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Stock exchange is an organized market place where securities are traded. These securities are issued by the government, semi-government bodies, public sector undertakings and companies for borrowing funds and raising resources. Securities are defined as any monetary claims (promissory notes or I.O.U) and also include shares, debentures, bonds and etc., if these securities are marketable as in the case of the government stock, they are transferable by endorsement and alike movable property. They are tradable on the stock exchange. So are the case shares of companies. Under the Securities Contract Regulation Act of 1956, securities trading is regulated by the Central Government and such trading can take place only in stock exchanges recognized by the government under this Act. As referred to earlier there are at present 23 such recognized stock exchanges in India. Of these, major stock exchanges, like Bombay Stock Exchange National Stock Exchange, Calcutta, Delhi, Chennai, Hyderabad and Bangalore etc. are permanently recognized while a few are temporarily recognized. The above act has also laid down that trading in approved contract should be done through registered members of the exchange. As per the rules made under the above act, trading in securities permitted to be traded would be in the normal trading hours (10 A.M to 3.30 P.M) on working days in the trading ring, as specified for trading purpose. Contracts approved to be traded are the following: A. Spot delivery deals are for deliveries of shares on the same day or the next day as the payment is made.

B. Hand deliveries deals for delivering shares within a period of 7 to 14 days from the date of contract. Delivery through clearing for delivering shares with in a period of two months from the date of the contract, which is now reduce to 15 days.(Reduced to 2 days in demat trading) C. Special Delivery deals for delivering of shares for specified longer periods as may be approved by the governing board of the stock exchange. Except in those deals meant for delivery on spot basis, all the rest are to be put through by the registered brokers of a stock exchange. The securities contracts (Regulation) rules of 1957 laid down the condition for such trading, the trading hours, rules of trading, settlement of disputes, etc. as between the members and of the members with reference to their clients.


1) To study on fundamental and technical analyses of a company. 2) To study the various theories of technical analysis and fundamental Analysis for various stocks that chosen. 3) To understand the movement and performance of stocks to take decision to invest. 3) To understanding and analyzing the factors that affect the movement of stock prices in the Indian Stock Markets Sample Design Data collection methods include the various methods used by the researcher in his project.


1) To understand the movement and performance of stocks to take decision to invest.

2) To understanding and analyzing the factors that affect the movement of stock prices in the Indian Stock Markets Sample Design Data collection methods include the various methods used by the researcher in his project.


The scope of study was limited due to some constraints given below:-

1. Analysis is only a means not an end. The analysis has been done on the basis of my own interpretations and up to my best knowledge but every analyst have his or her own interpretations and suggestions.

2. It does not take into consideration the time taken for the completion of the jobs. 3. The non-monetary factors are not taken into consideration for the analysis.

The sample of the stocks for the purpose of collecting secondary data has been selected on the basis of Random Sampling. The stocks are chosen in an unbiased manner and each stock is chosen independent of the other stocks chosen. Data can be classified into Primary source through conversation with the Relationship, Head and the staff of the branch of Share Khan Ltd. Secondary source. Annual Reports of selected stocks- Financial Statements - Internet Steps for Analysis Selection - It involves selection of information relevant to the purpose of analysis. Classification It involves methodological classification of the data. Interpretation It includes drawing of inferences and conclusion.


The scope of study was limited due to some constraints given below:1. Analysis is only a means not an end. The analysis has been done on the basis of my own interpretations and up to my best knowledge but every analyst have his or her own interpretations and suggestions. 2. It does not take into consideration the time taken for the completion of the jobs. 3. The non-monetary factors are not taken into consideration for the analysis. 5. No personal contacts with stakeholders of companies also a limitation for analyzing the project.

6. Error due to some oversight or misinterpretation.

Prices of the securities in the stock market fluctuate daily on the account of continuous buying and selling. Stock prices move in trends and cycles and are never stable. An investor in the stock market is interested in buying securities at low price and selling them at high price so as to get a good return on his investment made. He therefore tries to analyse the movement of share prices in the market. Two approaches are commonly used for this purpose. Fundamental analysis wherein the analyst tries to determine the intrinsic value of the share based on the current and future earning capacity of the company. Technical analysis is an alternative approach to the study of stock price behavior

The primary motive of buying a share is to sell it subsequently at a higher price. In many cases, dividends are expected. Thus, dividends and price changes constitute the return from investing in shares. Consequently, an investor would be interested to know the dividend to be paid on the share in future and also the share price in the future. These values can only be estimated but not predicted. These values are primarily determined by the performance of the company which in turn is influenced by the performance of the industry to which it belongs and the general economic conditions. An investor who would like to be rational and scientific in the investment activity has to evaluate lot of information about the past and future performances of the companies, industries and the economy as a whole before taking any investment decision. Such evaluation or analysis called fundamental analysis.

Fundamental analysis is a logical and systematic approach to estimate the future dividends and share price. In other words, it is a detailed analysis of fundamental factors affecting the performance of the company. Hence, Economy fundamentals, Industry fundamentals Company fundamentals have to be analysed before any investment.

Investment decision:
Each share is assumed to have an economic worth on its present and future earning capacity. This is called its intrinsic value. Fundamental analysis is

to evaluate the present and future value of the share based on the economy, industry and company fundamentals and there by assess the intrinsic value of the share. The investor shall compare the Intrinsic Value (IV) of the share with the prevailing Market Price (MP) to arrive at investment decision.

If MP is lower than IV : The investor would decide to buy the share as it is

underpriced expecting to move up in the future to match with its intrinsic value.

If MP is greater than IV: The investor would decide to sell the share as it is
overpriced expecting to come down in future.

EIC framework of analysis:

Fundamental analysis insists that investing decision shall not be taken on the basis of tips and rumours. Rather, it calls upon the investors to make his decision only after the detailed analysis of the economic factors in which the company functions, the industry to which they belong and finally companies own performance. For this purpose fundamentalist makes use of EIC framework. These can be viewed as different stages in Investment decision- making process and can be depicted diagrammatically.


EIC Framework The logic of this three tier analysis is that the company performance depends not only on its own performance but also the industry to which it belongs and the economic environment in which this industry operates. The maltitude of factors affecting the performance of a company can be broadly classified as

1. Economy-wide-factors: Growth rate, inflation, interest rate, foreign exchange rate, etc which affects all companies.

2. Industry-wide-factors: Demand-Supply gap in the industry, the


Emergence of substitute products, changes in government policy Relation to the industry, etc., these factors affect only those Companies belonging to a specific industry.

3. Company-specific-factors:Ageof its plant, the quality of management, Brand image of its products, its labour-management relations, etc., these factors are likely to make the company performance quite Different from that of its competitors in the same industry.

Economy Analysis
The performance of the company depends on the performance of the economy. If the economy grows rapidly, the industry can expected to show the rapid growth and vice-verse. When the level of economic activity is low, stock prices are low and when the level of economic activity is high stock prices are high reflecting the prosperous outlook foe sales and profits of the firms. Investors are concerned with those variables in the economy which affect the performance of the company in which they intent to invest. A study of these variables shall give a idea about future corporate earnings and the payment of dividends and interest to investors.

Some of the key economic variables that an investor must monitor as part of his fundamental analysis are presented below: Growth rate of national income Inflation Interest rates


Government revenue, expenditure and deficits Exchange rates Infrastructure Monsoon Other factors

1. Growth rate of the national income: Growth rate of GNP, NNP and GDP indicates the growth rate of the national economy which an investor must considered. The estimated growth rate of national economy would be a pointer towards the prosperity of the economy. The estimates of GNP, NNP and GDP and their growth rates are made available by the government from time to time. An economy passes through different phases of prosperity known as the different stages of economic or business cycle. The four stages are as follows: Depression: Demand is low and declining. Inflation and interest rates are high due to which companies are forced to shut down the Production and lay off workers. Recovery: Demand picks up leading to more investments and increase in Production, Employment and profits. Boom: High demand, investments and production are maintained at high level to satisfy the high demand. Companies generally post higher profits. Recession: boom stage gradually declines and economy begins to experience a down turn in demand, production, employment, etc., in


turn there is a decline in profits. While analyzing the growth rate of the economy, an investor would do well to determine the stage of the economic cycle through which the economies is passing and evaluate its impact on his investment decision. 2. Inflation: Inflation prevailing in the economy has considerable impact on the performance of companies. Higher rates of inflation upset business plans, leading to cost escalation and results in a squeeze on profit margins. On the other hand it also leads to erosion of purchasing power in the hands of consumers which in turn results in decline in demand affecting the production. Industries and companies prosper during the times of low inflation. Inflation can be measured in Wholesale price index (in terms of wholesale prices) and consumer price index (in terms of retail prices). These figures are available on monthly or weekly basis. As part of fundamental analysis, an investor should evaluate the inflation rate prevailing in the economy currently as also the trend of inflation likely to prevail in the future.

3. Interest rates: Interest rates determine the cost and availability of credit for companies operating in an economy. A low interest rate stimulates the investment by making credit available easily and cheaply implies a lower cost of production resulting


huge profits and high demand. But high interest rate implies a higher cost of production resulting loess profits and demand. The interest rates in organized financial sector of the economy are determined by the monetary policy of the government and trends in money supply these rates are controlled and vary within certain ranges. But the interest rates in an unorganized financial sector are not controlled and may fluctuate widely depending upon demand and supply of funds. An investor has to consider the interest rate prevailing in the different segments of the economy and evaluate their impact on the performance and profitability of the companies.

4. Government Revenue, Expenditure and Deficit: The budget document contains the detailed information on each item of government expenditure and revenue and resulting deficit. When government expenditure exceeds its revenue there occurs a deficit known as budget deficit. All developing countries suffer from budget deficit as government spends large amounts of money to build up infrastructure. An investor has to evaluate these carefully assess their impact on his investment.

5. Exchange rates: The exchange rates of the rupee are influenced by the balance of trade deficit, the balance of payments deficit and also the foreign exchange reserves of the country. The excess of imports over exports is called balance of


trade deficit. The balance of payment deficit represents net difference payable on account of all transactions such as trade, services and capital transactions. If these deficits increase there is a possibility the rupee may depreciate in value. The size of foreign exchange reserve helps to increase the value of the rupee on external account. Large foreign exchange reserves help to increase the value of the rupee against other currencies. The exchange rates of the rupee against the major currencies of the world are published daily in financial press. An investor has to keep track of the trend in exchange ratio of rupee. An analysis of the balance of trade deficit, balance of payments deficit and the foreign exchange reserves will help to project the future trends in exchange rates.

6. Infrastructure: The development of an economy depends very much on infrastructure facilities. The availability of infrastructural facilities like power, transportation and communication systems affects the performance of companies. Bad infrastructure leads to inefficiencies, lower productivity, wastage and delays. An investor should assess the status of the infrastructural facilities available in the economy before finalizing his investment plans.

1. Monsoon: The Indian economy is essentially an agrarian economy. The performance of agriculture to a very great extent depends on the monsoon. The adequacy of monsoon determines the success or failure of agricultural activities in India.


Hence the progress and adequacy of monsoon becomes a matter of great concern for an investor in Indian context.


Other factors:
Demographic factors, economic and political stability, labour productivity, index of consumer expectations, new acquisition of plants and machinery by corporate, FII investments, FDI investments, Credit off takes, etc., must also be assessed by an investor before making any investment decision.

Economic forecasting:
Since, investment is a future oriented activity, the investor is more interested in the expected future performance of the over all economy and its various segments. For this purpose, economic forecasting becomes the key activity in economy analysis. For the purpose of economic analysis, an analyst should be familiar with the forecasting techniques. He should know the advantages and disadvantages of various techniques. The common techniques used are analysis of

barometric or indicator approach, anticipatory surveys, econometric model building and opportunistic model building . These techniques help him
to decide the right time to invest and the type of security he has to purchase i.e., stocks or bonds or some combinations of stocks or bonds.

Forecasting Techniques:


Economic forecasting may be carried out for short-term periods (up to three), intermediate term periods (three to five years) and long-term periods (more than five years). An investor is more concerned about short-term economic forecasts i.e., quarter to three years. Some of the short term economic forecasting is discussed below: 1. Barometric or Indicator Approach: In this approach, various types of indicators are studied to find out how the economy is likely to perform in future. These indicators are time series data of certain economic variables. These indicators are classified into Leading, Coincidental and Lagging indicators. Leading Indicators are those time series data that reach their high Points (peaks) or their low points (troughs) in advance of the high points and low points of total economic activity. Coincidental indicators reach their peaks and troughsat Approximately the same time as the economy. Lagging indicators reach their turning points after the economy has already reached its own turning points. In this method, the indicators act as barometers to indicate the future level of economic activity. However, careful examination of historical data of economic series is necessary to ascertain which economic variables have led, lagged behind or moved together with the economy. The US Department of Commerce, through its Bureau of economic analysis has prepared a short list of the different indicators. Of the three, leading


indicators are more useful for economic forecasting because they measure something that foreshadows a change in economic activity

It is useful in forecasting the direction of a change in aggregate Economic activity, but it does not indicate the magnitude or duration of the change. Leading indicators may give false signals. Different leading indicators may give conflicting signals It is useful for economic forecasting only if data collection and Presentations are done quickly. Any delay defeats the purpose.

2. Anticipatory Survey:
Anticipatory survey are the surveys of intentions of people in government, business, trade and industry regarding their construction activities, plant and machinery expenditure, level of inventory, etc. such surveys may also include the future plans of consumers regard to their spending on durables and non durables. Based on the results of these surveys, the analyst can form his own forecast of the future state of the economy.

There is no guarantee that the intentions surveyed will certainly Materialize. The forecast will be valid only to the extent the intentions are translated into action. The analyst cannot rely solely on these surveys.


3. Econometric Model Building: This is the most precise and scientific of the different forecasting techniques which apply mathematical and statistical techniques to economic theory. In the economic field we find complex interrelationships between the different economic variables. The precise relationships between the dependent and independent variables are specified in formal mathematical manner in the form of equations. The system of equations is then solved to yield a forecast that is quite precise. In applying this technique, the analyst is forced to define clearly and precisely the interrelationships between the economic variables. The accuracy of the forecast derived from this technique would depend on the validity of the assumptions made by the analyst regarding economic interrelationships and the quality of his input data.

These models are generally complex. Vast amounts of data are required to be collected and processed for the solution of the model which may cause delay in making results available and any undue delay may render the results obsolete for the purpose of forecasting. 4. Opportunistic Model Building: This is one of the most widely used forecasting techniques which are also known as GNP Model Building or Sectoral Analysis. Initially, an analyst estimates the total demand in the economy


and based on this the total income or GNP for the forecast period. This initial estimate takes into consideration the prevailing economic environment such as the existing tax rates, interest rates rate of inflation and other economic and fiscal policies of the government. After this initial forecast is arrived at, the analyst now begins building up a forecast of the GNP figure by estimating the levels of various components of GNP. For this, he collects the figures of consumption expenditure, Gross private domestic investment, government purchase of goods and services and net exports. He adds these figures together to arrive at the GNP forecast. This Approach makes use of other forecasting techniques to build up the various components. Economic Forecasting is an extremely complex and difficult process. No method is expected to give accurate results. The investor must evaluate all economic forecasts critically before making his investment decision. Conclusion: Economic analysis is an important part of fundamental analysis which gives an overall picture of the expected performance of the economy in the near future. This is a valuable input to investment decision- making

Industry Analysis


The performances of companies are influenced by the fortunes of the industry to which it belongs. At any stage in the economy, there are some industries which are fat growing while others are stagnating or declining. If an industry is growing, the companies within the industry may also be prosperous. The performance of the companies will depend among other things, upon the state of the industry to whish they belong. Industry analysis refers to an evaluation of the relative strengths and weaknesses of particular industries. An investor have to undertake an industry analysis so as to study the fundamental factors affecting the performance of different industries before investing his money in the securities of one or more companies which belongs to a particular industry.

Classification of Industry:
Industries can be classified on the basis of the business cycle. They are as follows: Growth industry: It has a special feature of high rate of earnings and growth in expansion, independent of business cycle. The expansion mainly depends on technological change. Cyclical industry: The growth and the profitability of the industry move along with the business cycle. During the boom period they enjoy growth and during depression they suffer a set back. Defensive industry: It defines the movement of the business cycle. The stocks of the defensive industry can be held by the investor for income earning purpose. They expand and earn income in the depression period too, under the government protection and are counter cyclical in


nature. Cyclical growth industry: This is the new type of industry that is cyclical and at the same time growing.


Industry Life Cycle:

Industry life cycle theory is generally attributed by Julius Grodinsky where the life of industry is segregated into four stages. This kind of segregation is extremely useful to an investor because the profitability of an industry depends upon its stage of growth. The four stages are as follows: Pioneering Stage: This is a first stage of industrial life cycle of a new industry where the technology as well as the product are relatively new and have not reached the state of perfection. Further, this stage is characterized by rapid growth in demand for the output of industry. As a result there is a great opportunity for profit. Many companies compete vigorously. Weak firms are eliminated and a lesser number of firms survive the pioneering stage. It is difficult for analyst to identify those companies that are likely to survive and come out strongly later on. Therefore, investment in companies in an industry that is in pioneering stage is highly risky. Industries in pioneering stage are called sunrise industries. Expansion Stage: Once an industry has established itself it enters the second stage of expansion or growth which includes only those companies that have survived the pioneering stage. These companies continue to become stronger and each of them finds a market for itself and develops its own strategies to sell and maintain its position in the market. The competition among the surviving companies brings about improved products at lower prices. Companies will earn increasing amounts of profits and pay attractive dividends because demand exceeds supply in this stage.


Further, companies in this stage of an industry are quite attractive for investment purposes and hence investor can get high returns at low risk. Stagnation Stage: in this stage, the growth of industry stabilizes and the ability of the industry to grow appears to have been lost. Sales may be increasing but at a slower rate than that experienced by competitive industries or by the overall economy. The industry begins to stagnate. The transition of the industry from the expansion stage to stagnation stage is often very slow. Two important reasons for this transition are Change in social habits and Development of improved technology But some times an industry may stagnate only for a short period. By the introduction of a technological innovation or a new product, it may resume a process of growth, thereby starting a new cycle. Therefore, an investor or analyst has to monitor the industry developments constantly and with diligence. An investor should dispose off his holdings in an industry which begins to pass from expansion stage to stagnation stage because what is to follow is decay of the industry Decay Stage: In this stage, the products of the industry are no longer in demand. New products and new technologies have come to the market. Customers have changed their habits, style and liking due to which the industry becomes obsolete and gradually ceases to exist. Thus, changes in technology, changes in social habits and declining demand are the causes of decay of an industry. An investor should get


out of the industry before onset of the decay stage.

The industry life cycle approach has important implications for investors because it gives an insight into the apparent merits of investment in a given industry at a given time. An industry usually exhibits Pioneering Stage Expansion Stage Stagnation Stage Decay Stage Low profitability. High profitability. Medium but Steady profitability. Declining profitability.

It is not always easy to detect which stage of development an industry is in at any point of time. The transition from one stage to next is slow and unclear. It can be detected only by careful analysis. The classification of industries under this approach is the general pattern and there can be exceptions to general pattern. The life of an industry may, for instance, be extended after the stagnation and decay stage through appropriate adaptation to changes in the environment. Careful analysis is needed to detect such exceptions.


Industry Characteristics: In an industry analysis, there are number of key Characteristics that should be considered by the analyst. These features broadly relate to the operational and structural aspects of the industry.

They have a bearing on the prospects of the industry. Some of these are as follows: 1. Demand Supply Gap Competitive Conditions in the Industry Permanence Labour Conditions Attitude of Government Supply of Raw Materials Cost Structure

Demand Supply Gap:

The demand for a product usually tends to change at a steady rate,

whereas the capacity to produce the product tends to change at irregular intervals, depending upon the installation of additional production capacity. As a result, an industry is likely to experience under supply and over supply of capacity at different times. Excess supply reduces the profitability of the industry through a decline in the unit price realization. Therefore the gap between the supply and demand in an industry is a fairly good indicator of its short term and medium term prospects. As part of industry analysis, an investor should estimate the demand supply gap in the industry.



In this age of rapid technological change, the degree of permanence of an

industry is an important consideration in industry analysis. Permanence is a phenomenon related to the products and the technology used by the industry. If an analyst or an investor feels that the need for a particular industry will vanish in a short period, or that the rapid technological changes would render the products obsolete within a short time, it would not be favourable to invest in such an industry.


Labour Conditions:
If the labour in a particular industry is rebellious and is inclined to

resort to strikes frequently, the prospects of that industry cannot become bright. Therefore, an investor must not invest in such an industry.


Attitude of Government:
The government may encourage the growth of certain industries and

can assist such industries through favourable legislation. On the contrary, the government may look with disfavour on certain other industries like alcoholic drinks and cigarette industries. The government may place different kinds of legal restrictions on its development. A prospective investor should, therefore, consider the role, the government is likely to play in the industry whether it will support the industry or will restrain the industrys development through restrictive legislation.


Supply of Raw Materials:

Some industries may have no difficulty in obtaining the major

raw materials as they may be indigenously available in plenty. Other industries


may have to depend on a few manufacturers within the country or on imports from outside the country for their raw materials supply. An investor must take into consideration the availability of raw materials and its impact on industry prospects


Cost Structure:
Another factor is the cost structure of the industry viz. the

proportion of fixed costs to variable costs. The higher the fixed cost component higher is the sales volume necessary to achieve break-even point. Conversely, the lower the proportion of fixed cost relative to variable cost, lower would be the break- even point. Lower break even point provides higher margin of safety. An analyst would consider favourably an industry that has a lower break even point

Company Analysis
Company analysis is the final stage of fundamental analysis. The economy analysis provides the investor a broad outline of the prospects of growth in the economy. The industry analysis helps the investor to select the industry in which investment would be rewarded. Now he has to decide the company in which he should invest his money which can be answered with the help of company analysis. In the company analysis the investor assimilated the several bits of information related to the company and evaluates the present and future values of the stock. The risk and return associated with the purchase of the stock is analysed to take better investment decisions. The valuation process depends upon the investors ability to elicit information from the relationship and inter-relationship


among the company related variable. The present and future values are affected by number of factors and they are given below: The Competitive Edge of the Company Earnings of the company Capital Structure Management Operating Efficiency Financial Performance Other variables

1. The Competitive Edge Of The Company: Major industries in India are composed of individual Companies. Therefore, in all industries some companies rise to the position of eminence and dominance. The large companies are successful in meeting the competition. Once the companies obtain the leadership position in the market, they seldom lose it. Over the time they would have proved their ability to withstand competition and to have a sizeable share in the market. The competitiveness of the company can be studies with the help of The market share of annual sales helps to determine a companys relative competition position within the industry. If the market share is high, it implies that the company is able to meet the competition successfully. An investor, while analysing, must also consider the size of the company because the smaller companies may find it difficult to survive in the future. The leading companies of todays market will


continue to lead atleast in the near future. The companies in the market should be compared with like product groups otherwise, the results would be misleading. The growth of annual sales of the company is analysed both in rupee terms and in physical terms. Physical terms are very essential because it shows the growth in real terms while the rupee term is affected by the inflation. The company may be a leading company, but if the growth of sales in comparatively lower than another company, it indicates the possibility of the company losing the leadership. Growth in sales in followed by the growth in profits Investor generally prefers size and the growth in sales because the larger size companies may be able to withstand the business cycle rather than the company of smaller size. The stability of annual sales should also be compared with its market share and the competitors market shares by the investor. If a firm has stable sales revenue, other things being constant, will have more stable earnings. The fall in market share indicates the declining trend of the company, even if sales are stable in absolute terms. 2. Earnings of the Company Sales alone do not increase the earnings, but the cost and an expense of the company also influences the earnings of the company. The companys sales might have increased but its earnings per share may decline due to its rise in costs. Similarly, the volume of sales may decline but the earnings


may improve due to the rise in the unit price of the article. The rate of change in earnings differs from the rate of change in sales. The investor should not depend only on the sales, but should analyse the earnings of the company. The income for the company is generated through operating sources and non operating sources. The investor should analyse the income source diligently whether it is from the sale of assets or it is from investments. The investor must be aware that the income of the company may vary due to change in sales, change in costs, depreciation method adopted, inventory accounting method, wages, salaries and fringe benefits, etc., some times earnings per share may seem to be attractive in a particular year but in actual case the revenue generated through sales may be comparatively lower than in the previous year.


Capital Structure:
The equity holders return can be increased manifold with the help of financial leverage, i.e., using debt financing along with equity financing. The debt ratio indicates the position of the long term and short term debts in the company finance. The debt may be in the form of debentures and term loans from financial institutions. Preference Shares in early days was never a significant source of capital. But today, may companies resort to it since the leverage effect is lesser than the debt because the preference share dividends are not tax deductible. If the portion of preference share in the capital is larger it tends to create instability in the earnings or the equity shares when the earnings of the company fluctuate. So the investor should look in to the preference share component of the capital structure.


Long Term Debt has the specific benefit of low cost of capital because interest is tax deductible. The leverage effect of the debt is highly advantageous to the equity share holders. During the boom period, the positive side of the leverage effect increases the earnings of the share holders and at the time of recession the leverage effect inducts instability in earnings per share and can lead to bankruptcy. 4. Management: The management of the firm should efficiently plan, organize, actuate and control the activities of the company. The basic objective of management is to attain the stated objectives of the company for the good of equity share holders, the public and the employees. If the objectives of the company are achieved, the investors will have profit. A management that ignore profit does more harm to the investors than one that over emphasis it. Good and Capable management generates profit to investors. 5. Operating Efficiency: The operating efficiency of a company directly affects the earnings of a company. An expanding company that maintains high operating efficiency with low break even point earns more than the company with high break even point. Efficient use of fixed assets with raw materials, labour and management would lead to more income from sales which lead to internal fund generation for the expansion of the firm. Operating Leverage with a high degree implies others things being


constant, a relatively small change in sales result in large change in return on equity.

6. Financial Performance: The best source of financial performance of the company is its own financial statements. This is a primary source of information for evaluating the investment prospects in the particular companys stock. The financial statement gives the historical and current information about the companys operations. Historical financial statement helps to predict the future and the current information aids to analyse the present status of the company. The two main statements used in the analysis are Balance sheet of a company shows the financial position of the company at a particular point of time. time It should either be in account form or report form.

Account form:
Liabilites Share Capital Reservbe and Surplus Secured Loans Unsecured Loans Current liabilities and provisions Assets Fixed Assets Investments Current Assets, Loans and Advances Miscellaneous Expenditure

Report Form:
I. Sources of Funds 1. Share holders fund a) Share Capital b) Reserves and Surplus 2. Loan Funds


a) Secured loans b) Unsecured loans II. Application of Funds 1. Fixed Assets 2. Investments 3. Current Assets, loans and Advances Less: Current Liabilities and provisions Net Current Assets 4. Miscellaneous Expenditure and losses Profit and Loss Account shows the financial performance of the company over a period of time. It shows how much profit or loss has been incurred by a company from its income after providing for all its expenditure within a financial year.

Analysis of Financial Statements:

The analysis of financial statements reveals the financial performance of the company. It reveals the nature of relationship between income and expenditure and the sources and application of funds. The investor determines the financial position and the progress of the company through analysis where in he is interested in the yield and safety of his capital; he cares much about the profitability and the managements policy regarding the dividend. Towards this end, he can use the following simple analysis:

Comparative Financial Statements provides the figures for more than


one year where in the annual data are compared with similar data of previous years, either in absolute terms or in percentages.

Trend Analysis calculates percentages with a base year which provides insight into the growth or decline of the sale or profit over years. Investor has to look into the cost and management efficiency of the company

Common size statements help in the comparison between two different size firms belonging to the same industry. Common size balance sheet shows the percentage of each asset item to the total assets and each liability item to the total liabilities. Similarly, a common size income statement shows each item of expense as a percentage of net sales.

Fund flow Analysis is a statement of sources and applications of funds. It highlights the changes in the financial condition of a business enterprise between two balance sheet dates. With the help of this statement an investor gets following informations How are the profits utilized? Financial source of dividend Source of finance for capital expenditures Source of finance for repayment of debt The destiny of the sale proceeds of the fixed assets and


Use of the proceeds of the share or debenture issue or fixed deposits rose from public. Cash flow Analysis is a statement which shows the changes in the cash Position between the opening & closing Balance sheet of a company. An investor is explained the reasons for such Cash inflows (or) Cash outflows during the particular accounting period. Ratio Analysis helps an investor to determine the strengths and weaknesses of a company. It also helps him to assess whether the financial performance and financial strength are improving or deteriorating. Different ratios measure different aspects of a companys performance. Four groups of ratios may be used for analyzing the performance of a company. They are as follows: Leverage Ratios also known as capital structure ratios measures the companys ability to meet its long term debt obligations. commonly used leverage ratios are

S. S.No Formula 11 1 D Debt- equity ratio = long term debt Share holders equity

Use To Know the soundness of long term financial policies To Indicate to what extent the share holders fund have been utilized To measure the long term debt serving capacity of the firm

22 2

Pr Proprietory ratio= Share holders equity Total assets Interest coverage ratio EBIT _________ Interest

3 33 3


Liquidity Ratios measure the companys ability to fulfill its short term obligations and reflect its short term financial strength or liquidity. The commonly used liquidity ratios are SS S.No Formula 1 CuCurrent ratio = Current assets Current liabilities 1 11 1 2 22 2 Q Quick ratio = Current assets Use To measure the short term solvency of the company, to meet its current liabilities on time To measure the ability of the company., to meet its current liabilities at short

Inventories-prepaid exp Current liabilities

notice. Profitability Ratios measures the profitability of a company relating the profits to sales, or to investment or to the equity shares.

1) Profitability related to sales S. S.No. Fo Formula 1 Gr Gross profit ratio = Gross profit Sales Us Use To know the between

relationship 2 3 4 N Net profit ratio = Earnings after tax Sales

Mfg Cost & Sales To know the N/P Margin on sales To know the OP/P m margin on sales To find out the break up of each OP exp item in sales To find out the cost co content in sales

O operating profit ratio = EBIT Sales O Operating expenses = Adm exp+ sell exp ratio Sales O Operating ratio = COGS+Operating exp Sales

2) Profitability related to investment


S. S.NoFo Formula 1 Re Return on assets = Earnings after Tax Total assets

Us use To



utilization of cap emp. in generating profits for the company. To show

ReReturn on share = Net profit hoholders fund Share holders fund


Profitability from the Shareholders point of View

3) Profitability related to equity shares S. S.No Formula 1 EP EPS = EAIT No. of Equity share 2 3 4 p/ P/E ratio = MPS EPS Di Dividend payout = Dividend per share Ratio EPS Di Dividend yield Ratio = Dividend per share Market price per share Use To Measure the profit to equity shareholders on per share basis To Establish the relationship between the MPS & EPS To Indicate the extent of net profits distributed as dividends To Express relationship between the MPS & DPS

4) Activity or Efficiency Ratios

S. S.No Formula 1 Fi Fixed assets turnover = Sales Fixed assets 2 To Total assets turnover = Sales Total assets 3 In Inventory turnover = Sales Avg. inventory 4 D Debtors turnover = Credit Sales Avg. debtors 5 Cr Creditors turnover = Credit purchase Avg. creditors Use To Indicate to what extent Fixed assets contribute sales To know the utilization of total assets in the business To Indicate efficiency of use of investment in Stocks To Show the efficiency with which debtors are converted into cash To Indicate the speed at which the payments are made to creditors


7. Other Variables: The future prospects of a company would also depend upon a number of other variable. Some of which are: Company market share Capacity utilization Modernization and expansion plans Order book position Availability of raw materials

Assessment of Risk:
Company analysis involves not only an estimation of future returns, but also an assessment of the variability in returns called risk. The variability in returns arises primarily because of variability in sales. The sensitivity of profits to changes in the level of sales is measured by a ratio

called Degree of Total Leverage (DTL) which is used as measure of risk. DTL = Contribution Profit before tax (PBT) [Note: Contribution= sales- variable costs] DTL may be sub divided into two components


Degree of Operating Leverage (DOL) measures the percentage change in EBIT for one percent change in sales. DOL = Contribution EBIT Degree of Financial Leverage (DFL) measures the percentage change in PBT for one percent change in EBIT. DFL = EBIT PBT The investment decision is ultimately a decision to invest in the shares of one or more specific companies.

Technical analysis
A technical analyst believes that share prices are determined by the demand and supply forces operating in the market. These demand and supply forces in turn are influenced by a number of fundamental factors as well as certain psychological or emotional factors. The combined impact of all these factor is reflected in the share price movement. A technical analyst concentrates on the movement of share prices. He claims that by examining past share price movements, future share prices can be accurately predicted. Technical analysis is the name given to forecasting techniques that utilize historical share price data. Although past shares prices are the major data used by the technical analysts, other statistics such as volume of trading and stock market indices are also utilized to some extent. A technical


analyst, therefore, analyses the price and volume movements of individual securities as well as the market index. Thus technical analysis is really a study of past or historical price and volume movements so as to predict the future stock price behaviour.

Basic principles of the technical analysis:

The basic principles on which technical analysis is based are as follows: i. The market value of a security is related to demand and supply factors operating in the market. ii. There are both rational and irrational factors which surround the supply and demand factors of a security. iii. Security prices behave in a manner that their movement is continuous in a particular direction for some length of time. iv. Trends in stock prices have been to change when there is shift in demand and supply factors v. The shifts in demand and supply can be detected through charts prepared specially to show market action vi. Patterns which are projected by charts record price movement and these recorded patterns are use by analysts to make forecasts about the movement of prices in future.

Trends and Trend Reversals:

Trend is the direction of movement. When the prices move upwards, it is a rising trend or uptrend and when the prices move downwards, we have a falling trend or down trend and flat trend when the process move within a narrow range. Share prices seldom moves in a straight line. The main trend is


interrupted by a short term counter movements known a secondary reactions. The result is a zigzag movement giving rise to alternating tops and bottoms. The formation of higher tops and higher bottoms indicates a rising trend. The formation of lower tops and lower bottoms indicates a falling trend. Trend reversal is a change in the direction of trend. A share that exhibits a rising trend may start to move narrowly or fall after some time. This change in direction of movement represents a trend reversal. The reversal from a rising trend to a falling trend is marked by the formation of a lower top and lower bottom. The reversal from a falling trend to a raising trend is characterized be the formation of a higher bottom and a higher top. A technical analyst tries to identify the trend reversals at an early stage so as to trade profitably. When the trend begins to rise- recommend to purchase of share When the trend begins to fall- recommend to sale of share. Flat trend- stay away from market.

Charting represents a key activity in technical analysis, because graphical representation is the very basis of technical analysis. A share price may be traded


in the market at different prices on the same day. Of these different prices prevailing in the market on each trading day, four prices are important. The highest price, the lowest price, the opening price and the closing price. Of these four prices again, closing price is the most important price of the day because it is the closing price that is used in most analysis of share prices. The oldest charting procedure was known as the point and figures charting Price chart is a basic tool used by the technical analyst to study the share price movement. The prices are plotted on XY graph where X-axis represents the trading days and the Y-axis represents the prices. Three types of price charts are as follows: Line chart is the simplest chart where the closing prices of the share are plotted on the XY graph on a day to day basis represented by a point. All these points would be connected by a straight line which would indicate the trend of the market. A lime chart is illustrated below:


Line Chart of Closing prices

Bar chart is the most popular chart used where in the highest price, the lowest price and the closing price of each day are plotted on a day to day basis. A bar is formed by joining the highest price and lowest price of a particular day by a vertical line. The top of the bar represents the highest price of the day, the bottom of the bar represents the lowest price of the day and a small horizontal hash on the right of the bar represents the closing price of the day. Some times opening price of the day is marked as hash on the left side of the bar. A price bar char is illustrated below:

Price bar chart

Japanese candlestick charts shows the highest price, the lowest price, the opening price and the closing price of the shares on a day to day basis. The highest price and the lowest price of a day are joined by a vertical bar.


The opening price and closing price of the day which would fall between the

highest and the lowest prices would be represented by a rectangle so that the price bar char looks like a candlestick. There are mainly three types of candlesticks: The white candlestick used to represent the situation where the closing the day is higher than the opening price. It indicates a bullish trend. The black candlestick is used when the closing price of the day is lower than the opening price. It indicates the bearish trend. The doji or neutral candlestick is one where the opening price and the closing price of the day are same. price of

Japanese candle stick chart is illustrated below:

Japanese Candlesticks


Chart Patterns:
When the price bar charts of several days are drawn close together certain patterns emerge. These patterns are used by the technical analysts to identify trend reversal and predict the future movement of prices. The chart patterns may be classified as Support and resistance patterns are price levels at which the downtrend or uptrend in price movements is reversed. Support occurs when price is falling but bounces back or reverses direction every time it reaches a particular level. When all these low points are connected by a horizontal line, it forms the support line. In other words, support level is the price level at which sufficient buying pressure is exerted to halt the fall in prices. Resistance occurs when the share price moves upwards and the price may fall back every time it reaches a particular level. A horizontal line joining these tops forms the resistance level. Thus, resistance level is the price level where sufficient selling pressure is exerted to halt the ongoing rise in the price of a share. The following figure illustrates support and resistance level:


Support and Resistance levels

If the scrip were to break the support level and move downwards, it has bearish implications signaling the possibility of a further fall in prices. Similarly, if the scrip were to penetrate the resistance level it would be indicative of a bullish trend or further rise in prices. Reversal patterns are chart formations that tend to signal a change in direction of the earlier trend. Price movements exhibit uptrends and down trends. The

trends reverse direction after a period of time. These reversals can be identified with the help of certain chart formations that typically occur during these trend reversals. Head and shoulder formation is the most popular reversal pattern which usually occurs at the end of long uptrend. This formation exhibits a hump or top followed by a still higher top or peak and then another hump or lower top. This formation resembles the head and the two shoulders of a man and hence the name head and shoulder


formation. The first hump, known as left shoulder- when the prices reach the top under a strong buying impulse. Then trading volume becomes less and there is a short downward swing. This is followed be another high volume advance, which takes the price to a higher top known as head. This is followed by another reaction on less volume which takes the price down to a bottom near to the earlier downswing. A third rally now occurs taking the price to a height less than the head but comparable to the left shoulder resulting in the formation of right shoulder. A horizontal line joining the bottoms of this formation known a the neckline. The head and shoulder formation usually occurs at the end of a bull phase and is indicative of reversal trend. After breaking the neckline, the price is expected to decline sharply. Following figure illustrates the head and shoulder formation:


Head and shoulder Formation

Inverse head and shoulder formation is the reverse of head and shoulder

formation and is really an inverted head and shoulder pattern. The first bottom is the left shoulder Then comes a lower head Followed by a third bottom which is termed the right shoulder? The neckline is drawn by joining the tops from which the head and the right shoulder originate. When the price raises above the neckline the formation of the pattern is completed. This pattern occurs at the end of a bear phase and indicative of an oncoming bullish phase.


Inverse head and shoulder pattern

Other reversal patterns are double top formation, triple top formation, double bottom formation, triple bottom formation, etc., Continuation patterns are formed during side way movements of share price because they indicate a continuation of the trend prevailing before the formation of the pattern. Triangle formation is formed when the price movements result in two or more consecutive descending tops and two or more consecutive ascending bottoms. The triangle becomes more apparent on the chart when the consecutive tops are joined by a straight line and the consecutive bottoms are joined be another straight line. The two straight lines are the upper trend and the lower trend line respectively. The triangle formation may occur during a bull phase or a bull phase. In


either case it would indicate a continuation of the trend.

Triangle formation
Flags formation looks like a parallelogram with the two trend lines Forming two parallel lines. The volume of trading is expected to fall during the formation of the flag and again pick up on breaking out from the pattern. It is illustrated in the following graph:


Flag formation
Pennants formation looks like a symmetrical triangle.

The upper trend line formed by connecting the tops stoops downwards. Whereas the lower trendline formed by connecting the bottoms rises Upwards.


Pennant formation Theories for Technical Analysis:

There are many theories which seek to explain the behaviour of the stock market. Important theories among them are Dow theory and Elliot wave theory. The detail description of each of the theory is as follows:

Dow theory:
Charles H. Dow who was the editor of the wall street journal in U.S.A. formulated and presented the theory in a series of editorials in his journal during 1900-1902. According to Dow Theory, the market has three movements and these movements are simultaneous in nature. These movements are:

The primary movement is the long range cycle that carries the entire market up or down and is the long term trend in the market.


The secondary reactions act as a restraining force on the primary movement because these are in opposite direction to them and last only for a short while. These are also called corrections

The minor movements are the day-to-day fluctuations in the market. These movements are not significant and have no analytical value as they are of very short duration. The price movements in the market can be identified be means of a line chart in which the closing prices of shares or the closing values of the market index may be plotted against the corresponding trading days. The chart would help in identifying the primary and secondary movements. This is illustrated in the following line chart:

Primary trend and Secondary Reactions

From the above line chart it is clear that the primary trend of the market is upwards, but the secondary reactions in the opposite direction.


Bullish trend:
The First phase - the prices would advance with the revival of confidence in the future of business and the future prospects of the business would be perceived to be promising which makes investors to buy shares in the companies. The Second phase - the prices would advance due to improvements in corporate earnings. The Third phase - the prices advance due to inflation and speculation. The three phases are shown in the following graph:

Three phases in bull market

The line chart exhibits three peaks. Each peak would be higher than the previous peak; each successive bottom would be higher than the previous bottom. The formation of higher bottoms and higher tops indicates a bullish trend.


Bearish trend:

The First phase - the prices begin to fall due to abandonment of hopes. Investors begin to sell their shares. The Second phase - the prices fall due to increased selling pressure. The Final phase - the prices fall still further due to distress selling.

The three phases of a bear market are shown in following line chart:

Three phases of bear market

A bearish market would be indicated by the formation of lower tops and lower bottoms. Further the Dow Theory laid emphasis on volume of transactions. According to the theory volume should expand along the main trend. This implies that if the main trend is bullish, bullish the volume should increase with the rise in prices and fall during the intermediate reactions . In a bearish market when prices are


falling, the volume should increase with the fall prices and be smaller during the intermediate reactions. The theory also makes certain assumptions referred to as the hypothesis of the theory: The first hypothesis states that the primary trend cannot be manipulated. It means that no single individual or institution or group of individuals and institutions can exert influence on the major trend of the market. The second hypothesis states that the averages discount everything. everything It means that daily prices reflect the aggregate judgement and emotions of all stock participants. The third hypothesis states that the theory is not infallible. The theory is concerned with the trend of the market and has no forecasting value as regards the duration or the likely price targets for the peak or bottom of the bull and bear markets.

Elliot wave theory:

This theory is formulated by Ralph Elliot was formulated in 1934 after analyzing 75years of stock price movements and charts and concluded that the market was quite orderly and followed a pattern of waves. Principle: action is followed be reaction. Use: the theory is used for predicting the future price changes and in deciding the timing of investment. A wave is a movement of the market price from one change in direction to next change in the same direction. The waves are the result of buying and


selling impulses emerging from the demand and supply pressures on the market. Depending on the demand and supply pressures, waves are generated in the prices. According to this theory, the market moves in waves and its movement in a particular direction can be represented by five distinct waves. Of these five waves, three waves are in the direction of the movement and are

termed as impulse waves and Two waves are against the direction of the movement and are termed as

corrective waves.

Representation of Elliot wave theory

Correction involves correcting the earlier rise. Thus in the above graph, wave2 would correct the rise of wave1; wave4 would correct the rise of wave3 and after completion of wave5, there would come a correction which would be labeled ABC. This correction would be in three waves in which waves A and C will be against the trend and wave B will be along the trend. This ABC correction


following the fifth wave would correct the entire rise from the start of wave1 to end of wave5. It would be greater in dimension than either the second or fourth corrective wave. One complete cycle consists of waves made up of two distinct phases bullish and bearish. bearish Once the full cycle waves is complete after the termination of 8 wave movement, there will be afresh cycle starting with similar impulses arising out of market trading.

Market Indicators:
Technical analysis focuses attention not only on individual stock price behaviour, but also on the general trend of the market. Indicators used to study the trend of the market as whole are known as market indicators. Some of them are as follows:

Breadth of the market: by comparing the number of shares which advanced the number of shares that declined during a period, the trend of the market can be ascertained. Comparison of advances and declines is a leans of measuring the dispersion or breadth of a general price rise or decline. The difference between the advances and declines is call Breadth of the market.

Short interest: A speculator often resorts to short selling which is selling a share that is not owned be the person. This is done when the speculator feels that the price of the stock will fall in future. He hopes to purchase the share at a later date below the selling price and reap a profit. The volume of short sales in the market can be used as a market indicator. As a technical indicator, short selling is called


short interest. The expectation is that short sellers must eventually cover their positions, this buying activity increases the demand for stocks.

Odd-lot Index: Small investors are presumed to buy smaller number of shares than the normal trading lot of 100 shares. These are known as odd lots and the buyers and sellers of odd lots are called odd lotters. An odd-lot index can be calculated by relating odd-lot purchases to odd-lot sales. Odd-lot index = Odd-lot purchases Odd-lot sales suggests more buying activity. suggests more selling activity.

An increase in index A decrease in index -

Mutual Fund Cash Ratio: Mutual fund cash as a percentage of their net assets on a daily or weekly or monthly basis has been a popular market indicator. Low cash ratio - indicates decline in prices of shares in market. High cash ratio - indicates rise in prices of shares in market.

Mathematical Indicators:
Share prices do rise or fall in straight lines. The movements are erratic. This makes it difficult for the analyst to gauge the underlying trend. He can use the mathematical tool of Moving averages are the mathematical indicators of the underlying trend of the price movement. Two types of moving average are commonly used by the analysts are as follows: Simple Moving Average calculates a set of averages for a specific number of days, each average being calculated be including a new price and excluding an old price.


Exponential Moving Average(EMA) is calculated by using the following formula: EMA = (Current closing price-Previous EMA)* Factor+Previous EMA Note: Factor = 2 n+1

Oscillators are calculated with the help of closing price data which helps to identify overbought and oversold conditions and also the possibility of trend reversals. These indicators are called oscillators because they move across a reference point. They are of two types:

Rate of Change Indicator measures the rate of change of current price as compared to the price a certain number of days or weeks back. To calculate a n day rate of change: ROC = Current price -1 Price n period ago

Relative Strength Index is a powerful indicator that signals buying and selling opportunities ahead of the market. RSI for a share is calculated by using the following formula: RSI =100-[100/ (1+RS)] Note: RS = Avg. gain per day Avg. loss per day


INTRODUCTION OF SHAREKHAN Sharekhan is online stock trading company of SSKI Group, provider India based
investment banking and corporate finance service.Sharekhan is one of the largest stock broking houses in the country .S.S.Kantilal Ishwarlal Securities Limited (SSKI) has been among Indias leading broking houses for more than a century. Sharekhan is member of BSE, NSE, MCX, NCDEX, Depository Participant with NSDL and CDSL.It was founded in the year 2000.Principal Investors are Sripal Morakhia(SSKI)and Fly HSBC,Carlyle,Intel,and the Revenues are upto Rs100 crores. Portfolio Management Services (PMS) PMS, as it is ideally known in simple parlance is an investment opportunity wherein money is entrusted to a Professional Portfolio Management Service. The Portfolio Manager offers to craft a basket of stocks that would fit your personal investment goals and risk preferences. For Whom PMS? Who are investing in Indian Equities Who aspire a long term wealth creation , but lacks time or skills to Understand the changing investment dynamics Who appreciate a high level of service Who desire a personalised investment programme?


T ime Period Since Inception 2 years 1 year 6 Months 3 Months 1 Months

Services offered:-

Sharekhan 327.85 54.44 39.69 15.57 -13.39 -1.43

Sensex 225.56 66.38 33.58 14.75 -9.22 -3.64

S&P CNX 500(%) 203.59 61.59 38.54 17.49 -10.45 -2.01

Sharekhan offers equities, derivatives, commodities, mutual funds, IPO, portfolio management and research. Sharekhan traces its lineage to SSKI, an organization with more than eight decades of trust & credibility in the stock market. Sharekhan started of as retail arm of SSKI Pioneers of online trading in India- was launched in 2000 and is now the second most visited broking site in India Has one of the largest network of Share shops in the country Has attracted investment from leading Private equity players of the world.


Board of Directors:Tarun Shah - Chief Executive Officer. Jaideep Arora- Director, Products and Technology. Shania Vailaya-Director,Operators. Sharekhan has 740 offices across 280 cities, 5, 00,000 customers, its online business is 50%, 3100 employees and it is the most preferred brokering website in India. A Highly Qualified team comprising 25 Analysts for Fundamental, Technical and Derivatives research. Indias largest consumer study initiated by CNBC Awaaz and conducted by AC Nielsen ORG Marg covering 7000 respondents 21 products and services across 21 major cities. Sharekhan has well established to deliver quality service It has a reach of growing retail network across 507 franchisees 125 branches 234 cities. It has a technology of superior trading platform, multi- Channel access for customers real time delivery of quality service and research. It has a human capital of 3100 employees and growing performance driven work ethics. It has a brand value of one of the most customer friendly brands since inception, amongst the top 5 retail brokers in India. NRI Services- One stop shop for all Investment needs. Online trading platform for NRI`s for Equities and Mutual Funds


Our first representative office in Dubai Dedicated Relationship Manager for advisory services and Operational Issues Simplified transactions statement Customized research reports Daily Market updates Access to research newsletters/ reports


1. Create a single integrated national level solution with access to Multiple markets for providing high cost-effective service to millions Of investors across the country. 2. Create a liquid and vibrant national level market for all listed Companies in general and small capital companies in particular. 3. Optimally utilize the existing infrastructure and other resources of Participating Stock Exchanges, which are under-utilized now. 4. Provide a level playing field to small Traders and Dealers by offering an opportunity to participate in a national markets having investmentoriented business. 5. Reduce transaction cost. 6. Provide clearing and settlement facilities to the Traders and Dealers across the Country at their doorstep in a decentralized mode. 7. Spread demat trading across the country


Salient Features
Network of intermediaries:
As at the beginning of the financial year 2003-04, 548 intermediaries (207 Traders and 341 Dealers) are registered in sharekhan. A broad of members forms the bedrock for any Exchange, and in this respect, sharekhan has a large pool of registered intermediaries who can be tapped for any new line of business.

Robust Operational Systems:

The trading, settlement and funds transfer operations of sharekhan are completely automated and state-of-the-art systems have been deployed. The communication network of sharekhan, which has connectivity with over 400 trading members and is spread across46 cities, is also used for supporting the operations of sharekhan. The trading software and settlement software, as well as the electronic funds transfer arrangement established with HDFC Bank and ICICI Bank, gives sharekhan the required operational efficiency and flexibility to not only handle the secondary market functions effectively, but also by leveraging them for new ventures.


Skilled and experienced manpower:

Sharekhan have experienced and professional staff, who have wide experience in Stock Exchanges/ capital market institutions, with in some cases, the experience going up to nearly twenty years in this industry. The staff has the skill-set required to perform a wide range of functions, depending upon the requirements from time to time.

Aggressive pricing policy:

The philosophy of sharekhan is to have an aggressive pricing policy for the various products and services offered by it. The aim is to penetrate the retail market and strengthen the position, so that a wide variety of products and services having appeal for the retail market can be offered using a common distribution channel. The aggressive pricing policy also ensures that the intermediaries have sufficient financial incentives for offering these products and services to the end-clients.

Trading, Risk Management and Settlement Software Systems:

The ORBIT (Online Regional Bourses Inter-connected Trading) and AXIS (Automated Exchange Integrated Settlement) software developed on the Microsoft NT platform, with consultancy assistance from Microsoft, are the most contemporary of the trading and settlement software introduced in the country. The applications have been built on a technology platform, which offers low cost of ownership, facilitates simple maintenance and supports easy up gradation and enhancement. The soft wares are so designed that the transaction processing capacity depends on the hardware used; capacity can be added by just adding inexpensive hardware, without any additional software work.


Fundamental analysis INDUSTRY: Infrastructure BASIS OF ANALYSIS: Financial Ratios Company Name :
GMR Infrastructure Ltd., GTL Infrastructure Ltd., GMR Infrastructure Ltd., Particulars Debt-Equity Ratio Long Term Debt-Equity Ratio Current Ratio Fixed Assets Inventory Debtors Interest Cover Ratio Operating Profit Margin (%) Return On Capital Employed (%) Return On Net Worth (%) Price Earning (P/E) EPS(Rs) Book Value(Rs) CEPS(Rs.) GTL Infrastructure Ltd., Particulars Debt-Equity Ratio Long Term Debt-Equity Ratio Current Ratio Fixed Assets Inventory Debtors Interest Cover Ratio Operating Profit Margin (%) Return On Capital Employed (%) Return On Net Worth (%) Price Earning (P/E) EPS(Rs) Book Value(Rs) Mar-09 Mar-08 2.76 1.83 2.76 2.12 3.1 1 0.14 0.2 0 0 4.5 7.14 0.31 0.88 75.6 85.81 0 0 0 0 0 0 0 0 11.42 9.56 Jun-07 1.31 1.75 1.22 0.15 0 4.9 -16.41 45.06 0 0 0 0 10.38 Mar-09 0.09 0.06 7.45 60.1 0 0 3.27 80.73 2.09 1.52 438.24 0.34 30.78 0.35 Mar-08 0.24 0.16 4.54 16.99 0 2226 1.26 76.13 2.03 0.29 4002.22 0.09 49.53 0.09 Mar-07 0.78 0.63 2.69 25.65 0 109.07 2.95 92.41 8.58 10.13 0 1.34 13.93 1.35






Interpretation: The financial ratios of GTL Infrastructure Ltd., are showing that the company is running into losses since past three years with zero EPS and zero Return on net worth. The financial ratios of GMR Infrastructure Ltd., showing a good performance in Return on net worth and EPS but the current ratio is 7:45 which is not matching the standard ratio of 2:1 with a dangerous liquidity position of the company. Even the interest coverage ratio is 3:27 which is very low when compared to standard ratio of 6:1. This indicates debt servicing capacity is very poor. Therefore, it is very clear that GMR Infrastructure is performing good Comparable to GTL Infrastructure Ltd.,




BASIS OF ANALYSIS: Trend Analysis Company Name:

Ultratech Cement Ltd., ACC Ltd.,

Ultratech Cement Ltd.,

Liabilities Particulars Share Capital Reserves & Surplus Secured Loans Unsecured Loans Current Liabilities Provisions Trend Analysis of Liabilities Particulars Share Capital Reserves & Surplus Secured Loans Unsecured Loans Current Liabilities Provisions Mar-09 99.66376 270.5546 78.92788 194.0046 166.7151 630.2711 Mar-09 124.49 2571.73 982.66 757.84 1709.73 125.55 Mar-08 124.49 1639.29 1151.25 427.38 1308.93 18.47 Mar-07 124.49 913.78 1221.93 229.9 1103.26 39.18 Mar-06 124.4 942.73 1253.35 278.03 1010.27 23.87 Mar-05 124.91 950.54 1245.01 390.63 1025.54 19.92

Mar-08 99.66376 172.4588 92.46914 109.4079 127.6332 92.72088

Mar-07 99.66376 96.13272 98.1462 58.85365 107.5784 196.6867

Mar-06 99.59171 99.17836 100.6699 71.17477 98.51103 119.8293

Mar-05 100 100 100 100 100 100

Assets Particulars Net Block Capital Work in Progress Investments Inventories Sundry Debtors Cash and Bank Balance Loans and Advances Mar-09 2500.46 2283.15 170.9 609.76 216.61 100.69 390.43 Mar-08 2517.28 696.95 483.45 433.58 183.5 89.59 265.46 Mar-07 2537.17 141.03 172.39 379.57 172.55 61.6 168.23 Mar-06 2548.9 48.18 184.79 283.71 171.95 56.26 338.86 Mar-05 2727.9 24.06 238.09 223.17 177.57 41.83 308.41


Trend Analysis of Assets Particulars Net Block Capital Work in Progress Investments Inventories Sundry Debtors Cash and Bank Balance Loans and Advances Mar-09 91.66245 9489.401 71.77958 273.2267 121.9857 240.7124 126.5945 Mar-08 92.27904 2896.717 203.0535 194.2824 103.3395 214.1764 86.07373 Mar-07 93.00817 586.1596 72.40539 170.0811 97.17295 147.2627 54.54752 Mar-06 Mar-05 93.43818 100 200.2494 100 77.61351 100 127.1273 100 96.83505 100 134.4968 100 109.8732 100

Essential items of P/L Account Particulars Sales Turnover Raw Materials Excise Duty Power & Fuel Cost Other Manufacturing Expenses Selling and Administration Expenses Profit After Tax Mar-09 6286.24 537.08 773.81 1255.05 565.39 1254.62 1007.61 Mar-08 5484.04 575.14 575.3 1139.85 505.66 1096.41 782.28 Mar-07 3785.29 549.43 482.46 911.29 288.45 924.9 229.76 Mar-06 Mar-05

3057.92 2693.15 459.27 268.86 453.67 440.74 823.72 631.16 235.12 646.47 2.85 273.18 631.16 38.83

Trend Analysis of Essential Item of P/L Account Particulars Sales Turnover Raw Materials Excise Duty Power & Fuel Cost Other Manufacturing Expenses Selling and Administration Expenses Profit After Tax Mar-09 233.4159 199.762 175.5706 198.8482 206.9661 198.78 2594.927 Mar-08 203.6292 213.918 130.5305 180.596 185.1014 173.7135 2014.628 Mar-07 140.5525 204.3554 109.4659 144.3834 105.5897 146.5397 591.7074 Mar-06 113.5444 170.8212 102.9337 130.5089 86.06779 102.4257 7.339686 Mar-05 100 100 100 100 100 100 100


ACC Ltd Liabilities Particulars Share Capital Reserves & Surplus Secured Loans Unsecured Loans Current Liabilities Provisions Mar-09 187.83 3964.78 266.03 203.07 1828.68 666.27 Mar-08 187.48 2955.16 720.96 195.02 1451.96 502.28 Mar-07 184.72 1951.21 950.12 226.05 1305.04 316.77 Mar-06 178.74 1418.45 1141.07 368 1123.66 200.91 Mar-05 177.4 1175.79 1065.59 377.13 998.57 170.11

Trend Analysis of Liabilities Particulars Share Capital Reserves & Surplus Secured Loans Unsecured Loans Current Liabilities Provisions Mar-09 105.8794 337.2014 24.96551 53.84615 183.1299 391.6701 Mar-08 105.6821 251.334 67.65829 51.71161 145.4039 295.2678 Mar-07 104.1263 165.9489 89.16375 59.93954 130.6909 186.2148 Mar-06 Mar-05 100.7554 100 120.638 100 107.0834 100 97.57908 100 112.5269 100 118.1059 100

Assets Particulars Net Block Capital Work in Progress Investments Inventories Sundry Debtors Cash and Bank Balance Loans and Advances Mar-09 3314.72 649.19 844.81 730.86 289.29 743.48 544.31 Mar-08 2922.49 558.42 503.54 624.13 213.96 620.17 569.21 Mar-07 2906.35 215.68 293.75 600.95 199.17 102.79 608.81 Mar-06 2517.47 354.28 279.14 542.38 190.54 57.32 477.29 Mar-05 2375.61 96.46 375.74 378.01 182.37 64.97 456.51


Trend Analysis of Assets Particulars Net Block Capital Work in Progress Investments Inventories Sundry Debtors Cash and Bank Balance Loans and Advances Mar-09 139.5313 673.0147 224.839 193.3441 158.6281 1144.344 119.2329 Mar-08 123.0206 578.9135 134.0129 165.1094 117.3219 954.5483 124.6873 Mar-07 122.3412 223.5953 78.17906 158.9773 109.212 158.2115 133.3618 Mar-06 Mar-05 105.9715 100 367.2818 74.29073 143.483 104.4799 88.22533 104.5519 100 100 100 100 100 100

Essential Items of P/L Account Particulars Sales Turnover Raw Materials Excise Duty Power & Fuel Cost Other Manufacturing Expenses Selling and Administration Expenses Profit After Tax Mar-09 7848.32 1587.11 970.32 517.56 595.62 1530.02 1438.59 Mar-08 6453.07 1272.49 736.09 430.98 496.22 1326.94 1231.84 Mar-07 3717.18 918.34 539.71 299.52 323.39 845.31 544.18 Mar-06 Mar-05 4539.35 3889.65 1326.38 1058.35 651.95 615.04 348.48 367.3 376.25 915.47 378.39 320.25 819.58 200.24

Trend Analysis of Essential items of P/L Account Particulars Sales Turnover Raw Materials Excise Duty Mar-09 201.7745 149.9608 157.7653 Mar-08 165.9036 120.2334 119.6816 Mar-07 95.56592 86.77092 87.75202 Mar-06 Mar-05 116.7033 100 125.3253 100 106.0012 100


Power & Fuel Cost Other Manufacturing Expenses Selling and Administration Expenses Profit After Tax Interpretation:

140.9093 185.9859 186.6834 718.4329

117.3373 154.9477 161.9049 615.1818

81.54642 100.9805 103.1394 271.7639

94.87612 117.4863 111.6999 188.9682

100 100 100 100

Liabilities of ACC Ltd. is showing good with issue of share capital and moderate increase in all the items of liabilities whereas the Ultratech Cement Ltd. has a huge increase in unsecured loans with risk involvement and repayment of creditors. Fixed Assets are sold by Ultratech Cement Ltd., with no invention of new technology increase in rest items of assets and the Fixed Assets of ACC Ltd., are purchased with new technology and increase in all the item of assets. The sales of both the companies are good with good rate of increase in profit after tax but the Ultratech Cement Ltd., is showing a better profit due to savings in cost of raw material and excise duty. From the above analysis it cannot be said as to which company is better in

performance. Advice: The investor shall be prudent in his investment.

Technical Analysis
INDUSTRY: Steel BASIS OF ANALYSIS: Simple Moving Average

Company Name:
Tata Steel Ltd., Jindal Steel & Power Ltd.,


Tata Steel Ltd., Total Prices Of 3days 3day moving avg ------------------------2522.1 840.7 2489.95 829.9833333 2416.75 805.5833333 2339.95 779.9833333 2234.25 744.75 2199.45 733.15 2210.25 736.75 2225.9 741.9666667 2212.15 737.3833333

Trd_Date 16-Jun-09 17-Jun-09 18-Jun-09 19-Jun-09 20-Jun-09 23-Jun-09 24-Jun-09 25-Jun-09 26-Jun-09 27-Jun-09 30-Jun-09

Close 848.95 850.6 822.55 816.8 777.4 745.75 711.1 742.6 756.55 726.75 728.85

900.00 850.00 800.00 750.00 700.00 650.00 600.00

9 9 9 9 9 9 00 00 00 /2 /2 /2 /2 /2 /2 /2 00 00 00 00 9

Close 848.95 850.60 3day moving avg -------------

6/ 18





28 6/


Jindal Steel Ltd., 3day moving Total Prices Of 3days avg ------------------------6,406.55 2135.516667 6,401.75 2133.916667 6,239.65 2079.883333

Trd_Date 16-Jun-09 17-Jun-09 18-Jun-09 19-Jun-09 20-Jun-09

Close 2,112.95 2,173.85 2,119.75 2,108.15 2,011.75







23-Jun-09 24-Jun-09 25-Jun-09 26-Jun-09 27-Jun-09 30-Jun-09

1,906.30 1,843.35 1,886.05 1,896.30 1,843.60 1,751.50

6,026.20 5,761.40 5,635.70 5,625.70 5,625.95 5,491.40

2008.733333 1920.466667 1878.566667 1875.233333 1875.316667 1830.466667

2,500.00 2,000.00 1,500.00 1,000.00 500.00 0.00

9 9 9 9 9 9 00 00 00 /2 /2 /2 /2 /2 /2 /2 00 00 00 00 9

Close 2,112.95 2,173.85 3day moving avg -------------






28 6/




Interpretation: There is a downward trend by Tata Steel Ltd., and then raised and going moderate. There is a downward trend in Jindal steel ltd., and continues to decrease. As per the moving average the Tata steel Ltd., is been better though not good comparing to Jindal Steel Ltd., which has a downward trend with no increment. Advice: The investor shall invest in Tata Steel Ltd., The investor shall Should be prudent in Investing. INDUSTRY: Paints BASIS OF ANALYSIS: Rate of change Indicator Company Name: Asian Paints Ltd., Berger Paints(India) Ltd.,






Asian Paints Ltd., Closing price 3 days ago Price ratio ------------------0.985647 1.000913 0.995013 0.972027 0.920693 0.943745 0.943791 0.990434

Trd_Date 16-Jul-09 17-Jul-09 18-Jul-09 19-Jul-09 20-Jul-09 23-Jul-09 24-Jul-09 25-Jul-09 26-Jul-09 27-Jul-09 30-Jul-09


ROC= Ratio-1 ----------------------0.01435276 0.000913315 -0.00498703 -0.02797286 -0.07930651 -0.05625501 -0.05620867 -0.00956608

1,278.50 ---------1,259.15 ---------1,253.25 ---------1,260.15 1,278.50 1,260.30 1,259.15 1,247.00 1,253.25 1,224.90 1,260.15 1,160.35 1,260.30 1,176.85 1,247.00 1,156.05 1,224.90 1,149.25 1,160.35

ROC= Ratio-1 0.01 0 -0.01 -0.02 -0.03 -0.04 -0.05 -0.06 -0.07 -0.08 -0.09




9 00 29 /2 /2









7/ 25





ROC= Ratio-1 -----------------








Berger Paints (India) Ltd., Trd_Date 16-Jul-09 17-Jul-09 18-Jul-09 21-Jul-09 22-Jul-09 23-Jul-09 24-Jul-09 25-Jul-09 28-Jul-09 29-Jul-09 30-Jul-09 31-Jul-09 Close 39.7 39.55 39.6 39.95 40.05 41.4 41.35 39.95 40.15 40 40.7 40.1 Closing price 3 days Price ROC= Ratioago ratio 1 ------------------------------------------------------------------39.7 1.006297 0.006297229 39.55 1.012642 0.012642225 39.6 1.045455 0.045454545 39.95 1.035044 0.035043805 40.05 0.997503 -0.00249688 41.4 0.969807 -0.03019324 41.35 0.967352 -0.03264813 39.95 1.018773 0.018773467 40.15 0.998755 -0.00124533

ROC= Ratio-1 0.05 0.04 0.03 0.02 0.01 0

00 00 00






7/ 23




-0.03 -0.04

Interpretation: The ROC line of Asian Paints Ltd., is below the zero line indicating a

fall in price but been increasing. The ROC line of Berger Paints (India) Ltd. is fluctuating above and

below the zero line with a rise and fall in price.

7/ 31














ROC= Ratio-1 ----------------9 9 9 9 9 9



The performance of Berger paints (India) ltd., is better comparable

to Asian paints ltd., since the ROC line is above and below the Zero line which means a rise and decrease in price. But Asian paints ltd., is below zero line with a fall in price. Advice: The investor shall make his investment when the ROC line is below zero

line and sell when the ROC line is above zero line.

INDUSTRY: Sugar BASIS OF ANALYSIS: Relative Strength of Index (ROI) Company Name: Balrampur Chini Mills Ltd., Shree Renuka Sugars Ltd., Balrampur Chini Mills Ltd., Trd_Date 16-Jul-09 17-Jul-09 18-Jul-09 21-Jul-09 22-Jul-09 23-Jul-09 24-Jul-09 25-Jul-09 28-Jul-09 29-Jul-09 30-Jul-09 31-Jul-09 TOTAL 12Day Avg RS RSI Close Gain Loss 75.65 ------74.6 ---1.05 73.7 ---0.9 73.85 0.15 ---74.1 0.25 ---77.35 3.25 ---74.8 ---2.55 77.85 3.05 ---82.45 4.6 ---83.5 1.05 ---84.25 0.75 ---85.55 1.3 ---14.4 4.5 1.2 0.375 3.2 76.19048


Shree Renuka Sugars Ltd., Trd_Date 16-Jul-09 17-Jul-09 18-Jul-09 21-Jul-09 22-Jul-09 23-Jul-09 24-Jul-09 25-Jul-09 28-Jul-09 29-Jul-09 30-Jul-09 31-Jul-09 TOTAL 12Day Avg RS RSI Investment: The RSI of Balrampur Chini Mills Ltd., is 76.19 The RSI of Shree Renuka Sugars Ltd., is 74.57 The performance of both the companies is good as the RSI is above 70 showing a rise in price. Close Gain Loss 111.1 ------114.65 3.55 113.2 ---1.45 115.35 2.15 ---114.45 ---0.9 118.25 3.8 ---116.55 ---1.7 123.85 7.3 ---126.55 2.7 ---123.7 ---2.85 126.05 2.35 ---125.5 ---0.55 21.85 7.45 1.820833 0.620833 2.932886 74.57338

Advice: The investor shall invest when the RSI is below 30 a sell when the RSI is about 70.


Things to Consider Share prices fall as well as rise. Large losses may occur, particularly if shares are sold when market has dropped. If you are happy with gains made with your share and are concerned about their future value, you scan sell them and realize profit. If you retain them with a view to make profit and there is a further drop in market value, it is important to remember that this loss is only a paper loss until you sell. Income from dividends may vary depending upon increase and decrease in profits. It may also be low or nil when the profits are low. Unless you plan to actively trade your shares, you should consider them a long term investment.


Tips for investing in shares Remember, shares are not short term investments, usually the best Returns will be gained over will be gained over medium and long term. Past performance is not reliable guide to future performance. As with any investment that offers capital growth, wide fluctuations in value can occur. Collect the information from economic, industrial and company factors for fundamental analysis.

Familiarize yourself with the rules, regulations and circulars issued by stock exchanges/SEBI before carrying out any transaction. Insist on periodical statement of accounts of funds and securities from your broker. Cross check and reconcile your accounts promptly and in case of ant discrepancies bring it to the attention of your broker immediately. Never buy on rumours/ market gossips. But only on the basis of fundamental analysis of the company. Study the sales, gross profit, net profit in relation to equity capital employed. The investor should also watch for low priced shares, which are about to turn around for more profitability in future.


Avoid both fear and greed on the stock market. The investor should know how to analyse the security price of companies and pick-up the undervalued shares on the basis of book value of share, estimated on the basis of net worth of the company. Buy a diversified list of companies and not pull all money in one or two companies. The risk can be reduced by proper diversification of portfolio into 10-15 companies.


Fundamental and technical analysis is two approaches commonly used for the purpose of analyzing the movement of share prices in the market. An investor in the stock market is interested to know the right time of buying a share and right tome to sell a share since the prices at stock market fluctuates daily on account of continuous buying and selling.

During the study, the following are two findings: 1. As the market is volatile, share prices of various stocks are Increasing and decreasing. Therefore, the investor in stock market would buy securities at low price and sell securities at high price in order to make huge profits. 2. Up to maximum margin, the companies which are good in demand today, like, Infrastructure, cement, IT, paints, etc., would be reliable to invest as these companies may make up their performance at a particular time as it is in good demand. However companys financial statements are recommended to analyse. From the analysis and interpretation, it can be concluded that: The companies into sugar industry are performing well with good RSI. The companies into IT, Steel, Paints, cement industry are performing averagely where investor can be prudent in his investment decision The companies into Infrastructure industry, GMR Infrastructure ltd., is showing a good return on net worth comparing to GTL


Infrastructure ltd.,


Books Referred:
S.No# 1 2 3 Authors S. Kevin Punithavathy Pandian NCFM Books Security Analysis & Portfolio Management Security Analysis & Portfolio Management Financial market Beginners module

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