value for possible future appreciation. You deal with the Mutual Fund for your investments and redemptions. One of the characteristics of the close-ended schemes is that they are generally traded at a discount to NAV. The market price at the stock exchange could vary from the scheme’s NAV on account of demand and supply situation. at any point of time. Income Schemes Aim to provide regular and steady income to investors. age.Investment Avenues for an Indian Investor and Security Analysis There are a wide variety of Mutual Fund schemes which cater to varying needs. These schemes generally invest in fixed income securities such as bonds and corporate debentures. Ideal for: Retired people and others with a need for capital stability and regular income. risk tolerance and return expectations. They may be traded on the stock exchange or may be open for sale or redemption during predetermined intervals at NAV related prices. unit holders’ expectations and other market factors. Ideal for: Investors in their prime earning years and seeking growth over the long term. The key feature is liquidity. Classified as follows for the Indian market scenario: By Structure Open-Ended Schemes These do not have a fixed maturity. You can conveniently buy and sell your units at Net Asset Value (NAV) related prices. You can invest in the scheme at the time of the initial issue and thereafter you can buy or sell the units of the scheme on the stock exchanges where they are listed. SEBI Regulations ensure that at least one of the two exit routes is provided to the investor under the close ended schemes. the discount narrows. Interval Schemes These combine the features of open-ended and close-ended schemes. financial position. These schemes are not for investors seeking regular income or needing their money back in the short term. but closer to maturity. Capital appreciation in such schemes may be limited.

Investment Avenues for an Indian Investor and Security Analysis

indicated in their offer documents. In a rising stock market, the NAV of these schemes may not normally keep pace or fall equally when the market falls. Ideal for: Investors looking for a combination of income and moderate growth. Money Market / Liquid Schemes Aim to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer, short term instruments such as treasury bills, certificates of deposit, commercial paper and interbank call money. Returns on these schemes may fluctuate, depending upon the interest rates prevailing in the market. Ideal for: Corporate and individual investors as a means to park their surplus funds for short periods or awaiting a more favorable investment alternative. Tax Saving Schemes (Equity Linked Saving Scheme - ELSS) These schemes offer tax incentives to the investors under tax laws as prescribed from time to time and promote long term investments in equities through Mutual Funds. Ideal for: Investors seeking tax incentives. Special Schemes This category includes index schemes that attempt to replicate the performance of a particular index such as the BSE Sensex, the NSE 50 (NIFTY) or sector specific schemes which invest in specific sectors such as Technology, Infrastructure, Banking, Pharma etc. Besides, there are also schemes which invest exclusively in certain segments of the capital market, such as Large Caps, Mid Caps, Small Caps, Micro Caps, 'A' group shares, shares issued through Initial Public Offerings (IPOs), etc. Index fund schemes are ideal for investors who are satisfied with a return approximately equal to that of an index. Sectoral fund schemes are ideal for investors who have already decided to invest in a particular sector or segment. Fixed Maturity Plans Fixed Maturity Plans (FMPs) are investment schemes floated by mutual funds and are close ended with a fixed tenure, the maturity period ranging from one month to three/five years. These plans are predominantly debt-oriented, while some of them may have a small equity component. The objective of such a scheme is to generate steady returns over a fixed-maturity period and protect the investor against market fluctuations. FMPs are typically passively managed fixed income schemes with the fund manager locking into investments with maturities corresponding with the maturity of the plan. FMPs are not guaranteed products. Exchange Traded Funds (ETFs) Exchange Traded Funds are essentially index funds that are listed and traded on exchanges like stocks. Globally, ETFs have opened a whole new panorama of investment opportunities to retail as well as institutional investors. ETFs enable investors to gain broad exposure to entire stock markets as well as in specific sectors with relative ease, on a real-time basis and at a lower cost than many other forms of investing. An ETF is a basket of stocks that reflects the composition of an index, like S&P CNX Nifty, BSE Sensex, CNX Bank Index, CNX PSU Bank Index, etc. The ETF's trading value is based on the net asset value of the underlying stocks that it represents. It can be
ITM Business School, Kharghar Page 29

Investment Avenues for an Indian Investor and Security Analysis

compared to a stock that can be bought or sold on real time basis during the market hours. The first ETF in India, Benchmark Nifty Bees, opened for subscription on December 12, 2001 and listed on the NSE on January 8, 2002. Capital Protection Oriented Schemes Capital Protection Oriented Schemes are schemes that endeavour to protect the capital as the primary objective by investing in high quality fixed income securities and generate capital appreciation by investing in equity / equity related instruments as a secondary objective. The first Capital Protection Oriented Fund in India, Franklin Templeton Capital Protection Oriented Fund opened for subscription on October 31, 2006. Gold Exchange Traded Funds (GETFs) Gold Exchange Traded Funds offer investors an innovative, cost-efficient and secure way to access the gold market. Gold ETFs are intended to offer investors a means of participating in the gold bullion market by buying and selling units on the Stock Exchanges, without taking physical delivery of gold. The first Gold ETF in India, Benchmark GETF, opened for subscription on February 15, 2007 and listed on the NSE on April 17, 2007. Funds Investing Abroad With the opening up of the Indian economy, Mutual Funds have been permitted to invest in foreign securities/ American Depository Receipts (ADRs) / Global Depository Receipts (GDRs). Some of such schemes are dedicated funds for investment abroad while others invest partly in foreign securities and partly in domestic securities. While most such schemes invest in securities across the world there are also schemes which are country specific in their investment approach. Fund of Funds (FOFs) Fund of Funds are schemes that invest in other mutual fund schemes. The portfolio of these schemes comprise only of units of other mutual fund schemes and cash / money market securities/ short term deposits pending deployment. The first FOF was launched by Franklin Templeton Mutual Fund on October 17, 2003. Fund of Funds can be Sector specific e.g. Real Estate FOFs, Theme specific e.g. Equity FOFs, Objective specific e.g. Life Stages FOFs or Style specific e.g. Aggressive/ Cautious FOFs etc. Please bear in mind that any one scheme may not meet all your requirements for all time. You need to place your money judiciously in different schemes to be able to get the combination of growth, income and stability that is right for you. Remember, as always, higher the return you seek higher the risk you should be prepared to take.
Advantages of investing in a Mutual Fund 1. Professional Management: You avail of the services of experienced and skilled professionals

who are backed by a dedicated investment research team which analyses the performance and prospects of companies and selects suitable investments to achieve the objectives of the scheme.
2. Diversification: Mutual Funds invest in a number of companies across a broad cross-section of

industries and sectors. This diversification reduces the risk because seldom do all stocks decline
ITM Business School, Kharghar Page 30

Investment Avenues for an Indian Investor and Security Analysis

at the same time and in the same proportion. You achieve this diversification through a Mutual Fund with far less money than you can do on your own.
3. Convenient Administration: Investing in a Mutual Fund reduces paperwork and helps you

avoid many problems such as bad deliveries, delayed payments and unnecessary follow up with brokers and companies. Mutual Funds save your time and make investing easy and convenient.
4. Return Potential: Over a medium to long-term, Mutual Funds have the potential to provide a

higher return as they invest in a diversified basket of selected securities.
5. Low Costs: Mutual Funds are a relatively less expensive way to invest compared to directly

investing in the capital markets because the benefits of scale in brokerage, custodial and other fees translate into lower costs for investors.
6. Liquidity: In open-ended schemes, you can get your money back promptly at Asset Value Net

(NAV) related prices from the Mutual Fund itself. With close-ended schemes, you can sell your units on a stock exchange at the prevailing market price or avail of the facility of repurchase through Mutual Funds at NAV related prices which some close-ended and interval schemes offer you periodically.
7. Transparency: You get regular information on the value of your investment in addition to

disclosure on the specific investments made by your scheme, the proportion invested in each class of assets and the fund manager’s investment strategy and outlook.
8. Flexibility: Through features such as Systematic Investment Plans (SIP), Systematic Withdrawal

Plans (SWP) and dividend reinvestment plans, you can systematically invest or withdraw funds according to your needs and convenience.
9. Choice of Schemes: Mutual Funds offer a variety of schemes to suit your varying needs over a

10. Well Regulated:

All Mutual Funds are registered with SEBI and they function within the provisions of strict regulations designed to protect the interests of investors. The operations of Mutual Funds are regularly monitored by SEBI.

ITM Business School, Kharghar

Page 31

The investment is denoted as unit and is represented by the value that it has attained called as Net Asset Value (NAV). However. and hence managed according to your specific needs. financial planning for children’s future and retirement planning. the value of investments alters with the performance of the underlying fund opted by the customer. As times progressed the plans were also successfully mapped along with life insurance need to retirement planning. Unit linked insurance plan is a life insurance solution that provides the client with the benefits of protection and flexibility in investment. a part of the investment goes towards providing a life cover. Simply put. The residual portion of the ULIP is invested in a fund which in turn invests in stocks or bonds.equity. the concept of having an investment and insurance by the same instrument was challenged by the market regulator SEBI which took up the matter to the Supreme Court of India . and many types of financial planning including children’s marriage planning. ULIP is life insurance solution that provides for the benefits of protection and flexibility in investment. financial needs.In today’s times ULIP provides solution for all the needs of a client like insurance planning. The reason that is attributed to the wide spread popularity of ULIP is because of the transparency and the flexibility which it offers to the clients.The Indian government brought down curtains on the two-month long tussle between the regulators by ruling that Unit-linked Insurance Products will be governed by the Insurance Regulatory and Development Authority (IRDA). financial needs. In ULIPs. the ULIP plan offers unprecedented flexibility and transparency. ULIP came into play in the 1960s and is popular in many countries in the world. Part of the premium you pay goes towards the sum assured (amount you get in a life insurance policy) and the balance will be invested in whichever investments you desire . ULIPs are a category of goal-based financial solutions that combine the safety of insurance protection with wealth creation opportunities.is a financial product that offers you life insurance as well as an investment like a mutual fund. ULIPs are structured in such that the protection element and the savings element are distinguishable. In India investments in ULIP are covered under Section 80C of IT Act. The investment is denoted as units and is represented by the value that it has attained called as Net Asset Value (NAV). In this way. Kharghar Page 32 . As time progressed the plans were also successfully mapped along with life insurance needs to retirement planning . ULIPs came into play in 1960s and became very popular in Western Europe and America.Investment Avenues for an Indian Investor and Security Analysis Unit Linked Insurance Plan (ULIP) ULIP provides for life insurance where the policy value at any time varies according to the value of the underlying assets at the time. ULIP provides solutions for insurance planning. In today's times. Unit Linked Insurance Plan . fixed-return or a mixture of both. ITM Business School. It is a solution which provides for life insurance where the policy value at any time varies according to the value of the underlying assets at the time.

The following are some of the common types of funds available along with an indication of their risk characteristics. (Source: www. Kharghar Page 33 . Sometimes known as Money Market Funds — Low Cash Funds invested in cash. bank deposits and money market instruments Combining equity investment with fixed interest Medium Balanced Funds instruments ITM Business School. Fixed Interest Invested in corporate bonds. The potential for returns also varies from fund to fund.Investment Avenues for an Indian Investor and Security Analysis (Source:http://www. risk profile and time horizons. Different funds have different risk profiles.org) General description Nature of investments Risk category Primarily invested in company stocks with the Medium to High Equity Funds general aim of capital appreciation.com/doc/7216240/Understand-ULIP-Insurance) TYPES OF FUNDS UNDER ULIPs Most insurers offer a wide range of funds to suit one’s investment objectives. Income.irdaindia.scribd. government securities Medium and Bond Funds and other fixed income instruments.

Investment Avenues for an Indian Investor and Security Analysis ITM Business School. Kharghar Page 34 .

Kharghar Page 35 .Investment Avenues for an Indian Investor and Security Analysis ITM Business School.

Kharghar Page 36 . expenses Upper limits for expenses determined by the insurance chargeable to investors have been company set by the regulator Not mandatory* Quarterly mandatory disclosures are Expenses Portfolio disclosure Modifying asset allocation Generally permitted for free Entry/exit loads have to be borne or at a nominal cost by the investor Section 80C benefits are Section 80C benefits are available available on all ULIP only on investments in tax-saving investments funds Tax benefits ITM Business School.Investment Avenues for an Indian Investor and Security Analysis ULIPs v/s Mutual Funds ULIPs Investment amounts Mutual Funds Determined by the investor Minimum investment amounts are and can be modified as well determined by the fund house No upper limits.

the term ‘bond’ is used for debt instruments issued by the Central and State governments and public sector organizations and the term ‘debenture’ is used for instruments issued by private corporate sector. from date of issue of the bond until its maturity. Coupon rate is the rate at which interest is paid. Each debt instrument has three features: Maturity. The market for Government Securities comprises the Centre. Convertible debentures. local bodies such as municipalities have also begun to tap the debt markets for funds. Corporate bond markets comprise of commercial paper and bonds. The yield on a bond varies inversely with its credit (safety) rating. coupon and principal. the lower is the rate of interest offered. Maturity Maturity of a bond refers to the date. as the distance between such a date and the date of maturity. ICRA and Fitch. Most Bond/Debenture issues are rated by specialised credit rating agencies. and include a variety of tailor. Kharghar Page 37 . Coupon Coupon refers to the periodic interest payments that are made by the borrower (who is also the issuer of the bond) to the lender (the subscriber of the bond). (2) Public Sector Units (PSU) bonds. which are convertible bonds or bonds that can be converted into equity shares of the issuing company after a predetermined period of time. It is also called the term or the tenure of the bond. on which the bond matures. These bonds typically are structured to suit the requirements of investors and the issuing corporate. Term-to-Maturity refers to the number of years remaining for the bond to mature. There are two types of debentures: 1. Some of the PSU bonds are tax free. Principal Principal is the amount that has been borrowed. (1) Government Securities. In the recent past. The safer the instrument. There are three main segments in the debt markets in India. The Term-to-Maturity changes every day. and is also called the par value or face value of the bond.. "Convertibility" ITM Business School. The term to maturity of a bond can be calculated on any date. Credit rating agencies in India are CRISIL. which is the date on which the borrower has agreed to repay the principal. In Indian securities markets. viz.Investment Avenues for an Indian Investor and Security Analysis Bonds & Debentures Debt instrument represents a contract whereby one party lends money to another on predetermined terms with regards to rate and periodicity of interest. repayment of principal amount by the borrower to the lender. CARE. while most bonds including government securities are not tax-free. The coupon is the product of the principal and the coupon rate. and is usually represented as a percentage of the par value of a bond. State and State-sponsored securities. and (3) Corporate securities.made features with respect to interest payments and redemption.

As a result of the advantage a buyer gets from the ability to convert. floating rate bonds. Level of Government Issuers Central Government Development finance institutions. zerocoupon bonds. They are debentures without the convertibility feature attached to them. which are simply regular debentures. they usually carry higher interest rates than their convertible counterparts. Non-convertible debentures. convertible bonds typically have lower interest rates than non-convertible corporate bonds. infrastructure bonds. floating rate bonds State government loans Government-guaranteed bonds Bonds. with or without government guarantee National ITM Business School. cannot be converted into equity shares of the liable company.Investment Avenues for an Indian Investor and Security Analysis is a feature that corporations may add to the bonds they issue to make them more attractive to buyers. commercial banks Public sector companies Private sector companies State governments State-level public enterprises and financial institutions Sub-national State-level special-purpose vehicles and statutory boards Municipal corporations Instruments Treasury bills. often with revenue dedication. with or without government guarantee Municipal bonds. In other words. it is a special feature that a corporate bond may carry. with revenue dedication. inflation indexed bonds Bank bonds. zero coupon bonds Taxable and tax-free bonds Bonds and debentures. zero-coupon bonds. As a result. 2. Kharghar Page 38 . dated securities.

They like P/E ratio being below a certain absolute ITM Business School. Many of these assets still have value. commonly referred to as ordinary share. besides that on average stocks have paid 1. if invested over a longer duration. Companies. An equity share. Value investors look to buy stocks that are undervalued. Research studies have proved that the equities have outperformed most other forms of investments in the long term. Equities have the potential to increase in value over time.Investment Avenues for an Indian Investor and Security Analysis High Risk Investment Avenues Equity Share Market The Indian Equity Market is more popularly known as the Indian Stock Market. investing in equity shares offers the highest rate of return. These companies may have been beaten down in price because of some bad event. subsidiaries. even a company that has seen its stock price decline still has assets to its name . Indian stock market has returned about 17% to investors on an average in terms of increase in share prices or capital appreciation annually. Compared to most other forms of investments. it has a market capitalization of nearly $600 billion.5% dividend annually. yet that value may not be reflected in the stock's price. However. Shares are also known as Equities. When you buy a share of a company you become a shareholder in that company. According to the latest report by ADB. As of March 2009.13 lakh crore) which is onetenth of the combined valuation of the Asia region. inventories. Dividend is a percentage of the face value of a share that a company returns to its shareholders from its annual profits. and then hold those stocks until the rest of the market realizes the real value of the company's assets. It also provides your portfolio with the growth necessary to reach your long term investment goals.3 billion (Rs 30. or may be in an industry that's not fancied by most investors. the market capitalization was around $598. whose potential for growth in sales and earnings are excellent. Since 1990 till date. The Indian equity market has become the third biggest after China and Hong Kong in the Asian region. The market was slow since early 2007 and continued till the first quarter of 2009. real estate.buildings. and so on. These companies usually pay little or no dividends and instead prefer to reinvest their profits in their business for further expansions. The value investors tend to purchase a company's stock usually based on relationships between the current market price of the company and certain business fundamentals. are growing faster than other companies in the market or other stocks in the same industry are called the Growth Stocks. Value Stocks The task here is to look for stocks that have been overlooked by other investors and which may have a ‘hidden value’. represents the form of fractional ownership in a business venture. Growth Stocks In the investment world we come across terms such as Growth stocks & Value stocks. Kharghar Page 39 .

MCX has been certified to three ISO standards including ISO 9001:2000 Quality Management System standard. the rest retained for future investments. and has more than 2000 registered members operating through over 100. or a company of any other body corporate organizing futures trading in commodities. 1952 defines “goods” as “every kind of movable property other than actionable claims. but effectively takes place through many non-related individual transactions between different permutations of buyers and sellers. allowing effective competition among buyers and among sellers – this would include auction-type exchanges. Moreover. across India. A Commodity Exchange is an association. Futures’ trading is organized in such goods or commodities as are permitted by the Central Government. A portion of these earnings are distributed back to the shareholders as dividend. ITM Business School. MCX’s platform enables domestic participants to trade in Indian currency. ISO 14001:2004 Environmental Management System standard and ISO 27001:2005 Information Security Management System standard. soybeans. for globally-traded commodities. The sum total of the paid-in capital and retained earnings is called the book value of equity of the company. Kharghar Page 40 . The Exchange is the world's largest exchange in Silver. leading to efficient price discovery. The Exchange has also emerged as the sixth largest and amongst the fastest growing commodity futures exchange in the world. today. silver. Having started operations in November 2003. in terms of the number of contracts traded in 2009. Copper and Natural Gas and the third largest in Crude Oil futures. or market value etc. all goods and products of agricultural (including plantation). dividend yields above a certain absolute limit. In a wider sense. mineral and fossil origin are allowed for futures trading under the auspices of the commodity exchanges recognized under the FCRA. The Exchange’s platform enables anonymous trades. etc. the second largest in Gold. Total sales at a certain level relative to the company's market capitalization. etc or precious metals like gold. At present.Investment Avenues for an Indian Investor and Security Analysis limit. and a number of agri-commodities on its platform. with respect to the number of futures contracts traded.000 trader work stations. It can be an agricultural commodity like wheat. MCX holds a market share of over 80% of the Indian commodity futures market. MCX offers more than 40 commodities across various segments such as bullion. cotton. but not wholesale markets. investing and other activities. where trade is localized. money and securities”. The company then generates earnings from its operating. rapeseed. ferrous and non-ferrous metals. Commodity derivatives market trade contracts for which the underlying asset is commodity. Shares are usually valued much higher than the face value and this initial investment in the company by shareholders represents their paid-in capital in the company. it is taken to include any organized market place where trade is routed through one mechanism. Commodity Market FCRA Forward Contracts (Regulation) Act.

The Authorized Dealers (Authorized by the RBI) and the accredited brokers are eligible to participate in the foreign Exchange market in India. FOREX Market The foreign exchange market India is growing very rapidly. Its domestic alliances aid in improving ethical standards and providing services and facilities for overall improvement of the commodity futures market. The annual turnover of the market is more than $400 billion. The Agricultural Futures Exchange of Thailand (AFET). there are some others who are provided with the restricted rights to accept the foreign currency or travelers cheque. Before this act was introduced.1947. the average monthly turnover in the merchant segment was $40. the brokers have no role to play. which include currency swaps and interest rate swaps. The foreign exchange market India is regulated by the reserve bank of India through the Exchange Control Department. The Indian foreign exchange market consists of the buyers. sellers. staying connected to the grassroots is imperative. When the foreign exchange trade is going on between Authorized Dealers and RBI or between the Authorized Dealers and the overseas banks. New York Mercantile Exchange. The main center of foreign exchange transactions in India is Mumbai. Apart from the Authorized Dealers and brokers. Shanghai Futures Exchange (SHFE). there are the authorized money changers. This transaction does not include the inter-bank transactions. For MCX. The transactions are made on spot and also on forward basis. FERA was introduced as a temporary measure to regulate the inflow of the foreign capital. including Euronext-LIFFE. In past. The whole foreign exchange market in India is regulated by the Foreign Exchange Management Act.Investment Avenues for an Indian Investor and Security Analysis The Exchange strives to be at the forefront of developments in the commodities futures industry and has forged strategic alliances with various leading International Exchanges. Foreign Exchange Dealers Association (voluntary association) also provides some help in regulating the market. Bangalore. the need for conservation of foreign currency was felt and on the ITM Business School. among others. the market was regulated by the FERA or Foreign Exchange Regulation Act .5 billion in 2003-04 and the inter-bank transaction was $134. Sydney Futures Exchange. London Metal Exchange (LME).2 for the same period. Pondicherry and Cochin.7 billion for the same period. The IDBI and Exim bank are also permitted conditionally to hold foreign currency. There are several other centers for foreign exchange transactions in the country including Kolkata. New Delhi. After independence. According to the record of transactions released by RBI. the commercial capital of the country. Chennai. But with the development of technologies. Kharghar Page 41 . At the same time. The average total monthly turnover was about $174. certain hotels and government shops. 1999 or FEMA. all the foreign exchange markets of India are working collectively. But with the economic and industrial development. travel agents. market intermediaries and the monetary authority of India. due to lack of communication facilities all these markets were not linked. Among these.

500 customers are doing online exchange business on NSE application. the Indian government passed the Foreign Exchange Regulation Act. • The number of securities accessible for buying and selling in NSE exchange in its equities and derivates section are 1. 1956 and in June 1994 it started its business functioning in the Wholesale Debt Market (WDM). Indian stock market & regulators Stock Exchanges are structured marketplace where affiliates of the union gather to sell firm's shares and other securities. The exchange administers around rs 1 million of buying and selling on daily basis.Investment Avenues for an Indian Investor and Security Analysis recommendation of the Public Accounts Committee.018. the National Stock Exchange of India (NSE) was initially a tariff forfeiting association. Different Stock Exchanges in India National Stock Exchange (NSE) of India Integrated in November 1992.085. while its derivates section covers 305 cities.25 crores and Rs 6. this act became famous as FEMA.911. Kharghar . India Stock Exchanges can either be a conglomerate/ firm or mutual group. The Equities division of NSE began its operations in 1994 while in 2000 the corporation incorporated its Derivatives division. In 1993.143 respectively. The total amount of Settlement warranty fund in NSE equities division and derivates section are Rs 2. Currently more than 8.96 crores and for Whole sale debt division is Rs 13. the exchange was certified under Securities Contracts (Regulation) Act.30 crores respectively.57 crores.336.383 and 3. The daily turnover of NSE equities division is Rs 10. Page 42 • • • • • • ITM Business School. NSE uses satellite communication expertise to strengthen contribution from around 400 Indian cities. The affiliates act as intermediaries to their patrons or as key players for their own accounts. for derivates segment is Rs 32. The book keeping of the trade is centralized but the buying and selling is associated to a particular place as advanced marketplaces are mechanized. Stock Exchanges in India also assist the issue and release of securities and other monetary tools incorporating the fortification of revenues and dividends.52 crores. Some NSE Figures and Facts • The equities division of NSE covers around 300 Indian cities.1973 and gradually. It is one of the biggest VSAT incorporated stock exchange across the world. The buying and selling on an exchange is only open to its affiliates and brokers.809.

in Bombay Stock Exchange (BSE) of India The oldest stock market in Asia. Over the year.400 051.Investment Avenues for an Indian Investor and Security Analysis NSE Corporate Office National Stock Exchange of India Ltd. Kharghar Page 43 . C/1. USD adaptation of BSE Sensex and Exchange facilitated Internet buying and selling policy BSE exchange was the first in India to acquire the ISO authorization for supervision.400001." Incorporated in the 1875. Mumbai.com Regional Stock Exchanges (RSE) of India ITM Business School. BSE stands for Bombay Stock Exchange and was initially known as "The Native Share & Stock Brokers Association. BSE became the first exchange in India to be certified by the administration. India Website: www. 1956. Bandra (E) Mumbai . • • • BSE Corporate Office Bombay Stock Exchange Limited Phiroze jeejeebhoy towers Dalal Street.co. G Block Bandra-Kurla Complex.bseindia. Some BSE Figures and Facts • BSE exchange was the first in India to launch Equity Derivatives. India E-mail: cc_nse@nse. It attained a permanent authorization from the Indian government in 1956 under Securities Contracts (Regulation) Act. At present the association is functioning as corporatised body integrated under the stipulations of the Companies Act. the exchange company has played an essential part in the expansion of Indian investment market. 1956. Free Float Index. clearance & Settlement BSE exchange was the first in India to have launched private service for economic training Its On-Line Trading System has been felicitated by the internationally renowned standard of Information Security Management System. Exchange Plaza Plot no.

quasi-judicial and quasiexecutive. There is a Securities Appellate Tribunal which is a three-member tribunal and is presently headed by a former Chief Justice of a High court . Justice NK Sodhi. Though this makes it very powerful. Calcutta Stock Exchange and Delhi Stock Exchange. Kharghar Page 44 . which constitute the market: • the issuers of securities • the investors • the market intermediaries. In early 60s. and has Northern. The first RSE to start its functioning in India was Ahmedabad Stock Exchange (ASE) followed by Calcutta Stock Exchange (CSE) in 1908. Southern and Western regional offices in New Delhi. it conducts investigation and enforcement action in its executive function and it passes rulings and orders in its judicial capacity. It was formed officially by the Government of India in 1992 with SEBI Act 1992 being passed by the Indian Parliament. The recent to join the list was Meerut Stock Exchange and Coimbatore Stock Exchange. Madras Stock Exchange. Indore Stock Exchange. Chaired by C B Bhave. ITM Business School. it has only few certifies RSEs under it namely Hyderabad Stock Exchange. Kolkata. Functions and responsibilities SEBI has to be responsive to the needs of three groups.Mr. Chennai and Ahmedabad. there is an appeals process to create accountability. Catalog of Regional Stock Exchanges in India • • • • • • • • • • • Ahmedabad Stock Exchange Bangalore Stock Exchange Bhubaneshwar Stock Exchange Calcutta Stock Exchange Cochin Stock Exchange Coimbatore Stock Exchange Delhi Stock Exchange Guwahati Stock Exchange Hyderabad Stock Exchange Jaipur Stock Exchange Ludhiana Stock Exchange • • • • • • • • • • • Madhya Pradesh Stock Exchange Madras Stock Exchange Magadh Stock Exchange Mangalore Stock Exchange Meerut Stock Exchange OTC Exchange Of India Pune Stock Exchange Saurashtra Kutch Stock Exchange Uttar Pradesh Stock Exchange Vadodara Stock Exchange Securities and Exchange Board of India (SEBI) SEBI is the regulator for the securities market in India. A second appeal lies directly to the Supreme Court. It drafts regulations in its legislative capacity. Eastern. SEBI is headquartered in the popular business district of Bandra-Kurla complex in Mumbai. The stock exchange in India witnessed a flourishing phase in 1980s with the incorporation of many exchanges under it.Investment Avenues for an Indian Investor and Security Analysis The Regional Stock Exchanges in India started spreading its business operation from 1894. SEBI has three functions rolled into one body quasi-legislative.

Research is limited to opinion seeking through legacy channels. in light of the global meltdown. Kharghar Page 45 . F & I). Due to over delegations. There is provision for a panel of other members and part time members. Nair (Member. Duties. to regulate." In 2010. More recently. IRDA formed a high powered Insurance Law Reforms Committee known as KPN Committee with important insurance advisors like Mr N Govardhan and Dr K C Mishra as its members.g. There were also a few non-advisory committee members like Mr Liaquat Khan and Mr T Viswanathan etc.] It had increased the extent and quantity of disclosures to be made by Indian corporate promoters. however. the Government of India ruled that the Unit Linked Insurance Plans (ULIPs) will be governmed by IRDA. It was formed by an act of Indian Parliament known as IRDA Act 1999. The advisory committee consists of following individuals and ex-officio authorities: • • Chiarman: Hari Narayana is the current Chairman of IRDA.powers and functions of IRDA ITM Business School. Insurance Regulatory and Development Authority (IRDA) The Insurance Regulatory and Development Authority (IRDA) is a national agency of the Government of India. IRDA consists of a Chairman and some permanent as well as part time members. which was amended in 2002 to incorporate some emerging requirements.K. Individual incumbents decide the pace and extent of utilization of prudential and statutory bodies. Full-time Members: Currently. they are Mr K K Srinivasan (Nonlife Member). Sri G Prabhakara (Life Member). SEBI has also been instrumental in taking quick and effective steps in light of the global meltdown and the Satyam fiasco. Dr R Kannan(Member. Market waits for revision of insurance act and establishment meaningfully functioning regulatory organs devoid of excess delegation and subjective localization of development agencies. based in Hyderabad. SEBI has been active in setting up the regulations as required under law. the quick movement towards making the markets electronic and paperless rolling settlement on T+2 basis). promote and ensure orderly growth of the insurance industry and for matters connected therewith or incidental thereto. Powers and Functions of IRDA Section 14 of IRDA Act. Full force and utility of various institutions like Advisory Committee and self-regulatory organizations are not yet realized as the regulator seems to be in a long learning mode. and not the market regulator Securities and Exchange Board of India.Investment Avenues for an Indian Investor and Security Analysis SEBI has enjoyed success as a regulator by pushing systemic reforms aggressively and successively (e. Mission of IRDA as stated in the act is "to protect the interests of the policyholders. it liberalised the takeover code to facilitate investments by removing regulatory strictures. The regulations. Actuary) and Sri R. are enacted under the guidance of a statutory advisory committee. 1999 laysdown the duties.

b) protection of the interests of the policy holders in matters concerning assigning of policy. conducting enquiries and investigations including audit of the insurers. h) calling for information from. the powers and functions of the Authority shall include. m) adjudication of disputes between insurers and intermediaries or insurance intermediaries. suspend or cancel such registration. a) issue to the applicant a certificate of registration. o) specifying the percentage of premium income of the insurer to finance schemes for promoting and regulating professional organisations referred to in clause (f). insurable interest. insurance intermediaries and other organisations connected with the insurance business. g) levying fees and other charges for carrying out the purposes of this Act. 2. c) specifying requisite qualifications. code of conduct and practical training for intermediary or insurance intermediaries and agents. nomination by policy holders. i) control and regulation of the rates. advantages. j) specifying the form and manner in which books of account shall be maintained and statement of accounts shall be rendered by insurers and other insurance intermediaries. surrender value of policy and other terms and conditions of contracts of insurance. k) regulating investment of funds by insurance companies. and q) exercising such other powers as may be prescribed ITM Business School. the Authority shall have the duty to regulate. d) specifying the code of conduct for surveyors and loss assessors. n) supervising the functioning of the Tariff Advisory Committee. terms and conditions that may be offered by insurers in respect of general insurance business not so controlled and regulated by the Tariff Advisory Committee under section 64U of the Insurance Act. l) regulating maintenance of margin of solvency. Subject to the provisions of this Act and any other law for the time being in force. renew. undertaking inspection of. p) specifying the percentage of life insurance business and general insurance business to be undertaken by the insurer in the rural or social sector. Kharghar Page 46 . e) promoting efficiency in the conduct of insurance business. promote and ensure orderly growth of the insurance business and re-insurance business.Investment Avenues for an Indian Investor and Security Analysis 1. f) promoting and regulating professional organisations connected with the insurance and re-insurance business. Without prejudice to the generality of the provisions contained in sub-section (1). settlement of insurance claim. withdraw. 1938 (4 of 1938). modify. intermediaries.

the ability to value equity securities requires cross-disciplinary knowledge in both finance and financial accounting. value of a security. warrants. Domestic Economy ITM Business School. debt. Kharghar Page 47 . fundamental analysts believe that the stock is either over or under valued and the market price will ultimately gravitate towards fair value. Economic Indicators Global Economy The top-down analysis of a company starts with global and domestic economy. The economic activity affects profits of a company. and equity of companies from the perspective of outside investors using publicly available information. For the national economy. investor’s attitude as well as expectations and. At the industry level. industrial sectors and companies. fundamental analysis combines economic.Investment Avenues for an Indian Investor and Security Analysis Security Analysis Security analysis is about valuing the assets. To forecast future stock prices. The globalization affects a company’s prospects of exports. and exchange rate. If fair value is not equal to the current stock price. business concept and competition. The security analyst must have a thorough understanding of financial statements. whereas corporate finance tends to take an inside perspective such as that of a corporate financial manager. At the company level. industry. fundamental analysis may involve examination of financial data. and company analysis to derive a stock's current fair value and forecast future value. which are an important source of this information. the goal is to derive a forecast for the future. security analysis tends to take the perspective of potential investors. fundamental analysts look to capitalize on perceived price discrepancies. there might be an examination of supply and demand forces for the products offered. management. As with most analysis. price competition. By believing that prices do not accurately reflect all available information. fundamental analysis might focus on economic data to assess the present and future growth of the economy. Economic analysis It is important to analyse the economic activity in which all the companies operate. Fundamentalists do not heed the advice of the random walkers and believe that markets are weak-form efficient. Fundamental Analysis Fundamental analysis is the examination of the underlying forces that affect the interests of the economy. While there is much overlap between the analytical tools used in security analysis and those used in corporate finance. As such.

Inflation Inflation is the rate at which the general level of prices is rising. FDI investments. An Indian economy is affected by agricultural production as well as industrial production and services.6 percent as compared to the growth of 5. Fiscal Policy. High rate of inflation indicates economy is operating with full associated with demand for goods and services exceed production capacity. Higher budget deficit indicates higher government borrowing which pressure up interest rates. Labour productivity.Investment Avenues for an Indian Investor and Security Analysis GDP is the measure of the total production of goods and services in an economy. Employment Unemployment rate is the percentage of the total labour force in the country. Personal income. Other Factors Money supply. high interest rate affects demand for housing and high-value consumer durables. it showed a record growth of 8. The good and normal monsoon indicates a good and normal agricultural production and increasing income of farmers and agricultural labour. Kharghar Page 48 . mining and manufacturing sectors. Growing GDP indicates an expanding economy. Interest Rates As interest rate determines the present value of cash flows. Tax collections by the government. Industrial production statistics reveals the status of industrial activity in the country.4 percent which is an upward revision from earlier estimates of 7. The unemployment rate indicates how the economy operates at full capacity. Fiscal deficit is budget deficit plus borrowing. For the fiscal 2009-10 India's economy grew by 7. The government should try to trade-off between inflation rate and unemployment rate to increase the employment as well as decrease the inflation rate.8 percent in the same quarter of previous year. The real interest rate is an important factor for business activity. ITM Business School. FII investments. Budget Deficit The budget deficit is the difference between government spending and revenues. New acquisition of plants and machinery by corporates. Indian Economy  India’s GDP growth released for the last quarter of 2009-10 turned out to be robust. The excessive government borrowing will crowd out private borrowing if the borrowing is unchecked. Monetary Policy. Higher fiscal deficit indicates higher government spending on unproductive spending. Stock prices. Credit off takes etc.2 percent due to higher-than-anticipated growth in agriculture. Manufacturing and trade sales. Index of consumer expectations.

ITM Business School.6 percent in the same month of 2009.5 percent increase recorded a month ago. mining. this achieved a growth of 72.1 percent a year ago. i. manufacturing and electricity.  The overall inflation averaged for the month of April 2010 stood at 9. This rise in price index is on account of dearer food articles and fuel products. This expansion in aggregate deposits. This growth is attributed to high performance in the sectors such as finished steel. growth came from the three sectors. Fifteen (15) out of the seventeen (17) industry sectors witnessed positive growth in the first month of the present fiscal (2010-11) as compared to the growth numbers in the same month of previous year.Investment Avenues for an Indian Investor and Security Analysis  The IIP numbers in April 2010 continue to rise.4 percent in April 2010. it grew by 17. was however.e.  There has been a decline by 0. As per the use-based classification.993 crores in April 2010. crude petroleum.3 percent in the fiscal deficit in the opening month of the current financial year 2010-11 as the deficit has stepped down from Rs 54. Investment sentiments in the Indian stock market BSE Sensex was maintained above 17.158 crore in April 2009 to Rs. 53. whereas NSE index NIFTY rose to stay above 5. Kharghar Page 49 . especially. The growth in bank credit to commercial sector was seen to decelerate by (-) 0.6 percent which was higher than the rate of 13.1 percent in April 2010 as compared to 3.000 in April 2010.  The aggregate deposits expanded by 1.  Growth in six core infrastructure industries accelerated by 5. growth numbers were also found to be remarkable. registering an increase of 37 percent in April 2010. The industrial growth was just 1. in April 2009. the capital goods sector.7 percent in April 2009.000 points.  The broad money supply increased by 0.8 percent.  The rising indices show that strong sentiments among the investors.6 percent in April 2010. calculated over March 2009 numbers.6 percent as compared to the inflation of 1.  In the opening month of 2010-11. The consumer goods sector appeared to have performed well as it posted growth of 14. marginally higher in the same month of previous year. This is mainly led by the notable growth seen across all sectors.8 percent in April 2010 compared to growth of 2.8 percent indicating a rise in investment sentiments in the economy.3 percent seen in the same month of previous year. and petroleum refinery. This growth is mainly fuelled by high growth in consumer durables.

3 billion during 2008-09.5% for FY11. but one cannot also ignore the rise in demand in the international market.  India’s merchandise trade growth numbers show improvement since November 2009.5 billion compared to USD 21. However. The role of low base in the high growth cannot be denied. This was much higher as compared to the investment received in the previous year. Whereas NSE index NIFTY rose sharply from 5027 points in March 2010 to 5291 points in April 2010.3 billion in April this year as compared reversal in investments by the FIIs. foreign direct investment (FDI) amounted to USD 1. As a result BSE Sensex was observed to raise up to the level of 17693 points in April 2010 from 16773 points.  Foreign exchange reserves stood at USD 279. Foreign Inflows of India economy – Indicators Unit Net FII (equity) ITM Business School. This is mainly on account of strong revival in the collection of indirect taxes and partly on account of collection in direct taxes.1 FY 10 1.0 billion received a year ago.  The latest available data on FDI showed an investment of USD 6.  World Bank & IMF has forecasted a 9.  The total foreign investments attracted in 2009-10 amounted to USD 66. investments inflow was USD 5.2 percent as against the negative 33.5 billion in March 2010.000 in July 2010. Out of these investments.Investment Avenues for an Indian Investor and Security Analysis  The growth in gross tax revenue was observed to enter the positive quadrant during the month of April 2010.6 billion in April 2010 from USD 251.8% for 2010. This increase is subject to the recent surge in the foreign investments inflows. The Government has raised the GDP growth forecast to 8.7 billion April 2009.2 billion in March 2010 which was slightly lower than the amount of USD 2. Kharghar Month FY 09 US$ bn Oct -4. The directional change in the movements of large capital inflows towards India due to Euro zone turmoil has added much impetus to the Sensex figures in both BSE and NIFTY indices.  The positive sentiments in Indian stock market continued to remain. traded in the previous month and crossed 18. Latest figure available for April 2010 showed growth in exports by 36. the numbers were almost same when foreign direct investment for both the years were being compared. Goldman Sachs predicts a 5.2 percent observed in same month of last year.4 % growth for India in 2010 and over 8% for 2011.9 Page 50 . In the portfolio category.

Investment Avenues for an Indian Investor and Security Analysis Gross FDI Gross ECBs US$ bn Aug US$ bn Sep 2.3 1. Kharghar Page 51 .8 3.3 2.3 ITM Business School.

Between 40’s and 60’s. cyclical industry. and independent of the business cycles. Cyclical industry It is most likely to benefit from a period of economic prosperity and suffer from economic recession. Consumer Non. Classification based on Business Cycles Industry can be classified on the basis of its reaction to upswings and downswings of the economy which is known as business cycles. genetic engineering. Software. Transportation etc.Durables. Health Care. Energy. pharmaceuticals. General classifications of the industry based on the business cycles are growth industry. Consumer durables are the major cyclical industry. Major Classifications The industry can be classified by product and services in the categories like Basic Industries. computers. Communication equipments. Financial Services. and 2) The relative strength or weakness of particular industry or other groupings about economic activity. colour television. Other Factors ITM Business School. Defensive industry It is likely to get least affected during the periods of economic downswing as consists of items necessary for existence. Public Utilities. Technology. The demand for these products is considered to be counter cyclical. and environmental/waste management are the recent growth industries. office equipments were growth industries. industries like photography. Consumer Services. consumer non-durables fall in the category of defensive industry. Capital Goods. and cyclical-growth industry. For the analyst. Food processing industry. Growth industry The major characteristics of a growth industry are higher rate of expansion. defensive industry. Kharghar Page 52 . industry analysis calls for insight into 1) The key sectors or subdivisions of overall economic activity that influence particular industries.Investment Avenues for an Indian Investor and Security Analysis Industrial analysis Recessions or expansions in economic activity may translate into falling or rising stock markets with different relative price changes among industry groups. growth in earnings. Consumer Durables. Often associated with technological changes or innovative means of carrying out things.

Investment Avenues for an Indian Investor and Security Analysis

Past Sales and Earnings Performance, Government policy and regulation toward industry, Labour conditions, Competitive conditions, Industry life cycle, International investing community attitude, Industry share price etc. Automobiles
 The Indian automobile segment can be divided into several segments viz. two-wheelers

(motorcycles geared and un-geared scooters and mopeds), three wheelers, commercial vehicles (light, medium and heavy), passenger cars, utility vehicles (UVs) and tractors.  Demand is linked to economic growth and rise in income levels. Per capita penetration at seven cars per thousand people is among the lowest in the world (including other developing economies like Pakistan in segments like cars).  While the industry is highly capital intensive in nature in case of four-wheelers, capital intensity is a lot less for two-wheelers. Though three-wheelers and tractors have low barriers to entry in terms of technology, four wheelers is technology intensive. Costs involved in branding, distribution network and spare parts availability increase entry barriers. With the Indian market moving towards complying with global standards, capital expenditure will rise to take into account future safety regulations.
 As compared to their global counterparts, both the two-wheeler as well as four wheeler segments

are relatively lesser fragmented. However, things are changing, especially on the passenger cars front as many foreign majors like Nissan, Volvo, Renault, Audi are going to establish their manufacturing plants and start production by 2011-12 for the Indian market. As a result, pricing power is likely to diminish going forward.  Automobile majors increase profitability by selling more units. As number of units sold increases, average cost of selling an incremental unit comes down. This is because the industry has a high fixed cost component. This is the key reason why operating efficiency through increased localization of components and maximizing output per employee is of significance.
 The Indian automobile industry is the tenth largest in the world with an annual production of

approximately 2 million units. Indian auto industry will become the major automotive industry in the upcoming years and the industry experts are hopeful that it will touch 10 million units figure.
 The FDI in Automobile Industry has experienced huge growth in the past few years. The

increase in the demand for cars and other vehicles is powered by the increase in the levels of disposable income in India. The options have increased with quality products from foreign car manufacturers. The introduction of tailor made finance schemes, easy repayment schemes has also helped the growth of the automobile sector.
ITM Business School, Kharghar Page 53

Investment Avenues for an Indian Investor and Security Analysis

Key Points

Supply Demand Barriers to entry Bargaining power of suppliers Bargaining power of customers Competition
Financial Year '09

The Indian automobile market has some amount of excess capacity. Largely cyclical in nature and dependent upon economic growth and per capita income. Seasonality is also a vital factor. High capital costs, technology, distribution network, and availability of auto components. Low, due to stiff competition. Very high, due to availability of options. High. Expected to increase even further.

 A total of 7.4 m two-wheelers were sold in India in FY09, a growth of 2.6% over the previous year. Motorcycles accounted for 81% of the total two wheelers sold. Although economic growth remained decent at 7%, lack of financing, especially in the semi urban and rural areas impeded volume growth. Also, as a result of credit squeeze, motorcycle sales were driven largely by growth in cash sales. The scooters (geared & ungeared) improved their sales considerably, largely due to improved performance of the ungeared scooter segment. The 3-wheeler segment performed poorly as overall volumes (domestic and exports) declined 2% YoY, led by 37% fall in goods carriers. The passenger segment on the other hand grew by 11%.
 The medium and heavy commercial vehicles (M/HCVs) segment saw its volumes drop by a

huge 37%. This came on the back of 2% drop in volumes in the previous year, the industry’s first in seven years. High cost of borrowings and economic slowdown affected growth. LCVs on the other hand, outperformed their HCV peers as volumes declined at a lower rate of 8% but declined nevertheless. The growth in the segment was largely propelled by low tonnage vehicles of the likes of ‘Ace’, the sub one tonner from Tata Motors.  The tractor industry stood fairly resilient in the face of a slowdown. Domestic volumes grew marginally during the year as opposed to a 2% drop in the previous year. After growing at a double-digit rate in FY08, sales of passenger vehicles declined by 1% in FY09, primarily due to unavailability of finance, and high interest rates and high fuel prices. Utility Vehicles suffered the most, declining by 8.2% as the ad-hoc duty imposed on this segment in July impacted sales.
 According to the Society of Indian Automobile Manufacturers (SIAM), overall vehicle sales

grew 30 per cent in May 2010 to 1,208,851 units, and 8 per cent over the previous month of April 2010. Two wheeler sales rose 29 per cent, with motorcycle sales increasing 26 per cent to
ITM Business School, Kharghar Page 54

Investment Avenues for an Indian Investor and Security Analysis

725,311 units, and scooter sales rising 45 per cent to 157,509 units in May 2010. Commercial vehicle sales rose 77 per cent in June 2010.

 The government spending on infrastructure in roads and airports and higher GDP growth in the future will benefit the auto sector in general. We expect a slew of launches in the Segment 'B' and Segment 'C' of passenger cars. Utility vehicle segment is expected to grow at around 8% to 9% in the long-term.  In the 2-wheeler segment, motorcycles are expected to witness a flurry of new model launches. Though the market size is expected to grow by 10% to 12%, competitive pressure could keep prices and margins under control. TVS, Honda and Hero Honda are poised to benefit from higher demand for ungeared scooters in the urban and rural markets.  Riding the wave of structural changes taking place in the country, the tractor industry has registered growth for three consecutive years until FY08. However, while fiscal FY08 saw volumes drop marginally, the same inched back into positive territory, witnessing a growth of 1%. While good monsoon is a positive for the sector, given the fact that the country has had erratic rainfall in the past, there is a risk of further fall in demand if rain gods play spoilsport. But the longer-term picture is impressive in light of poor mechanisation levels in the country’s farm sector and the thrust of the government on improving the rural infrastructure.  With an estimated 40% of CVs plying on the roads 10 years old, demand for HCVs is expected to grow by 7% to 8% over the long term. While the industry is going through cyclical hiccups currently, we expect this factor to weaken in the future on account of strong structural tailwinds. The privatisation of select state transport undertakings bodes well for the bus segment.

During April-January 2010, overall automobile exports registered a growth rate of 13.24 percent. Passenger Vehicles segment, Three Wheelers and Two Wheelers segments grew by 33.92 percent, 4.60 percent and 8.84 percent respectively in this period. Commercial Vehicles recorded growth of (-) 7.52 percent. Market Advantage
• • • •

Fast paced urbanisation to rise from 28% to 40% by 2020. Upward migration of household income levels. Middle class expanding by 30-40 million every year. Growing working population.

ITM Business School, Kharghar

Page 55

• Import of components is freely allowed. • The automobile industry is de-licensed. Domestic market share of different type of vehicles in India: • ITM Business School.Investment Avenues for an Indian Investor and Security Analysis Foreign Direct Investment Automatic approval for foreign equity investment upto 100 per cent of manufacture of automobiles and component is permitted. Kharghar Page 56 .

For good creditworthy borrowers bargaining power is high due to the availability of large number of banks High. However.Investment Avenues for an Indian Investor and Security Analysis Banking  Influenced by the global financial turmoil and repercussion of the subprime crisis. Kharghar Page 57 . online banking and web based products. India is a growing economy and demand for credit is high though it could be cyclical. Liquidity is controlled by the Reserve Bank of India (RBI). the investment cycle has also been wavering. Key Points Supply Demand Barriers to entry Bargaining power of suppliers Bargaining power of customers Competition ITM Business School. private sector and foreign banks along with non banking finance companies competing in similar business segments. Depositors may invest elsewhere if interest rates fall. the Indian banking sector has been well shielded by the central bank and has managed to sail through most of the crisis with relative ease.  Apart from streamlining their processes through technology initiatives such as ATMs. mutual funds and insurance policies to augment their fee based income. investment in technology and branch network. Further with the economic buoyancy the world over showing signs of cooling off. others are keen to take off in that direction. High during periods of tight liquidity. telephone banking.  Retail lending (especially mortgage financing) that formed a significant portion of the portfolio for most banks in the last two years lost some weightage on the banks' portfolios due to their risk weightage.  Public sector banks have been very proactive in their restructuring initiatives be it in technology implementation or pruning their loss assets. the sector is also looking forward to consolidation and investments on the FDI front. with better penetration in the semi urban and rural areas the banks garnered a higher proportion of low cost deposits thereby economising on the cost of funds. the global banking sector has been witness to some of the largest and best known names succumb to multi-billion dollar write-offs and face near bankruptcy. the latent demand for credit (both from the food and non food segments) and structural reforms have paved the way for a change in the dynamics of the sector itself. Besides gearing up for the compliance with Basel II accord. Having said that. banks also resorted to cross selling of financial products such as credit cards. Trade unions in public sector banks can be anti reforms. However. Incremental provisioning made for asset slippages have safeguarded the banks from witnessing a sudden impact on their bottom lines. on the liabilities side. Licensing requirement.There are public sector banks. While the likes of SBI have made already attempts towards consolidation.

Despite the severe liquidity pressure and poor credit appetite at the retail and corporate levels.1 4.940 47. cash reserve ratio (CRR) and statutory liquidity ratio (SLR)) offered to the banks by the RBI made things easier.7% Net NPA / advances (%) 1. Despite poor pricing power lower cost of funds helped Indian banks grow their net interest margins in FY09. / employee (Rs m) 63.039 3. ITM Business School.1 1.3 75.1 0.) 79 78 -1. Indian banks managed to grow their advances and deposits by 24% YoY and 22% YoY respectively in FY09.Investment Avenues for an Indian Investor and Security Analysis Financial Year '09 The liquidity crisis that swept the heavyweights of global financial sector off their feet in FY09 did affect the entities in Indian banking sector as well.0 14.700 23. The higher efficiency levels were the hallmarks of better performance of Indian banks last year.0% Bus.5% Profit /employee (Rs m) 0.) 11.588 12. The growth was mainly driven by a sharp expansion in term deposits and growth in agricultural and large corporate credit. the global financial meltdown was weathered by banks in India with relative ease.1 5. albeit marginally.0 7. Higher delinquency levels in retail credit and debt restructuring took its toll on the sector.6 20.260 519.9% Deposits (Rs m) 420. The monetary stimuli (reduction in repo rate.7% Advances (Rs m) 313.0 1.3% Branches (nos.4 7. Kharghar Page 58 . Public sector banks outdid their private sector counterparts in terms of growth and franchise expansion in the last fiscal.5 0.3% Employees (nos. Indian Banks: Marginal signs of stress FY08 FY09 Change No. Other than the temporary crunch after bankruptcy of Lehman Brothers. Most banks had to restructure some loans in their portfolio during FY09 which deferred their interest income.4% NIM (%) 4.3% RoA (%) 1. While few like ICICI Bank chose to reduce their balance sheet size.0% CAR (%) 13. credit and deposits as a percentage of GDP in FY09 as compared to that in FY08 showing improved maturity in the financial sector. most entities chose to reasonably grow their franchise as well as assets.9% Networth (Rs m) 39.) 776 825 6. of banks (nos.0% Source: Profile of banks FY09 Indian banks also enjoyed higher levels of money supply.0 18. Improved capital adequacy also helped banks to comfortably comply with Basel II.540 383.890 22.080 17.

1% of total deposits from 27. banks had to park most of the liquidity available with them with the RBI. All other commercial banks have been encouraged to migrate to these approaches not later than FY10. Software  IT spending in the US has grown unabated during the last few years. it will be a challenge to deploy the same safely and profitably in the event of persistence of economic slowdown. Feeble credit offtake coupled with the fear of bad loans going up in the scenario of economic slowdown prompted banks to park their surplus funds with the RBI. The lack of credit penetration and the geographic concentration of bank credit is evident from the fact that 5 states having the highest proportion of per capita credit enjoy 55% of the total credit disbursals in the country. Kharghar Page 59 .  RBI's roadmap for the entry of foreign banks and the acquisition of stake by the foreign entities in Indian private banks has been deferred for the time being. as per the RBI mandate. At the end of FY09.Investment Avenues for an Indian Investor and Security Analysis Further the PSU banks had also to provide for the loss of interest on the agri-loans waived by the government. However. banks' investment in SLR securities increased to 28. especially the private sector ones. can help the bank raise substantial capital without borrowing at high rates and give the entities an opportunity to enhance their capital adequacy ratios besides competing with their private sector peers.  Banks.  The proposal for Cabinet's approval to allow PSU banks to bring down the government's stake in them below the stipulated 51%. much faster than the ITM Business School. all foreign banks operating in India and Indian banks having operational presence outside India migrated to the Basel II norms. In FY09. revenues of the Indian IT industry have grown by 33% to US$ 64 bn in FY08. With lesser avenues of credit disbursal. which is yet to be tabled. The IT-BPO industry has estimated to have grown at a CAGR of 31% since FY04. Banks are likely to concentrate more on non funded income in this scenario. As per IDC (a global technology research agency) and NASSCOM (India’s industry body for the tech sector).8% in FY08 and higher than the RBI prescribed level of 24%. are likely to face penetration concerns. the tussle for higher market share in the already fragmented sector is only set to aggravate. Prospects  With banks having complied with Basel II and having sufficient capital in their books.

However. viz. ITES (IT-enabled services) and hardware.  Cost leadership has been the competitive edge of the Indian software sector over the last few years. software products. focusing on the domestic market will definitely be an opportunity to take advantage of. product development.Investment Avenues for an Indian Investor and Security Analysis global IT services industry.. ITM Business School. IT services.  Increasing competition. the advantage of low employee costs could peter out and the sector could get commoditised. However.  India’s IT industry can be divided into five main components. pressure on billing rates and increasing commoditisation of lower-end application development and maintenance (ADM) services are among the key reasons forcing the Indian software industry to make a fast move up the software value chain. Given that India is among the fastestgrowing economies in the world and the burgeoning IT budgets of India Inc. this seems to be threatened now by MNCs who are replicating the Indian outsourcing model and setting up bases in the country. the majority share of the project based revenues is going to continue on the back of custom application development and application management.  The software services segment of the industry continues to grow by leaps and bounds. IT companies have to move up the value chain to provide higher value-added services as consulting. project-based services accounted for more than 50% of the Indian IT services exports. Going forward. R&D and end-to-end turnkey solutions. However. Kharghar Page 60 . Increased competition within the segment could lead players to ramp up selling and marketing expenses in order to acquire new customers and improve the market share. which in turn will lead to further pressure on margins. Multi-year annuity based outsourcing agreements are expected to increase going forward. Amongst the export revenues. growth in the domestic market has been relatively staid. Export revenues continue to drive growth. The Indian domestic market for technology is also growing as robustly as the export of IT services from India. engineering and R&D services.

Low. As per IDC and ITM Business School.  The ITES-BPO industry continued to grow at a scorching pace. It is expected to intensify due to the attempted replication of the Indian offshoring model by MNC IT majors. particularly in the lower-end ADM space. the Indian IT industry is estimated to have grown by 33% in fiscal 2008 and generate revenues of US$ 64 bn. engineering and R&D services. but competition is very tough.Investment Avenues for an Indian Investor and Security Analysis Key Points Supply Abundant supply across segments. as these firms have built up long-term relationships with major clients and to take business away from them is not easy. ITES and hardware) are estimated to have grown at a CAGR of 32%. Competition is global in nature and stretches across boundaries and geographies. from US$ 13. The domestic market is also growing as robustly as the export of IT services from India. at the higher end of the value chain. In high-end services like IT/business consulting. it is lower in higher-end services like consulting and package implementation. Indian IT services exports (excluding revenues earned from the export of software products. However. and growth is buoyant in fast-growing economies such as India and China. The size of a particular company/scalability also creates barriers to entry.3 bn in FY04 to US$ 40. such as ADM. which is prone to relatively easy commoditisation. with India retaining its market leadership position in this space. Demand Barriers to entry Bargaining power of suppliers Bargaining power of customers Competition Financial Year '09  As per NASSCOM ‘Strategic Review 2008’ report. Lower in higher-end areas like IT/business consulting. High. mainly lower-end. where domain expertise creates a barrier. as companies move from voice-based services to non-voice services. due to intense competition (oversupply). The movement up the value chain continues in this space as well. Europe also shows promise. Kharghar Page 61 . High. Demand largely depends upon the state of the global economy and willingness of corporations to go in for new software services and greater discretionary spending rather than consolidating existing systems.8 bn in FY08. Low in the ADM segment. mainly due to intense competition among suppliers/vendors. Low differentiating power is also another reason. IT is spending expected to grow at 6% CAGR over the next 3-4 years.

technology.79 million units sold in 2008-09. a CAGR of 28. This has suited the Indian industry perfectly.6 billion to US$ 46.6 million by March 2009 from 7. The BPO industry in India.9 per cent.  The export intensity (the share of IT-ITeS exports to total IT-ITeS revenue) of Indian software and services industry has grown from 74.000 professionals and generates revenues of US$ 11 bn. there are 60 million Internet users in the country.  The National Association of Software and Service Companies (NASSCOM) is the apex body for software services in India.Investment Avenues for an Indian Investor and Security Analysis NASSCOM. and process innovation.6 per cent.7 billion of revenue. is expected to grow at a CAGR of 38% over the next 5 years.As per its ‘Strategic Review 2010' published in February 2010.9 per cent in 2008-09.  The overall Indian software and services industry revenue is estimated to have grown from US$ 10. The cross-movement of work and labour has created a competitive dynamic for cost structure and knowledge leadership of concept. MAIT estimates overall PC sales to cross 7. which currently employs 700. The industry grew at 12.5 per cent in 2001-02 to 78. The top Indian IT companies are more frequently being invited to bid on large deals that were earlier closed to them.3 million units in 2009-10 registering a growth of 7 per cent over 6. Indian IT firms (especially the top notch Indian firms like TCS. the India IT-BPO industry is estimated to aggregate revenues of US$ 73. as it does not as yet have the capabilities. Kharghar Page 62 . According to the Manufacturer's Association of IT (MAIT). with the IT software and services industry accounting for US$ 63.  The broad trend in the industry globally is that the deal sizes are getting smaller. Infosys and Wipro) are increasingly competing against top global players such as IBM. ITM Business School.  At present. India's top outsourcers are competing effectively with the top three global service providers on large deals. On the other side. the number of active Internet entities rose to 8.3 billion in 2008-09. the global BPO industry is expected to grow from a size of US$ 462 bn in 2007 (29% share of global technology spending) to US$ 677 bn (34% share) in 2011.2 million units in March 2008.  Between October-December 2009. notebooks and netbooks were 2 million registering a growth of 42 per cent over the same period in 2008. Accenture and EDS for large deals.9 per cent in 2008-09.1 billion in FY 2010.7 billion in 2008-09—translating to a CAGR of about 26.2 billion in 2001-02 to reach US$ 58. Total software and services exports are estimated to have grown from US$ 7. scale and resources to execute huge billion dollar deals. total PC sales including desktops. most Tier-I companies walked away with the high profile deals and the gap between Tier-I and Tier-II companies widened in FY08.

HCL Technologies and MphasiS.582 67. Kharghar Page 63 . In particular. Satyam.000 386. all of which are also into BPO.144 2. Attrition rates will have to be managed by the companies In order to preserve margins. of Employees 85. The services spend (IT services and ITES/BPO) is expected to grow faster as compared to the other segments.786 19. as clients look out for end-to-end service providers.676 4.831 40. improve utilization rates and control selling.800 59.Investment Avenues for an Indian Investor and Security Analysis Revenues (US$ million) (FY 08) Domestic Private Companies Tata Consultancy Services Wipro Technologies Infosys Technologies Satyam International Private Companies IBM (CY 07) Accenture (CY 07) Prospects Nos. Wipro. TCS. human resources will play a major role in times to come.558 170. Companies like Infosys. will benefit from this trend.  The integration of IT-BPO contracts is expected to become more common.103 98. ITM Business School. firms will have to maintain workforce at optimum level.  IT being a resource-intensive industry.696  Over the next 3-4 years. the offshore outsourcing story is expected to continue to play out. as firms look for quality work done at lower cost. the total global spending on IT is expected to grow at a CAGR of 6%.970 4. general and administrative expenses.000 5.

Investment Avenues for an Indian Investor and Security Analysis ITM Business School. Kharghar Page 64 .

7 per cent between 2009 and 2011. the Indian information technology (IT) market is expected to grow at around 15. The increases are by and large coming from the new clients. Kharghar Page 65 .2 billion by the end of 2011.  100 percent FDI is permitted under automatic route to the E-Commerce activities in India.5 per cent in 2010. this will not have any major impact. 26 percent of their equity will be spent on welfare ITM Business School. according to research firm IDC India's report published in March 2010.Investment Avenues for an Indian Investor and Security Analysis  Billing rates are expected to be stable. is forecast to grow at a compound annual growth rate (CAGR) of 22. As IT companies move higher up the value chain.  Rupee’s volatility against the US dollar and other major currencies is expected to remain a major concern for Indian IT companies having significant offshore presence. on the back of growing investor confidence and favourable initiatives taken by the government. The IDC India report stated that the overall India data centre services market in 2009 was estimated at US$ 1. a pertinent condition is that. with the major clients giving no leeway on any possible increases. Given that new clients contribute less than 10% to overall revenues for most IT companies.  According to a study by Springboard Research published in February 2010. a higher employee cost is expected to take a toll on the companies’ profitability levels. Coupled with this.39 billion. to touch close to US$ 2. they will get better billing rates for services such as consulting. Higher rates will be a factor of the business mix. However.  The data centre services market in the country.

Software Technology Parks (STP) have been a major initiative in India to drive in Foreign Direct Investment in the computer software industry. The phenomenal growth rate of India’s software exports.Investment Avenues for an Indian Investor and Security Analysis activities for the Indian population in five years. India is a preferred destination for companies looking to offshore their IT and back-office functions. and overall exports exceeding US$36bn in 2008/09: ITM Business School. It also retains its low-cost advantage and is a financially attractive location when viewed in combination with the business environment it offers and the availability of skilled people. These Software Technology Parks provide highly developed infrastructure and facilities that attract foreign investors. with (ten-year rolling) average annual growth never dropping below 30%. Kharghar Page 66 .

As a result. Kharghar Page 67 .Investment Avenues for an Indian Investor and Security Analysis The much higher growth rate of Indian IT exports compared to production for the domestic market. the share of exports in total IT output has risen from 19% in 1991/92 to 69% in 2008/09: ITM Business School.

4 m.5 m in May 2007. India currently has a subscriber base of 6.  As far as broadband connections (>=256 kbps) are concerned. The subscriber base stood at 2. demand will continue to remain higher in the Page 68 ITM Business School. which is higher by 50% as compared to the figure in May 2008. Key Points Supply Demand Intense competition has resulted in prompt service to the subscribers. Tariff reduction and decline in handset costs has helped the segment to gain in scale. we are still way behind other developing nations. Cellular telephony has emerged as the fastest growing segment in the Indian telecom industry. The cellular segment is playing an important role in the industry by making itself available in the rural and semi urban areas where teledensity is the lowest. The mobile subscriber base (GSM and CDMA combined) has grown from under 2 m at the end of FY00 to touch 391 m at the end of March 2009 (compounded annual growth of nearly 80% during this nine year period).Investment Avenues for an Indian Investor and Security Analysis Telecom  Although India's teledensity has improved from under 4% in March 2001 to over 36% by the end of March 2009. Given the low penetration levels in the country and continuously falling tariffs. Kharghar .

High capital investments. continuously evolving technology and falling tariffs. Improved competitive scenario and commoditisation of telecom services has led to reduced bargaining power for services providers. Kharghar Page 69 . license fee. well-established players who have a nationwide network. Barriers to entry Bargaining power of suppliers Bargaining power of customers Competition ITM Business School. Reducing tariffs will hurt the new entrants as they will be unable to recover their high capital investments. Competition has intensified with the entry of new cellular players in select circles. A wide variety of choices available to customers both in fixed as well as mobile telephony has resulted in increased bargaining power for the customers.Investment Avenues for an Indian Investor and Security Analysis foreseeable future across all the segments.

Policy measures like lowering of taxes on the cellular industry and benefits of enhanced FDI limits shall further the prospects of the cellular industry. a lot of focus given to new policy initiatives in the industry. the PSUs will continue to retain their dominant position. This is on account of high capital investments required in setting up a nationwide network. In addition.  Growth remained robust in the GSM mobile space. Kharghar Page 70 . The segment’s subscriber base has grown by over 50% YoY in FY09. which witnessed a 49% YoY increase in its subscriber base during the 12-month period. which had a subscriber base of over 39 m at the end of FY09. In spite of this. with the same growing its subscriber base by 96 m. As a result. the target does not seem too farfetched. At the end of March 2009. Cellular subscribers will continue to propel the subscriber growth.9 m.  The industry has set out a target to cross the total subscriber base of 500 m by 2010 and 600 m the year after. while the fixed subscriber base declined by about 4%. India's mobile subscriber base grew by 50% YoY. The predominant one is the allocation of spectrum for the 3G and broadband wireless access (BWA) services. from 261 m to 391 m. growing subscriber base by 50% YoY to about 289 m.4 m to about 37.  During the current fiscal.  During FY09. the telecom regulator TRAI recently unveiled a draft to allow mobile ITM Business School. After a strong 76% YoY increase in subscriptions during FY08. thus contributing to about 70% of the total incremental subscriber addition for the entire Indian telecom market. from 39. Going by the current pace of subscriber additions. the private sector players will have to rely on key business centers and pockets of high urbanisation for their growth. the GSM industry recorded another good performance during FY08. The teledensity level stood at about 36% by the end of the fiscal. Prospects  As far as the fixed line business goes. the country’s total telecom subscriber base (fixed plus mobile) stood at about 429 m.  Increasing choice and one of the lowest tariffs in the world have made the cellular services in India an attractive proposition for the average consumer. MTNL and BSNL is likely to get reduced further as the penetration by private players spreads. The huge market share of public sector behemoths.Investment Avenues for an Indian Investor and Security Analysis Financial Year '09  FY09 saw the continuance of strong growth for the Indian telecom market. 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.

Ericsson are all investing in India o ITM Business School. in coming future. Nokia.000 crores for the Indian government in June 2010. Alcatel. 3G Auction generated Rs.  Favourable demographics and socio-economic factors leading to high growth o Growth of disposable income combined with changes in lifestyle o Increasing affordability . easy payment plans and low cost handsets o Increased coverage and availability of mobile services  Investment opportunity of over US$76 billion across many areas o Network infrastructure to increase service coverage o Roll-out of additional network for 2G. Elcoteq. gaming console. Kharghar Page 71 . data and broadcasting services o Devices like the mobile handset. Lucent. 70. LG.low tariffs.Investment Avenues for an Indian Investor and Security Analysis number portability (MNP) which allows subscribers to switch networks without changing the number. Siemens. WIMAX etc. set top box. o Applications/software for voice. 3G. ITES & BPO along with the Telecom sector. has taken its toll on this sector but promises far better communication network and support to sectors such as IT. modem. consumer premise equipments etc.

Kharghar Page 72 .Investment Avenues for an Indian Investor and Security Analysis ITM Business School.

Enron. investors can better position themselves to identify opportunities that are high risk (tech). fundamental analysis allows investors to develop an understanding of the key value drivers and companies within an industry. Kharghar Page 73 . is now making a market to buy and sell bandwidth. a natural gas transmission company. This happened to many of the pure internet retailers. Business can change rapidly and with it the revenue mix of a company. Business Acumen One of the most obvious. a strong balance sheet. Knowing Who's Who Stocks move as a group. Even some technicians will agree to that. noncyclical (consumer staples). demographic. Some companies that are part of the new economy are really old economy companies in disguise. but less tangible. A stock's price is heavily influenced by its industry group. investors can better position themselves to categorize stocks within their relevant industry group. an investor will be familiar with the key revenue and profit drivers behind a company.Investment Avenues for an Indian Investor and Security Analysis Strengths of Fundamental Analysis Long-term Trends Fundamental analysis is good for long-term investments based on long-term trends. value driven (oil). but plain retailers. The ability to identify and predict long-term economic. After such painstaking research and analysis. which were not really internet companies. low-risk (utilities). By understanding a company's business. stable earnings and staying power. Some of the most legendary investors think long-term and value. Value Spotting Sound fundamental analysis will help identify companies that represent good value. Warren Buffett and John Neff are seen as the champions of value investing. Knowing a company's business and being able to place it in a group can make a huge difference in relative valuations. growth oriented (computer). By studying these groups. Graham and Dodd. cyclical (transportation) or income oriented (high yield). ITM Business School. A good understanding can help investors avoid companies that are prone to shortfalls and identify those that continue to deliver. Earnings and earnings expectations can be potent drivers of equity prices. rewards of fundamental analysis is the development of a thorough understanding of the business. Some prominent old economy companies are moving into new economy businesses. Fundamental analysis can help uncover companies with valuable assets. technological or consumer trends can benefit patient investors who pick the right industry groups or companies. In addition to understanding the business. very long-term.

the only question is how much so. most models are almost always bullish. The buy-side analyst on the other hand is analyzing the company purely from an investment standpoint ITM Business School. When this happens. Companies employ investor relations managers specifically to handle the analyst community and release information. the brokers have an ongoing relationship with the company under analysis. but is not likely to be the best model to value an oil company. DLJ to name a few). CS First Boston. However. Buy-side analysts work for mutual funds and money managers. Time consuming models often produce valuations that are contradictory to the current price prevailing on Wall Street. Kharghar Page 74 . a best-case valuation and a worst-case valuation. When reading these reports. These brokers are also involved in underwriting and investment banking for the companies. When it comes to massaging the data or spinning the announcement.Investment Avenues for an Indian Investor and Security Analysis Weaknesses of Fundamental Analysis Time Constraints Fundamental analysis may offer excellent insights. is wrong. Robertson Stephens. Industry/Company Specific Valuation techniques vary depending on the industry group and specifics of each company. A subscription-based model may work great for an ISP. Subjectivity Fair value is based on assumptions. Even though there are Chinese walls in place to prevent a conflict of interest. This is not to say that there are not misunderstood companies out there. and hence Wall Street. a different technique and model is required for different industries and different companies. "there are lies. the analyst basically claims that the whole street has got it wrong. Analyst Bias The majority of the information that goes into the analysis comes from the company itself. damn lies and statistics". it is important to take into consideration any biases a sell-side analyst may have. Fundamental analysts are generally aware of this and use sensitivity analysis to present a base-case valuation. Any changes to growth or multiplier assumptions can greatly alter the ultimate valuation. but it can be extraordinarily time consuming. Paine Weber. This can get quite time consuming and limit the amount of research that can be performed. They read the reports written by the sell-side analysts who work for the big brokers (CIBC. CFOs and investor relations managers are professionals. even on a worst case. but it is quite brash to imply that the market price. Merrill Lynch. Only buy-side analysts tend to venture past the company statistics. For this reason. As Mark Twain said.

Investment Avenues for an Indian Investor and Security Analysis for a portfolio manager. If there is a relationship with the company. it is usually on different terms. Kharghar Page 75 . In some cases this may be as a large shareholder. ITM Business School.

sell-side analysts. Technical analysts believe that the current price fully reflects all information. market strategist. fundamental analysts and many others. Technical analysts are sometimes referred to as chartists because they rely almost exclusively on charts for their analysis. portfolio managers. However.Investment Avenues for an Indian Investor and Security Analysis Technical Analysis Technical analysis is the examination of past price movements to forecast future price movements. including traders. investors. weekly or monthly price data and last a few hours or many years. indices. it represents the fair value and should form the basis for analysis. In his book. 5-minute. commodities. Dow Theory was not presented as one complete amalgamation. If prices were always random. but rather pieced together from the writings of Charles Dow over several years. Price refers to any combination of the open. The time frame can be based on intraday (tick. It would be folly to disagree with the price set by such an impressive array of people with impeccable credentials. the market price reflects the sum knowledge of all participants. Because all information is already reflected in the price. buy-side analysts. Jack Schwager states: ITM Business School. Prices Movements are not Totally Random Most technicians agree that prices trend. low or close for a given security over a specific timeframe. 15minute or hourly). Kharghar Page 76 . it would be extremely difficult to make money using technical analysis. some technical analysts include volume or open interest figures with their study of price action. In addition. high. Technical analysis is applicable to stocks. DOW THEORY The Dow Theory laid the foundations for what was later to become modern technical analysis. futures or any tradable instrument where the price is influenced by the forces of supply and demand. Of the many theorems put forth by Dow. three stand out:  Price Discounts Everything  Price Movements are not Totally Random  What is More Important than Why Price Discounts Everything This theorem is similar to the strong and semi-strong forms of market efficiency. daily. After all. Schwager on Futures: Technical Analysis. most technicians also acknowledge that there are periods when prices do not trend. technical analysts. Technical analysis utilizes the information captured by the price to interpret what the market is saying with the purpose of forming a view on the future.

It is a period when the public is out of stocks. The uptrend is renewed when the stock breaks above the trading range. more buyers (demand) than sellers (supply). but the value of nothing". Primary Bull Market . "A technical analyst knows the price of everything. it is at this ITM Business School. In both primary bull markets and primary bear markets. Kharghar Page 77 . still reigns at the beginning of a bull market. the why portion of the equation is too broad and many times the fundamental reasons given are highly suspect. However. “What is more important than why”!! In his book. The Psychology of Technical Analysis. For technicians. These stages relate as much to the psychological state of the market as to the movement of prices. it is possible to spot both short-term and long-term trends. as technical analysts are called. In between the trading ranges are smaller uptrends within the larger uptrend. Pessimism. interspersed with shorter periods of nonrandom behavior. Who needs to know why? The Three Stages of Primary Bull Markets and Primary Bear Markets Hamilton identified three stages to both primary bull markets and primary bear markets. invest or trade based on the trend and make money as the trend unfolds. Tony Plummer paraphrases Oscar Wilde by stating. the value of any asset is only what someone is willing to pay for it. there will be secondary movements that run counter to the major trend." A technician believes that it is possible to identify a trend. Because technical analysis can be applied to many different timeframes. What is the current price? 2. are only concerned with two things: 1. Why did the price go up? It is simple. A primary bull market is defined as a long sustained advance marked by improving business conditions that elicit increased speculation and demand for stocks. After all. major trends). By focusing on price and only price. Technicians believe it is best to concentrate on what and never mind why.Accumulation Hamilton noted that the first stage of a bull market was largely indistinguishable from the last reaction rally of a bear market. which was excessive at the end of the bear market. the news from corporate America is bad and valuations are usually at historical lows. A downtrend begins when the stock breaks below the low of the previous trading range. What is the history of the price movement? The price is the end result of the battle between the forces of supply and demand for the company's stock. but it is also interspersed with trading ranges. technical analysis represents a direct approach. The IBM chart illustrates Schwager's view on the nature of the trend.Stage 1 .Investment Avenues for an Indian Investor and Security Analysis "One way of viewing it is that markets may witness extended periods of random fluctuation. Technicians.e. The objective of analysis is to forecast the direction of the future price. The goal of the chartist is to identify those periods (i. Fundamentalists are concerned with why the price is what it is. The broad trend is up. A primary bear market is defined as a long sustained decline marked by deteriorating business conditions and subsequent decrease in demand for stocks.

This is the stage of the market when those with patience see value in owning stocks for the long haul. a break below the previous low would confirm that this was the second stage of a bear market. This is the stage where Warren Buffet stated in the summer of 1974 that now was the time to buy stocks and become rich. the public is fully involved in the market. distribution marks the beginning of a bear market. There is little in the headlines to indicate a bear market is at hand and general business conditions remain good. there is widespread disbelief that a bull market has begun.Big Move The second stage of a primary bull market is usually the longest. Earnings begin to rise again and confidence starts to mend. ITM Business School. there is little belief that a bear market has started and most forecasters remain bullish. stocks begin to find a bottom and quietly firm up. a quiet period will ensue as the market firms and then an advance will begin. the beginning of the second leg and a primary bull will be confirmed.) During the third and final stage. If it is a secondary move.Stage 2 . It is a period marked by improving business conditions and increased valuations in stocks. This is the mirror image to the first stage of the bull market. and sees the largest advance in prices. As the "smart money" begins to realize that business conditions are not quite as good as once thought.Stage 1 . While the market declines. Stocks are cheap. stocks begin to lose a bit of their luster and the decline begins to take hold. there is a reaction rally (secondary move) that retraces a portion of the decline. valuations are excessive and confidence is extraordinarily high. When the previous peak is surpassed.Distribution Just as accumulation is the hallmark of the first stage of a primary bull market. After a moderate decline. (Dow formed these theorems about 100 years ago. It is at this stage that careful analysis is warranted to determine if the decline is a secondary movement (a correction of the first leg up). Hamilton noted that a large percentage of the losses would be recouped in a matter of days or perhaps weeks. the top cannot be far off. Primary Bear Market . the bears come out proclaiming that the bear market is not over. This quick and sudden movement would invigorate the bulls to proclaim the bull market alive and well. When the market starts to rise. After making a lower high. In the first stage of a bull market. This is considered the easiest stage to make money as participation is broad and the trend followers begin to participate. As with his analysis of secondary moves in general. but nobody seems to want them. Primary Bull Market . A Wall Street axiom: When the taxi cab drivers begin to offer tips. Hamilton noted that reaction rallies during bear markets were quite swift and sharp. After the first leg peaks and starts to head back down. then the low forms above the previous low. the reaction high of the secondary move would form and be lower than the previous high. Kharghar Page 78 . The public is still involved in the market at this stage and become willing buyers. However. However. Everyone else thought he was crazy.Investment Avenues for an Indian Investor and Security Analysis stage that the so-called "smart money" begins to accumulate stocks.Excess The third stage of a primary bull market is marked by excessive speculation and the appearance of inflationary pressures. they start to sell stocks. Primary Bull Market .Stage 3 . but this scenario is certainly familiar.

the sell-off continues. More often than not. Once stocks fully reflect the worst possible outcome. if one has to wait for confirmation from the other average. Earnings estimates are reduced. the economic outlook bleak and not a buyer is to be found. it makes sense to look directly at the price movements. This is when the trend has been identified as down and business conditions begin to deteriorate. it is also after the first leg and part way into the second leg. Neither Dow nor Hamilton wrote proper academic papers outlining the theory and testing the theorems. The market will continue to decline until all the bad news is fully priced into stocks. Price movements usually precede fundamental developments. By focusing on price action. the DJTA is one of the most economically sensitive indices. all hope is lost and stocks are frowned upon. but the selling continues as participants seek to sell no matter what. Kharghar Page 79 . This may be a valid point. because it uses the DJIA and DJTA.Despair At the top of a primary bull market. The news from corporate America is bad.Stage 2 . Valuations are low. profit margins shrink and revenues fall. but as outlined earlier. technicians are automatically focusing on the future. Primary Bear Market . shortfalls occur.Stage 3 . the cycle begins again.Investment Avenues for an Indian Investor and Security Analysis Primary Bear Market . change is a subtle beast. As business conditions worsen. Thirdly. Secondly. stage two of a primary bear market provides the largest move. Criticisms of Dow Theory The first criticism of the Dow theory is that it is really not a theory. The market is thought of as a leading indicator and generally leads the economy by 6 to 9 months. the Dow theory is criticized for being too late.Big Move As with the primary bull market. Strength of Technical Analysis Focus on Price If the objective is to predict the future price. By the final stage of a bear market. To keep pace with the market. Robert Rhea stitched the theory together by poring over these writings. Dow and Hamilton sought to catch the meat of the move and enter during the second leg. The ideas of Dow and Hamilton were put forth through their editorials in the Wall Street Journal. then it makes sense to focus on price movements. The trend does not change from bearish to bullish until the previous reaction high has been surpassed. And. the Dow theory is criticized as being outdated and no longer an accurate reflection of the economy. The stock market has always been seen as a great predictor of economic growth. hope springs eternal and excess is the order of the day. Even though this is where the bulk of the move will take place. it could even be later in the move. Many traders feel that this is simply too late and misses much of the move. Even ITM Business School.

The price chart is an easy to read historical account of a security's price movement over a period of time. a price chart can offer plenty of valuable information. we can see the battle between supply and demand unfold. and Price Action Many technicians use the open.  Historical volume or trading levels. higher prices reflect increased demand and lower prices reflect increased supply. the number of buy orders exceeded the number of sell orders and the price was raised to attract more sellers. Charts are much easier to read than a table of numbers. high. Support/Resistance Simple chart analysis can help identify support and resistance levels. the close is well below the high and much closer to the low. the open. Assist with Entry Point ITM Business School. Pictorial Price History Even if you are a tried and true fundamental analyst. In this case. The intraday low reflects the availability of supply (sellers).Investment Avenues for an Indian Investor and Security Analysis though the market is prone to sudden knee-jerk reactions. When prices move out of the trading range. then supply is winning. the close remained above the open. If prices move above the upper band of the trading range. This tells us that even though demand (buyers) was strong during the day. Before the open. these will not be able to tell much. On most stock charts. Supply. By looking at price action over an extended period of time. The close represents the final price agreed upon by the buyers and the sellers. telling us that the forces of supply and demand are deadlocked. However. A technician will refer to periods of accumulation as evidence of an impending advance and periods of distribution as evidence of an impending decline. Separately. high. hints usually develop before significant moves. then demand is winning. it is easy to identify the following:  Reactions prior to and after important events. it signals that either supply or demand has started to get the upper hand. Kharghar Page 80 . The annotated example above shows a stock that opened with a gap up. In its most basic form.  Relative strength of a stock versus the overall market. With this historical picture.  Past and present volatility. There is information to be gleaned from each bit of information. Demand. These are usually marked by periods of congestion (trading range) where the prices move within a confined range for an extended period. volume bars are displayed at the bottom. low and close when analyzing the price action of a security. low and close reflect forces of supply and demand. If prices move below the lower band. Even after this selling pressure. taken together. The intraday high reflects the strength of demand (buyers). supply (sellers) ultimately prevailed and forced the price back down. Demand was brisk from the start.

you will come across an array of patterns and indicators with rules to match. if the analyst is a disgruntled eternal bear. it would appear that Wall Street has a different opinion. If a stock you thought was great for the last 2 years has traded flat for those two years. Trader's Remorse Not all technical signals and patterns work. there is always some indicator or some level that will qualify their opinion. Is the cup half-empty or half-full? It is in the eye of the beholder. many times two technicians will look at the same chart and paint two different scenarios or see different patterns. Technicians have been accused of sitting on the fence and never taking an unqualified stance. In that same vein. there is always another "important" level close at hand. Even if they are bullish. For instance: A sell signal is given when the neckline of a head and shoulders pattern is broken. Simply waiting for a breakout above resistance or buying near support levels can improve returns. Some analysts use fundamental analysis to decide what to buy and technical analysis to decide when to buy. It is also important to know a stock's price history. By the time the trend is identified. Or. If a stock has already advanced significantly. Lateness is a particular criticism of Dow theory. then the analysis will probably have a bearish tilt. it should be pointed out that technical analysis is more like an art than a science. then a bullish bias will overshadow the analysis.Investment Avenues for an Indian Investor and Security Analysis Technical analysis can help with timing a proper entry point. a substantial portion of the move has already taken place. Kharghar Page 81 . Technical analysis can help spot demand (support) and supply (resistance) levels as well as breakouts. Even though there are standards. If the analyst is a perpetual bull. what works for one particular stock may not work for another. the reward to risk ratio is not great. While this can be frustrating. It is important to be aware of these biases when analyzing a chart. It is no secret that timing can play an important role in performance. A 50-day moving average may work ITM Business School. it is not steadfast and can be subject to other factors such as volume and momentum. Open to Interpretation Furthering the bias argument is the fact that technical analysis is open to interpretation. Even though this is a rule. Weaknesses of Technical Analysis Analyst Bias Just as with fundamental analysis. Both will be able to come up with logical support and resistance levels as well as key breaks to justify their position. On the other hand. it might pay to wait for buying interest and a trend reversal. Always another Level Even after a new trend has been identified. technical analysis is subjective and our personal biases can be reflected in the analysis. if the stock is trending lower. somewhat like economics. it may be prudent to wait for a pullback. Too Late Technical analysis has been criticized for being too late. After such a large move. When you begin to study technical analysis.

It measures the combined effects of profit margins and asset turnover. The return on equity (ROE) ratio is a measure of the rate of return to stockholders. DU point analysis Basic formula ROE = (Profit margin)*(Asset turnover)*(Equity multiplier) (Net Profit/Equity) =(Net profit/Sales)*(Sales/Assets)*(Assets/Equity) • Operating efficiency (measured by profit margin) • Asset use efficiency (measured by asset turnover) • Financial leverage (measured by equity multiplier) ROE analysis The Du Pont identity breaks down Return on Equity (that is. Du Pont analysis relies upon the accounting identity.Investment Avenues for an Indian Investor and Security Analysis great to identify support and resistance for IBM. is less useful for some industries. but a 70-day moving average may work better for Yahoo. ITM Business School. that is. This analysis enables the analyst to understand the source of superior (or inferior) return by comparison with companies in similar industries (or between industries). Variations may be used in certain industries. a statement (formula) that is by definition true. however. ROI and ROE ratio The return on investment (ROI) ratio developed by Du Pont for its own use is now used by many firms to evaluate how effectively assets are used. each security will have its own idiosyncrasies. as long as they also respect the underlying structure of the Du Pont identity. such as investment banking. the return to equity that investors have contributed to the firm) into three distinct elements. [2] Decomposing the ROE into various factors influencing company performance is often called the Du Pont system. that do not use certain concepts or for which the concepts are less meaningful. The Du Pont identity. Kharghar Page 82 . Even though many principles of technical analysis are universal.

which is equal to the firm's debt to equity ratio + 1. Kharghar Page 83 . This is a measure of financial leverage. • The company's tax burden is (Net profit ÷ Pretax profit). This is the operating profit per dollar of sales. • • • • • ROE can also be stated as ROE = Tax burden * Interest burden * Margin * Turnover * Leverage ROE = Tax burden * ROA * Compound leverage factor Profit margin is (Net profit ÷ Sales). This is the proportion of the company's profits retained after paying income taxes. This will be 1. • The company's interest burden is (Pretax profit ÷ EBIT). The company's compound leverage factor is (Interest burden x Leverage).Investment Avenues for an Indian Investor and Security Analysis Where • • • • Net profit = net profit after taxes Equity = shareholders' equity EBIT = Earnings before interest and taxes Sales = Net sales This decomposition presents various ratios used in fundamental analysis.00 for a firm with no debt or financial leverage. so the ROE equation can be restated: ITM Business School. The company's return on assets (ROA) is (Return on sales x Asset turnover). The company's asset turnover (ATO) is (Sales ÷ Assets). The company's leverage ratio is (Assets ÷ Equity). The company's operating profit margin or return on sales (ROS) is (EBIT ÷ Sales).

643.1% Sales $ Current Assets $ 1.374.000 Common Equity multiplied by $ 2.6% Current Liabilities $ 620.223.023.597.000 + Long Term Debt $ 1.000 multiplied by divided by Earnings Available $ 221.000 + Net Fixed Assets (PPE) divided by 3.000 Tax Expense $ 94.000 Common stock equity Page 84 .000 $ Total Liabilities 1.074.000 Net Profit Margin 7.000 Total Liab + SE = Total + Assets $ 3.2% Sales $ 3.000 Cost of Sales Income Statement $ 2.074.000 Operating Expense $ 568. Kharghar multiplier 2.000 Balance Sheet (ROE) 12.000 Dividends paid $ 10.Investment Avenues for an Indian Investor and Security Analysis Du Pont Analysis Sales $ 3.000 Return on Total Assets (ROA) 6.000 Total Asset Turnover 0.85 Return on Total Assets $ 3.05 $ 1.000 Interest Expense $ 93.088.000 Financial Leverage divided by Stockholder Equity (SE) ITM Business School.954.074.597.

6 11. And the company has turnover period in compared to other automobile companies very low.10  Its reserves are high it means company may be having some expansion plans.9 11.6 1.7 EPS(31/03/2010 Rs 3. Its dividend payout is around 50%.9 19.5 70.1 5. So it is good for long term prospect.3 0.244. of Months 12 12 12 Year Ending 31/03/2008 31/03/2009 31/03/2010 Avg P/E ratio x 11. Market Cap Rs m 93.4 Inventory Turnover Days 58 81 83 Debtors Turnover Days 18 58 51 Debt to equity ratio x 0.922. Ltd announced the launch of three light commercial vehicles (LCVs) from 2011 through 2013. thus taking a big step towards consolidating its presence in the segment.976.6 Return on equity % 22. Kharghar Page 85 Ratio .2 ) India's second largest heavy commercial vehicle maker Ashok Leyland Ltd and Japanese car maker Nissan Motor Co.3 1. Hinduja Automotive Ltd owns 51% of Ashok Leyland.57 1. it entered into an agreement with Nissan manufacturing company for the manufacture of LCVs. It had a 26% market share in the domestic M&HCV segment in FY09 and a marginal presence in the LCV segment (light commercial vehicles).190.  Its profitability ratios are saying its fundamentals are strong enough.45 which is very good.888 Current ratio x 1.6 Return on capital % 25.874 37.4 Dividend payout % 42. Since company is expected to grow by 26%.250 49.Investment Avenues for an Indian Investor and Security Analysis Company Analysis Ashok Leyland Fundamental analysis of Ashok Leyland Ashok Leyland is the second largest manufacturer of medium and heavy commercial vehicles (M&HCV) in India.  As companies P/E ratio is around 11-12. Ratio analysis of Ashok Leyland: No.1 47.5 1.5 1.4 3. The company is also a key player in the passenger bus segment.1 1. CVs contributed to 81% of revenues in FY09 while engines and spare parts contributed to the balance.  Ashley’s dividend payout ratios are very high. It is paying consistent amount of dividends and it is good from investor’s point of view.2 Reserves rs.00 2. It means company is managing its financial and debtors very efficiently.8 Earnings per share Rs 3. It is good for investment.2 6. ITM Business School. So by this its PEG ratio will be 0. In FY09.5 0. Crore 1.993.2 Price / Book Value ratio x 2. it is giving good dividend on investments.5 11.0 Volume '000 1.1 Avg Market Cap Rs m 55.

This is the time when the global market is over pessimistic and sale of all the companies are decreased. In the year 2009 stock again took the bullish trend and it still continues.4. ITM Business School. It’s price to book value ratio is low 1. Stock did not crossed the support level and then raised again in the Q3 and Q4 of 2007. But stock did not maintain that level and fall again. And as fundamentals of the company are strong there might be some consolidations but stock remains bullish. And then there is decline in the price. Technical analysis of Ashok Leyland Chart 1: 5 year Trend line Chart for Ashok Leyland As shown in the chart 1 above in the year 2006 Q3 to 2007 Q1 there is a double top which is selling indication. Kharghar Page 86 . But Ashok Fundamentals of the company are very strong and it is undervalued so by the ratio analysis and sectorial analysis we can say that it is a lucrative investment.Investment Avenues for an Indian Investor and Security Analysis  Ashley is worth investing and undervalued stock also.

In this chart we can analyze that in May and July market was highly volatile.00. with standard deviation of 2). Chart 3: Exponential Moving Average chart for Ashok Leyland ITM Business School. Buy at level of Rs. Kharghar Page 87 .Investment Avenues for an Indian Investor and Security Analysis Chart 2: Bollinger Chart for Ashok Leyland Chart 2 is the Bollinger band chart (20 days moving Avg. And then as this stock showing in the July it is showing continuous selling. 66. New buyers should away from this stock and at the level of 64 it is showing its support.

So better to sale it and when it come to the level of 20 to 30 in the indicator buy back it because fundaments and growth of the company is strong enough and keeping the stock for a long run is a good option.Investment Avenues for an Indian Investor and Security Analysis Exponential moving avg. Chart 5: Stochastic indicator for Ashok Leyland Stochastic indicator is confirming the oversold situation. In the chart we can see that stock is in oversold situation because it is crossing the level of 70 and at that time riusk is very high people start selling the stock. Chart 4: Relative Strength Index for Ashok Leyland RSI is a leading indicator. And to remain in the stock at this time is risky. Kharghar Page 88 . is again the lagging indicator which confirms the bullishness of the stock. ITM Business School.

This shows 31.  The Commercial Vehicles industry recovered in 2009-10. the company has come a long way. From a net loss of Rs 5 bn in FY01 to a profit of Rs 20 bn in FY08.  Tata Motors export volumes increased marginally by 1. As P/E ratio is negative means companies earnings are negative. 22. So it is not a good option to invest in this point of time for short term. Company’s debt to equity reduced to 2. It is also the second largest producer of passenger vehicles in the country. In last 52 weeks it is in the range of 10% change only.90% increase in sales figures as compared to previous year.4 bn. It also launched 'Nano'. touted to be the world's cheapest compact car.  Tata Motor’s standalone Net Revenue for FY10 was Rs 355 bn up by 39% Y-o-Y basis. Kharghar . For Page 89  ITM Business School.75 bn as on March’09. We can say that company faced huge amount of downturn.per Ordinary share. of Days June’09 Sep’09 Dec’09 Mar’10 9 Inventory Receivables(excl. and low interest rates. And in the last quarter (Q1) results company registered 20% growth in revenue. And downtrend is because of NANO plant shift.  The following table shows the days of sales of inventory and receivables of the company Mar’0 No. Consequently. compared with Rs 10. 15/.3 EPS(31/03/2009) Rs -49.8% during FY10.  Company posted a profit after tax of Rs.  Company’s material cost decreased significantly during the year mainly on account of softening in the commodity prices during the first half of the year.1 Volume '000 260.0. with sales volume growing at 40.05 from 4. While RM as a % of Net revenues declined from 72.8 bn as on March’10 compared to Rs 23.Investment Avenues for an Indian Investor and Security Analysis TATA Motors Fundamental analysis of Ashok Leyland Tata Motors is India's largest commercial vehicle (M&HCVs and LCVs) manufacturer. In 2008.  The passenger vehicle industry registered a substantial volume growth of 24.7%% y-o-y during FY10. in 2009. vehicle financing)  28 18 32 23 33 21 34 21 28 23 Tata motors EPS ratios is NEGATIVE its P/E ratio is also very bad.3 bn. Land rover and Jaguar deal at very high prices.447. increase in transporters profitability and improved liquidity activity helped the industry to regain sales volume. But if we see the figures till previous year. it acquired Jaguar and Land Rover. with a domestic market share of 64%. two iconic brands from Ford for a price of US$ 2. driven mainly by increased consumer confidence.7  Company’s net sales in FY09 were 506421 and in FY10 were 667971. Growth in IIP.2%.6% in FY09 to 68.3%in FY10. Market Cap Rs m 418. availability of finance. new product launches.01 bn in FY09  The Board of Directors has recommended a dividend of Rs.  Company’s Net Automotive debt stood at Rs 18.

475 12 31/03/2009 12.789 1.581 1.713 1 53 25 3.905 12 31/03/2010 -8.8 4.7 276.7 24.7 41.1 26.1 3.6 316. Current ratio Inventory Turnover Debtors Turnover Debt to equity ratio Return on equity Return on capital Reserves No.9 25.1 29.5 4 -12. ITM Business School.7 36 19 0.3 1.3 73.4 -48. Kharghar Page 90 .6 63. Small consolidations are there but this is overall in a bullish trend.8 -48 -0.3 209.6 56. of Months Year Ending x Rs % x % Rs m x Days Days x % % Rs m 12 31/03/2008 14.637 Technical analysis of TATA Motors Chart 1: 5 year Trend line Chart for TATA Motors Tata Motors is showing the bullish trend by the Q1 of 2009.2 2. Ratio analysis of TATA motors Ratios Avg P/E ratio Earnings per share Dividend yield (YoY) Price / Book Value ratio Dividend payout Avg Market Cap.Investment Avenues for an Indian Investor and Security Analysis the time duration of greater than three years it will give good results.4 34 21 0. And companie is expecting growth of nearly 45% this year.2 26.5 28.7 1.8 56. And as Q1 results are out and in that company recorded significant amount of profits.

Chart 3: Exponential Moving Average chart for Tata motors Exponential moving avg. is again the lagging indicator which confirms the bullishness of the stock. ITM Business School. Kharghar Page 91 .Investment Avenues for an Indian Investor and Security Analysis Chart 2: Bollinger Chart for TATA Motor In the Bollinger chart market is showing less volatility and the chart is showing selling signal. As the stock price touches the upper standard deviation line.

And it is showing oversold situation. So remaining or buying this stock is risky. In fact it has been in heavy losses. Kharghar Page 92 .Investment Avenues for an Indian Investor and Security Analysis Chart 4: Relative Strength Index for TATA Motors In the stochastic indicator it is showing the overvalued levels and to remain in this stock at this level is very risky for an individual. as the company has not shown good growth in past year. Chart 5: Stochastic indicator for TATA Motors RSI indicator is also showing its over-bought position. ITM Business School.

Investment Avenues for an Indian Investor and Security Analysis Bajaj Auto Fundamental analysis of Bajaj Auto Bajaj Auto Limited is the second largest player in the two-wheeler industry in India. (BAL) has registered a decline in sales for the month of September 2007. the sales mix (in volume terms) consisted of 87% motorcycles and 13% three-wheelers.048 shipments during the month registered a sharp growth of 30% YoY (37.288 units when compared to 27. The 3-wheeler business reported a 6% YoY decline to 26. Kharghar Page 93 .  On the exports front. a renewed focus on motorcycles has seen the company take some rapid strides in the segment in recent times. Bajaj Auto Ltd. the company split its business in FY08 into three distinct entities viz. Just a perspective.088 units).870 units sold a year back.  Sales composition ITM Business School. Bajaj Finserve and Bajaj Holdings. its market share in motorcycles has increased from 23% in FY03 to 28% in FY09. Market share for motorcycles in domestic market improved from 21% in H1 / FY10 to 27% in H2 / FY10. Bajaj Auto.  3-wheeler sales reflect the general weakness in the commercial vehicle demand. Though Bajaj Auto has traditionally been a key player in the geared scooter segment. India’s second largest 2wheeler maker. To enable it to run its operations more smoothly. In FY09. the company with 48.

8 0 38.9 15 11 0. volume and Market share Market Cap Rs m 347.756 12 31/03/2010 12 110. And it shows that company is highly overpriced.570 0. Three wheelers: Growth.7 15.420.6 59. But P/B ratio is 7 which is very high.7.412 0.4 90. of Months Year Ending Avg P/E ratio Earnings per share Price / Book Value ratio Dividend payout Avg Mkt Cap Current ratio Inventory Turnover Debtors Turnover Debt to equity ratio Return on equity Return on capital Reserves      12 31/03/2008 0 51.156 x Rs x % Rs m x Days Days x % % Rs m P/E ratio is 12.304 12 31/03/2009 16.5 58. it is expected to grow at a rate of 12%. Kharghar Page 94 . Hence its PEG ratio will be 1.6 0 0.9 16 12 0.4 Ratio analysis Bajaj Auto Ratio No. Bajaj auto’s EPS is 110 Much higher than other company in this segment.1 14. ITM Business School.2 38.3 191.2 7 36.7 14 9 0.8 46.5 EPS (31/03/2010) Rs 110.9 28. Bajaj auto’s current ratio is 0. Considering all above factors we can say that Investment in this company is moderately risky. Which shows it moderately risky.7 57 25.1 Volume '000 19.Investment Avenues for an Indian Investor and Security Analysis Motorcycles. and a growth on EPS is also shown.8 32.9 37 5.

Investment Avenues for an Indian Investor and Security Analysis Technical analysis of Bajaj auto Chart 1: 5 year Trend line Chart for Bajaj Auto Fundamentals of Bajaj auto are strong. Chart 2: Bollinger Chart for Bajaj Auto Bollinger band is shown here for 20 days and with standard deviation is 2. So remain in this stock is a good option. And it’s positive uptrend in the stock from last 1 year confirms its bullishness. Kharghar Page 95 . ITM Business School. As company is in bullish trend and it is not in the overbought or oversold levels. Price movement is around its SMA.

ITM Business School. Chart 4: Stochastic indicator for Bajaj Auto Stochastic oscillator confirming that stock is in equilibrium condition and moderately risky.Investment Avenues for an Indian Investor and Security Analysis Chart 3: Relative Strength Index for Bajaj Auto Chart is of RSI for 14 days. So remain in the stock as it will remain in the BULL trend. It is showing that stock is around equilibrium level. Kharghar Page 96 .

cash purchases increased due to higher agricultural income in the Northern states and the return of customers who had deferred purchases in FY2008.  Its current ratio is 0. Kharghar Page 97 .7 47.5 11 11 29.734 units it sold in the corresponding month last year.6 10 12 24. In FY2008.7 46.532 0.6% yoy growth in Motorcycle sales. Each partner holds 26% stake in the company.500% equalling Rs 30 per share on each share of Rs 2.5 4. Growth started picking up in 1HFY2009.5% yoy. Hero Honda Motors is the 8th Indian companies to enter in to the Forbes top 200 list of “world's most reputed companies”. The company has been solely engaged in manufacturing and sale of motorcycles.1 43 6.1 Volume '000 33.059 0.2 134.  Hero Honda expect its growth by 11-12% in next 2 years.5 39. and industry growth for FY2009 stood at a mere 4.1 34. has been extended for a further period of ten years.65. the largest manufacturer of motorcycles in the world.1 12 31/03/2010 13. the Segment reported a 4.491 0.4 46. Market Cap Rs m 390.5 31.953.454 units over 3. of Months Year Ending x Rs x % Rs m x Days Days Rs m x % % 12 31/03/2008 18.608 0 33.2 172.6 155. Company is expecting 11-12% growth in next 2 years. albeit on a low base.5 64.301 0. inventory buildup hit Two-wheeler volumes in 2HFY2009. The company ended FY09 with close to 50% market share. Hero Honda reported a 16.2 Ratio analysis Ratio Avg P/E ratio Earnings per share Price / Book Value ratio Dividend payout Avg Mkt Cap Current ratio Inventory Turnover Debtors Turnover Reserves Debt to equity ratio Return on equity Return on capital  No.9% yoy fall in the Sales volume due to high Inflation.Investment Avenues for an Indian Investor and Security Analysis Hero Honda Fundamental analysis of Hero Honda Hero Honda Motors. FY2009 began with a positive yoy growth for the Indian Twowheeler Segment.1 Hero Honda’s P/E ratio is consistently 13. Hence by it its PEG ratio is around 2.7 EPS (31/03/2009) Rs 64.9 48.2 4. is a joint venture promoted by Hero Cycles (P) Limited and Honda Motor Company of Japan. Nonetheless.60% jump in its sales in June at 4.5 10 4 37. But by last year its EPS level is increased significantly.5 which shows it moderately risky. While the tight availability of Finance did impact purchases.26. The technology agreement with Honda.9 12 31/03/2009 13. rising Interest rates and a contraction in availability of Finance. which expired in 2004. ITM Business School.3 39. aided by the overall 12.463 0 32. The company declared a final dividend of 1.

Some consolidations are there in the chart but it is confirming BULL trend. Technical Analysis of Hero Honda Chart 1: 5 year Trend line Chart for Hero Honda Chart is in positive uptrend Because overall auto sector is in uptrend from Q4 of 2008-09. Kharghar Page 98 . And it is also less riskier then than Hero Honda. Chart 2: Bollinger Chart for Hero Honda Here we considered the Bollinger band of 20 days with standard deviation of 2. In it it showing the oversold level so purchase the stock at this level is profitable ITM Business School. And EPS of Bajaj Auto is also high as compared to Hero Honda.Investment Avenues for an Indian Investor and Security Analysis By the fundamentals of the Bajaj Auto and Hero Honda. Bajaj auto will give high returns then Hero Honda.

ITM Business School.Investment Avenues for an Indian Investor and Security Analysis Chart 3: Stochastic indicator for Hero Honda Chart 4: Relative Strength Index for Hero Honda Chart 3 and 4 both are showing that stock is less risky to invest. Stock price is near to equilibrium line. Hence it is having further potential to grow and it is moderately risky. Kharghar Page 99 .

maintenance. Herein. Nasscom also sees an uptick in IT demand and expects the industry to register a double digit growth in FY11. Though on a conservative basis. companies aim to source end-to-end IT services from fewer number of tested vendors. Infosys's management expects IT budgets to remain flat in FY11.2 ITM Business School.6 Volume '000 96. NEMs mean offering high-end solutions to clients without having to deploy additional software engineers. Infosys offers all these services through its highly integrated and widely acclaimed global delivery model. As 2009 passed by. The company’s revenues and profits have grown at compounded rates of 26% and 27% respectively during the last five years (FY05-FY10).Investment Avenues for an Indian Investor and Security Analysis Infosys Technologies Ltd. Infosys got a project in December 2009 by Walmart. The company in fact sees its NEM revenues rise from US$ 165 m currently to US$ 500 m in the near future. This makes the case stronger for IT biggies like Infosys that are winning more and more repeat business from their existing clients. Research firms like Gartner and Forrester expect IT spending to grow by 3. Cognizant Technology Solutions and UST Global — for multi-year contracts worth over US$ 600 million.3% in 2010. The company is working on new engagement models (NEMs).582. IT giants like Infosys are already seeing robust deal pipelines and faster decision making from clients. it has a strong chance to grow at an average rate of 15-20% for the next 10 years. Kharghar Page 100 . Though we do not claim that Indian IT will achieve the pre-downturn levels of 30% YoY growth in some time to come. The pricing power is expected to return in latter half of FY11. global IT industry bade good riddance to its worst year ever. Recession has triggered a need for vendor consolidation. Fundamental analysis of Infosys Technologies Infosys has come to be the gold standard in the Indian IT industry’s success. testing and package implementation. IT services spending is expected to rebound by a decent 4. From humble beginnings in 1981.5% to reach US$ 816 bn in revenues. this is still good news as compared to a sharp decline of 6% to 8% being witnessed during the previous year. It is known globally for its world-class management practices and work ethics. and technology consulting.393. Back home. What Infosys is aiming through its NEMs is to increase the share of high-end solutions like IT products in its total revenues. Market Cap Rs m 1. Such initiatives will make its overall business more profitable and sustainable. There appears an easing of pricing pressure that kept IT companies under stress during 2009. There is a spurt in mergers and acquisitions round the globe.1 EPS (31/03/2010) Rs 109. the company today is the second largest exporter of software services from the country. Walmart selected three IT vendors in India — Infosys Technologies. This has brought a number of business transformation and systems integration deals to the platter. It has been making conscious and constant efforts to move up the software value chain and offers services like software development. In simple terms.

Investment Avenues for an Indian Investor and Security Analysis Revenue and income figures as shown in the chart above and increase in revenue per client Revenue Growth Quarter by Quarter ITM Business School. Kharghar Page 101 .

1 0 72 33.620 Company recorded P/E ratio of 19 but on other hand company is expected to grow by 20% yearly for next 10 years regularly.8 179.1 0 56 27.168 4.1 81.1 40. Its profitability ratios [ROE. Hence management can invest this amount somewhere else and probably can earn more return.8 984. Company can use this amount for further investment.810 12 31/03/2009 14. Company’s current ratio is very high.2 22.    ITM Business School. Kharghar Page 102 .620 12 31/03/2010 19 109.9 1. Company is not overvalued.2 34.5 226. ROC] are showing good amount of returns. As Infosys have strong growth history in the past and company is also performing well and not overvalued so investment in Infosys is less risky.8 104. Hence its PEG ratio would be 0.Investment Avenues for an Indian Investor and Security Analysis Ratio analysis of Infosys Technologies Ratio Avg P/E ratio Earnings per share Price / Book Value ratio Dividend payout Avg Mkt Cap Current ratio Inventory Turnover Debtors Turnover Return on equity Return on capital reserves  No. of Months Year Ending x Rs x % Rs m x Days Days % % Rs m 12 31/03/2008 21.8 38.5 4. hence company is not risky.126 3.9.5 886.9 22.3 0 62 32. All other companies of this segment are not keeping that much current assets to cover short term obligations.4 5.8 37. But high future prospects make this stock lucrative investment stock.763 4.187.5 7.7 134.

In it the stock price is on SMA line which shows that it will grow further and there is low risk of decrease in its price. And by last quarter of 2008-09 infosys is continuously in bullish trend. During recession time there is a significant amount of decrease in the stock is recoded. Support line is shown above in the chart. Kharghar Page 103 .Investment Avenues for an Indian Investor and Security Analysis Technical analysis of Infosys Chart 1: 5 year Trend line Chart for Infosys Infosys last 5 year stock chart and trend lines are shown above. ITM Business School. And company is also expecting 20 % growth YOY in next 11 years. Chart 2: Bollinger Chart for Infosys Bollinger band for next 20 days with standard deviation of 2 is shown here.

Investment Avenues for an Indian Investor and Security Analysis Chart 3: Stochastic indicator for Infosysy Stochastic oscillator is showing low risk level of 20. which is a buy signal. Chart 4: Relative Strength Index for Infosys RSI Oscillator is confirming the low risk level or the stock is at equilibrium level. Kharghar Page 104 . So investing at this level will give good future returns. And the fundamentals of the company are strong enough. ITM Business School.

the country's largest software exporter by revenue. telecom. hence its management is utilizing the funds properly.217 crore. Hence investment in TCS is better option than Infosys    ITM Business School. In common currency terms. up 6% over the previous quarter (Q4 FY10) while net profit at Rs 1. revenues grew 21% y-o-y to $1. Market Cap Volume EPS (31/03/2010) Rs m '000 Rs 1.79 billion and were up 6.hence it is less riskier stock than Infosys .619. Company is giving fair amount of dividend every year to its stock holders. It has grown revenues and profits from FY05 to FY09 at compounded rates of 30% and 27% respectively. worth around US$ 879. having a wide range of offerings and catering to industries like banking and financial services. And profitability ratios are also showing growth as compared to previous year.9. and retail. The company was one of the pioneers of the much-acclaimed global delivery model and has the largest employee base in the Indian software sector. Kharghar Page 105 . was awarded a contract in March 2010 to administer the UK's National Employee Savings Trust (NEST) scheme's administered services under a 10-year deal.403. manufacturing.5 million.4% over the previous quarter. Total income for the quarter was Rs 8.65 which shows excellent growth.906 crore.Investment Avenues for an Indian Investor and Security Analysis Tata Consultancy Services Fundamental analysis of Tata Consultancy Services TCS is the largest software company in Asia. Growth by service line:  TCS’s P/E ratio is 15 . dipped 5% sequentially. Current ratio of TCS is 1.8 159.and also its PEG ratio 0.2 36.2 Tata Consultancy Services (TCS).

3 2.3 27.1 2.7 39.2 1 87 0 41.2 46. Kharghar Page 106 .3 120.4 14 8.9 1.8 55.3 35.Investment Avenues for an Indian Investor and Security Analysis Ratio analysis of TCS Ratio Avg P/E ratio Earnings per share Dividends per share Price / Book Value ratio Dividend payout Current ratio Inventory Turnover Debtors Turnover Debt to equity ratio Return on equity Return on capital reserves No.1 51.966 12 31/03/2009 13.252 12 31/03/2010 15.7 14 4.1 150.3 0 80 0 33.6 180.8 20 5.572 ITM Business School.9 0 71 0 38.7 53. of Months Year Ending x Rs Rs x % x Days Days x % % Rs m 12 31/03/2008 20.6 26.1 44.

Investment Avenues for an Indian Investor and Security Analysis Technical analysis of TCS Chart 1: 5 year Trend line Chart for TCS Support and resistance lines are shown in the figure. Because stock price touches the higher level of standard deviation. Kharghar Page 107 . ITM Business School.chart is showing overbought signals. Chart 2: Bollinger Chart for TCS Bollinger band for 20 days and standard deviation of 2 is shown in the chart . During recession there is sharp decline in the stock and after that stock is trading in a channel in a particular levels of support and resistance. So it is an attractive stock to invest in for traders.

Investment Avenues for an Indian Investor and Security Analysis Chart 3: Stochastic indicator for TCS TCS is showing at level of 70 at RSI. ITM Business School. Kharghar Page 108 . Hence TCS is a good investment opportunity for traders. And this stock is showing continuous volatility. Which is highly risky level. Chart 4: Relative Strength Index for TCS Volatility in the stock market and highly risky level of stock is confirmed by Stochastic oscillator. As shown above in the chart. It is good for traders because it is fluctuating in a channel.

The BPO services segment provides services to global corporations. Wipro corporation revenue at Rs.27. Middle-East and Asia-Pacific regions. The India and Asia Pacific IT Services and Products segment focuses on addressing the IT and electronic commerce requirements of companies in India.124 Crores for 2009-10. Over the period FY03 to FY09. Wipro is India's third largest software services exporter and also has interests in the hardware and consumer care and lighting businesses.Investment Avenues for an Indian Investor and Security Analysis Wipro Ltd. Wipro's consolidated revenues and profits have grown at compounded annual rates of 35% and 30% respectively.0 As shown in the chart revenue of Wipro technologies is consistently in increasing trend. ITM Business School. Kharghar Page 109 . The IT Services segment provides research and development services for hardware and software design to technology and telecommunication companies and software application development services to corporate enterprises.213.8 240. Fundamental analysis of Wipro Technologies Ltd. Market Cap Volume EPS (31/03/2010) Rs m '000 Rs 997. 6% YoY growth.8 19.

of Months Year Ending x Rs Rs x x Days Days % % Rs m 12 31/03/2008 21.3.4 26.3 111.6 31.8 11 72 28.8 1.294 12 31/03/2009 13.5 6 4 2.552 12 31/03/2010 15.65.360 Company is having P/E ratio of 15. which tells company is having enough amount to pay its liabilities and company is also managing their funds efficiently.4 23. And its support line is shown in the figure. Hence investment in Wipro is a lucrative option.1 12 74 28. ITM Business School.   Technical analysis of Wipro: Wipro technologies is a bullish stock after recession. Company’s EPS and profitability ratios are constantly increasing.6 4 3.6 25.3 22.3 11 69 25.3 181. which shows excellent growth for the stock.5 6 6 2.Investment Avenues for an Indian Investor and Security Analysis Ratio analysis of Wipro Ratio Avg P/E ratio Earnings per share Dividends per share Price / Book Value ratio Current ratio Inventory Turnover Debtors Turnover Return on equity Return on capital reserves  No. Kharghar Page 110 . And it is giving two continuous down doji. Its current ratio is 2.1 145. It is having bullish trend and it is expected that it will take downward trend. Which is a signal of trend reversal.6 which is moderadely increasing but at the same time company is growing with 20% growth rate which makes its PEG ratio 0.1 24.

Investment Avenues for an Indian Investor and Security Analysis Chart 1: 5 year Trend line Chart for Wipro Chart 2: Bollinger Chart for Wipro Bollinger Band in march shown sale signal. Bollinger chart shown the signal of sale the stock in march. ITM Business School. And then Wipro was continuously facing large sale by investors. It is continuously on the negative trend as shown in the chart. Kharghar Page 111 . And two continuous low doji confirmed the trend reversal of the stock.

And its future cannot be estimated.Investment Avenues for an Indian Investor and Security Analysis Chart 3: Stochastic indicator for Wipro Chart 4: Relative Strength Index for Wipro In the chart 3 stochastic is showing it highly risky stock and in the chart 4 RSI is showing the stock is least risky. Kharghar Page 112 . ITM Business School. It is highly volatile stock.

By it we can say that company is undervalued. The company's offerings include application development and integration.5 34. application maintenance.4 17. So by this its PEG ratio would be 0.  Its P/B ratio is 1.  Patni’s EPS and profitability ratios  are increasing year by year. engaged in providing software solutions and services.7 21.5 0 59 0 16.5 17.729 ITM Business School. Market Cap Rs m 72.1 27. insurance. enterprise application systems. retail and logistics verticals. We can confirm this by PEG ratio.1 34.8 45.080 12 31/03/2009 6.4 3 1. telecom. Ratio analysis of Patni computers Ratio No.0 EPS (31/12/2009) Rs 42.5 means company is managing its funds efficiently.2 Company is having P/E ratio of 6.1 which is showing excellent growth in future. R&D services and business process outsourcing services.2 3 1 1.8 3 2. Company is expecting its growth rate of 8% YOY. Patni computers is expecting 1215% growth in FY11.1 1.597 12 31/03/2010 6. Kharghar Page 113 .  Current ratio is 1.7 hence company is less risky. of Months Year Ending Avg P/E ratio x Earnings per share Rs Dividends per share Rs Price / Book Value ratio x Current ratio x Inventory Turnover Days Debtors Turnover Days Debt to equity ratio x Return on equity % Return on capital % Reserves Rs m 12 31/03/2008 12.8. domestically and internationally.Investment Avenues for an Indian Investor and Security Analysis Patni Computers Fundamental analysis of Wipro Technologies Ltd.6 34.4 Volume '000 31.2 1. undervalued and company is having loyal clients so company is strong enough by its fundamentals to achieve its growth targets.9 27. Patni Computer Systems (PCS) is a mid-sized IT company.2 0 64 0 15. manufacturing.4 0 72 0 17.130. PCS has a substantial presence in the financial services.

And it is expected that company will grow at 12-13% rate. But in the month of July volatility in the stock is decreased. Kharghar Page 114 . As shown in the chart there is a positive trend line which is showing the resistance level of the stock. Fundamentals of the company are strong enough. And stock price is meeting upper deviation curve line . ITM Business School. it is a sale signal. Chart 2: Bollinger Chart for Patni In the Bollinger band if distance between lower and upper deviation line is high then volatility in the stock is high. And then it is recorded continuous growth in its turnover and profits.Investment Avenues for an Indian Investor and Security Analysis Technical analysis of Patni computers Chart 1: 5 year Trend line Chart for Patni Patni computers is listed at NSE in 2002.

Chart 3: Stochastic indicator for Patni Chart 4: Relative Strength Index for Patni In stochastic oscillator it is at moderate risk and this level is justified by RSI also. ITM Business School.Investment Avenues for an Indian Investor and Security Analysis Fundamentals of the company are very strong. So to keep the stock for long term can give significant amount of returns. And we can expect that company will give good returns in future. Kharghar Page 115 . Investing in Patni is moderately risky.

 Analysis of questionnaire and interpretation This research is conducted in order to identify Indian investor’s perception of the Indian share market and understand saving and investment patterns. collecting. The methodology adopted includes Questionnaire  Random sample survey of customers  Discussions with the concerned  Sources of Data Primary data: Questionnaire  Secondary data: Published materials of website.Investment Avenues for an Indian Investor and Security Analysis Research Design of the Study of Indian Investor Perception This report is based on primary as well secondary data.It also helps in collecting the vital information that is required by the top management to assist them for the better decision making both day to day decision and critical ones. Kharghar Page 116 . Survey Results Research Variables Age Group Investment Experience Investment Objective Factor of Investing Percentage Income Invested Investment Advice Annual Income Investment Sector Investment Purpose Reaction Market Down Period of Investment Financial Advisor Savings objectives Investment Growth Rate Investment monitoring Lose of Principal Relation and investment patterns of varying age group Key assumptions made for this research survey are:  With increasing age the risk appetite for an investor reduces and investment percentage in the share market reduces considerably  Period of investment reduces with increasing age group category. ITM Business School. news papers. analyzing the required information data and providing an alternative solution to the problem . journals. however primary data collection was given more importance since it is overhearing factor in attitude studies. One of the most important users of research methodology is that it helps in identifying the problem. The study consists of analysis about Investors Perception.  Increasing age group focus more towards short term growth or principal safety from investment. For the purpose of the study people were picked up at random and their views solicited on different parameters.

0% Above 60 100.2% Between 30-40 85.0% 100.7% 9.3% 21.7% 14. Age Group * Preferred Investment Sector Cross tabulation % within Age Group Preferred Investment Sector Total ITM Business School.0% 40. 24 cells (100.7% 40.000 a. (2-sided) Pearson Chi-Square 45.3% Between 50-60 20. The minimum expected count is .2% Chi-Square Tests Total Experienced 100.0% Group Between 20-30 72.0% 66.1% 18.3% Between 40-50 33. Kharghar Page 117 .0% Total 27.2% Value df Asymp.670a 15 . Sig.3% 33.0% 18.000 Likelihood Ratio 49.18.0% 100.0% 100.Investment Avenues for an Indian Investor and Security Analysis Age Group * Investment Experience Cross tabulation % within Age Group Investment Experience Beginning Moderate Knowledgeable Age Below 20 100.0%) have expected count less than 5.0% 100.0% 100.0% 100.083 15 .

The minimum expected count is .4% 100.7% 100. (2-sided) a Pearson Chi-Square 32. Kharghar Page 118 .0% 33.7% 24.3% 18.0% 100. Age Group * Investment Purpose Cross tabulation % within Age Group Investment Purpose Total Wealth Tax Saving Earn Future Other Creation Returns Expenses/ Retirement saving Age Below 20 100.09.0% Above 60 66.516 10 .2% Value df Asymp.3% 14.3% 42.5% 57.1% 100. The minimum expected count is .0% 100.0% Group Between 20-30 9.4% 6.3% 71.2% Public Sector 27. ITM Business School.1% 66.3% 100.0% 100.0% Between 50-60 40.0% Between 40-50 83.629 10 .7% Government Sector 18.03.0% 80.1% 3.764 25 . (2-sided) a Pearson Chi-Square 11.528 25 .0% 9.5% 27.319 Likelihood Ratio 14.3% 16.0% Total 30.0% 20.137 a.4%) have expected count less than 5.0% 100.3% 9.0% Between 30-40 14.1% 100.0% 100.3% 66.1% 45. 36 cells (100.0% 100.0% 20.0% 100.Investment Avenues for an Indian Investor and Security Analysis Age Below 20 Group Between 20-30 Between 30-40 Between 40-50 Between 50-60 Above 60 Total Chi-Square Tests Private Sector 100.0% Chi-Square Tests Value df Asymp.0% 54. Sig. 17 cells (94.143 Likelihood Ratio 32. Sig.9% 100.2% 39.0% 100.0% 40.0% 100.0%) have expected count less than 5.146 a.7% 33.

1% 28. 18 cells (100.3% Chi-Square Tests Total 100.6% Between 40-50 100.3% Total 20.877 10 .3% 57.20.3% 33. Kharghar Page 119 .5% Between 30-40 14.0%) have expected count less than 5. (2-sided) a Pearson Chi-Square 17.0% 100. The minimum expected count is .Investment Avenues for an Indian Investor and Security Analysis Age Group * Investment Growth Rate Cross tabulation % within Age Group Investment Growth Rate Steadily At an Average Rate Rapid growth Age Group Below 20 100. ITM Business School.0% 100. Sig.0% 100.022 a.0% 37.3% 33.5% 12.0% 100.0% 100.0% 36.057 Likelihood Ratio 20.0% Between 50-60 40.0% 60.0% Value df Asymp.838 10 .0% Between 20-30 50.0% 100.0% Above 60 33.7% 43.

5% Between 30-40 14.0% 100. (2-sided) a Pearson Chi-Square 20.038 a.3% Chi-Square Tests Total 100. The minimum expected count is .1% 45.0% 80.5% 27.3% 42.6% Between 40-50 100.0% Above 60 33.0% 100.9% 28.12.8%) have expected count less than 5.0% Between 50-60 20. 23 cells (95.147 Likelihood Ratio 26.0% Group Between 20-30 27.0% 100.024 15 .0% 100.0% 100.1% 45. ITM Business School. Sig.2% 9.3% 18.2% 12.3% 14. Kharghar Page 120 .3% 33.0% Value df Asymp.3% 33.0% 100.Investment Avenues for an Indian Investor and Security Analysis Age Group * Factors Considered Before Investing Crosstabulation Factors Considered Before Investing Safety of Low Risk High Returns Maturity Period Principal Age Below 20 100.3% Total 15.691 15 .

Kharghar Page 121 .0% 50.0% Group Between 20-30 50.7% 83.3% Chi-Square Tests Total 100.0% 100.3% 33.3% Total 25.508 10 .0% 100.0% 100.7% 33. 18 cells (100.9% 28.9% 40.3% 33.6% Between 40-50 16.3% Between 50-60 75. ITM Business School.6% 28.0% 100. (2-sided) a Pearson Chi-Square 15.122 Likelihood Ratio 18.0% Value df Asymp.26.0% 100. The minimum expected count is .0% Above 60 33.0% Between 30-40 42.Investment Avenues for an Indian Investor and Security Analysis Age Group * Reaction to share Market Drop Crosstabulation Reaction to share Market Drop Withdraw Wait to Invest more your money increase in it Age Below 20 100.0%) have expected count less than 5.0% 100. Sig.047 a.284 10 .0% 25.

Investment Avenues for an Indian Investor and Security Analysis

Age Group * Percentage of Income Invested Crosstabulation Percentage of Income Invested 0-15% 15-30% 30-50% Age Below 20 100.0% Group Between 20-30 100.0% Between 30-40 57.1% 42.9% Between 40-50 100.0% Between 50-60 20.0% 60.0% 20.0% Above 60 66.7% 33.3% Total 56.3% 40.6% 3.1% Chi-Square Tests

Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Value df Asymp. Sig. (2-sided) a Pearson Chi-Square 23.930 10 .008 Likelihood Ratio 28.183 10 .002 a. 17 cells (94.4%) have expected count less than 5. The minimum expected count is .03.

Age Group * Period of Investment Cross tabulation Period of Investment Short-term MediumITM Business School, Kharghar

Total Long-term
Page 122

Investment Avenues for an Indian Investor and Security Analysis

(0-1yrs) Age Group Below 20 Between 20-30 Between 30-40 Between 40-50 Between 50-60 Above 60

term (15yrs) 44.4% 28.6% 60.0% 60.0% 66.7% 46.7%

(>5yrs) 100.0% 22.2% 28.6% 20.0% 20.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Total Chi-Square Tests

33.3% 42.9% 40.0% 20.0% 33.3% 33.3%

Value df Asymp. Sig. (2-sided) Pearson Chi-Square 7.542a 10 .673 Likelihood Ratio 8.372 10 .593 a. 18 cells (100.0%) have expected count less than 5. The minimum expected count is .20.

ITM Business School, Kharghar

Page 123

Investment Avenues for an Indian Investor and Security Analysis

Age Group * Source of Investment Advice Crosstabulation Source of Investment Advice Total Family Internet News News Advisors Cert Mkt or papers Channels Professional/ Friends Fin.Planners Age Below 100.0% 100.0% Group 20 Between 45.5% 27.3% 18.2% 100.0% 20-30 Between 14.3% 14.3% 42.9% 28.6% 100.0% 30-40 Between 16.7% 33.3% 33.3% 16.7% 100.0% 40-50 Between 20.0% 20.0% 60.0% 100.0% 50-60 Above 66.7% 33.3% 100.0% 60 Total 15.2% 18.2% 18.2% 27.3% 15.2% 3.0% 100.0% Chi-Square Tests Value df Asymp. Sig. (2-sided) a Pearson Chi-Square 41.187 30 .084 Likelihood Ratio 41.577 30 .078 a. 42 cells (100.0%) have expected count less than 5. The minimum expected count is .03.

ITM Business School, Kharghar

Page 124

064 6.745 .Investment Avenues for an Indian Investor and Security Analysis Relation and investment patterns of varying Income Group Annual Income * Percentage of Income Invested Cross tabulation % within Annual Income Percentage of Income Invested 0-15% 15-30% 30-50% 100.000-Rs 7. Symmetric Measures Value df Value Interval by Interval Pearson's R Asymp.00.4% 100.000 Above Rs.9% 3.7%) have expected count less than 5. Approx.000.000 Rs. Tb a Std.888 8 .7% 14.0% 54. 7. 10.6% 85.Rs.0% Annual Income Below Rs.003 Likelihood Ratio 28. 3. 5.0% 100. Sig.Rs 5.7% 8. (2-sided) a Pearson Chi-Square 23. 3. Kharghar .03.00.000 Rs. Error .0% 100.000.2% Total 100.0% 91.015 Page 125 ITM Business School.0% 100.00. The minimum expected count is .000 Total Chi-Square Tests Asymp.3% 100.00. 13 cells (86.000 a.8% 41.00.3% 71.00.000 Rs. 10.0% 100.516 8 .

Kharghar Page 126 .072 6.776 .616 ITM Business School.Investment Avenues for an Indian Investor and Security Analysis Ordinal by Ordinal Spearman Correlation .

973 16 .0% 100.000 Rs.0% 36.00. Sig. 10.00014.00042.0% 100.9% 14.0% Value df Asymp.4% 100.144 a.00. (2-sided) Pearson Chi-Square 19.00.247a 16 .0% 10.00.000 Annual Rs. Kharghar Page 127 .1% 36.3% 14.4% Rs.0% Chi-Square Tests Total Others 100.256 Likelihood Ratio 21.000 Total 16. 24 cells (96.0009.3% 10.3% 71.00. 100.0% 13. 3.00.7% 53.0% 100.3% 28.Investment Avenues for an Indian Investor and Security Analysis Annual Income * Investment Objective Cross tabulation % within Annual Income Investment Objective Income and Long.00.3% 100.0% 3. 7.07.000 Above Rs.6% 14. ITM Business School. 5.4% 18.Growth shortCapital term and term Preservation Growth Income Growth Below Rs.000 Rs. 100.0%) have expected count less than 5.7% 6. The minimum expected count is .3% Income Rs 7.2% Rs 5.00.

0%) have expected count less than 5.4% 14.00. 10.0% Value df Asymp.0% 8.000 Rs.00028.00. The minimum expected count is .3% Rs.780 16 .00.Investment Avenues for an Indian Investor and Security Analysis Annual Income * Investment Purpose Crosstabulation % within Annual Income Investment Purpose Wealth Tax Earn Future Expenses/ Creation Saving Returns Retirement saving Below Rs.0% 10. Sig.0% 50.000 Total 29. 7.3% Rs 5.000 Rs. (2-sided) a Pearson Chi-Square 21.0% 14.0% 3.0% 100.7% 50.0% 100.3% 14.161 Likelihood Ratio 25.000 Annual Rs. 24 cells (96.00071.00.0% 100. 100.00.03. 5.057 a. 3.480 16 .4% 41.6% 14. ITM Business School.000 Above Rs.0% 19.3% 42.00.0% 3.2% 100.9% 6.3% 100.00041.00.00. Kharghar Page 128 .5% Chi-Square Tests Total Other 100. 50.9% Income Rs 7.

6% 28.000-Rs 7. 3.00.0% 100.0% 100.987 8 .527 .00.00.086 8 .0% Annual Rs.000 42.0% 50.0% 100.6% Income Rs.360 Annual Income * Factors Considered Before Investing Cross tabulation % within Annual Income Factors Considered Before Investing ITM Business School.125 3.00.000 100.6% 71.000. 10.4% Above Rs. The minimum expected count is .0% 100. 10. 15 cells (100.000 28.220 .0% 20.Investment Avenues for an Indian Investor and Security Analysis Annual Income * Investment Growth Rate Cross tabulation % within Annual Income Investment Growth Rate At an Average Steadily Rapid growth Rate Below Rs.030 a. Sig.7% 34.Rs.000 100. Symmetric Measures Value Interval by Interval Ordinal by Ordinal Pearson's R Spearman Correlation .00. Kharghar Total Page 129 . Tb Errora .000. 7.0% Value df Asymp.0%) have expected count less than 5.080 Likelihood Ratio 16.Rs 5.8% Chi-Square Tests Total 100. Std. 5. Approx.107 3.00.543 Asymp.00.21.0% Rs.00.000 30. (2-sided) a Pearson Chi-Square 14. 3.5% 44.0% 100.0% Total 20.9% 28.

4% 100.00.0% 100. Annual Income * Period of Investment Cross tabulation % within Annual Income Period of Investment ITM Business School.6% 100.9% 48. 19 cells (95.150 Likelihood Ratio 21.00.001a 12 .0% 12.000 Rs.4% Value df Asymp.9% 12.00.187 12 .000 Annual Rs.3% 8.0% 100.13. 3. Sig.000Rs.8% 100.000Income Rs 7.0% 100. The minimum expected count is . a. 7.000Rs 5.0% 25.Investment Avenues for an Indian Investor and Security Analysis Safety of Principal Below Rs.0% 28.000 Above Rs.0%) have expected count less than Total Chi-Square Tests Low Risk High Returns 100. 5.0% 14.3% 28.9% 71.3% 14.7% 42.00.6% 16. (2-sided) Pearson Chi-Square 17.0% Maturity Period 100. 10.000 Rs.0% 25. 10.0% 50. Kharghar Total Page 130 .

0% 100.Rs.764 8 .6% 14.7% 17.0% 25. Sig. Annual Income * How often monitor Investment? Annual Below Rs.3%) have expected count less than 5.00.000 Rs.000 Above Rs.00. 3.Rs 5.0% 100.17.0% 34.5% Mediumterm (15yrs) 100. Kharghar .3% 42. 14 cells ( 50.000 Total Chi-Square Tests 27.649 8 .363 Likelihood Ratio 9. 10. The minimum expected count is .0% Total 100.00.0% 100.000 Rs.00.0% Page 131 ITM Business School.0% 48.000 How often monitor Investment? Daily Monthly Occasionally 100.0% 100.000 Rs. 3.3% Long-term (>5yrs) 100.291 a.3% 75.3% 33.0% 63.00.Investment Avenues for an Indian Investor and Security Analysis Short-term (0-1yrs) Annual Income Below Rs. 10.000-Rs 7.00. 5.00.0% 100. (2-sided) a Pearson Chi-Square 8. 7.9% 16. 3.00.1% 42.0% 9.2% Value df Asymp.00.

Annual Income * Reaction to share Market Drop Crosstabulation Reaction to share Market Drop Total Withdraw Wait to Invest more your money increase in it ITM Business School.000.235 Likelihood Ratio 11.1% 100.07.000-Rs 7.000 30.Rs.0% Value df Asymp.0% 7.445 8 .194 a. 10.138 8 .000.Investment Avenues for an Indian Investor and Security Analysis Income Rs.0% 100.00.0% 100.1% 70.00.0% 100. 3.0% 100. 5.00.00. The minimum expected count is . 7.6% 100.Rs 5. (2-sided) a Pearson Chi-Square 10.6% Total Chi-Square Tests 14.0% 100.000 Rs.3% 28. 10.000 Rs.000 Above Rs.0% 14. 13 cells (86. Kharghar Page 132 .00. Sig.0% 78.7%) have expected count less than 5.

000 Rs.Investment Avenues for an Indian Investor and Security Analysis Annual Income Below Rs.0% 36.00. 50.0% 40.0% 100.0% 100.0% 100.898 8 .000 Above Rs.0% 100.000. Kharghar Total Page 133 .0% 100.Rs.160 Likelihood Ratio 13.00.0% 14.Rs 5.3% 33.0% 100.000 Rs.00.000 Rs. 7.000 28.1% 14.00.3% 28. 15 cells (100.00.0% 57.3% 50. Sig.0% 100.812a 8 .6% 57. The minimum expected count is . 10.0% Value df Asymp.000-Rs 7. 5. 3.6% 66. Annual Income * Preferred Investment Sector Cross tabulation Prefered Investment Sector Private Government Public ITM Business School.00.000. (2-sided) Pearson Chi-Square 11.0%) have expected count less than 5.084 a.1% Total Chi-Square Tests 24. 10.

10.104 a.000-Rs 7.236 8 .Rs.000 Rs.304 Likelihood Ratio 13.00. Mkt Prof/Fin.7% 42. (2-sided) a Pearson Chi-Square 9. 3.7% 57.00. 7.00.7% Sector 41. 10.00.469 8 .8% Value df Asymp.00.7% 100. Planners Page 134 . Annual Income * Source of Investment Advice Crosstabulation Source of Investment Advice Family Internet News News or papers Channels Friends ITM Business School.5% Sector 16.0% 100.000.9% 100. 3. 10.0% 25.00. Kharghar Total Advisors Cert.3%) have expected count less than 5.000 Above Rs. The minimum expected count is . 5.Investment Avenues for an Indian Investor and Security Analysis Annual Income Below Rs. Sig.1% 85.0% 41.000.0% 100.000 Total Chi-Square Tests Sector 100. 14 cells (93.Rs 5.0% 100.00.7% 14.000 Rs.0% 100.0% 100.3% 9.00.000 Rs.0% 64.

000 Rs.7% 28.0% 41. 7.1% 19. 5.6% 14. 35 cells (100.121 Likelihood Ratio 34.4% 25.0%) have expected count less than 5.000 Rs.0% 3.0% 16.00.0% 100.000Rs 7.00.000 Above Rs.00.000Rs 5. Kharghar Page 135 .000Rs. 10. (2-sided) Pearson Chi-Square 32. Findings  60% of the population across all age group considers itself as beginner or moderately experience in investing in the share.00.2% 100.0% 100.3% 50.03.6% 14.00.000 100. 3.Investment Avenues for an Indian Investor and Security Analysis Annual Income Below Rs.6% 25.000 Rs.7% 16.00.0% 16.9% 28.0% Total Chi-Square Tests Value df Asymp. 10.3% 42.1% 25. ITM Business School.0% 100. Sig. 3.8% 28. And over 24% believe in investing within the public sector. believes the private sector is more suited for their investment needs and objective. The minimum expected count is .0% 100.00.9% 25.3% 42.1% 16.371 24 .00.  Over 65% of the population among various age group as well as income groups.255a 24 .0% 8.0% 100.078 a.

 Moreover.  Less than 25% population considers withdrawing investment in case of a market drop irrespective of age groups or income groups. Nearly 45. Higher age group expects higher growth.  There is no practical training to this study as it is not possible without considerable risk on the monetary front. which tends to increase with higher age groups.  55% of population does not invest more that 15% in the share market. study of investor’s behavior and perception needs more data collection through other marketing methods such as interview along with survey. The estimated figures mention in order to understand an industry and the Indian economy have reliability and trust of the issuing agency and cannot be considered for any actually financial decisions of any sort. hence has a higher risk appetite. Over 40% expect higher returns from their investment in higher income category.Investment Avenues for an Indian Investor and Security Analysis  With increasing age as well as income category. This research is only done with people who actively invest into the market and does not cover people who don’t invest. Kharghar Page 136 .  Increased income tends to show increased risk appetite. ITM Business School.  Financial status changes even more rapidly than technology.5% aim for higher returns and 27. Nearly 40% expect returns from the market.7% consider the maturity period before investing.  The same was observed with growth expectations. Limitation of the project  Study of financial market is a wide and deep making time a major constraint for this project. Although higher income group show up to 30% investment preference. it is observed that investment objective change from tax saving to earning return and eventually balancing with wealth creation. And period consider for staying invested is between 1-5 years.  Population in the age group of 20-30 years relies on Internet for it investment advice while this shifts toward newspaper and news channels which above 30 years age groups. Hence the data of this project report is from the experiences and knowledge of the experts in the field.

Link: http://insurance. Link: http://www.com  Website on Technical analysis and chart creation.zignals.in  Corporate Website of Aditya Birla Group.com  Book ‘ Investment Analysis and Portfolio Management’ By P.in  Website for Fundamental analysis. Link: http://www.Investment Avenues for an Indian Investor and Security Analysis Bibliography  Website of Investment Commission of India.com  Corporate Website of Birla Sun Life Insurance Company.com  Strategies on technical analysis and understanding charts. Link: http://www.adityabirla. Chandra  Book ‘Security Analysis and Portfolio Management’ By Sudhindra Bhat  Newspaper ‘ Economic Times’ ITM Business School.stockcharts.org.rbi. Link: http://www.birlasunlife.equitymaster.investmentcommission.com  Official Website of Reserve Bank of India. Kharghar Page 137 . Link: http://www. Link: http://dbie.

Kharghar Page 138 . What are your savings objectives? • Children’s Education • Retirement • Home Purchase • Children’s Marriage • Healthcare ITM Business School. Traditional Investment Avenues: • Real Estate (property). Are you aware of the following saving/investment avenues? (Tick which ever applicable in the boxes). • Gold/Silver Safe/Low Risk Investment Avenues: • Savings Account • Bank Fixed Deposits • Public Provident Fund • National Savings Certificates • Post Office Savings • Government Securities Moderate Risk Investment Avenues: • Mutual Funds • Life Insurance • Debentures • Bonds High Risk Investment Avenues: • Equity Share Market • Commodity Market • FOREX Market 2. In which sector do you prefer to invest your money? • Private Sector • Government Sector • Public Sector • Foreign Sector 4. What do you think are the best options for investing your money or what you have mostly invested into? (Choose from the list)(Rank in the order of preference) • Savings Account • Debentures • Bank Fixed Deposits • Bonds • Public Provident Fund • Equity Share Market • National Savings • Commodity Market Certificates • Post Office Savings • FOREX Market • Government Securities • Real Estate (property). • Mutual Funds • Gold/Silver • Life Insurance 3.Investment Avenues for an Indian Investor and Security Analysis Appendix I Investor Behavior Questionnaire 1.

At which rate do you want your investment to grow? • Steadily • At an Average Rate • Rapid growth 11. Do you invest your money in share market? (through a DEMAT A/C. or Broker) • Yes • No If yes: Imagine that stock market drops after you invest in it then what will you do? • Withdraw your money Page 139 ITM Business School. What is the purpose behind investment? • Wealth Creation • Tax Saving • Earn Returns • Future Expenses/Retirement saving • Other____________________________ 10. Which factor do you consider before investing? • Safety of Principal • Low Risk • High Returns • Maturity Period 12. Do you have a formal budget for family expenditure? • Yes • No 7. What is your investment objective? • Income and Capital Preservation • Long-term Growth • Growth and Income • short-term Growth • Others__________________________ 9. Kharghar . Have you set aside funds specifically for the education and marriage of your children? Education: Marriage • Yes • No • Yes • No 6.Investment Avenues for an Indian Investor and Security Analysis • Others________________________ 5. Do you have a savings and investment target amount you aim for each year? • Yes • No If yes: Approximate Amount range___________________________________ 8.

Can you take the risk of losing your principal investment amount? • Yes • No If yes: What percentage ________________________ 17. Kharghar Page 140 . What is the time period you prefer to invest? • Short-term (0-1yrs) • Medium-term (1-5yrs) • Long-term (>5yrs) 16. What is your source of investment advice? • Newspapers • News Channels • Family or Friends • Books • Internet • Magazines • Advisors • Certified Market Professional/Financial Planners ITM Business School.Investment Avenues for an Indian Investor and Security Analysis • Wait to increase • Invest more in it 13. How often do you monitor your investment? • Daily • Monthly • Occasionally 14. What percentage of your income do you invest? • 0-15% • 15-30% • 30-50% 15.

3. chit funds. • Above Rs. 10.000-Rs 7.00.00. these details will not be revealed to any third party) Name: ______________________________________________ Designation : _________________________________________ Organization : ________________________________________ Age Group: • Below 20 • Between 20-30 • Between 30-40 Qualification: • Under Graduate • Graduate • Between 40-50 • Between 50-60 • Above 60 • Post Graduate • Other: _____________________ Occupation (what category do you come under): • Salaried • Student • Business • Housewife • Retired • Other: ______________________________________________ Annual income: • Below Rs.Rs 5. 7. 10.00. 3.000 • Rs.Personal Details (Personal details are kept highly confidential.Rs. options and futures) Date: Signature: .00. post office) • Knowledgeable (has bought or sold individual shares of stock or bonds) • Experienced (frequently trade in stocks.000 What best describes your investment experience? • Beginning (no investment experience) • Moderate (comfortable with fixed deposits.00. 5.000 • Rs.000 • Rs.00. commodities.

Sign up to vote on this title
UsefulNot useful

Master Your Semester with Scribd & The New York Times

Special offer for students: Only $4.99/month.

Master Your Semester with a Special Offer from Scribd & The New York Times

Cancel anytime.