A PROJECT REPORT ON CAPITAL MARKET WHAT LIES AHEAD?

UNDERTAKEN AT INDIA INFOLINE SECURITIES PVT. LTD

SUBMITTE BY RAJESH N RAJ (06MBA47)

SUBMITTED TO Mr. PRASHANT JOSHI MBA (2006-08)

SHRIMAD RAJCHANDRA INSTITUTE OF MANAGEMENT AND COMPUTER APPLICATION

1.0 INTRODUCTION
Every business unit needs money to finance its activities. The money is invested in physical resources, i.e. land and building, machines and equipment, stock of raw material, etc., which are used by the enterprise in production. All these resources together constitute capital. Capital is often defined as wealth used in the production of further wealth.

INTRODUCTION TO CAPITAL MARKET

Capital Market is the backbone of any countrys economy. It facilitates conversion of savings to investment. In India the common investors participating in the equity market is massive. The number of companies offering equity through primary markets increased continuously in the post independence period. The capital market is actually reflecting what is happening in the economy and what is expected to happen in the next few years.

2.0 RESEARCH METHODOLOGY

2.1 OBJECTIVES OF STUDY
1. To enhance the knowledge of the investors. 2. To devised investment strategies to investors this allows them to apply concepts & skills using equities. 3. To provide the information to the prospective investors about the auto companies of auto segment. 4.To understand the relation between stock market and Indian economy in comparison with the worlds countries.

2.2 BENEFITS OF THE STUDY

The Study mainly emphasizes awareness and understanding of simple investment strategies. Various tests and forecasting techniques help a participant in applying various concepts and skills so as to diversify and thus minimize risk and simultaneously earn maximum & stable profits. The Study Helps 1. Understanding the role of the stock market. 2. Understanding the Indias Strength in the World of Capital Market. 3. Facilitating Large Investments 4. Understanding the Importance of Information in the Practical World of Stocks.

2.3 METHOD OF ANALYSIS

Fundamental Analysis.

2.4 LITERATURE REVIEW

Secondary Data Industry Reports Internet Library

3.0 INDIAN CAPITAL MARKET SCENARIO

Date 1876 27 Jun 1969 Jan 1983 2 Jan Event Birth of Bombay Stock Exchange (BSE). Notification issued by government under SC(R)A

prohibiting forward or futures trading. Regulatory permissions obtained for badla trading, a mechanism to carry forward positions. Computation of BSE sensitive index commenced.

1986 12 Apr 1988 1992 30 Jun 1994 3 Nov 1994 13 Dec 1994 25 Jan 1995 14 Mar

SEBI created. Fixed income and equity markets scandal. Start of electronic debt trading at National Stock Exchange (NSE). Start of electronic equity trading at NSE. Ban on badla. SC(R)A amended to lift the ban on options trading. Start of electronic trading on a few stocks at BSE.

1995 3 Jul 1995 Electronic trading of all stocks on BSE. 5 Oct Ban on badla reversed. 1995 Apr 1996 8 Nov 1996 1999 12 Jun 2000 4 Jun National Securities Clearing Corporation (NSCC)

commenced operations. National Securities Depository Ltd (NSDL) commenced operations. Securities law modified to enable derivatives trading. Start of equity index futures trading. Start of equity index options trading.

2001 2 Jul 2001 Major stocks moved to rolling settlement; start of stock options market.

3.1 CAPITAL MARKET AND INDIAN ECONOMY

A basic measure of the economy is Gross Domestic Product (GDP). It is a measure of the economic health and strength of the economy. Indias GDP growth forecast for 2006 is next only to China. A 9.31% growth forecast will strengthen the equity market of India quite substantially.

COMPARISON OF INFRASTRUCTURE SPENDING OF LAST SIX YEAR Government too has lined up major infrastructure projects like the golden quadrilateral, new power plants, airports, ports etc. The total investment in the country is to increase from $ 120 billion (Rs. 5, 28, 000 crores) in 2004 to $ 208 billion (Rs. 9, 15, 200 crores) by 2007. Government too has lined up major infrastructure projects like the golden quadrilateral, new power plants, airports, ports etc. The total investment in the country is to increase from $ 120 billion (Rs. 5, 28, 000 crores) in 2004 to $ 208 billion (Rs. 9, 15, 200 crores) by 2007.

3.3 PROBLEMS IN INDIAN CAPITAL MARKET

-Lack of Knowledge & Tendency -Absence of Genuine Investors -Presence of Price-Rigging -Prevalence of Insider Trading -High Volatility of Stock Market -Dominance of Financial Institutions -FIIs Control over the Market

4.0 GLOBAL SCENARIO

INTERNATIONAL COMPARISON (End December 2006)
Particulars USA No. of 7,651 listed Companie s UK 1945 Japan 2,470 Germany 933 Singapore Hongkong China 355 695 950 India 9,871

Market Cap. ($mn) Market Cap.Ratio Turnover ($mn) Turnover Ratio (%)

16,635114, 2,933,280 4,546,937 1,432,190 198,407 210 232 111 66 208

609,090 385 244,886 51

330,703 280,619 36 85

18,574,100 1,377,859 1,849,228 1,357,841 97,985 124 52 53 108 67

377,099 486,360 134.2 245

4.1 INDIAN STOCK MARKET AND GLOBALIZATION

Indian Stock market has witnessed drastic changes during the past decade due to the broad stock market liberalization measures. Dematerialization of shares and setting up clearing houses has virtually eliminated the risks involved in trading. Similarly rapid strides were made in settlement procedures, corporate governance standards, introduction of derivative products etc.

GLOBAL INVESTMENT
India embarked on economic reforms to transform the controlled economy into market driven one. This included the financial liberalization strategies like dismantling of capital controls, reforms in trade and investment policies and so on to integrate the Indian Financial Markets with the global financial markets. All these reforms opened the floodgates to foreign capital flows into the country. The total net capital flows have risen to US $ 12.1 billion in 2005-06 from US $ 7.1 billion in 1990-91.

COMPOSITION OF CAPITAL FLOWS TO INDIA

(US $ Million)

Debt FDI Year Total net Capital flow Flow as a % of TCF 1990-91 1999-00 2000-01 2006-07 7056 10444 10018 12638 1.4 20.7 40.2 36.9 Portfolio Equity flows As a % of TCF 0.1 29.0 27.6 7.7 Creatin g Flows as a % of TCF 83.3 23.1 59.4 -6.6 15.2 27.2 -27.2 62.0 Others* As a % of TCF

FII INVESTMENT IN INDIA

(US $ million) Total Year 199293 199900 200001 200102 200607 Portfolio flows 244 3026 2760 2021 979 FII Investmen t 1 2135 1847 1505 377 GDRs / ADRs* 240 768 831 477 600 Offshor e funds 3 123 82 39 2

The portfolio flows have been one of the major forces that have changed the quantum and nature of international capital flows to India. Portfolio flows include the investment in ADRs /GDRs and offshore funds in addition to investment by Foreign Institutional Investors (FIIs). Foreign

portfolio investments have been allowed in India on the basis of the recommendations of the Narasimham committee.

TRENDS IN FII INVESTMENT

Period Gross Purchase s (Rs.crore) 1994 1996 1998 2000 2004 2007 7631 15554 16115 74051 47060 144858 Gross Sales (Rs.cror e) 2835 6979 17699 64116 44371 99094 Net Investme nt (Rs.crore) 4796 8575 -1584 9934 2689 45765 Net Investme nt** (US $million) 1528 2432 -386 2160 562 9949 Cumulative Net Investment ** (US $million) 3167 7634 8898 13396 15804 25754

The FIIs have been the largest shareholder in Housing Development Finance Corporation and followed by the others: Housing Development Finance Corporation Satyam Computer Services ICICI Bank SB&T International Infosys Technologies Zee Telefilms 64.26% 53.90% 45.24% 40.34% 39.61% 38.96%

5.0 EFFICIENT MARKET HYPOTHESIS

A market is efficient with respect to a particular set of information if it is impossible to make abnormal profits (other than by chance) by using this set of information to formulate buying and selling decisions. In an efficient market, investors should expect to make normal profits by earning a normal rate of return on their investments. However, most individuals who buy and sell securities do so under the assumption that the securities they are buying are worth more than the price they are paying, while securities that they are selling are worth less than the selling price.

Three Important Classifications of EMH

(a) Weak Form (b) Semi Strong Form (c) Strong Form

5.1 TESTING THE EMH

To determine if markets actually are perfectly efficient, reasonably efficient or not efficient at all, there are multitude of methodologies available, of which following three stand out:(A)Event Studies (B) Looking for Patterns (C) Examining Performance

6.0 INDIAN AUTOMOBILE INDUSTRY

The Indian two-wheeler Industry is one of the largest in the world, and is expected to maintain robust growth in the future India offers a distinct technological and cost-competitive advantage, which global Original Equipment Manufacturers (OEMs) and automotive suppliers are leveraging for both manufacturing and research facilities

BENEFIT FOR INDIA Competitive Cost Advantage

The Indian automotive industry has a significant labor cost advantage. Indias automotive sector has the worlds second largest pool of skilled labor. The country with its high education levels also provides the worlds largest pool of qualified engineers.

Attracted Segment

Numerous

Players

in

the

Passenger

Car

The early 1990s witnessed several reforms initiated by the Indian Government aimed at encouraging private and foreign investment through delicensing, government-decontrol and deregulation of various sectors of the economy. In June 1993, a new automobile policy was formulated allowing foreign investment in the automobile sector, abolition of licenses and a reduction in duties across the board to enable the sector to become globally competitive. This resulted in several new players entering the Indian automobile industry, including General Motors, Ford, Hyundai, Honda, and several others.

Two-Wheelers Market, One of the Largest in the World and Still Growing
India represents one of the largest two-wheeler markets in the world, with an estimated size of 5.4 million units a year. Two-wheelers are used extensively in the country, both at the rural and semi-urban level. India is the two-wheeler capital of Asia with an average of 27 twowheelers per thousand people, compared to Chinas 8 two-wheelers per thousand people .

6.1 BAJAJ AUTO

-Company Description -Key Investment Arguments -Key Investment Risks -Recent Developments -Sector View

Volume Growth: Riding on Motorcycles

In 4QFY07, motorcycles continued to lead the growth. Overall volumes grew by 22% YoY, led by a 51% growth in motorcycle. Three wheelers witnessed the second consecutive quarter of de-growth, with sales dropping 11% YoY. Exports grew by 38% YoY, once again led by a 64% growth in motorcycles.

6.2 MAHINDRA & MAHINDRA

-Company Description -Key Investment Arguments -Key Investment Risks -Recent Developments -Sector View

M&Ms net revenues increased 27% YoY to Rs 19.1b in 4QFY07 on the back of 19% volume growth. Tractors, UVs, and three-wheelers witnessed 12%, 17% and 35% YoY growth, respectively. LCVs saw a 6% decline over the same period. Net realization increased 5.5% on a YoY basis.

Strong Performance in FY07:

M&Ms net revenues increased 34% YoY to Rs 66.6b in FY07 on the back of a 26% volume growth. Tractors, UVs, three wheelers and LCVs

witnessed 32%, 23%, 13% and 32% YoY growth, respectively. Net realizations increased 9% YoY. EBITDA margin expanded 60bp to 11.6% driven by strong cost management, robust volume growth and savings in staff and other expenses. M&M witnessed margin expansion of 280bp over FY05-07 due to a 26% CAGR in volumes. We expect margins to expand by 60bp in FY08 on the back of a 15% volume growth.

7.0 RECOMMENDATION
1. Focus on Companies not on Stocks 2. Be Careful with the Power of the Market 3. Know Your Time Limit 4. Avoid Big Mistakes and Losses 5. Get the Proper Information 6. Recognize Your Limitations 7. Be Different 8. Investor should invest in Bajaj Auto Company based on performance.

CONCLUSION
After the few years the India become the larger force in the world economy. The growth of the Indian economy is become the high which leads to the higher returns in the capital market. Indias constantly increasing growth attracting the FIIs interest in the Indian markets. There will be more and more capital flow from the developed countries in India through FIIs and FDI.

India becomes the very powerful in the automobile sector because of the high growth in the automobile sector. From the suggestion the investors should be very cautious in terms of investing the money.

BIBLIOGRAPHY
REFERENCE BOOKS 1. Cooper & Schindler RESEARCH METHODOLOFY Tata McGraw Hill, Eighth Edition. 2. I.M.Pandey FINANCIAL MANAGEMENT Vikas Publications, Ninth Edition. 3. V. K. Bhalla, INVESTMENT MANAGEMENT Seventh Edision.

WEB SITES www.nseindia.com www.bseindia.com www.indinfoline.com www.moneycontrol.com www.business-standard.com www.rbi.org www.sebi.org