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INTRODUCTI

ON
TO
CAPITAL
MARKET
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INDIAN CAPITAL MARKET

✔ 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.”

A business enterprise can raise capital from various sources. Long-
term funds can be raised either through issue of securities or by borrowing
from certain institutions. Short term funds can also be borrowed from
various agencies. Thus business units can raise capital from issue of
securities and borrowings (long-term and short-term). In addition to
business units, public corporations and government are the other major
borrowers of funds. The lenders of funds include the individual investors
(the household sector), the institutional investors, banks, and special
industrial financing institutions. The borrowers and lenders brought
together through financial markets. The term “financial market”

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collectively refers to all those organizations and institutions which lend
funds to business enterprise and public authorities. It is composed of two
constituents – the money market and the capital market. While the former
deals with the provision of short-term credit, the latter deals with the grant
of medium-term and long-term credit.

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✔ CAPITAL MARKET:

Capital Market is the backbone of any country’s 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.

Capital market facilitates the free trading (buy and sell) in all
securities. It has two mutually supporting and indivisible segments: the
primary market and the secondary market. In the primary market
companies issue new securities to raise funds. Hence, it is also referred to
the new issue market. The secondary market deals with the second-hand
securities; viz., securities that have already been issued by companies
that are listed in stock exchange. Since the securities are listed and traded
in the stock exchange, the secondary market is also called the stock
market.

Investor’s confidence is necessary to make the securities market
more efficient means of converting savings to investment. Economic
transition in India is marked by changes in the market mechanism,
institutional integration, market regulation, relocation of savings and
investment and changes in inter sector relationships. These changes bring
both negative and positive effects and thus investors’ confidence is
shaken either way bringing in the volatility in the capital market.
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The stock market in India is witnessing high volatility. This volatility
has significant impact on the investment management and the rate of
return. The inadequacy of the system becomes obvious if the institutions
in the system fail to withstand the pressures of market forces such as the
volatility. The regulatory measures from SEBI, the main regulator in the
Indian Financial System, have lent force to the supervisory norms and
improved the standards of disclosure, bringing greater transparency in
their wake.

An important issue related to the Capital Markets is the fundamental
philosophy that “Shape up the economy and the capital markets will
reflect what is actually expected to happen.” The capital market is actually
reflecting what is happening in the economy and what is expected to
happen in the next few years. We should first address the problems in the
economy and then the market will respond to that.

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✔ PROBLEM STATEMENT:

In earlier times the investors are not so aware of the market in other
way say that the investors are not too much knowledgeable. As they are
not too much knowledgeable they invested in market without using any
concept and skills. This study is also for enhancing the knowledge of
various investors. Study also suggested that how genuine investors should
react before and after investing in market.

The Indian capital market is faced many problems and this study is
firstly defined what is the problem in Indian capital market as of 1992.

1. As of 1992, the Bombay Stock Exchange (BSE) was a monopoly. It was
an association of brokers, and imposed entry barriers, which led to
elevated costs of intermediation. Membership was limited to individuals;
limited liability firms could not become brokerage firms.

2. Trading took place by ‘open outcry’ on the trading floor, which was
inaccessible to users. It was routine for brokers to charge the investor a
price that was different from that actually transacted at. In fact, the
normal market practice involved brokers charging user’s one single

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consolidated price, instead of unbundling the trade price and the
brokerage fee.

3. As with all trading floors, there was no price–time priority, so users of
the market were not assured that a trade was executed at the best
possible price.

4. A variety of manipulative practices abounded, so that external users of
a market often found themselves at the losing end of price movements.
The BSE is run by brokers, which limits the quality of enforcement which
can be undertaken against errant brokers.

5. Floor–based trading, the inefficiencies in clearing and settlement
(described ahead), entry barriers into brokerage, and the low standards of
technology and organizational complexity that accompanied the ban upon
corporate membership of the BSE led to an environment where order
execution was unreliable and costly. It was typical for below 50% of orders
to obtain execution on a given day.

6. Retail investors and particularly users of the market outside Bombay,
accessed market liquidity through a chain of intermediaries called “sub–
brokers”. Each sub–broker in the chain introduced a mark-up in the price,
in the absence of the unbundling of professional fees from the trade price.
It was not uncommon for investors in small towns to face four
intermediaries before their order reached the BSE floor, and to face mark-
ups in excess of 10% as compared with the actual trade price.

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8. A peculiar market practice called badla allowed brokers to carry
positions across settlement periods. In other words, even open positions at
the end of the fortnight did not always have to be settled.

Above, all are the problems in the Indian capital market as of 1992
but time change and mostly these problems are solved.

OBJECTIVE

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OF THE
STUDY

✔ OBJECTIVES OF THE STUDY:

The sole effort behind carrying out this study is to provide guidance of
India capital market. Also, defining the relationship of Indian capital
markets with global capital markets.

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1. To understand the practical & theoretical aspects of the CAPITAL
MARKET OF INDIA.

2. To provide the information to the prospective investors about the
auto companies
of auto segment.
3. To understand the relation between stock market and Indian
economy in comparison
with the world’s economy.
4. To guide & help probable investors how to invest into a particular
sector and in which
type of market conditions.

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RESEARCH
METHODOLO
GY

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✔ STUDY DESIGN:

1. Data source
Secondary Data:
 Industry Reports
 Internet
 Books & Magazines

2. Analysis & Interpretation

The various tools for analysis used are graphs, charts, percentage
growth, secondary data.

✔ METHOD OF ANALYSIS:

1. Fundamental Analysis

Fundamental analysis done for studying the how future prices of the
company will perform. Fundamental analysis is useful to finding the right
value of the company. Fundamental analysis includes the study of
Economy, Industry and Company. For estimating any company’s share
price not only the historical performance data of that company are very
useful but also the quantitative analysis of the revenue, assets liquidity,
expenditure, etc.

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INTRODUCTI
ON TO
ORGANIZATI
ON

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✔ COMPANY PROFILE:

Sharekhan is an equities focused organization tracing its lineage to SSKI
(Shripal Sevantilal Kantilal Ishwarlal), a veteran equities solutions
company with over 8 decades of experience in the Indian stock markets.

Sharekhan is 80 years old company which is started online in the year
2000 & it is the first company who started online in 1984 they ventured
into institutional broking& corporate finance. They having more then 80
branches, 400 franchises and also having 825+ shops in 280 cities. In
Rajkot branch daily dealing Rs.16crore & 400crore daily dealing all over
India. It has almost 4000 employees and 100000 trading customers.

If you experience our language, presentation style, content or for that
matter the online trading facility, you'll find a common thread; one that
helps you make informed decisions and simplifies investing in stocks. The
common thread of empowerment is what Share khan’s all about!

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Share khan is also about focus. Share khan does not claim expertise in
too many things. Share khan’s expertise lies in stocks and that's what he
talks about with authority. So when he says that investing in stocks should
not be confused with trading in stocks or a portfolio-based strategy is
better than betting on a single horse, it is something that is spoken with
years of focused learning and experience in the stock markets. And these
beliefs are reflected in everything Share khan does for you!

To sum up, Share khan brings to you a user- friendly online trading facility,
coupled with a wealth of content that will help you stalk the right shares.

Those of you who feel comfortable dealing with a human being and would
rather visit a brick-and-mortar outlet than talk to a PC, you'd be glad to
know that Share khan offers you the facility to visit (or talk to) any of our
share shops across the country.

In fact Share khan runs India's largest chain of share shops with over six
hundred outlets in more than 100 cities! What's a share shop? How do you
locate a share shop in your city?

To find the answers of these questions, you must visit Share khan. hi other
words Share khan is a company that provides you an outstanding trading
facility with a wide variety of products and acts as an investment
consultant to manage your portfolio and secure a high rate of return on
your investments in the securities market.

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SSKI has been voted the best domestic brokerage in India by Asia money
Polls’ 2004. Also SSKI is being rated as No. 1 Financial Researcher by
Business Today, in the Survey conducted on Lead Managers of all the
Mutual Funds.

Basically, the company is a market leader in providing brokering services
and has a top turnover in trading and the high turnover makes it the no. l
in the market. The main difference is the services that they provide to the
investors who really need it. The services are discussed in more detail in
the marketing activities. The clients are managed with a friendly corporate
culture to give him more benefited investment ideas and motivate him
whenever he needs. The company is providing as many tips to the clients
(pre-market, online and post-market) for more and more trading ideas and
the manager helps each client to concentrate on a few scripts so that he
can manage the profit/loss.

In short, Share khan is currently having a good position in the market with
the highest no of transactions and also the highest turnover (buying &
selling) in India and a leader in providing better services to the investors.
Share khan, India's leading stock broker is the retail arm of SSKI, and
offers you depository services and trade execution facilities for equities,
derivatives and commodities backed with investment advice tempered by
decades of broking experience. A research and analysis team is constantly
working to track performance and trends. That's why Share khan has the

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trading products, which are having one of the highest success rates in the
industry the largest chain.

✔ NATURE:
Sharekhan is basically a service providing firm. It is a stock
broking firm which providing services of selling and purchases of stocks on
behalf of one investor from another investor and then transfer stocks to
respective dematerialized account. Sharekhan Limited is a retail financial
services provider with a focus on equities, derivatives and commodities
brokerage execution on the National Stock Exchange of India Ltd. (NSE),
Bombay Stock Exchange Ltd. (BSE), National Commodity and Derivatives
Exchange India (NCDEX) and Multi Commodity Exchange of India Ltd.
(MCX).

Sharekhan provides trade execution services
through multiple channels - an Internet platform, telephone and retail
outlets and is present in 225 cities through a network of 615 locations. The

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company was awarded the 2005 Most Preferred Stock Broking Brand by
Aawaz Consumer Vote.

➢ SSKI named its online division as SHARE KHAN and it is into retail
Broking.
➢ The business of the company overhauled 8 years ago on February 8,
2000
➢ It acts as a discount brokerage house to a full service investment
solutions provide
➢ It has specialized research product for the small investors and day
traders.
➢ Largest chain of share shops which is 825+ share shops in 280 cities,
415 Franchisees & over 100 Branches across India.
➢ It has $25m/trades every day.
➢ Leading player today with 20% market share.
➢ Over 8000 online clients.
➢ The site was also launched on February 8, 2000 and named it as
www.sharekhan.com.
➢ The Speed Trade account of share khan is the next generation
technology product launched on April 17, 2002.
➢ SpeedTradePlus was launched on October 28, 2002 for trading in
Derivatives.
➢ It offers its customers with the trade execution facilities on the NSE,
for cash as well as derivatives, depositories.

✔ VISION:

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Punch line: Your guide to the financial jungle”

Statement defines that Sharekhan is not just an stock broking
firm which helps the investor to do trade on behalf of them but they
also guide the investor to in which sector to invest, when to invest,
how much amount to invest. Sharekhan do all these activities after
understanding the particular investor’s needs, one investor’s need
differs from another investor. So Sharekhan is more interested in
guiding the new investor who want to start investment in stock
market, for the investor who is new in stock market there is special
guidance available on Sharekhan’s website i.e. on
www.sharekhan.com topic called “first step” which is designed
specially for the new investor.

“As a retail brokering outfit, customer service ranks extremely high
in our list of priorities. Effectively managing client expectations and
offering them a high quality of customer service are key for us. “
Ketan Parekh,
Chief Technology Officer,
Sharekhan Limited

The above statement was given by Sharekhan’s chief technology
officer which shows that when they had introduced online trading facility
in the year 2000, they want to be it as customer-friendly as well as
convenient also so that a new investor can also use it. To sum up,
Sharekhan brings to you a user- friendly online trading facility, coupled
with a wealth of content that will help you stalk the right shares.

SSKI Group - Corporate Structure
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OwnsSSKI
SSKI
56%
SSKI
Owns Investor
Corporate
Services
Securities
Finance
of 50.5% Pvt.Pvt.
Pvt.Ltd.
Ltd.
of Ltd.

Morakhia Family &
Investment
Retail broking
Associates Banking
arm of the
groupof the group
arm
Shareholding pattern
50.5%
56% Morakhia
SSKI Securities
family
Pvt. Ltd.
(promoters)
49.5 %HSBC
18.5% Morakhia family
Private
Equity Management,
Mauritius
18.5% First Carlyle
Ventures, Mauritius
7% Intel Pacific Inc.

Integrated Equity Solutions Provider:

➢ Among the top 3 branded retail service providers
➢ Multi-channel access to clients
➢ Tailor made research and products
➢ Depository Services
➢ Derivatives
➢ Innovative products for enhanced performance
Best research team in the world

✔ CORPORATE OFFICE

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HEAD OFFICE : SHAREKHAN LTD.

A – 206, PHOENIH HOUSE,

PHOENIH MILL COPUND,

SENAPATI, BAPTA MARG,

LOWER PAREL,

MUMBAI – 400013

PHONE NO. : 1800 - 22 7500, 3970 75 00

WEB SITE : www.sharekhan.com

CEO : TARUN SHAH

Total Share Shops : More than 825+ in more than 280 cities

Total Employees : More than 3000 across India

✔ HR POLICIES & PERFORMANCE APPRAISAL:

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HR policies & procedures

Conduct: Office time

 The official timing are 9:30a.m to 6:oo p.m. Reporting even one
minute after 9:30a.m shall be a late mark system. 3 such late marks
in the month after be considered as 1day’s leave. Like wise employee
attending office after 11:30a.m or leaving office before 3:30p.m will
be marked absent for half day.

 If any HOD decides on different work timing for his team, then timing
has to
be followed accordingly & the late coming will be as per the approval
of the
HOD

 Conduct - grooming

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Performance appraisal

Sharekhan believe in meritocracy. Therefore, promotion, increment, job
movement, incentives, bonus reward and recognition all are based on
performance appraisal of the employee .performance appraisal take place
on quarterly basis & a detailed review is undertaken on an annual basis,
there can be performance appraisal and monitoring on a monthly basis as
well.

There employee can be broadly classified in two categories namely, sales
and support. for staff the core job is to achieve their target and get volume
of business which exeeds expectation. For support staff, the core job is to
ensure completion of relevant activities with 100% accuracy and with no
delays. Besides this all the employee are expected to demonstrate their
behavior which shoud be in line with the following 4 key behavioral
expectations from the employee.

 DISCIPLINE
 INTEGRITY
 INITIATIVE
 TEAM WORK

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✔ ORGANIZATIONAL STRUCTURE:

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✔ PRODUCT PROFILE:

✔ Sharekhan Depositary Service
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Dematerialization and trading in the demat mode is the safer and faster
alternative to the physical existence of securities. Demat as a parallel
solution offers freedom from delays, thefts, forgeries, settlement risks and
paper work. This system works through depository participants (DPs) who
offer demat services and hold the securities in the electronic form for the
investor Share khan Depository services offer dematerialization services to
individual and corporate investors.

We have a team of professionals and the latest technological expertise
dedicated exclusively to our demat department, apart from a national
network of franchisee, making our services quick, convenient and efficient.
At Share khan, our commitment is to provide a complete demat solution
which is simple, safe and secure.

Share khan is a registered Depository Participant (DP) with National
Securities Depository Ltd. (NSDL). The participants are required to enter
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into an agreement with beneficial owners. It is required that separate
accounts shall be opened by every participant in the name of each of the
beneficial owner and the securities of each beneficial owner shall be
segregated and shall not be mixed up with the securities of other
beneficial owners or with the participant's own securities. The participants
are obliged to reconcile the records with every depository on a daily basis.
Participants are required to maintain the following records for a period of
five years. Records of all the transactions entered into with a depository
and with a beneficial owner.

✔ Portfolio Management system

With the Share khan Team Managing Your Portfolio, you can be assured
that your investments are in safe hands!

We follow a multi-disciplined approach incorporating quantitative analysis,
fundamental analysis and technical analysis. This multi-pronged approach
enables us to provide risk-controlled returns for you.

Right from choosing the combination of stocks most suitable for you based
on your risk appetite to monitoring their movements and discussing them
with you at special events. Click here to see how we manage your portfolio
in a few easy steps. This is how we make investing completely hassle-free
for you. There are mainly three types of PMS, Share khan provides.

• Pro-tech (High Risk & Return)
• Pro-prime (Moderate Risk & Return)
• Pro-Arbitrage (Low Risk & Fixed Return)

✔ MUTUAL FUND
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Everybody talks about mutual funds, but what exactly are they? Are they
like shares in a company, or are they like bonds and fixed deposits? Will I
lose all my money in funds or will I become an overnight millionaire? Big
questions that get answered in just five minutes.

Meaning

A mutual fund is a pool of money that is invested according to a common
investment objective by an asset management company (AMC). The AMC
offers to invest the money of hundreds of investors according to a certain
objective - to keep money liquid or give a regular income or grow the
money long term. Investors buy a scheme if it fits in with their investment
goals, like getting a regular income now or letting the money accumulate
over the long term. Investors pay a small fraction of their total funds to the
AMC each year as investment management fees.

Mutual fund industry was started in India with establishment of UTI (1963),
which is only player in the market of mutual fund up to 1987. During that
time mutual fund market refers the unit link schemes like Master Share
and Master Gain.

Mutual fund provides varieties of schemes for different kind of customers
to suit their goals. They have open-ended and close-ended schemes,
children’s plan, diversified equity fund, balanced fund, liquid fund, income
fund, short term fund, sector fund, ELSS (equity linked savings schemes)
and pension plan.

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✔ Online IPO

Online IPO (Initial Public Offering) is a new service started by Share
khan for providing the application form of any company’s issues of shares
just like the TCS issue can be subscribed by filling an online form to reduce
the paper work and the fund transfer facility is also provided to the clients
for transferring the funds online. It is given on its web-site for helping the
clients who are not able to collect the forms manually and the speed of
filling and reducing the risk of misplacing of forms, not reaching in time,
etc.

✔ Online Commodity Trading

Online commodity trading offers a way for an open, many-to-many
system, where every user has equal access to price quotes and trading
functionality. It provides a level playing field for all, without favoritism or
control by a chosen few, where any user can view all quotes posted by
other users in real time, act or trade on quotes posted by others, post their
own prices and quantities for others to trade.

Liquidity, or trade activity, is perhaps the best measure of success of an
online trading commodity trading system. With most online commodity
trading systems, traders can be sure of finding an interesting market
development or trading opportunity almost every time they log on.

All quotes posted by users on any online commodity trading systems are
live and firm. They can be acted on with full assurance of a completed
transaction.

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The greatest advantage of an online system for trading is that just a click
can be used to hit a bid or lift an offer.

The Online trading system operates almost continuously around the clock,
24 hours a day, seven days a week. This allows any user to extend the
trading day, and easily pass the trading objectives to others in companies
in different time’s zones.

The online commodity trading system in India is only an emerging
segment yet. This is because the Internet boom in Indian is on the rise
only now. The Internet charges are becoming minimal and the Internet is
soon becoming a way of life in India. It is in this scenario that online
trading is becoming more the way of trading in India.

There are mainly two exchanges deals with commodity

• MCX (Multi Commodity Exchange)
• NCDEX (National Commodities And Derivatives Exchange)
Commodity trading is also known as “Vayda Market”. In short Share khan
also provides broking in commodities and the brokerage charges are
0.10% on total trade value and if carry forwarded an additional 0.02%
charge on total trade. Items which are traded through commodity
exchange are:

• Spices : Peeper, Red Chilli, Jeera, Turmeric
• Metal : Steel Long, Steel Flat, Copper, Nickel, Tin
• Fibre : Kapas, Long Staple Cotton, Medium Staple Cotton
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• Pulses : Chana, Udad, Yello Peas
• Cereals : Rice, Basmati Rice, Wheat, Maize, Sarbati Rice Energy :
Crude Oil
✔ OFFLINE TRADING ACCOUNT

The Off-Line account is trading account through which one can buy and
sell through his/her telephone or by personal visit at Sharekhan Shop. This
a/c is for those who are not comfortable with computer and want to trade.

➢ Offline A/c is the A/c for the investors who are not familiar with the
use of computer.
➢ The A/C opening charges Rs.460 which includes Rs.300 for Demat
account and Rs. 160 for trading account (One time).

✔ ONLINE TRADING ACCOUNT

➢ A/C Opening Charges Rs.750 (onetime Charge).
➢ For 1st Year Demat A/C is Free, On 2nd Year AMC charge is applicable.
➢ Tie up with 12 banks through which one can transfer or withdraw his
fund online. Which are as follows
1. HDFC Bank 2. IDBI Bank
3. UTI Bank 4. OBC Bank
5. CITI Bank 6. IndusInd Bank
7.Union Bank of India 8. yes bank
9. Bank of Punjab 10. ICICI bank

11. Bank of India 12. centurion bank

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Any one who have A/C either of above banks they can use this facility.
Otherwise one has to make fund transfer or withdraw by cheque.

This account enables you to buy and sell shares through our website. You
get features like

a) Streaming quotes (using the applet based system)
b) Multiple watch lists
c) Integrated Banking, demat and digital contracts
d) Instant credit and transfer & instant order execution and confirmation
e) Real-time portfolio tracking with price alert and, of course, the
assurance of secure transactions.
f) Price alerts

• Online Trading Account includes two types of accounts:
1. Classic Account or Fast Trade Account
2. Speed Trade Account

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✔ MARKET PROFILE:

This report analyzes the Indian retail brokerage industry, taking into
account the health of the capital markets and the intensity of competition
among the brokerage companies. Michael Porters Five Forces Analysis has
been employed to understand industry attractiveness. The report covers
all important segments of the industry and also analyzes the prevailing
market dynamics.

The Indian retail brokerage industry consists of companies that primarily
act as agents for the buying and selling of securities (e.g. stocks, shares,
and similar financial instruments) on a commission or transaction fee
basis.

It has two main interdependent segments: Primary market and the
Secondary market.

Evolution of the Retail Brokerage Market
It explains the evolution of the brokerage market in three phases:
pre1990, 1990-2000, post 2000.

The Indian retail brokerage market is showing phenomenal growth. The
total trading volume of brokerage companies has increased from
US$1239.1 billion in 2004 to US$1492.1 billion in 2005, and is expected to
reach US$6535.7 billion by 2015.

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Some of the main characteristics of the brokerage industry include growth
in e-broking, growing derivatives market, decline in brokerage fees etc.

Following are the some companies in the retail brokerage industries :

1. ICICI Securities Ltd. (www.icicidirect.com)
2. Kotak Securities Ltd. (www.kotaksecurities.com)
3. Indiabulls Financial Services Limited (www.indiabulls.com)
4. India Infoline (www.5paisa.com)
5. IL&FS investmart Limited (www.investsmartindia.com)
6. SSKI Ltd. (www.sharekhan.com)
7. Motilal Oswal Securities (www.motilaloswal.com)
8. Fortis Securities (Religare) (www.fortissecurities.com)
9. Karvy (www.karvy.com)
10. Geojit Securities (www.geojit.com)
11.HDFC Securities (www.hdfcsec.com)
12.Reliance Money (www.reliancemoney.com)

INSTITUTE OF BUSINESS MANAGEMENT & RESEARCH, AHMEDABAD. Page 34
INDIAN CAPITAL MARKET

✔ COMPARISON WITH COMPETITORS:

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INDIAN CAPITAL MARKET

Company SHAREKHA ICICI INDIA KARVY INDIABULL
N SECURITIE INFOLINE STOCK S
S BROKING SECURITIE
Fees LTD. S LTD.

Account opening NIL NIL NIL NIL NIL

Advance/deposit NIL NIL NIL NIL NIL

Rs.300/- p.a Rs.500/- p.a NIL Rs 250/- p.a 1) NIL FOR
in advance POA
Account ACCOUNT 2)
Maintenance Rs.250/- for
NON-POA
ACCOUNT

Rs. 5 per Rs.35/- per Rs 10/- per Rs 3/- per 1) Rs. 1 per
certificate demat cert + Rs Certificate + certificate
Min Rs. 35 request 40/- as Courier (max Rs.
form and postal Charges Rs 250/-)
Demat
Rs.2/- for charges 25/- +Rs.25
each courier
certificate charges for
POA A/c

Rs. 35 per Rs.20/- for Rs 15/- as a) a fee of A)Rs.15/-
certificate remat per cert + Rs 20/- for per request
for every request Rs 40/- as every 100 or of every
hundred form and postal securities or 100
securities depository charges part securities or
charges thereof ; or part thereof.
Remat
extra b) a flat fee B) A flat fee
of Rs 20/- of Rs. 15/-
per per
certificate certificate.
whichever is Whichever is
higher. higher.

0.03 % of 0.04% of the Rs 25/- Upto Rs 50
the value of transaction
Transaction Rs.8/- Per
Transaction. value
(Debit) Transaction.
Min Rs. 30 subject to
minimum of
Rs.15/-
0.02 % of Rs.50/- per NIL 000 - Rs 20/-
the value of request > Rs 50 Rs. 25/- Per
Pledge Creation the Transaction.
Transaction.
Min Rs. 50

NIL depository NIL 000 - Rs
Pledge Creation Rs. 25/- Per
charges & RESEARCH, AHMEDABAD.
INSTITUTE OF BUSINESS MANAGEMENT 50/- Page 36
INDIAN CAPITAL MARKET

 As from the above given chart we can study that the fees charged but
the Sharekhan is comparatively low with its competitors in the market.
Sharekhan provides auto pay in-pay out facility which means investor
do not have to pay for transferring his stocks from trading account to
his respective demat account, it will itself will be transferred as per
investor’s instructions without any charge. While few other players in
market are charging for this facility.

Sharekhan believes in customer-friendly transactions which gives
customer hassle free environment for trading, he do not has to worry
about other charges that can be hidden charges. One of the key success
factor for Sharekhan limited is “No Hidden Charges”, they are charge
only which they mentioned while account opening. Other government
charges will investor will pay which is mandatory.

✔ SWOT ANALYSIS:
INSTITUTE OF BUSINESS MANAGEMENT & RESEARCH, AHMEDABAD. Page 37
INDIAN CAPITAL MARKET

During this training at Sharekhan, we had come to know the
Strengths – Weaknesses – Opportunities – Threats for the company
and it is very useful for a company to analyze them. Therefore, the
SWOT analysis is presented here and the suggestions for maintaining
strengths and removing weaknesses are explained.

• Strengths:
 Well-maintained infrastructure.
 Dedicated, Intelligent and Loyal staff.
 On-line Trading products.
 Lowest brokerage and other charges w.r.t. Competitors.
 The best investment advice correct up to 70-90 % through
dedicated research and reports.
 Wide product range to enable the clients to choose the best
alternative.
 One of the best DPs in India.
 A positive image in the existing clients.

• Weaknesses:
 Less awareness in the market.
 Time consuming process for account opening, resolving the
problems of the customers, etc.
 Service quality is not maintained accordingly how they are
promoted.

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INDIAN CAPITAL MARKET

Opportunities:

 Large primary market to sit as a book runner for the other
companies just like Kotak securities ltd.
 That runs the books of share holdings for many companies
 Slope of stock market towards delivery based transactions.
 Large potential market for delivery and intra-day transactions.
 Open interest of the people to enter in stock market for investing.
 Attract the customers who are dissatisfied with other brokers &
DPs.
 An indirect opportunity generated by the market from its
bullishness.
 Another opportunity for Sharekhan limited is that, if they can get
success in promoting educational programme well for online
trading system then they can attract large pool of investors and
that will make work of Sharekhan also easy and more paper less
work can be done, which will be cost saving in daily basis.

• Threats:
 Decreasing rates of brokerage in the market.
 Increasing competition against other brokers & DPs.
 Poor marketing activities for making the company known among
the customer.
 A threat of loosing clients for any kind of weakness of the
company.
 Indirect threat from instable stock market, i.e., low/no profit of
Sharekhan’s clients would lead them to go for other broker/DP.
INSTITUTE OF BUSINESS MANAGEMENT & RESEARCH, AHMEDABAD. Page 39
INDIAN CAPITAL MARKET

INDIAN
CAPITAL
MARKET
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INDIAN CAPITAL MARKET

✔ BACKGROUND:
The securities market in India witnessed several policy initiatives
since the year 2000, which further refined the market micro-
structure, modernized operations and broadened investment choices
for the investors. The irregularities in the securities transaction in the
last quarter of the previous financial year hastened the introduction
and implementation of several reforms. While a Joint Parliamentary
Committee was constituted to go into the irregularities and
manipulations in all their ramifications in all transactions relating to
securities, decisions were taken to complete the process of
demutualization and corporatisation of stock exchanges to implement
the decision to separate ownership, management and operation of
stock exchanges and to effect legislative changes for investor
protection, and to enhance the effectiveness of SEBI as the capital
market regulator. The mainly event is described with date below:

Date Event
1876 Birth of Bombay Stock Exchange (BSE).
27 Jun Notification issued by government under SC(R)A
1969 prohibiting forward or futures trading.
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INDIAN CAPITAL MARKET

Jan 1983 Regulatory permissions obtained for badla trading,
a mechanism to carry forward positions.
2 Jan Computation of BSE ’sensitive’ index commenced.
1986
12 Apr SEBI created.
1988
1992 Fixed income and equity markets scandal.
30 Jun Start of electronic debt trading at National Stock
1994 Exchange (NSE).
3 Nov Start of electronic equity trading at NSE.
1994
13 Dec Ban on badla.
1994
25 Jan SC(R)A amended to lift the ban on options trading.
1995
14 Mar Start of electronic trading on a few stocks at BSE.
1995
3 Jul Electronic trading of all stocks on BSE.
1995
5 Oct Ban on badla reversed.
1995
Apr National Securities Clearing Corporation (NSCC)
1996 commenced operations.
8 Nov National Securities Depository Ltd (NSDL)
1996 commenced operations.
1999 Securities law modified to enable derivatives
trading.
12 Jun Start of equity index futures trading.
2000
4 Jun Start of equity index options trading.
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INDIAN CAPITAL MARKET

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

 After the above revolution the Rolling settlement on T+5 bases was
introduced in respect of most active 251 securities from July 2, 2001.
Rolling settlement on T+3 basis commenced for all listed securities
from April 1, 2002 and subsequently on T+2 basis from April 1, 2003.
Trading in index options commenced in June 2001 and trading in
options on individual securities commenced in July 2001. Futures
contracts on individual stock were launched in November 2001.
Futures and options contracts on 49 individual securities were made
available from August 2003. Interest rate futures contract was
launched from June 2003. The year 2001-02 has been quiet eventful
for debt markets in India, with implementation of several important
decisions like setting up of a clearing corporation for government
securities, a negotiated dealing system to facilitate transparent
electronic bidding in auctions and secondary market transactions on
a real time bases an dematerialization of debt instruments. These
developments in the securities market, which support corporate
initiatives, finance the exploitation of new ideas and facilitate
management of financial risks, hold out necessary impetus for
growth, development and strength of the emerging market economy
of India.

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INDIAN CAPITAL MARKET

✔ PRODUCTS, PARTICIPANTS AND FUNCTIONS

 Transfer of resources from those with idle resources to others who
have a productive need for them is perhaps most efficiently achieved
through the securities markets. Securities markets provide channels
for reallocation of savings to investments and entrepreneurship and
thereby decouple these two activities.

 Savings are linked to investments by a variety of intermediaries
through a range of complex financial products called “securities”
which is defined in the Securities Contracts (Regulation) Act, 1956 to
include shares, bonds, scripts, stocks or other marketable securities
of like nature in or of any incorporate company or body corporate,
government securities, derivatives of securities, units of collective
investment scheme, interest and rights in securities, security receipt
or any other instruments so declared by the central government.

 The amount of funds supplied by the supplier may not be the amount
needed by the user. Similarly, the risk, liquidity and maturity
characteristics of the securities issued by the issuer may not match
preference of the supplier. In such cases, they incur substantial
search costs to find each other. Search costs are minimized by the
intermediaries who match and bring the suppliers and users of funds
together. These intermediaries may act as agents to match the needs
of users and suppliers of funds for a commission, help suppliers and
INSTITUTE OF BUSINESS MANAGEMENT & RESEARCH, AHMEDABAD. Page 44
INDIAN CAPITAL MARKET

users in creation and sale of securities for a fee or buy the securities
issued by users and in turn, sell their own securities to suppliers to
book profit. A large variety and number of intermediaries provide
intermediation services in the Indian securities market as may be
seen from table.

 The securities market, thus, has three categories of participants,
namely the issuers of securities, investors in securities and the
intermediaries and two categories of products, namely the services of
the intermediaries, the securities, including derivatives. The issuers
and investors are the consumers of services rendered by the
intermediaries while the investors are consumers of securities issued
by issuer. In pursuit of providing a product to meet the needs of each
investors and issuer, the intermediaries churn out more and more
complicated products. They educate and guide them in their dealings
and bring them together. Those who receive funds in exchange for
securities and those who receive securities in exchange for funds
often need the reassurance that it is safe to do so. This reassurance
is provided by the law and by custom, often enforced by the
regulator. The regulator develops fair market practices so as to
protect the interests of funds. The regulator ensures a high standard
of service from intermediaries and supply of quality securities and
non-manipulated demand for them in the market.

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INDIAN CAPITAL MARKET

✔ SCENARIO IN CONTEXT WITH INDIAN ECONOMY:

A logical starting point in assessing any equity market is to analyze
the economic factors that affect stock prices. Understanding the current
and future state of the economy is the first step in understanding what is
happening and what is likely to happen to the market.

A basic measure of the economy is Gross Domestic Product (GDP). It
is a measure of the economic health and strength of the economy.
Investors are concerned about whether the economy is experiencing good
rate of growth or not. India’s GDP growth forecast for 2006 is next only to
China. A 9.31% growth forecast will strengthen the equity market of India
quite substantially.

INDIA’S GDP GROWTH NEXT ONLY TO CHINA
GDP GROWTH 2006

12.00% 10.30%
10.00% 9.31% (Source : Merrill Lynch)
8.00%
6.00% 4.60% 4.50% 4.40% 4.20% 3.80%
4.00% 2.30%
2.00%
0.00%
ND
A
A

E
G

N
US
IA
DI

R
IN

PA
N
S
LA

O
IN

KO
CH

AY

JA
AP
AI

AL

NG

INSTITUTE OF BUSINESS MANAGEMENT & RESEARCH, AHMEDABAD. Page 46
G
TH

N
M

HO

SI
INDIAN CAPITAL MARKET

The favorable demographics of Indian economy in terms of working
age of population, in terms of consuming/ producing age group as well as
the growth of middle income level will strengthen the equity market.

Global Growth in Working Age
Population (in mn)
400 375
350
300
250
200
150
100 80 75
55 45 42
50 21 18
0
ca

s ia

a

s ia

A
ia
ld

a

ric
in

US
d
or

fri

tA
A
In

Ch

me
W

A

th

es
A
u

W
So

in
t
La

Source: MSDW

Increasing Consuming/Producing
Age Group
1400
1200 92
1000 49
800 811
598
600
400
200 380 365
0
INSTITUTE OF BUSINESS MANAGEMENT & RESEARCH, AHMEDABAD. Page 47
2001 2016
0-14 15-59 60&Above
INDIAN CAPITAL MARKET

Source: BRIC’s Report by Goldmann Sachs

 REVOLUTION OF INDIAN ECONOMY

There has been a tremendous transformation of the Indian Economy
with the government taking a holistic view of the factors impacting
growth, foreign investment and integration of India with the World
Economy. The infrastructure spending has been on a high.

COMPARISON OF INFRASTRUCTURE SPENDING OF LAST SIX YEAR(IN $ BN.)

20 18.4
18 15.9
16 14.5 14.3
13.3
14
12 10.4
10 8.6 8.1
8 7.1 6.9
6
3.4
4 2
2
0
rts

om
er

s
s
ds

Ga
ay

w
o
a

c
ilw

irp

Po
Ro

le
&

Te
/A
Ra

il
O
rts

2001-04 2004-07
Po

Source: Merrill Lynch

Government too has lined up major infrastructure projects like the
golden quadrilateral, new power plants, airports, ports etc. The total

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INDIAN CAPITAL MARKET

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.

Investors rely heavily on the financial statements of a corporation,
which provide the major financial data about companies. The balance
sheet of the company is hence a basic statement about the financial
health. If we analyze the corporate balance sheets over the years, we find
that Indian corporate have more stronger balance sheet and this fuelling
their aggression as they aim to increase their corporate acquisitions.

With the recent budget there has been some more rationalization of
corporate tax rate structure. With the introduction of further tax reforms
related to equity market, the domestic investors continue to look at
equities as a favorable investment avenue, both in terms of generating
consistent returns and saving tax.

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INDIAN CAPITAL MARKET

 PROBLEMS IN INDIAN CAPITAL MARKET

The Indian stock market is suffering from many problems. Some of
the important ones are the following:

Lack of Knowledge & Tendency

In India, having very large amount of investors but mainly or mostly
the investors keep away from the capital market due to lack of knowledge
of capital market, fear of taking risk. Thus, Indian stock market suffering
from many limitations:

Absence of Genuine Investors

As it is, speculative activities outplay the genuine trading activities.
Very negligible fraction of transactions represents purchases or sales by
genuine investors. Most of the transaction is carry forward transactions
with a speculative motive of deriving benefit from short term price
fluctuations. Speculators are only interested in taking a bet on the stock
and profiting from its price swings. Almost 85 per cent of the total volume
is contributed by speculators.

Presence of Price-Rigging

There is a tendency among companies issuing securities to artificially
push up the prices before the issue of securities. This is generally done by
buying and selling securities by a few groups of persons among
themselves and thereby pushing the prices up. There is a strong bull
movement in the market.
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INDIAN CAPITAL MARKET

Prevalence of Insider Trading

Insider trading has been accepted as a routine practice in India.
Insiders are those who have access to unpublished price sensitive
information by virtue of their position in the company and who use such
information in their best advantage. Hence it is an undesirable activity.

High Volatility of Stock Market

The Indian stock market is subject to high volatility in recent years.
The All India Index number of security prices was steady at 60% between
the period 1999 and 2000. However, it was subject to heavy fluctuations
afterwards. This high rate of volatility is not conducive for the smooth
functioning of the stock market.

Dominance of Financial Institutions

Few financial institutions like the Mutual Funds, LIC and GIC dominate
the Indian stock market scene. Hence, the Indian stock market is
significantly influenced by the actions of these few institutions. It actually
reduces the level of competition in the stock market which is not a healthy
trend for the growth of any stock market.

FIIs Control over the Market

Like the financial institutions the FIIs also lead the Indian stock market. As
per the projection India will become one of the largest economy of the
world based on its strong economic and demographic factor. As a result of
this FIIs and other investors are attracted towards India. As a result the FIIs
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INDIAN CAPITAL MARKET

taking India’s market at a new high, but it is very important to know that
how long they are investing in India because of a sudden change the
Indian market collapsed.

✔ SCENARIO IN CONTEXT WITH GLOBAL
ECONOMY:
Reforms in the securities market, particularly the establishment and
empowerment of SEBI, market determined allocation of resources,
screen based nation wide trading, dematerialization and electronic
transfer of securities, rolling settlement and ban on deferral products,
sophisticated risk management and derivatives of trading and
settlement. Indian market is now comparable to many developed
markets in terms of a number of qualitative parameters.

The next few decades the growth generated by the large developing
countries, particularly the BRICs (Brazil, Russia, India and China)
could become a much larger force in the world economy than it is
now—and much larger than many investors currently expect. If things
go right, the BRICs could become a very important source of new
global spending in the not too distant future.

INTERNATIONAL COMPARISON
(End December 2006)
Particular USA UK Japan German Singapor Hongkon China India
s y e g

No. of 7,651 1945 2,470 933 355 695 950 9,871
listed
Companies

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INDIAN CAPITAL MARKET

Market 16,635114 2,933,28 4,546,93 1,432,19 198,407 609,090 330,70 280,61
Cap. ($mn) , 0 7 0 3 9

Market 210 232 111 66 208 385 36 85
Cap.Ratio

Turnover 18,574,10 1,377,85 1,849,22 1,357,84 97,985 244,886 377,09 486,36
($mn) 0 9 8 1 9 0

Turnover 124 52 53 108 67 51 134.2 245
Ratio (%)

As may be seen from table except USASS, no other country has higher turnover
ration than India. At the end of December 2006, Standard and Poor’s (S&P)
ranked India 19th in terms of market capitalization, 17th in terms of total value
traded in stock exchanges and 7th in terms of turnover ratio.

COMPARISON LISTED COMPANIES IN
PERCENTAGE

USA

30 UK
JAPAN
41
GERMANY
SINGAPORE
HONGKONG
8
CHINA
3 31 10 INDIA
4

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INDIAN CAPITAL MARKET

COMPARISON OF TURNOVER RATIO

19% USA
24%
UK
JAPAN
8% GERMANY
SINGAPORE
5%
16% HONG KONG
4% CHINA
INDIA
16% 8%

The table shows you the international comparison in various ways, the same
thing are shown in below charts in percentage point of view, the first chart shows
the round about 41% of listed companies in the India which is greater than USA.
The next chart shows the turnover ratio of the various countries the chart shows
the India’s turnover ratio 19% which is next only to USA.

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INDIAN CAPITAL MARKET

 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.

GLOBALIZATION

The Indian Stock Market though one of the oldest in Asia being in
operation since 1875, remained largely outside the global integration
process until the late 1980s. A number of developing countries in
concert with the International Finance Corporation and the World
Bank took steps in the 1980s to establish and revitalize their stock
markets as an effective way of mobilization and allocation of finance.
In line with the global trend, reform of the Indian Stock Market began
with the establishment of Securities and Exchange of India in 1988.
However, the reform process gained momentum only in the
aftermath of the external payment crisis of 1991 followed by the
Securities scam of 1992. Among the significant measures of
integration, portfolio investment by FIIs allowed since September
1992, has been the turning point for Indian Stock Market. As of now,
FIIs are allowed to invest in all categories of securities traded in the
primary and secondary segments and also in the derivatives
segment. Following the commissioning of the NSE in June 1994,

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INDIAN CAPITAL MARKET

National Securities Clearing Corporation in April 1996 and National
Securities Depository in November 1996, a screen based,
anonymous, order driven online dematerialized trading has been the
order of the day coupled with improved risk management practices
for clearing and settlement.

The process of integration received a major impetus when the Indian
corporate was allowed to go global with GDR (Global Depository
Receipt) /ADR(American Depository Receipt) issues. Starting with
maiden issue of Infosys in March 1999, ADR issues has emerged as
the star attraction due to its higher global visibility. Till date, around
12 Indian companies have taken advantage of the US market and 76
companies have captured the global market. In March 2001, two-way
fungibility for Indian GDR/ADRs was introduced whereby converted
local shares could be reconverted into GDR/ADR subject to sectoral
caps.

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. The cross border flows are averaging
around US $ 10 billion every year currently. Like elsewhere in the
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INDIAN CAPITAL MARKET

globe, the nature of capital flows has come to constitute a higher
percentage of the total capital flows. The ratio of non-debt creating
inflows to debt creating inflows was 1.5 to 83.3 in 1990-91 as against
44.6 to -6.6 in 2005-06.

COMPOSITION OF CAPITAL FLOWS TO INDIA
(US $ Million)
Debt

FDI Portfolio Creatin

Flow Equity g Others*
Total net
Year as a flows Flows As a % of
Capital flow
% of As a % of as a TCF

TCF TCF % of
TCF
1990-
7056 1.4 0.1 83.3 15.2
91
1999-
10444 20.7 29.0 23.1 27.2
00
2000-
10018 40.2 27.6 59.4 -27.2
01
2006-
12638 36.9 7.7 -6.6 62.0
07
Source: Reserve Bank of India Annual Report 2006-07
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INDIAN CAPITAL MARKET

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.

Prior to 1992, only non-resident Indians (NRIs) and Overseas
Corporate Bodies (OCBs) were allowed to undertake the portfolio
investment in India. Only on September 14, 1992 the Government of
India issued guidelines on FII investments in India which was followed
by a notification by Securities and Exchange Board of India (SEBI)
three years later in November 1995.

Ever since the opening up of the market for FIIs, the net investments
by FIIs have always been positive every year except in the year 1998-
99 where the net investment was negative primarily because of the
uncertainty that prevailed after India tested a series of nuclear
bombs in May 1998 and the imposition of the economic sanctions by
the United States, Japan and other industrialized countries. On an
average India has received cross border portfolio investment around
US $ 2.2 billion per year between 1992-93 and 2006-07 of which
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INDIAN CAPITAL MARKET

close to US $ 1.2 billion per year on an average is the share of FIIs.
The cumulative FII investment in India is around US $ 19 billion and
the FII investment in India account for over 10 percent of the total
market capitalization of the Indian Stock market.

FII INVESTMENT IN INDIA
(US $ million)
GDRs
Total FII Offsh
/ ore
Year Portfolio Investm
ADRs
flows ent funds
*
1992-
244 1 240 3
93
1999-
3026 2135 768 123
00
2000- 2760 1847 831 82

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INDIAN CAPITAL MARKET

01
2001-
2021 1505 477 39
02
2006-
979 377 600 2
07
Source: Reserve Bank of India Annual Report 2006-07

The investments by FIIs have been registering a steady growth since
the opening of the Indian capital markets in September 1992. That
this trend has come to stay is evident from the fact that the FIIs
investments amounted to over $ 8 billion for the period of calendar
2008. The below table further based on the investment in total
portfolio investment inflows have always have been the increase.

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INDIAN CAPITAL MARKET

TRENDS IN FII INVESTMENT

Period Gross Gross Net Net Cumulative
Investm Investm Net
Purcha Sales
ent ent**
ses (Rs.cro Investment
(Rs.cror (US
(Rs.cror re) ** (US
e) $million)
e) $million)
1994 7631 2835 4796 1528 3167
1996 15554 6979 8575 2432 7634
1998 16115 17699 -1584 -386 8898
2000 74051 64116 9934 2160 13396
2004 47060 44371 2689 562 15804
2007 144858 99094 45765 9949 25754
Source: SEBI Annual Report 2006-07

The FIIs hold 8.12 per cent of the total outstanding shares of the 469
companies studied as of September 2006, emerging as the biggest
institutional investor, ahead of the mutual funds, domestic financial
institutions and the private corporate bodies. In an overall ranking
they occupy the third position after the promoters and the Indian
public holding higher levels of investment than FIIs.

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INDIAN CAPITAL MARKET

SHARE HOLDING PATTERN
Category Total Share % of
Outstanding Share
Held
(in Rs.)
Promoters 69220551 42.62
Mutual Funds 12365489 7.61
Domestic Financial 25432703 15.66
Institution
FIIs 30627991 18.86
Private Corporate 5642696 3.47
Bodies
Indian Public 15205012 9.36
NRIs/OCBs 446293 0.28
Others 3475716 2.14
Total 162416441 100

The above table shows the FIIs holding over the Indian security
market, which says that FIIs are the one of the large investors in
Indian security market. The FIIs holding is the third highest in the
overall holding in Indian security market.

ONE IN THREE FIRMS HAS FII STAKES
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INDIAN CAPITAL MARKET

FIIs hold stakes in a third of all listed companies in India. Data
regarding holding pattern filed by 2,500 listed companies with the
Bombay Stock Exchange shows a marked increase in the number of
companies with FII investments.

The FIIs have added 291 companies in their equity portfolio of which
127 companies were added during April-June 2007 quarter. The
quantum that FIIs hold varies between 0.01 per cent and 64.26 per
cent stake in these companies. During the year FIIs more than
doubled their stakes in 164 companies and increased their stakes
between 50 per cent and 100 per cent in another 40. In over a 100
companies, the FIIs are the second-largest shareholders after the
promoters.

In the first quarter of the current fiscal, FIIs held over 30 per cent
stake each in 12 companies. In 41 firms, they hold stakes between 20
per cent and 30 per cent and in 55 companies, their holdings range
between 15 per cent and 20 per cent. Finally, in 76 companies they
hold between 10 per cent and 15 per cent stakes.

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INDIAN CAPITAL MARKET

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

The list of companies in which they have acquired substantial stakes
recently includes Grabal Alok Impex 27.21%, Goldstone Teleservices 20%,
Vaibhav Gems 19.71% and Sabero Organics 13.77%, which had no FII
presence a year back.

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INDIAN CAPITAL MARKET

EFFICIENT
MARKET
HYPOTHESIS

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✔ 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.

EMH has been the subject of intense debate among academics and
financial professionals. It is a world in which (1) all investors have costless
access to currently available information about the future, (2) all investors
are capable analysts, and (3) all investors pay close attention to market
prices and adjust their holdings appropriately. In such a market a
security’s price is a good indicator of its investment value, fair value or
intrinsic value, wherein it is the present value of the security’s future
prospects, as estimated by well-informed and skillful analysts who use the
information that is currently at hand. That is, an efficient market is one in
which every security’s price equals its investment value at all times and is
an unbiased estimate of its true value.

Contrary to popular view, market efficiency does not require that the
market price be equal to the true value at every point of time. All it
requires is that errors in the market price be unbiased, that is, prices can

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INDIAN CAPITAL MARKET

be greater than or less than true value as long as these deviations are
random.

In an efficient market a set of information is fully and immediately
reflected in market prices. However, the goal has always been to
encourage the establishment of allocationally efficient markets in which an
investor with the most promising investment opportunities has access to
the needed funds. However, in order for markets to be allocationally
efficient, they need to be both internally and externally efficient. In an
externally efficient market, information is quickly and widely disseminated,
which allows each security’s price to adjust rapidly in an unbiased manner
to new information so that it reflects its investment value. In comparison,
an internally efficient market is one in which market players compete
fairly, making demand and supply equations, making the cost of
transaction low and the speed of transacting high.

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. But if markets are efficient and current market prices fully reflect all
information, buying and selling securities in an attempt to outperform the
market will effectively be a game of chance rather than skill.
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INDIAN CAPITAL MARKET

EMH evolved in the early 1960s from the PhD dissertation of Eugene
Fama. Fama persuasively made the argument that in an active market
that includes many well-informed and intelligent investors, securities will
be appropriately priced and reflect all available information. If a market is
efficient, where large number of rational, profit maximisers actively
compete, with each trying to predict the future market values of individual
securities and where important current information is almost freely
available to all participants, no information or analysis or perception can
be expected to result in out-performance of an appropriate benchmark.

The arrival of new information to a competitive market can be linked
to the meat chop. The instant the chop hits the water; there is turmoil as
the fish devour the meat. Very soon the meat is gone, leaving the
worthless bone behind, and the water returns to normal. Similarly, when
new information reaches a competitive market there is much turmoil as
investors buy and sell securities in response to the news, causing prices to
change. Once prices adjust, all that is left of the information is the
worthless bone. No amount of gnawing on the bone will yield any more
meat, and no further study of old information will yield any more valuable
intelligence.

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 Three Important Classifications of EMH

(a) Weak Form:

Weak Form EMH states that previous prices of securities or historical
data are used to make buying and selling decisions. The significant
conclusion derived from weak-form hypothesis is that past rates of return
and any other security/ market information should have no relationship
with future stock prices or future rates of return. In other words, Technical
Analysis is of no use.

Early tests of weak form market efficiency failed to find any evidence
that abnormal profits could be earned trading on information related to
past prices. More recent studies, however, have indicated that investors
may under react to current types of information in the short term, but
overreact in the long term, driving security prices away from this
investment values. As a result, it may be possible to earn abnormal profits
by buying either securities that have recently risen in price or those that
have fallen in price over a longer time period. These two strategies are
known as ‘momentum’ and ‘contrarians’ strategies respectively.

(b) Semi Strong Form:

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Semi strong form EMH states that stock prices fully reflect all publicly
available information at its best and quickest. Usually, when talked about
efficient markets, semi strong form of efficient markets is meant, because
of the strict laws governing the use of insider information (a form of
private information) to make buying and selling decisions, as that involves
restricting the analysis to the publicly available information that analysts
use in making recommendations. However, public information also
includes all non-market information such as news about the industry or
various economies, the current political state abroad, etc.

The implication of semi strong form EMH is that investors should not
be able to derive above average rates of return from public information. In
other words, fundamental analysis is of no use.

A number of tests have been conducted to verify the semi strong
form of EMH with the majority of tests providing mixed evidence. Some of
the notable exceptions include the January effect, in which stocks that
experienced losses during the previous year tend to provide abnormal
rates of return in the current January, the Friday effect, the size effect, the
neglected firms effect and the book value to market value effect. For those
who think all these anomalies are funny, here is a quote from Mark Twain:
October, this is one of the peculiarly dangerous months to speculate in
stocks. The others are July, January, September, April, November, May,
March, June, December, August and February!

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(c) Strong Form:

Strong form EMH suggests that all information, both public and
private has been discounted in the efficient markets, where it would be
impossible to earn abnormal profits (other than by chance) by using
information whatsoever. It encompasses both weak form and semi strong
form and implies that no opportunities should exist for any investor to
derive above average rates of return, even with the use of insider
information. Like the semi strong version, tests of this hypothesis provided
mixed results. However, the bulk of tests were supportive.

Two glaring anomalies exist: Corporate insiders and market
specialists seem to be able to consistently earn above average rates of
return which implies that they possess monopolistic access to important
information. In addition, there is enough evidence to support the notion
that superior security analysts could also consistently above average rates
of return, although this group tends to be small. They manufacture their
own private information through their research efforts and are able to
discern mispricing.

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INDIAN CAPITAL MARKET

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Information and the Levels of Market Efficiency

Semi Strong:
Weak Strong
All public
Form: All Public &
Private Information
Form: Information
Past
Prices

Security Price Changes are Random

New, meaning a Surprise. Anything that is not a surprise is
predictable and should have been anticipated; hence it is old information.
A security’s price should move upward by an amount that provides a
reasonable return on capital, or dividend payments, but anything above or
below such an amount would, in an efficient market, be unpredictable.
What happens when new information arrives, such as an announcement
that a company’s earnings have experienced a significant and unexpected
decline? In an efficient market, the actions of investors will result in the
new information’s being incorporated immediately and fully into security
prices. Good surprises are as likely as bad ones and so the price changes
in an efficient market are as likely to be positive as negative.

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INDIAN CAPITAL MARKET

Price changes are random in a perfectly efficient market, but this
randomness does not mean that prices are irrational. As a flow of
information arrives randomly, changes in prices that occur as a
consequence of that flow will seem random, being sometimes positive and
sometimes negative. However, price changes are simply the result of
investors’ reassessing a security’s prospects and adjusting their buying
and selling appropriately. Hence, price changes are random but rational.

In a developed and free market, major disparities between price and
investment value are noted by alert analysts who seek to take advantage
of their discoveries. Securities priced below investment value known as
under priced or undervalued securities will be purchased, creating
pressure for price increases caused by the increased demand to buy.
Securities priced above investment value, known as overpriced or
overvalued securities will be sold, creating pressure for price decreases
caused by the increased supply to sell. As investors seek to take
advantage of opportunities created by temporary inefficiencies, the
inefficiencies are reduced, and the less alert and less informed have a less
chance to obtain large abnormal profits.

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INDIAN CAPITAL MARKET

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
Event studies can be performed to determine how fast security prices
actually react to the release of information. As an example, when the
information arrives in the market about ACC raising its guidance for its
bottom-line earnings from 20% to 34% for FY07 and its annual EPS of Rs.
62.70, on the 11th of July,’07, prices react instantaneously and, in doing
so, immediately move to their new investment values from Rs.950 to
Rs.1132. At this level, ACC quotes at 23x its earnings. Figure (1.1) shows
what happens in such a market when good news arrives. Figure (1.2)
shows what happens when bad news arrives. As an example, consider
WIPRO Q1 FY07 results which show a decline of PAT from 720 lacks to 665
lacks Q-o-Q basis. Although within the sector, this company is quoted at its
cheapest PE of 9x, as soon as the results were declared, the prices reacted
immediately on the 19th July, ’07 to fall down to Rs. 545 from Rs. 505,
nearly 8% down from its previous close.

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INDIAN CAPITAL MARKET

Note that in both the cases the horizontal axis is the time line and the
vertical axis is the security’s price. Observe that shortly before the news
arrived, prices were Rs. 950 and Rs.545 for Infosys and Visual Soft
respectively. With the arrival of the information the prices immediately
move intraday to their new equilibrium level of Rs. 1132 and Rs.505
respectively, where it stays until additional information arrives.

Various event studies can be conducted pertaining to the news like
share repurchase program like in case of Reliance Energy, stock splits and
dividends like in the cases of Infosys, Wipro, HLL, etc., stock listings and
IPOs like in the cases of DLF ,VISHAL RETAIL, SPICE TELECOM, , etc.,
mergers and acquisitions like BSES with Reliance, de-mergers like L&T,
bonus like Infosys & Wipro.

Figure-1.1

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950Figure
T1132
Time
=P rice 1.1:
11th July, Arrival of Good News
2007
in Rs. about acc

Figure-1.2

Figure
TTime
545
505
=Price 1.2:
19th July, Arrival of Bad News
2007
in Rs. about WIPRO

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INDIAN CAPITAL MARKET

(B) Looking for Patterns

A second method to test for market efficiency is to investigate
whether there are any patterns in security price movements attributable
to something other than what one would expect. Various Time Series
Properties of price changes like a short term price movement with a notion
that today’s price change conveys information about tomorrow’s price
change can be tested in financial markets. The serial correlation measures
the correlation between price changes in consecutive time periods,
whether hourly, daily, or weekly, and is a measure of how much the price
change in any period depends upon the price change over previous time
period. Long Term Price movements over a period of one year to five years
can also be focused to find out ‘any deviation from the common rule’.
Studies of market efficiency have uncovered numerous examples of
market behavior that defy rational explanations. In recent years, many of
these patterns have been identified and labeled as ‘market anomalies’.

For example, one of the most prominent market anomalies is the
January effect. Security returns appear to be abnormally high in the month
of January. Same is the case with the May effect. Security prices tend to
fall down drastically each May. These patterns have a long and consistent
track record, and no convincing explanations have been proposed.

(C) Examining Performance

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INDIAN CAPITAL MARKET

The third approach for testing market efficiency is to examine the
investment records of professional investors, returns offered by various
mutual funds, individual portfolio management and measurement, etc to
know if earnings are abnormally higher than one would expect in a
perfectly efficient market and if there is any consistency over a period of
time. There are difficulties in conducting these tests because they require
the determination of what constitute abnormal returns, which, in turn,
requires determination of just what are ‘normal returns’. Moreover a fair
amount of data is a limitation to this study.

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RESEARCH
ANALYSIS
-
AUTOMOBIL
E INDUSTRY

✔ INDIAN AUTOMOBILE INDUSTRY

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INDIAN CAPITAL MARKET

The Indian automotive industry has been witnessing dynamic growth
over the years.

• The Indian two-wheeler Industry is one of the largest in the world,
and is expected to maintain robust growth in the future
• At the back of this phenomenal automotive growth is the success of
the Indian auto component industry. Presently a US$ 6.7 billion industry, it
is expected to almost treble in less than five years time to US$ 17 billion
by 2012
• 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. India’s automotive sector has the world’s second largest pool
of skilled labor. The country with its high education levels also provides
the world’s largest pool of qualified engineers.

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INDIAN CAPITAL MARKET

Global Comparisons: Availability of Skilled Manpower, 2006

400 375
350
Stock Population 2006

300
250
200
Series1
150
73 83
100 56
38 41
50 20
-3 0.04 13
0
-50

W IA
AF A
CA

LD
E. A
N

AM SA

AM ICA
PE

IA
IC

IN
. E PA

D
AS

R
RI
U

IN
RO

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ER

O
JA

U

S.
L.
N.
W

Additional Working Population by 2010

(Source: IMD Competitiveness Yearbook 2006)

8 7.3 7.4
7 7.1 7.1 7.2
7 6.6

5.7
6 5.3
5 4.3
4

3

2

1

0
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In
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r
on

Ge

Si
H

(Source: UN, Morgan Stanley)

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INDIAN CAPITAL MARKET

Global Comparisons: Availability of Qualified Engineers, 2006
10
8.9
9
7.9
8 7.3
6.7 6.7 6.9
7 6.4
5.8
6
5
3.9
4
3
2
1
0

ng

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Si
Scale of 1 to 10 with 1 = Low and 10 = High;
( Source: IMD Competitiveness Yearbook 2006)

Government Initiatives

The Indian automobile regulatory policy has undergone progressive
change over the last decade.

• In June 1993, the First Automobile Policy was announced. It abolished
the requirement of licenses to set up an auto manufacturing plant in India,
which was the first step to allow private and foreign investment in the
automobile industry.
• In 1995, the Government introduced a company-specific
Memorandum of Understanding (MoU) route for manufacturers of cars and
multi-utility vehicles. The
• Policy allowed investments in the automobile industry with a
capitalization restriction of at least US$ 50 million over a three-year
period.
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INDIAN CAPITAL MARKET

• With effect from April 1, 2001 Quantitative Restrictions (QRs) on
import of automobiles have been removed, thereby phasing out the MoU
policy. With the removal.
Attracted Numerous Players in the Passenger Car Segment

The early 1990s witnessed several reforms initiated by the Indian
Government aimed at encouraging private and foreign investment through
de-Licensing, 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.

Market Shares of Players in the Domestic Passenger Car Market
(April 2006 - March 2007)

2.1% 2.6% 0.5% Honda
3.0%
Ikoda
1.5%
T oyota
15.5% 0.7% Daimler
Maruti
Fiat India
General Moters
18.6%
Hyundai
51.4% T ata
2.6% Ford
HM
1.5%
Source: SIAM

Two-Wheelers Market, One of the Largest in the World and Still
Growing

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INDIAN CAPITAL MARKET

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 two-wheelers per
thousand people, compared to China’s 8 two-wheelers per thousand
people .

The Indian two-wheeler market in India is oligopolistic in nature, with
the top three companies accounting for over 80 per cent of the total
industry sales. Hero Honda Motors Limited, a joint venture between Honda
Motors, Japan and the Indian-based Hero Group, is the largest
manufacturer of two-wheelers in the world with a 38 per cent market
share of the domestic 5.4 million units two-wheeler market. Bajaj Auto is
the second largest player in the two-wheeler market with a 22.3 per cent
share. The company uses indigenously developed technology for its two-
wheelers. TVS Motor Company is the third largest player with a 20.9 per
cent market share, with a majority of its sales coming from the southern
states of India.

Market Shares of Players in the Domestic Two-Wheeler Market

(April 2006 - March 2007)

Source: SIAM

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BAJAJ AUTO

 Company Description

Bajaj Auto is the second largest two wheeler manufacturer in India.
Its product portfolio includes scooters, mopeds, motorcycles and three
wheelers. An erstwhile scooter company, Bajaj Auto has reinvented itself
by innovate its product portfolio to become the second largest motorcycle
manufacturer in India. With the opening up of the insurance sector, the
company has entered into joint venture agreements with Allianz AG,
Germany.

 Key Investment Arguments

The company has significantly increased its market share in the
motorcycle segment by 380bp in FY07. With a strong portfolio of
motorcycles, we believe Bajaj Auto will continue to benefit from the
volume growth in the motorcycle industry.

 Key Investment Risks

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INDIAN CAPITAL MARKET

• Increasing competition in the executive segment where Bajaj Auto is
trying to gain a foothold with the ‘Pulsar’.
 Recent Developments

• Hero Honda has launched the Splendor NXG to compete with the
Bajaj Pulsar.
• BAL is planning to launch the ‘Pulsar 220cc’, a new entry level bike.

 Sector View

• Numerous motorcycle launches will lead to an increase in
competition.
• Despite a number of players, market share remains concentrated in
the hands of the top two.

SPECIFICATION OF THE COMPANY

Registered Mumbai - Pune
Office Road, Akurdi Pune Maharashtra 411035

Web site http://www.bajajauto.com

BSE Script 500490
Code

NSE Script BAJAJAUTOEQ
Code

Face Value of Rs 10
Share

52 week H/L Rs 3375 / 2058

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 Performance Graph of the Company

1200

1000

800

600

400

200

0
Apr-06 May- Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06 Jan-07 Feb-07 Mar-07
06

TIME
Share Holding %
Pattern
 Share Holding
Promoters 29.80
Pattern
Institutional 25.92
Investors

Other Investor 17.36

General Public 26.92

 Financial Details

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NET EPS
YEAR SALES PAT EPS
GROWTH
END (Rs M) (Rs)
(Rs M) (%)

FY 07 74494 11016 105 6.5

FY 08 E 92922 12380 122 16.2

• In 4QFY07, Bajaj Auto reported Net Profit of Rs 2.6b (3% increase YoY),
largely driven by higher sales and higher other income.

• Sales grew by 28% YoY to Rs 16.5b led by better product mix. The
realization per unit for Bajaj Auto at Rs 38,910 (up 5.2% YoY and 11.3%
QoQ) was the highest in the last several quarters. However, higher other
expenditure resulted in only a 10 bp increase QoQ in EBITDA margin.

• In FY07, the company grew its volumes by 42% in the motorcycles
segment, resulting in a sales growth of 21% to Rs 59.3b. However, a
significant fall in EBITDA margin and higher taxation led to a marginal 1%
growth in PAT.

 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

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INDIAN CAPITAL MARKET

sales dropping 11% YoY. Exports grew by 38% YoY, once again led by a
64% growth in motorcycles.

In FY07, motorcycles accounted for the entire gains in volumes with a
42% YoY growth. Despite strong gains in this segment, de-growth in the
other segments led to a 20% increase in volumes for the year.

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INDIAN CAPITAL MARKET

SALES IN UNITS

4Q FY 4Q FY GR GR
FY 07
07 06 % %

Total Sales

39610 26289 14496
Motorcycles 51 42
7 3 73

Scooters 10276
20418 49640 -59 -42
geared 2

Scooters un-
4971 12039 -59 31084 -43
geared

Step Through 4391 8487 -48 19195 -41

Total Two 42588 33305 16027
28 24
Wheeler 7 9 14

22198
3 Wheelers 53725 60437 -11 -3
5

39343 18246
Grand Total 479 22 20
7 99

Exports

12395
Motorcycles 41050 25054 64 50
0

Scooters 2674 3157 -15 6995 -5

3 wheelers 14814 14264 4 65747 0

54853
Total Exports 42485 38 19692 20
8

Source: Company

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INDIAN CAPITAL MARKET

Motorcycles

In 4QFY07, motorcycles grew by 51% YoY at 396,000 units. Growth
was driven by an over 100% YoY increase in sales of the 150cc and above
180cc category (which includes the Discover and Pulsar).

In FY07, Bajaj Auto’s volumes have grown by 42% YoY in motorbikes,
resulting in a market share gain of 380bp. Bajaj Auto ended the year with
a market share of 27.1% in the motorcycle segment. The growth has been
driven by pulsar 200cc and 220cc.

Further growth will depend on the ramp up in volumes of the Pulsar,
which currently accounts for only 8-10% of the executive level segment
volumes. The executive level segment accounts for 55% of total sales;
hence further growth will be determined by increased sales of this
product.

 Three Wheelers

In 4QFY07, three wheelers de-grew by 11%. The company has
attributed this slowdown in the passenger segment to non-availability of

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INDIAN CAPITAL MARKET

permits that are issued by transport authorities. In FY07, volumes dipped
by 3% due to falling passenger segment sales, which constitutes 85% of 3
wheeler sales. Though the goods segment has grown at 30% YoY, Bajaj
Auto is heavily dependent on the passenger segment.

MAHINDRA & MAHINDRA

 Company Description

M&M is India’s leading UV and tractor manufacturer. Having
successfully weathered the recent downturn in the tractor industry M&M is
now well poised to benefit from the upturn. The company is now aspiring
to be the leading Indian Utility Vehicle manufacturer providing high quality
UVs at low costs.

 Key Investment Arguments

• The continued growth in the tractor sector will benefit M&M as it is the
market leader.
• Increased focus by the government on rural spending in this budget will
benefit tractor
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INDIAN CAPITAL MARKET

manufacturers.
• The company’s increased focus on exports and the well acceptance of
the Scorpio,
despite strong competition from MNC players.

 Key Investment Risks

• Numerous launches in the UV segment has lead to an increase in the
competitive scenario
• Reports of increase in inventory pipeline in the current year are
currently in line with increased sales, but need to be carefully watched.

 Recent Developments

Mahindra has tied up with Renault for manufacturing the ‘Logan’ from
FY07

 Valuation and View

• We expect M&M to see 11% volume growth in UVs over FY07-09 and a
12% volume growth in tractors.
• M&M trades at a P/E of 10.6x and EV/EBITDA of 5x on standalone FY08
estimates.
• On a consolidated basis, the stock trades at 8.6x FY08. M&M remains
the best bet in the sector, as valuations are at discount to its peers. We
reiterate Buy with a target price of Rs 598.
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INDIAN CAPITAL MARKET

 Sector View

• We remain bullish on the macro growth picture for passenger cars in
India
• We also believe that within passenger cars, UVs will increase their
market share consistently over the next few years
• Tractors are only in their first year of growth. We believe we are clearly
in the early part of the cycle.

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SPECIFICATION OF THE COMPANY

Gateway Building, Apollo Bunder Mumbai Maharashtra
Registered Office
400001

Web site www.mahindraworld.com, www.mahindra.com

BSE Script Code 500520

NSE Script Code M&MEQ

Face Value of
Rs 10
Share

52 week H/L Rs 1001/ 494.60

 Performance Graph of the Company

600

500

400

300

200

100

0
Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- Mar-
06 06 06 06 06 06 06 06 06 07 07 07

.

Time

 Share Holding Pattern
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Share Holding %
Pattern

Promoters 23.98

Institutional 54.40
Investors

Other Investor 11.17

General Public 10.45

 Financial Details

NET EPS
YEAR SALES PAT EPS
GROWTH
END (Rs M) (Rs)
(Rs M) (%)

FY 07 66606 4991 44.19 47.1

FY 08 E 76219 5876 48.1 16.6

Mahindra & Mahindra's (M&M) net sales, EBITDA and net profit grew
27%, 23% and 32% in 4QFY07 to Rs 19.1b, Rs 2.1b and Rs 1.5b
respectively, in-line with our expectation. EBITDA margins were impacted
because of higher other expenses. Margins declined 40bp YoY and 90bp
QoQ to 11% in 4QFY07.

For FY07, M&M’s total income, EBITDA and net profit grew 45%, 42%
and 52% to Rs 66.6b, Rs 7.7b and Rs 5b, respectively. All the subsidiaries
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of M&M showed good performance in FY07. Consolidated revenues,
EBITDA and net profit grew 36%, 50% and 61% to Rs 95.7b, Rs 13.5b, and
Rs 7.2b, respectively.

The business outlook for M&M remains positive. M&M, with its rural-
centric product line, will register a 12% YoY growth in tractor volumes over
FY07-08E. We expect M&M to register 11% YoY volume growth in utility
vehicles (UV) over FY07-08, following a strong 23% growth in FY07.
Moreover, exports of UVs and tractors and rise in three wheeler sales will
provide additional growth drivers to the company.

M&M’s 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.

SEGMENTAL BREAK UP OF REVENUES (Rs. in Mn)

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Q4 Q4 %C FY07 FY06 %C
FY07 FY06 H H

Automotive

UV 32183 27474 17 1111 9142 22
38 9

LCVs 1910 2023 -6 7887 7003 13

Three Wh. 6951 5152 35 2294 1734 32
3 7

Total 41044 34649 18 1419 1157 23
Automo. 68 79

Tractors 15579 13914 12 6000 4480 34
5 7

Total 56623 48563 17 2019 1605 26
73 86

Exports 3199 1761 82 8431 6375 32

Grand 59822 50324 19 2104 1669 26

Total 04 61

Source: Company

 Strong Performance in FY07:

M&M’s 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.

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 Valuation and View

Passenger Vehicles

We expect the passenger vehicle demand to grow at a CAGR of 10% over
FY07-09E driven by changing lifestyles, rapid growth in high-income
earning households and vibrancy in the service sector. Lower vehicle
prices resulting from cheaper finance rates, drop in excise duty and easy
financing solutions will

Continue to be the catalyst for demand growth.

The UV segment may outperform the passenger vehicle segment on
account of improvement in road infrastructure and low penetration. M&M
is best positioned to derive benefit on account of overall ramp up in
product offerings. Today, M&M provides the full utility vehicle platform and
has offerings for all segments – taxi, semi urban, rural and urban.

However, we believe the Innova, which was launched by Toyota,
could put some pressure on Scorpio’s volumes in FY08. We expect M&M to
register 11% YoY volume growth in utility vehicles (UV) over FY07-09,
following a strong 23% growth in FY07.

TREND IN UTILITY VEHICLES

FY0 FY0 FY07 FY08
5 6 E

Utility 688 930 1141 1284
Vehicles 58 43 84 57

Growth (%) 22.0 35.1 22.7 12.5

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Source: Company

Farm Equipment

The farm equipment segment (FES) is expected to
continue its growth momentum in FY08. However,
growth rates may slow down on account of higher
base effect. Also, sharp correction in industry
inventories (from 65 days in FY04 to 35 days in FY07)
will support growth going forward. We believe M&M,
with its rural centric product line, will capitalize on
these trends and register a 12% YoY growth in tractor
volumes over FY07-09E.

TRACTORS DISPLAYING GROWTH

FY0 FY0 FY0 FY08E
5 6 7

Tractors 470 495 653 74541
08 54 90

Growth - 5.4 32.0 14.0
(%) 19.0

Source: Company

Entry in Cars with the Renault ‘Logan’
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The Mahindra-Renault joint venture have launched Sedan Logan in
India in the first half of 2007.

The low-end sedan, which was launched in Europe in June 2004,
sports a price tag of US$ 6,100 for the base model in Eastern Europe. The
car is targeted to sell 1m units per year by 2010 in seven regions across
Eastern and Central Europe, Russia, the Middle East, Latin America, North
Africa and Asia.

The Logan has launched in India with 50% localized components
initially and have be marketed under the Mahindra-Renault badge.

The companies USP would be “World class quality at an affordable
price” – the car is expected to sell between Rs. 0.4- 0.5m which is
comparable to its competitors – Maruti’s Esteem and Tata’s Indigo. The car
is also expected to be available in the diesel version. Hence, Logan is
expected to impress the market with its quality and affordability.

 Outlook

The business outlook for M&M remains positive given the
government’s focus on the development of the rural economy. We remain
positive on the demand scenario for tractors and UVs. We expect M&M,
with its rural centric product line, to capitalize on these trends and register
a 13% YoY growth in total volumes over FY07-09E.

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CONCLUSIO
N

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CONCLUSION

• After few years India would become the larger force in the world
economy.
• The growth of the Indian economy is becoming high, which leads to the
higher returns in the capital market.
• India’s constantly increasing growth is attracting the FII’s interest in the
Indian markets.
• There will be more and more capital flow from the developed countries
in India through FIIs and FDI.
• India has became 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.

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FINDINGS

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✔ FINDINGS:

 Workings and areas of Indian capital market
 Workings, operations, dealings, etc. of a stock broking firm
(SHAREKHAN LTD.)
 Effects on Indian & Global economy due to various capital markets.
 Based on fundamental analysis of auto mobile industry and particular
company an investor can have an idea how to invest, when to invest
& how much to invest.

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LIMITATIONS

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✔ LIMITATIONS:

 TIME CONTRAINT: As the period of the project was of only 45
days, the knowledge
gained and information collected is limited to that extent.
 The report is made on the basis of information gathered from
Rajkot branch of Sharekhan limited and not from H.O.
 I have prepared this report only as a student of MBA.

 Various data are collected from the secondary sources.

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SUGGESTION
S

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✔ SUGGESTIONS:

1. Focus on Companies not on Stocks

Many individual investors make the mistake of focusing on stocks and
the stock market at the expense of focusing on the underlying companies.
We know that sounds strange. But many people continue to ignore Mr.
Buffet’s most important lesson: first analyze the business. The individual
investor plays a dangerous game when he or she tries to divine whether a
stock is going to go up or down next quarter. It’s tough to do well, and
even tougher to do consistently.

Our opinion is the market offers no magic bullet or money machine. If
you are a buyer, the best you can do is finding a good company with
strong fundamental prospects that is currently undervalued or otherwise
under-recognized. This brings up an important point – there are many
good companies, but not all are good investments. We’re looking for (1)
good companies at (2) the right price. A good company can be too
expensive; and a bad company is never cheap enough.

The problem with investing in good companies at the right price is
you need patience. If you are being told that picking stocks is easy, think
again. However, with the right team in your corner, the market can be
beaten and money can be made.

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2. Be Careful with the Power of the Market

Even if investors bought a good company that has good potential,
they may still have a dog on their hands. The market has an ability to
paint entire sectors with the same brush. These prolonged “sector
judgments” can be very costly to investors if they don’t account for them.

Some reports suggest that selecting individual companies is barely
important. In most cases, you are buying into a sector first and a company
second. Context matters more than company particulars.

For example, to have found Microsoft at its precious infancy, you
would have had to first appreciate the enormous impact that the graphical
user interface (GUI) was about to have on the world. (Remember when
your computer was nothing more than a black screen and a command
prompt?) When Microsoft was pushing Windows 3.0 over a decade ago,
there were plenty of people in the industry who did not believe graphical
user interfaces were going to amount to anything. If, at the time, you
believed in the inevitable power of the GUI, Microsoft would have been a
natural choice.

3. Know Your Time Limit

Risk and return are really important, but your most important point
might actually be this: I am investing for how long. Your time horizon will
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INDIAN CAPITAL MARKET

determine your style in a big way. Day traders have very short horizons -
they don’t use fundamental analysis (nor do they need to). Many
individual investors, whether or not they admit it, get caught up in gaming
the next quarter’s earning surprise, and are therefore investing for about
three months.

Investing for the next quarterly surprise is a playable game, but
investors should understand that they are competing against people who
do it full time or who are very expert then them. Investor’s might be
smarter, but they are trying to beat professionals who spend their whole
week on a handful of stocks.

They may move the market; they may know the people who move
the market (for clarification institutions, not individuals, move the market).
The short-term horizons are not bad, but an individual investor should
realize they are playing a tough game. It may be wise to set a longer time
frame and find good companies.

4. Avoid Big Mistakes and Losses

At first glance, this is sound like common sense, but far too often
investors simply do not practice the risk-mitigation tactic of avoiding big
mistakes. Somewhat instinctively, investors seem to hunt for big game –
defending against losses. But, if investors can manage to avoid losses,
they will really do wonders for their average. So, the investors’ portfolio
should very defensive so that losses avoided.

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5. Get the Proper Information

Be very careful about daily news. Most of it is noise. So, be careful in
daily news and avoid noises so, think that how does this impact the
fundamental prospects of the business. So, don’t trust on that noise.

All public companies issue press releases that are understandably
favorable; some of the news you get is repeat from the press release.
Much of the daily commentary that pushes through the media onto your
television or newspaper is highly trendy – commentators are finding
patterns that do not really exist and turning tips into news flashes.

6. Recognize Your Limitations

The talking heads on cable television can seem amazing as they
travel from analyzing biotech to financials to transportation to technology.
The televisions are not experts in all subjects. So, know your limit.

Investors start to believe in fantasy when they think they really know
their companies. All good investors want to know as much as possible
about their investments, but a company is an onion you can never fully
peel. Every piece of information is valuable and if investors have it, the
odds are tilted a bit in their favor, enhancing the hedge against failure.
But, investor making an educated investment based on incomplete
information.

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So, since investor cannot know everything and much of the market
commentary is suspect. Look elsewhere and trust real experts. See what
true industry experts say, what industry associations say, what customers
say, what competitors say and so on.

7. Be Different

It has often been said that in order to make money investing
investors need to be (1) correct and (2) contrary.

Investors need to be correct no wonder some people think the market
is efficient. In order to be contrary, investors have to embrace their
uniqueness and play on a different field. This is not to say ignore
fundamentals. Investors have to respect the foundation and the basic tools
of analysis, but on top of that foundation, investors are better off
approaching the market circumspectly. In other words, investors need to
be somewhat suspicious of it.

Anyone serious about research subscribes to industry journals. If
investor interested in technology, read technology periodicals. If investor
likes science, read up on science. This strategy means investor let the
market turn on its endless recirculation of gossip while investor locate

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expertise that will help them find the growing companies worthy of their
money.

8. Investor should invest in Bajaj Auto Company

After done this fundamental analysis we can say that Bajaj Auto
Company is better for investment compare to Mahindra & Mahindra.
Because Bajaj Auto has different product portfolio and the profit of the
company is also better than Mahindra & Mahindra.

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GLOSSARY

GLOSSARY

 LIST of ABBREVIATIONS:

ADR American Depository Receipts

BSE Bombay Stock Exchange

CDSL Central Depositories Services Ltd.

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CM Capital Market

Co. Company

DCA Department of Company Affairs

DEA Department of Economic Affairs

DP Depository Participant

FDI Foreign Direct Investment

FI Financial Institution

FII Foreign Institutional Investors

GDR Global Depository Receipts

NSCCL National Securities Clearing Corporation Limited

NSDL National Securities Depository Ltd.

NSE National Stock Exchange

OCB Overseas Corporate Bodies

RBI Reserve Bank of India

SEBI Securities and Exchange Board of India

T+2 Second days from the trading day

T+3 Third days from the trading day

T+5 Fifth days from the trading day
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UTI Unit Trust of India

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BIBLIOGRAP
HY

BIBLIOGRAPHY

 REFERECE BOOKS

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• Donald R Cooper & Pamela S Schindler, “Business Research
Methods”, Eighth Edition (2003), Tata McGraw-Hill, New York.
• Gordon & Natrajan, “Financial Markets And Services ” Second Revised
Edition Reprint (2005), Himalaya Publishing House.
• Punithavathy Pandian, “Security Analysis & Portfolio Management”
Edition 2007, Vikas Publishing Housing Pvt. Ltd.
• SHAREKHAN VALUE LINE.

 WEB SITES

➢ www.nseindia.com
➢ www.bseindia.com
➢ www.indinfoline.com
➢ www.moneycontrol.com
➢ www.business-standard.com
➢ www.rbi.org
➢ www.sebi.org
➢ www.sharekhan.com

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Disclaimer

This report is for the personal information of the authorized recipient
and does not construe to be any investment, legal or taxation advice to
you. I am not soliciting any action based upon it. This report is not for
public distribution and has been furnished to you solely for department
information and should not be reproduced or redistributed.

The report is based upon information that we consider reliable, but I
do not represent that it is accurate or complete, and it should not be relied
upon such. We shall not be in any way responsible for any loss or damage
that may arise to any person from any in advertent error in the
information contained in this report.

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