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Undertaken at:

Kotak Securities Ltd

East Street Galleria



Submitted to

Asian School of Management



This is to certify that project report titled FUNDAMENTAL ANALYSIS is a bonafide work carried


(Year2009-2011). He has worked under our guidance and direction.

Signature of Director Signature of Guide

Name of Director Name of Guide

Mrs.MADHAVI KHARE Mr.Sudhindra Mujumdar


I hereby declare that the winter project report titled

fundamental analysis is based on original piece of work done by me for the

fulfillment of degree of Post Graduate Diploma In Management and whatever

information has been taken from any sources had been duly acknowledge.



This Project Report could not have been completed without the guidance of our Director, Project

Guide internal Mr. Sudhindra Mujumdar and external Mr. VINEET DEODA.

I express my sincere thanks and gratitude to the above persons who have helped me directly and also

those who have helped me indirectly.

Once again I express my Gratitude to KOTAK SECURITIES LTD.



Investing in various types of assets is an interesting activity that attracts people from all walks of life
irrespective of their occupation, economic status, education and family background. When a person
has more money than he requires for current consumption, he would be coined as a potential investor.
The investor who is having extra cash could invest it in securities or in any other assets like gold or
real estate or could simply deposit it in his bank account. Sometimes it becomes difficult for a
potential investor to choose from various sources of alternatives.

The base of an economy rests on the working of the strong financial system and various financial
intermediaries. Banks are like pillars of the financial system that helps in mobilizing and pooling of
the savings, producing possible information about various investment patterns, ease out exchange of
goods and services and helps a country grow faster.

The title of the report Fundamental Analysis itself suggests that the report is based on the working of
the profit from equity shares. This report might help the prospective investors to choose among the
securities before investing in their hard earned money.

The report starts with the introduction to financial services along with the industry profile and
theoretical framework. The industry is the financial services industry and the company where the
project has been undertaken is Kotak Securities Ltd, best brokerage firm in India and provider of
various other financial services. Detailed information of equity share is given in the theoretical
The research methodology represents the views of Dow Theory, Elliot wave theory, and various types
of charts and technical indicators to do profit in the market. The research is exploratory in nature and
the study is based on various studies at the institute and online and also based on the knowledge
acquired at the college.

Then comes the detailed study of the world economy, Indian economy, the profitable security analysis
selected as their market capitalization. Ranks are given as per the ratios derived and their performance.
Conclusion is given at the end along with necessary reasons of the choosing the best security. All the
books, articles and various websites referred are clearly stated in the section of bibliography.
This report is purely based on researchers study and hope it provides a useful guidance to the
investors to make profit by investing their hard earning money in equity shares.












Investing In Stock Market

The stock markets are a means to buy and sell, but they are a market place: when, what, and how often
and how much one buys, accumulates or sells is NOT the province of the market: that is the province
of the field of investment which is covered elsewhere. Investment in general is a rich and complex
field as it serves all kinds of investors, government, corporations, services, groups and individuals:
each investor has her own objective, her own access to capital which to invest. Indeed, the subject of
investing can well be approached from the investors point of view. Again, the market is a place where
one trades (buys and sells) financial instruments, such as stock, bonds and the many forms of these
instruments, and is not itself concerned with investing, i.e. the strategy for making a profit under many
varied desires and circumstances. However, to understand the vehicles, form a coherent view of ones
own objectives and the appropriate vehicles: stocks (common, preferred) bonds (convertible or not)
one should start with an introduction to investing, and most likely, focusing at first on individual
investing, which should be the most straight forward and the most useful.
Finding A Broker
There are several options to consider when finding a broker. These include but are not limited to the
following: Full service brokers, discount brokers, and financial advisors. Each has their advantages
and disadvantages. Transaction cost, experience, history and strategy are all factors to consider when
hiring a broker.
A full service broker is a broker that will generally come with the highest upfront costs. These costs
are probably the full service broker's biggest disadvantage. However, the broker history plays a large
role in the weight of this disadvantage. If the full service broker proves to have a history of high
returns, they may be worth the initial fee, with the assumption they may be able to make you more
than your average expected return after the fees are paid. When choosing a full service broker, one
should interview several brokers. This serves as a good way to view their history, ask about their
experience, costs and finally their strategy. Their strategy is what stocks and funds they are most
familiar with and their justification as to why they pick the stocks they do. If one is adverse to larger
transaction costs and doesn't mind using a more hands on approach, then he may want to look at more
cost effective methods, such as a discount broker. Generally these brokers will be cheaper than their
full service cousins (hence the name 'discount'), but they may require more interaction from the user.

Understanding Stock Fundamentals

A stock market price fluctuates every day, and no stock is completely safe. However, there certain
things that you can look at to try to determine the best stocks. The price of stocks is based on two
things: hype, and the fundamental value of the company. You must be careful about stocks with lots of
hype that lack strong fundamentals, because they have strong potential to lose much of their value
rather quickly.

When looking at a company, you will first notice its price. The listed price generally reflects price one
share last sold for. If you multiply the total shares outstanding by the price per share, you get the
market capitalization which reflects the current market value of the company. The book value is
supposed the value of the various assets that make up the company. Many company's market value is
many times the book value, which reflects non-tangible assets like customer relationships.
What really drives the prices, however, are earnings. The earnings are the money made, which is the
sales or revenue minus the costs of doing business, among other things. Earnings are analyzed in
relation to price by a value called the P/E or price to earnings ratio. The primary way to use the P/E
ratio is in a relative valuation. That means, how cheap is this company/stock compared to similar
companies. If company A and B are equally profitable, have similar levels of assets and debt, and are
growing at similar rates, then the stock with the lower P/E would appear to be a "better deal" or is
possibly undervalued.

Understanding Stock Technicals

Some people give lots of importance to the price/volume behavior of stocks. The price and volume of
a stock can be charted against time. A good thing about the price/volume history is that it does not lie.

The rationale for looking at the charts is that it helps you identify the patterns and/or trends.
Fundamental analysis tells you what to buy and technical analysis is supposed to tell you when to buy.

Choosing Stocks
The first thing to remember is that stocks are risky, and even the least risky stock can on occasion go
bankrupt. You can find out about companies from all over, but before buying you should thoroughly
research the company. Also, keep in mind that many people including so-called professionals are often
Warnings aside, the first thing to consider is risk. How much debt does the company have? Are they
earning money, and will they continue earning money. Read their annual report, and look at their
business, and think about what could happen that could hurt their business. Risky stocks may be a
good investment, but you should always be aware of the risks beforehand, and decide what you are
going to do if the worst comes to pass. After taking a hard look at the risks, you also have to look at
the potential for the company, and the likelihood that it will happen.
Look at the current price/earnings (P/E) ratio and what it would be in the future with various levels of
growth. Also, look and see if the company pays dividends. Often, the earning number is inflated
through accounting tricks, but the dividend is what the company paid stockholders last year. If the
company has a good dividend, you can make a bit every year while continuing to hold the stock.

While the fundamentals, and how much money the company makes will affect it over the long term,
other factors often dominate the markets in the short term. During the late 90's tech stocks got bid up,
because they were hyped up in the media. After September 11, investors worried about terrorism, and
stocks were priced accordingly. The market has day-to-day fluctuations, but usually there are certain
themes from the media that hype something, that over-values or under-values certain segments of the
market. However, when the theme goes away--often rather quickly--those stocks will correct. One
short-term strategy would be to try to ride the themes, and profit, but it can at times be quite difficult,
and mistakes often result in heavy losses. If you are going to buy a stock that you think will go up on
hype use extreme caution. A more sensible approach is to try to buy things that are fundamentally
undervalued before you think a cycle will start hyping that particular area of the market.

When To Sell
Knowing when to sell is often the most difficult part of buying and selling stocks. When a stock goes
down, it is often difficult to admit that you made a mistake. When a stock goes up, will it keep going
up? It is easy in hindsight to think that you should have held onto stock when you see it go up after
you sold.
You generally don't know when a stock has really reached its peak, or whether it will go back up
again, but there are some things to look for. Remember the reason you bought the stock. Considering
all currently available data, is that reason still valid? Try to avoid coming up with new justifications
for holding a falling stock. If you bought the stock, because you thought the company's new product
would do really well, and it hasn't it may be time to sell.
The way the stock market works has been fairly consistent for many years. Different sectors have
become hot, and later become not so hot. If you are going to revise your strategy, make you sure you
still consider long term trends.
However, if something doesn't continue to fit your strategy, sell it. It doesn't matter if it has gone up a
lot, or is almost worthless. Unless, you still think it fits with your strategy sell it. Remember, just
because it may have a chance of going up a lot, doesn't mean there isn't another stock out there that is
better. Selling based simply on past performance is generally a bad idea.

Financial Market
In economics, a financial market is a mechanism that allows people to easily buy and sell (trade)
financial securities (such as stocks and bonds), commodities (such as precious metals or agricultural
goods), and other fungible items of value at low transaction costs and at prices that reflect the efficient
market hypothesis. Financial markets have evolved significantly over several hundred years and are
undergoing constant innovation to improve liquidity.
Both general markets (where many commodities are traded) and specialized markets (where only one
commodity is traded) exist. Markets work by placing many interested sellers in one "place", thus
making them easier to find for prospective buyers. An economy which relies primarily on interactions
between buyers and sellers to allocate resources is known as a market economy in contrast either to a
command economy or to a non-market economy that is based, such as a gift economy.
In Finance, Financial markets facilitate:
The raising of capital (in the capital markets);
The transfer of risk (in the derivatives markets); and
International trade (in the currency markets).
They are used to match those who want capital to those who have it.
Typically a borrower issues a receipt to the lender promising to pay back the capital. These receipts are
securities which may be freely bought or sold. In return for lending money to the borrower, the lender
will expect some compensation in the form of interest or dividends.
The term financial markets can be a cause of much confusion.
Financial markets could mean:
1. Organizations that facilitate the trade in financial products. i.e. Stock exchanges facilitate the trade
in stocks, bonds and warrants.
2. The coming together of buyers and sellers to trade financial products. i.e. stocks and shares are
traded between buyers and sellers in a number of ways including: the use of stock exchanges; directly
between buyers and sellers etc.
Financial markets can be domestic or they can be international.

Types of Financial Markets

The financial markets can be divided into different subtypes:

# Capital Markets which consist of: Stock markets, which provide financing through the issuance of
shares or common stock, and enable the subsequent trading thereof.

# Bond Markets, which provide financing through the issuance of Bonds, and enable the subsequent
trading thereof.

# Commodity Markets, which facilitate the trading of commodities.

# Money Markets, which provide short term debt financing and investment.

# Derivatives Markets, which provide instruments for the management of financial risk.

# Futures Markets, which provide standardized forward contracts for trading products at some future date;
see also forward market.

# Insurance Markets, which facilitate the redistribution of various risks.

# Foreign Exchange Markets, which facilitate the trading of foreign exchange.

The capital markets consist of primary markets and secondary markets. Newly formed (issued)
securities are bought or sold in primary markets. Secondary markets allow investors to sell securities
that they hold or buy existing securities.

Trading Pattern of the Indian Stock Market

Trading in Indian stock exchanges are limited to listed securities of public limited companies. They are
broadly divided into two categories, namely, specified securities (forward list) and non-specified
securities (cash list). Equity shares of dividend paying, growth-oriented companies with a paid-up
capital of at least Rs.50 million and a market capitalization of at least Rs.100 million and having more
than 20,000 shareholders are, normally, put in the specified group and the balance in non-specified
Two types of transactions can be carried out on the Indian stock exchanges: (a) spot delivery
transactions "for delivery and payment within the time or on the date stipulated when entering into the
contract which shall not be more than 14 days following the date of the contract" and (b) forward
transactions "delivery and payment can be extended by further period of 14 days each so that the
overall period does not exceed 90 days from the date of the contract". The latter is permitted only in
the case of specified shares. The brokers who carry over the outstanding pay carry over charges (can
tango or backwardation) which are usually determined by the rates of interest prevailing.
A member broker in an Indian stock exchange can act as an agent, buy and sell securities for his
clients on a commission basis and also can act as a trader or dealer as a principal, buy and sell
securities on his own account and risk, in contrast with the practice prevailing on New York and
London Stock Exchanges, where a member can act as a jobber or a broker only.
The nature of trading on Indian Stock Exchanges are that of age old conventional style of face-to-face
trading with bids and offers being made by open outcry. However, there is a great amount of effort to
modernize the Indian stock exchanges in the very recent times.

Over The Counter Exchange of India (OTCEI)

The traditional trading mechanism prevailed in the Indian stock markets gave way to many functional
inefficiencies, such as, absence of liquidity, lack of transparency, unduly long settlement periods and
beamy transactions, which affected the small investors to a great extent. To provide improved services
to investors, the country's first ringless, scripless, electronic stock exchange - OTCEI - was created in
1992 by country's premier financial institutions - Unit Trust of India, Industrial Credit and Investment
Corporation of India, Industrial Development Bank of India, SBI Capital Markets, Industrial Finance
Corporation of India, General Insurance Corporation and its subsidiaries and Bank Financial Services.
Trading at OTCEI is done over the centers spread across the country. Securities traded on the OTCEI
are classified into:
Listed Securities - The shares and debentures of the companies listed on the OTC can be bought
or sold at any OTC counter all over the country and they should not be listed anywhere else.
Permitted Securities - Certain shares and debentures listed on other exchanges and units of
mutual funds are allowed to be traded.
Initiated debentures - Any equity holding at least one lakh debentures of particular scrip can offer
them for trading on the OTC.
OTC has a unique feature of trading compared to other traditional exchanges. That is, certificates of
listed securities and initiated debentures are not traded at OTC. The original certificate will be safely
with the custodian. But, a counter receipt is generated out at the counter which substitutes the share
certificate and is used for all transactions.
In the case of permitted securities, the system is similar to a traditional stock exchange. The difference
is that the delivery and payment procedure will be completed within 14 days.
Compared to the traditional Exchanges, OTC Exchange network has the following advantages:
OTCEI has widely dispersed trading mechanism across the country which provides greater
liquidity and lesser risk of intermediary charges.
Greater transparency and accuracy of prices is obtained due to the screen-based scrip less
Since the exact price of the transaction is shown on the computer screen, the investor gets to
know the exact price at which s/he is trading.
Faster settlement and transfer process compared to other exchanges.
In the case of an OTC issue (new issue), the allotment procedure is completed in a month and
trading commences after a month of the issue closure, whereas it takes a longer period for the
same with respect to other exchanges.
Thus, with the superior trading mechanism coupled with information transparency investors are
gradually becoming aware of the manifold advantages of the OTCEI.

National Stock Exchange

With the liberalization of the Indian economy, it was found inevitable to lift the Indian stock market
trading system on par with the international standards. On the basis of the recommendations of high
powered Pherwani Committee, the National Stock Exchange was incorporated in 1992 by Industrial
Development Bank of India, Industrial Credit and Investment Corporation of India, Industrial Finance
Corporation of India, all Insurance Corporations, selected commercial banks and others. Trading at
NSE can be classified under two broad categories:
(a) Wholesale debt market and
(b) Capital market.
Wholesale debt market operations are similar to money market operations - institutions and corporate
bodies enter into high value transactions in financial instruments such as government securities,
treasury bills, public sector unit bonds, commercial paper, certificate of deposit, etc.
There are two kinds of players in NSE:
(a) Trading members and
(b) Participants.
Recognized members of NSE are called trading members who trade on behalf of themselves and their
clients. Participants include trading members and large players like banks who take direct settlement
Trading at NSE takes place through a fully automated screen-based trading mechanism which adopts
the principle of an order-driven market. Trading members can stay at their offices and execute the
trading, since they are linked through a communication network. The prices at which the buyer and
seller are willing to transact will appear on the screen. When the prices match the transaction will be
completed and a confirmation slip will be printed at the office of the trading member.
NSE has several advantages over the traditional trading exchanges. They are as follows:
o NSE brings an integrated stock market trading network across the nation.
o Investors can trade at the same price from anywhere in the country since inter-market operations
are streamlined coupled with the countrywide access to the securities.
o Delays in communication, late payments and the malpractices prevailing in the traditional trading
mechanism can be done away with greater operational efficiency and informational transparency
in the stock market operations, with the support of total computerized network.
Unless stock markets provide professionalized service, small investors and foreign investors will not
be interested in capital market operations. And capital market being one of the major sources of long-
term finance for industrial projects, India cannot afford to damage the capital market path. In this
regard NSE gains vital importance in the Indian capital market system.

Financial Services
The Indian financial sector is on a roll. Driven by a strong investor interest and an expanding market,
the Indian stock market rose to record levels, with the popular Sensex crossing 22,000 and Nifty
crossing the 6,500 mark for the first time.
The industry is also becoming more vibrant, with new types of products and services being offered to
meet the needs of the booming economy. For example, in the derivatives market, the notional principal
amount outstanding has more than trebled between March 2005 and June 2007 to US$ 24.09 billion
from US$ 6.836 billion.
The buoyancy in the economy is also estimated to lead to a four-fold increase in India's investable
wealth from US$ 250 billion in 2007 to US$ 1 trillion. Simultaneously, according to a report by
Celent, an international consultancy firm, India's wealth management will rise to an estimated 42
million by 2012 from about 13 million in 2007.
Clearly, there is huge potential in this segment. Significantly, wealth management revenues are
expected to account for 32-37 per cent of the total full-service financial institutions by 2012. The
market is also expected to undergo a structural transformation with organized players increasing their
market share.

Stock Markets

(i) The year 2007 saw Indian stock markets scaling new peaks. It has emerged as the third best
performing market in the world with a dollar return of 71.23 per cent. The popular Bombay
Stock Exchange (BSE) benchmark index, Sensex, also posted its highest ever absolute gain
of 6500 points in over two decades.
(ii) This performance of Indian stock markets has led to the total investor wealth of Bombay
Stock Exchange (BSE) surging to a record high of over US$ 1.7 trillion, with an average
increase of over US$ 10.18 million in every minute of trading during 2007. At the end of
2006, the total market capitalization stood at US$ 812 billion.
(iii) Simultaneously, the National Stock Exchange (NSE) has climbed to the top spot in stock
futures contracts and number-two slot in the index futures segment in the world.
(iv) According to Ernst & Young, India was also the fifth largest market in terms of number of
IPOs and seventh largest in terms of the proceeds for the year. Indian companies raised a
whopping US$ 11.48 billion through public issues in 2007, which is 83 per cent higher than
US$ 6.28 billion mobilized in 2006.
Currently NSE has a turnover of 100000 cr. per day

Private Equity
The year 2007 was also a watershed for private equity market, which has emerged as the most
preferred mode of fund mobilization for India Inc. The capital mobilized through this route was higher
than the funds mobilized through IPOs, follow-on issues and qualified institutional placements put
India, in fact, topped the Asia private equity chart for the first time in 2007 in terms of aggregate deal
value. According to Grant Thornton, a total of US$ 17.14 billion was mobilized through 386 deals by
India Inc in 2007, compared to US$ 7.8 billion in 2006. Real estate, infrastructure, banking and
financial services were the dominant sectors attracting about 55 per cent of the total private equity
And with continued interest of global players in the Indian market and huge potential seen in sectors
like infrastructure, fund mutilation is expected to be around US$ 20 billion in 2008.
Mutual Funds

India is also one of the fastest growing market for mutual funds industry attracting a host of global
players. The combination of increasing number of fund houses (along with new schemes) and increase
in the number of people parking their savings in mutual funds has resulted in total funds mobilization
increasing at a whopping 124.93 per cent during April-December 2007 to stand at US$ 759.29 billion
as against US$ 337.55 billion for the corresponding period last year

The assets under management (AUM) of the mutual fund industry at the end of 2007 stood at US$
139.96 billion as against US$ 82.37 billion at the end of 2006, representing a year on year growth of
69.94 per cent.
Continuing the growth, the Indian mutual funds industry is expected to grow at a CAGR of 30 per cent
in the next three years to become a US$ 241.79 billion industry by 2010 from US$ 118.85 billion in
July 2007. This would be on the back of 25 per cent growth rate between 1999 and 2007.
Consequently, market penetration in the MF industry would more than double by 2010 from about 4
per cent in 2007.

The burgeoning economy, surging foreign investment, financial sector reforms and a favorable
demographic profile has led to the Indian banking industry emerging as one of the fastest growing in
the world. The industry's business grew at a CAGR of 20 per cent from US$ 471.11 billion as of
March 2002 to US$ 1175.61 billion by March 2007. Significantly, the newly licensed private sector
business has grown almost twice (1.75 times) as that of banking industry as a whole, leading to their
share in total banking business increasing from 9 per cent in 2001-02 to 16 per cent in 2006-07.
This boom in the banking industry has propelled nine Indian banks to the list of top 50 Asian Banks,
as per this year's Asian Banker 300 report. Similarly, seven Indian microfinance institutions find place
in Forbes list of World's Top 50 Microfinance Institutions.
Despite such impressive performance, the potential for further growth is huge considering the fact that
India has second largest financially excluded households (about 135 million) in the world. In fact,
according to Boston Consulting Group, India is the fastest growing incremental revenue pool in the

The liberalization of the rules for the entry of domestic and foreign players has had a favorable impact
on this sector, leading to premium collections growing by 19.9 per cent in 2006-07, compared to the
world average of 2.9 per cent. Consequently India became the 15th largest insurance market from 19th
in 2005.
This growth looks particularly impressive when seen against the fact that the combined penetration of
both life and non-life is less than 2 per cent of the GDP compared to world average of 7.52 per cent.
Clearly, the scope for growth is enormous.
With increasing per capita income, insurance penetration and entry of new players, the Indian
insurance industry is estimated to grow to US$ 50.9 billion by 2012 from around US$ 12.72 billion in
2007. The private players are likely to see a growth rate of 140 per cent during this period.

Debt Market
While the Indian financial sector was dominated by the stellar performance of the stock markets, the
Indian debt market had its own share of excitement. India Inc increased its collections through the debt
market by as much as 53.84 per cent to US$ 20 billion in 2007 from US$ 13 billion in 2006.
According to a report by Goldman Sachs, with insurance, mutual funds and pension sector
experiencing rapid growth, India's debt market is estimated to grow four fold, from about US$ 400
billion (45 per cent of GDP) in 2006 to about US$ 1.5 trillion (about 55 per cent of GDP) by 2016.
Significantly, the non-government sector is expected to grow from US$ 100 billion in 2006 to US$
575 billion in 2016, increasing its share in GDP from 10 per cent to 22 per cent.

India emerges third-most profitable equity mart

The BSE Sensex beat almost all its peers in Asia and Europe to stay on top, resulting in 56 per cent
gains from August 2007. The continuous inflow from foreign institutional investors (FIIs) seems to
have worked wonders for the domestic capital market. While the Sensex is climbing new peaks every
day, the Indian capital market has emerged as the third most profitable market in the world, posting 56
per cent gains from its yearly low hit in August 2004.
The BSE Sensex beat almost all its peers in Asia and Europe to stay on top, considering the clime
from the yearly lows to yearly highs. The only two countries which outdid India on this count were
Argentina and Indonesia. Argentina topped the chart posting an annual return of 75 per cent, while
Indonesia was next in line gaining 64 per cent. But after that market was crashed and Sensex came
down to the level of 7000 in beginning of 2009,but indian market recovered faster than U.S and
Europe again in the beginning of 2010 market is moving about 17000 it is likely to touch again level
of 21000 very soon.

Financial System of any country consists of financial markets, financial intermediation and financial
instruments or financial products. This paper discusses the meaning of finance and Indian Financial
System and focus on the financial markets, financial intermediaries and financial instruments. The
brief review on various money market instruments are also covered in this study.

The term "finance" in our simple understanding it is perceived as equivalent to 'Money'. We read about
Money and banking in Economics, about Monetary Theory and Practice and about "Public Finance".
But finance exactly is not money, it is the source of providing funds for a particular activity. Thus
public finance does not mean the money with the Government, but it refers to sources of raising
revenue for the activities and functions of a Government. Here some of the definitions of the word
'finance', both as a source and as an activity i.e. as a noun and a verb.

The American Heritage Dictionary of the English Language, Fourth Edition defines the term as

1:"The science of the management of money and other assets.";

2: "The management of money, banking, investments, and credit. ";
3: "finances Monetary resources; funds, especially those of a government or corporate body"
4: "The supplying of funds or capital."

Finance as a function (i.e. verb) is defined by the same dictionary as under-

1:"To provide or raise the funds or capital for": financed a new car
2: "To supply funds to": financing a daughter through law school.
3: "To furnish credit to".

Another English Dictionary, "WordNet 1.6, 1997Princeton University " defines the term as under-

1:"the commercial activity of providing funds and capital"

2: "the branch of economics that studies the management of money and other assets"
3: "the management of money and credit and banking and investments"

The same dictionary also defines the term as a function in similar words as under-

1: "obtain or provide money for;" "Can we finance the addition to our home?"
2:"sell or provide on credit"

All definitions listed above refer to finance as a source of funding an activity. In this respect providing
or securing finance by itself is a distinct activity or function, which results in Financial Management,
Financial Services and Financial Institutions. Finance therefore represents the resources by way funds
needed for a particular activity. We thus speak of 'finance' only in relation to a proposed activity.
Finance goes with commerce, business, banking etc. Finance is also referred to as "Funds" or
"Capital", when referring to the financial needs of a corporate body. When we study finance as a

subject for generalising its profile and attributes, we distinguish between 'personal finance" and
"corporate finance" i.e. resources needed personally by an individual for his family and individual
needs and resources needed by a business organization to carry on its functions intended for the
achievement of its corporate goals.


The economic development of a nation is reflected by the progress of the various economic units,
broadly classified into corporate sector, government and household sector. While performing their
activities these units will be placed in a surplus/deficit/balanced budgetary situations.

There are areas or people with surplus funds and there are those with a deficit. A financial system or
financial sector functions as an intermediary and facilitates the flow of funds from the areas of surplus
to the areas of deficit. A Financial System is a composition of various institutions, markets,
regulations and laws, practices, money manager, analysts, transactions and claims and liabilities.

Financial System;

The word "system", in the term "financial system", implies a set of complex and closely connected or
interlined institutions, agents, practices, markets, transactions, claims, and liabilities in the economy.
The financial system is concerned about money, credit and finance-the three terms are intimately
related yet are somewhat different from each other. Indian financial system consists of financial
market, financial instruments and financial intermediation. These are briefly discussed below;

Corporate advisory services,

Investment Bankers Capital Market, Credit Market
Issue of securities

Capital Market, Money Subscribe to unsubscribed

Market portion of securities

Issue securities to the
Registrars, Depositories, investors on behalf of the
Capital Market
Custodians company and handle share
transfer activity

Primary Dealers Satellite Market making in government

Money Market
Dealers securities

Ensure exchange ink

Forex Dealers Forex Market


Money Market Instruments

The money market can be defined as a market for short-term money and financial assets that are near
substitutes for money. The term short-term means generally a period upto one year and near substitutes
to money is used to denote any financial asset which can be quickly converted into money with
minimum transaction cost.

Some of the important money market instruments are briefly discussed below;

1. Call/Notice Money
2. Treasury Bills
3. Term Money
4. Certificate of Deposit
5. Commercial Papers

1. Call /Notice-Money Market

Call/Notice money is the money borrowed or lent on demand for a very short period. When money is
borrowed or lent for a day, it is known as Call (Overnight) Money. Intervening holidays and/or Sunday
are excluded for this purpose. Thus money, borrowed on a day and repaid on the next working day,
(irrespective of the number of intervening holidays) is "Call Money". When money is borrowed or lent

for more than a day and up to 14 days, it is "Notice Money". No collateral security is required to cover
these transactions.

2. Inter-Bank Term Money

Inter-bank market for deposits of maturity beyond 14 days is referred to as the term money market.
The entry restrictions are the same as those for Call/Notice Money except that, as per existing
regulations, the specified entities are not allowed to lend beyond 14 days.

3. Treasury Bills.

Treasury Bills are short term (up to one year) borrowing instruments of the union government. It is an
IOU of the Government. It is a promise by the Government to pay a stated sum after expiry of the
stated period from the date of issue (14/91/182/364 days i.e. less than one year). They are issued at a
discount to the face value, and on maturity the face value is paid to the holder. The rate of discount and
the corresponding issue price are determined at each auction.

4. Certificate of Deposits

Certificates of Deposit (CDs) is a negotiable money market instrument nd issued in dematerialized

form or as a Usance Promissory Note, for funds deposited at a bank or other eligible financial
institution for a specified time period. Guidelines for issue of CDs are presently governed by various
directives issued by the Reserve Bank of India, as amended from time to time. CDs can be issued by
(i) scheduled commercial banks excluding Regional Rural Banks (RRBs) and Local Area Banks
(LABs); and (ii) select all-India Financial Institutions that have been permitted by RBI to raise short-
term resources within the umbrella limit fixed by RBI. Banks have the freedom to issue CDs
depending on their requirements. An FI may issue CDs within the overall umbrella limit fixed by RBI,
i.e., issue of CD together with other instruments viz., term money, term deposits, commercial papers
and intercorporate deposits should not exceed 100 per cent of its net owned funds, as per the latest
audited balance sheet.

5. Commercial Paper

CP is a note in evidence of the debt obligation of the issuer. On issuing commercial paper the debt
obligation is transformed into an instrument. CP is thus an unsecured promissory note privately placed
with investors at a discount rate to face value determined by market forces. CP is freely negotiable by
endorsement and delivery. A company shall be eligible to issue CP provided - (a) the tangible net
worth of the company, as per the latest audited balance sheet, is not less than Rs. 4 crore; (b) the

working capital (fund-based) limit of the company from the banking system is not less than Rs.4 crore
and (c) the borrowal account of the company is classified as a Standard Asset by the financing bank/s.
The minimum maturity period of CP is 7 days. The minimum credit rating shall be P-2 of CRISIL or
such equivalent rating by other agencies. (for more details visit faculty column)

Capital Market Instruments

The capital market generally consists of the following long term period i.e., more than one year period,
financial instruments; In the equity segment Equity shares, preference shares, convertible preference
shares, non-convertible preference shares etc and in the debt segment debentures, zero coupon bonds,
deep discount bonds etc.

Hybrid Instruments

Hybrid instruments have both the features of equity and debenture. This kind of instruments is called
as hybrid instruments. Examples are convertible debentures, warrants etc.


In India money market is regulated by Reserve bank of India ( and Securities Exchange
Board of India (SEBI) [ ] regulates capital market. Capital market consists of primary
market and secondary market. All Initial Public Offerings comes under the primary market and all
secondary market transactions deals in secondary market. Secondary market refers to a market where
securities are traded after being initially offered to the public in the primary market and/or listed on the
Stock Exchange. Secondary market comprises of equity markets and the debt markets. In the
secondary market transactions BSE and NSE plays a great role in exchange of capital market
instruments. (visit ).


Indian Stock Markets are one of the oldest in Asia. Its history dates back to nearly 200 years ago. The
earliest records of security dealings in India are meager and obscure. The East India Company was the
dominant institution in those days and business in its loan securities used to be transacted towards the
close of the eighteenth century.
By 1830's business on corporate stocks and shares in Bank and Cotton presses took place in Bombay.
Though the trading list was broader in 1839, there were only half a dozen brokers recognized by banks
and merchants during 1840 and 1850.
The 1850's witnessed a rapid development of commercial enterprise and brokerage business attracted
many men into the field and by 1860 the number of brokers increased into 60.
In 1860-61 the American Civil War broke out and cotton supply from United States of Europe was
stopped; thus, the 'Share Mania' in India begun. The number of brokers increased to about 200 to 250.
However, at the end of the American Civil War, in 1865, a disastrous slump began (for example, Bank
of Bombay Share which had touched Rs 2850 could only be sold at Rs. 87).
At the end of the American Civil War, the brokers who thrived out of Civil War in 1874, found a place
in a street (now appropriately called as Dalal Street) where they would conveniently assemble and
transact business. 1875, the Bombay stock exchange, the oldest in Asia, made its beginning under the
name Share and Stockbrokers Association. In 1887, they formally established in Bombay, the "Native
Share and Stock Brokers' Association" (which is alternatively known as The Stock Exchange "). In
1895, the Stock Exchange acquired a premise in the same street and it was inaugurated in 1899. Thus,
the Stock Exchange at Bombay was consolidated.

Capital market

Industrial Securities Market Govt. Securities Market Long Term Loans Market

Primary market Secondary market Term Loan Market Market for Mortgages
Market for Financial Guarantees

Capital Market
The capital market is a market for financial assets which have a long or indefinite maturity. Generally,
it deals with long term securities which have a maturity period of above one year. Capital market may
be further divided into three namely:

a) Industrial securities market.

b) Government securities market and
c) Long term loans market.


As the name implies, it is a market for industrial securities namely:
a) Equity shares or ordinary shares
b) Preferences
c) Debentures or Bonds.
Equity shares: Equity shares represent proportionate ownership of a company. This right is
expressed in the form of participating in the profits of a going company and sharing the assets of a
company after winding-up. Equity shares have the lowest priority claim on earnings and assets of
all securities issued. But they have unlimited potential for dividend payments and price
appreciation. In contrast, owners of debentures and preference shares enjoy an assured return in the
form of interest and dividend.
Preference Shares: Preference shares carry preferential rights in comparison with ordinary shares.
As a rule, preference shareholders enjoy a preferential right to dividend. As regard capital, if a
company winds up, it carries a preferential right to be repaid, the amount of capital paid-up on
such shares.
Debentures: Debentures are instruments for raising long term debt capital. Debenture holders are
the creditors of the company. The obligation of the company towards its debentures holder is
similar to that of a borrower who promises to pay interest and capital at specified times.
Industrial securities market can be further subdivided into two. They are
Primary market
Secondary market
Primary market
Primary market is a market for new issues or new financial claims. Hence it is called New Issue
market. There are three ways by which a company may raise capital in a primary market. They are
a. Public issue

b. Rights issue
c. Private placement
Secondary markets
Secondary market is a market for secondary sale of securities. In other words, securities which have
already passed through the new issue market are traded in this market. This market consists of all
stock Exchange recognized by the Govt. of India.


It is also called Gilt-Edged securities market. It is a market where government securities are traded. In
India there are many kinds of Government securities short term and long term. Long term securities
are traded in this market while short term securities are traded in the money market.


Development banks and commercial banks play a significant role in this market by supplying long
term loans to corporate customers. Long term loans market may further be classified into:
a. Term loans market
b. Mortgages market
c. Financial Guarantees market.
Equity market
Equity market is a market for the trading of publicly held company stocks or shares and associated
financial instruments (including stock options, convertibles and stock index futures). Traditionally
such markets were open-outcry where trading occurred on the floor of an exchange. These days
increasingly the markets are cyber-markets with buying and selling occurring via online real-time
matching of orders placed by buyers and sellers.
The movements of the prices in a market or section of a market are captured in price indices called
stock market indices, of which there are many e.g. the standard and poorest indices and the financial
times indices. Such indices are usually market capitalization weighted.

Indian Equity Market

Equity capital generally is composed of funds that are raised by a business in exchange for an
ownership interest in your company. This interest can be in the form of ownership of common or
preferred stock or instruments that convert into stock. In addition to taking an ownership interest in
your company, equity investors may also participate as a member of the company board of directors
and take an active role in managing your company. However, in comparison to debt financing, which
must be repaid over time

Essentially, equity capital is money that is invested into a company in exchange for an ownership
interest in that company. Traditionally, equity capitalunlike debtis not intended to be repaid
according to a specific schedule and is not secured (or guaranteed) by the company's assets. Instead,
an equity investor (i.e., the individual or entity that supplies the company with the money) expects
that, within a certain time frame, the ownership percentage s/he holds will be worth more than the
original amount s/he invested.
You may be more familiar than you think with the concept of equity capital. Millions of people are
public equity investors because they own shares in large corporations such as Microsoft and Wal-Mart,
companies whose ownership interests are priced and traded publicly. In Equity Capital Market
Landscape, however, when we say equity capital, we are referring to private equity capital, which
represents money that is invested in private companies, or those that are not listed on the exchanges.
Equity capital or financing is money raised by a business in exchange for a share of ownership in the
company. Ownership is represented by owning shares of stock outright or having the right to convert
other financial instruments into stock of that private company. Two key sources of equity capital for
new and emerging businesses are angel investors and venture capital firms.
Typically, angel capital and venture capital investors provide capital unsecured by assets to young,
private companies with the potential for rapid growth. Such investing covers most industries and is
appropriate for businesses through the range of developmental stages. Investing in new or very early
companies inherently carries a high degree of risk. But venture capital is long term or patient capital
that allows companies the time to mature into profitable organizations.
Angel and venture capital is also an active rather than passive form of financing. These investors seek
to add value, in addition to capital, to the companies in which they invest in an effort to help them
grow and achieve a greater return on the investment. This requires active involvement and almost all
venture capitalists will, at a minimum, want a seat on the board of directors.
Although investors are committed to a company for the long haul, that does not mean indefinitely. The
primary objective of equity investors is to achieve a superior rate of return through the eventual and
timely disposal of investments. A good investor will be considering
Potential exit strategies from the time the investment is first presented and investigated.

Definition of Equity
An instrument that signifies an ownership position, or equity, in a corporation, and represents a claim
on its proportionate share in the corporation's assets and profits. A person holding such an ownership
in the company does not enjoy the highest claim on the company's earnings. Instead, an equity holder's
claim is subordinated to creditor's claims, and the equity holder will only enjoy distributions from
earnings after these higher priority claims are satisfied. also called equities or equity securities or
corporate stock.
Equity capital
Equity capital is defined as the amount of capital provided by the company's owner(s). Providing new
equity (an "issuance" of new equity) gives the firm new capital and increases owners' equity by the
same amount and time needed. An issuance of new shares, to raise new capital, increases shareholders'
equity. Formally, owners' equity is also a form of liability, but is deemed separate and different from
other liabilities since it is a residual interest, ranked last in the series; equity is generally considered to
be an asset.
Market Value of shares
In the stock market, market price per share does not correspond to the equity per share calculated in
the accounting statements. Stock valuations, often much higher, are based on other considerations
related to the business' operating cash flow, profits and future prospects; some factors are derived from
the accounting statements. Thus, there is little or no correlation between the equity seen in financial
statements and the stock valuation of the business.
Equity (law), a branch of jurisprudence in common law jurisdictions
In many political and legal systems, a concept encompassing ideals of justice (fairness) and/or
Equalism, a philosophy promoting the equality of sexes, genders, and races
In poker strategy, the probability of winning a poker hand
Intergenerational equity, equality and fairness in relationships between people of different
Business and Economics
Ownership equity, the value of an ownership interest in property
Shareholders' equity, the owners' residual interest in the assets of an enterprise after deducing
all its liabilities
Stock, common or preferred financial stock
Equity investment
Equity (economics), the study of fairness in economics
Brand equity, in marketing, the value built up in a brand

The word equity is also used in the names of the following organizations:
Actors' Equity Association, an association in the United States
Equity (trade union) an association in the United Kingdom

Canadian Actors' Equity Association, an association in Canada
Equity Office Properties Trust, a company that owns and manages office buildings in the
United States
Forum Party of Alberta, also known as the Equity Party, a defunct political party from Alberta,
Equity Bank Limited, a bank based in Kenya
In finance, shareholders' equity (or stockholders' equity, shareholders' funds, shareholders' capital
employed) is ownership equity spread out among shareholders whose class of share may have special
rights attached to it. If all shareholders are in one and the same class, they share equally in ownership
equity from all perspectives.
Advantages and disadvantages of equity finance
Equity finance can sometimes be more appropriate than other sources of finance, eg bank loans, but it
can place different demands on you and your business.
The main advantages of equity are:
o The funding is committed to your business and your intended projects. Investors only realize
their investment if the business is doing well, e.g. through flotation or a sale to new investors.
o Resources for your business. The right business angels and venture capitalists can bring
valuable skills, contacts and experience to your business and can assist with strategy and key
decision making.
o In common with you, investors have a vested interest in the business' success, ie its growth,
profitability and increase in value.
o Investors are often prepared to provide follow-up funding as the business grows.
The principal disadvantages of equity are:
o Raising equity finance is demanding, costly and time-consuming. Your business may suffer as
you devote time to the deal. Potential investors will seek background information on you and
your business - they will closely scrutinize past results and forecasts and will probe the
management team. However, many businesses find this discipline useful regardless of any
o Depending on the investor, you will be subject to varying degrees of influence over the
management of your business and making of major decisions.
o You will have to invest management time to provide regular information for the investor to
o Your share in the business will be diluted. However, your share may be of a much larger
business because of the funding.

o There can be legal and regulatory issues to comply with when raising finance, eg when
promoting investments.

Stock market prediction

Stock market prediction is the act of trying to determine the future value of a company stock or other
financial instrument traded on a financial exchange. The successful prediction of a stock's future price
could yield significant profit. Some believe that stock price movements are governed by the random
walk hypothesis and thus are unpredictable. Others disagree and those with this viewpoint possess a
myriad of methods and technologies which purportedly allow them to gain future price information.
Prediction methods
Prediction methodologies fall into three broad categories which can (and often do) overlap. They are
fundamental analysis, technical analysis (charting) and technological methods.

Fundamental analysis

Fundamental Analysts are concerned with the company that underlies the stock itself. They evaluate a
company's past performance as well as the credibility of it's accounts. Many performance ratios are
created that aid the fundamental analyst with assessing the validity of a stock, such as the P/E ratio.
Warren Buffett is perhaps the most famous of all Fundamental Analysts.

Technical analysis

Technical analysts or chartists are not concerned with any of the company's fundamentals. They seek
to determine the future price of a stock based solely on the (potential) trends of the past price (a form
of time series analysis). Numerous patterns are employed such as the head and shoulders or cup and
saucer. Alongside the patterns, statistical techniques are utilized such as the Exponential Moving
Average (EMA).
The role of stock exchanges

Stock exchanges have multiple roles in the economy, this may include the following

Raising capital for businesses

The Stock Exchange provides companies with the facility to raise capital for expansion through selling
shares to the investing public.

Mobilizing savings for investment

When people draw their savings and invest in shares, it leads to a more rational allocation of resources
because funds, which could have been consumed, or kept in idle deposits with banks, are mobilized
and redirected to promote business activity with benefits for several economic sectors such as
agriculture, commerce and industry, resulting in a stronger economic growth and higher productivity

levels and firms

Facilitating company growth

Companies view acquisitions as an opportunity to expand product lines, increase distribution channels,
hedge against volatility, increase its market share, or acquire other necessary business assets. A
takeover bid or a merger agreement through the stock market is one of the simplest and most common
ways for a company to grow by acquisition or fusion.

Redistribution of wealth

Stocks exchanges do not exist to redistribute wealth. However, both casual and professional stock

investors, through dividends and stock price increases that may result in capital gains, will share in the
wealth of profitable businesses.

Creating investment opportunities for small investors

As opposed to other businesses that require huge capital outlay, investing in shares is open to both the
large and small stock investors because a person buys the number of shares they can afford. Therefore
the Stock Exchange provides the opportunity for small investors to own shares of the same companies
as large investors.

Government capital-raising for development projects

Governments at various levels may decide to borrow money in order to finance infrastructure projects
such as sewage and water treatment works or housing estates by selling another category of securities

known as bonds. These bonds can be raised through the Stock Exchange whereby members of the
public buy them, thus loaning money to the government. The issuance of such municipal bonds can
obviate the need to directly tax the citizens in order to finance development, although by securing such
bonds with the full faith and credit of the government instead of with collateral, the result is that the
government must tax the citizens or otherwise raise additional funds to make any regular coupon
payments and refund the principal when the bonds mature.

Barometer of the economy

At the stock exchange, share prices rise and fall depending, largely, on market forces. Share prices tend
to rise or remain stable when companies and the economy in general show signs of stability and
growth. An economic recession, depression, or financial crisis could eventually lead to a stock market
crash. Therefore the movement of share prices and in general of the stock indexes can be an indicator of
the general trend in the
Alternative Equity Investment
Before the Internet and before globalization of the financial sector, investment for most people meant
buying stocks, shares or collective investment units through a broker, using the mail and the telephone.
You can still do it that way, but more and more people, especially globe-trotting expatriates, do it on-
line, and do it for themselves using a whole zoo of techniques in which direct ownership of underlying
shares is just one solution, and no longer the best in many situations.
Trading methods now encompass Contracts for Differences (CFDs), Spread Betting, Equity and
Financial Derivatives (Futures and Options), and Exchange Traded Funds. Even in plain vanilla equity
investment, the one-time focus on national bourses has given way to a wide variety of tradable
markets, on or off the Internet, including so-called 'offshore' stock exchanges.
Contracts for Differences (CFDs)

Share CFDs (they are also used to trade other instruments such as currencies) are an agreement to
exchange the difference in value of a particular share between the times at which a contract is opened
and the time at which it is closed. CFDs mirror the performance of a share or an index; they are traded
on margin, and profit or loss is determined by the difference between the buy and the sell price.
Because contracts for difference trade on margin, investors only need a small proportion of the total
value of a position to trade. CFDs mirror rights in the underlying shares; thus the owner of a share
CFD will receive cash dividends and participate in stock splits, rights issues or takeover action.
CFDs have grown enormously in popularity over the past seven years, particularly with hedge funds,
and are thought to underlie 30% of the LSE's trading. The majority of major brokerages now offer
these products to individual traders via internet trading platforms, giving instant access to quotes and
other information pertaining to the market. However, individual investors often use spread betting (see
below) rather than CFDs.
CFDs, which were launched on the market place in 1998, have a number of advantages. Firstly, they
allow individual traders the opportunity to take larger positions in equities than might otherwise be the
case through the use of leveraged margin accounts. In many cases, the margin requirement may be as
low as 10% of the full transaction value. So, for example, if an individual wanted to buy 10,000 of
Company As shares and their broker was quoting a price of $1.00, they would put up an initial
margin deposit of just $1,000, instead of having to fork out $10,000 to buy the shares outright. If
Company As share price subsequently increased and the shares were sold at a price of $1.20, a profit
of 0.20 per share, or $2,000 would be the result. Not a bad return considering an initial outlay of only
$1,000 was needed! The other major advantage CFDs have over standard share dealing is that they
allow the investor to sell short a companys share, so that profits can be made on the falling value of
stock prices.
CFDs are predominantly used for short-term trading and a comparison must be made between the
savings made from not paying stamp duty and additional costs, including financing. It's not easy to
make comparisons, since leakage from poor pricing can easily wipe out tax advantages. However, for
trades that are less than three months it is normally cheaper to trade with a CFD rather than with the
underlying stock.
Equity Derivatives

Another tool offering flexibility to individual and institutional investors alike is the derivative. Trading
in stock futures, for instance, can be found through a number of exchanges globally, and, increasingly,
through the Internet. Although futures are perhaps more readily associated with the commodities or
fixed income markets, where traders or companies have traditionally tried to hedge against adverse
price swings, stock futures can perform the same function as contracts for differences. They are thus
useful for individual investors who want to undertake stock trading without actually having to
physically buy or sell the stocks. Basically, buying shares on the futures market means that the buyer
agrees to buy or take delivery of the shares at a future date, but paying the current price. Most futures
trades are cashed out before this delivery date, meaning that the underlying share or instrument never
actually changes hands. As with CFDs, they are also traded on the principle of margin, so, again, there
is potential to take a large position in equity without having to put up the requisite amount of cash.

There is also the added flexibility that multiple trading strategies can be employed (as with most other
equity derivative contracts), such as combining long and short positions with a holding in the
underlying shares, and the use of options, which confers on the trader the right, but not the obligation,
to buy and sell share futures when they reach a certain price (known as the strike price). Options can
be employed in many different combinations, and themselves be bought and sold. However, option
strategies have defeated even Nobel-winning economists, so inexperienced traders may want to start
with the simplest of options strategies where derivatives are concerned!
Stock Index Future

Another slightly more esoteric and less direct form of alternative equity investment is buying and
selling stock indices in the futures market. While stock index futures have been on the investment map
since their introduction in the early 1980s, they have only recently appeared on the radar of the smaller
investor thanks in large part to the growth of internet trading and the rise in popularity among private
individuals of day trading. Again, stock index futures were developed as a hedging tool for
institutional traders to provide protection against a price reversal of the stocks in the managers
portfolio. However, stock index futures also provide an opportunity to make smaller short term gains.
The principle of trading in stock index futures is the same as any other futures market, except that the
trader is effectively buying and selling a set of numbers, and no physical delivery of an underlying
asset is possible. This means that positions are settled in cash at the expiration of the contract at either

a profit or loss, although the vast majority of index futures contracts are either settled prior to expiry,
or rolled over to a later expiry date.
Stock index futures, like many derivative equity products, originated in the US, but by now they are
available from almost all large equity trading centers. China is one of the few major trading centers not
to have enabled stock index futures. In 2007, the China Financial Futures Exchange published draft
trading rules for the country's first stock index futures, which are expected to be launched this year.
The Chinese authorities are concerned about increasing volatility in the country's red hot markets,
however. When trading does begin, it will be based on an index of the 300 largest firms by market
capitalization on the Shanghai and Shenzhen stock exchanges.

Exchange Traded Funds are a relatively new addition to the equity investment sphere. An exchange-
traded fund is an investment company with shares which trade intraday on stock exchanges at market-
determined prices. Investors may buy or sell ETF shares through a broker just as they would the shares
of any publicly traded company.
ETFs were first introduced in the USA in 1993 and in Europe in 2000. Currently, there are over 1,050
ETFs listed globally with over EUR522 billion (US$713 billion) assets under management. In Europe
there are over 364 ETFs available with assets under management of approximately EUR82 billion. By
2011 it is widely forecast that assets in ETFs globally will exceed EUR 1,500 billion.
On the surface ETFs appear very similar to mutual funds, but in actual fact, there are a couple of key
differences. One of the main differences is that ETFs can be traded openly throughout the trading day,
unlike mutual funds which can only be redeemed at the closing price of each day. This means that
ETFs may be equally suitable to the more conservative buy-and-hold strategist, or the more active
trader looking for short-term speculative gains. The other major advantage of ETFs over their mutual
fund cousins is that the former can be sold short, whereas the latter cannot.
Ethical Investing

Ethical investing does not strictly fall into the alternative category; it can be nevertheless be viewed as
an alternative to the standard equity portfolio or mutual fund. Ethical investments come in a variety of
forms, and tend to differ depending on the shade of green that an individual wants with their
There are two basic routes into ethical investing: pick the stocks yourself based upon your own beliefs
and ethical principles; or put your money (and faith) into a managed fund which only buys stocks in
certain companies depending on the pre-defined rules the fund has set itself. Naturally, if one chooses
not to invest in certain firms because of the products they make, or because of the negative side effects
they have on the environment or health, then this excludes a large number of potentially high growth

stocks from a portfolio - for example, firms in the alcohol, tobacco, armaments, oil and gambling
industries will be off limits, leaving a limited choice of companies in which to invest. As a
consequence, many feel that ethical funds will never match the returns of conventional equity
investment funds over the long-term.
Nonetheless, in spite of these self-imposed restrictions, ethical funds have performed comparatively
well in recent years. One example is the Stewardship Growth Fund, the UKs first ethical fund which
was launched in the mid 1980s amid much skepticism over its prospects. Twenty years on, the fund
manages 600 million ($1 billion) and was ranked in the top fifty of the 276 funds in its sector over
the last three years. Detractors argue that ethical funds have performed well because they are weighted
towards small and mid-cap stocks, which have generated good returns over the short term. However,
there is clear and growing demand for ethical funds and investment products, as indicated by a recent
Mori poll, which showed that two-thirds of clients wanted independent financial advisors to offer
ethical investment options, so there appears to be enough belief in ethical investments to make them a
viable alternative.
If one wants to make an ethical investment, it pays to do a bit of due diligence beforehand, as some
funds, and some companies, may not be as green as they seem on first inspection. Advocates of ethical
investment recommend that prospective investors study a fund or company prospectus carefully before
deciding whether it will be a suitable investment that matches their own ethical principles. To be
doubly sure, some advise investors to obtain a written statement from the fund or company clearly
stating its investment policy or business activities.
Islamic Investment

Another route into the ethical investment universe is through the rapidly-growing Islamic investment
industry. Investments constructed along the principles of Shariah law automatically screen out
companies deemed to have a harmful effect on society or that are anathema to the Islamic religion, for
instance those connected with alcohol, gambling, pornography, armaments, and pork. Importantly,
Shariah law also precludes the charging of interest, which is deemed to be profit made without effort
and with no beneficial effects on the community at large. This puts a large swathe of conventional
investment off limits to Islamic investors, although a number of specially constructed investment
products continue to be approved which circumvent the need to charge interest, and which are proving
ever popular.
2006 was the year in which Islamic finance, a concept virtually unheard of outside banking circles a
decade ago, finally crossed the border-line between slightly exotic alternative territory and the
mainstream. Islamic banking and finance industry has undergone something of an explosion in recent
years as demand for an alternative to western banking products structured along ethically-aware
Islamic principles has grown, and in early 2007 it received the financial equivalent of the accolade
when then UK Chancellor Gordon Brown announced that the Islamic finance industry would be given
the same tax treatment in the UK as other investments. The move was applauded by tax and finance
experts, who say it puts the City of London at the forefront of the nascent but rapidly growing global
Islamic equity funds are widely available in the traditional Muslim territories of the Middle East and
the Far East where many major banks and investment firms offer the products to retail investors.
Islamic finance is also gaining a foothold in the west, with many specialist institutions appearing in
countries such as the UK and the United States dedicated solely to selling Islamic investment products.
Moreover, some major western banks, including the likes of HSBC and Deutsche Bank, are getting in
on the act, with surer to follow.
Offshore Equity Investment

Investment in equities listed on offshore stock exchanges is another avenue worth considering in the
alternative sphere, which can bring significant tax and cost benefits if the right investment path is
taken. Just what is the right investment path however, can vary enormously depending on the
jurisdiction of residence (including whether offshore or onshore), the offshore jurisdiction in which the
investment is taking place, and the tax, regulatory and legal considerations in both locations. This
subject alone could easily stretch to several pages! Therefore, offshore equity investing is an area that
needs to be thoroughly researched, and it is essential that a potential offshore investor employs the
services of a suitably knowledgeable and impartial financial advisor who specializes in this area.
'Offshore' jurisdictions which have stock exchanges include: Bahamas, Bermuda, Costa Rica, Cyprus,
Dubai, Guernsey, Hong Kong, Luxembourg, Mauritius, Panama and Switzerland.
By and large, these offshore markets are suitable only for experienced investors, and with obvious
exceptions such as Hong Kong and Switzerland have attracted mostly professional investors. Most of
them have done little to encourage international retail investment.
The perils of investing in smaller, offshore markets are well illustrated by Cyprus and Dubai, both of
which have seen boom and bust scenarios based on localized 'irrational exuberance'.

Difference between debt and equity

Debt Capital: Debt capital is represented by funds borrowed by a business that must be repaid over a
period of time, usually with interest. Debt financing can be either short-term, with full repayment due
in less than one year, or long-term, with repayment due over a period greater than one year. The lender
does not gain an ownership interest in the business and debt obligations are typically limited to
repaying the loan with interest. Loans are often secured by some or all of the assets of the company.

Equity Capital: Equity capital is represented by funds that are raised by a business, in exchange for a
share of ownership in the company. Equity financing allows a business to obtain funds without
incurring debt, or without having to repay a specific amount of money at a particular time.
Typically, the interest rate is based on the Prime rate plus a margin.
The debt market is the market where debt instruments are traded. Debt instruments are assets that
require a fixed payment to the holder, usually with interest. Examples of debt instruments include
bonds (government or corporate) and mortgages.
The equity market (often referred to as the stock market) is the market for trading equity instruments.
Stocks are securities that are a claim on the earnings and assets of a corporation An example of an
equity instrument would be common stock shares, such as those traded on the BSE.
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Of course we all know what it is. Equity is at-risk capital; debt is a loan, repayable according to its
terms, and sometimes collateralized, or secured. In bankruptcy, for example, equity is the last to
get paid, and secured debt, in theory at least, is unaffected. The point I would like to make, however, is
that this distinction becomes blurry, or even not useful, as a companys capital structure (i.e., the
liabilities side of its balance sheet) o the other, and any difference between them becomes
There are important differences between stocks and bonds. Let me highlight several of them:
Equity financing allows a company to acquire funds (often for investment) without incurring debt.
On the other hand, issuing a bond does increase the debt burden of the bond issuer because
contractual interest payments must be paid unlike dividends, they cannot be reduced or

Those who purchase equity instruments (stocks) gain ownership of the business whose shares they
hold (in other words, they gain the right to vote on the issues important to the firm). In addition,
equity holders have claims on the future earnings of the firm.
In contrast, bondholders do not gain ownership in the business or have any claims to the future
profits of the borrower. The borrowers only obligation is to repay the loan with interest.
Bonds are considered to be less risky investments for at least two reasons. First, bond market
returns are less volatile than stock market returns. Second, should the company run into trouble,
bondholders are paid first, before other expenses are paid? Shareholders are less likely to receive
any compensation in this scenario.
The one big change that will remarkably alter the long term wealth of investors is the tax concession to
equity linked savings schemes. Traditionally, in order to save tax, one invested in certain specific
schemes, most of which were interest bearing, fixed return bonds. The interest rate on these
instruments has been reducing over the years, making these investments an inappropriate choice for
long-term investment for financial goals like retirement.
Though it was well known that equity investments enable growth and offer a hedge over inflation,
they were not part of the long term tax advantage savings that most investors make every year. This
budget enables investment in equity up to Rs.1,00,000 through tax saving plans of mutual funds.

Angel Investors

Business angels are high net worth individual investors who seek high returns through private
investments in start-up companies. Private investors generally are a diverse and dispersed population
who made their wealth through a variety of sources. But the typical business angels are often former
entrepreneurs or executives who cashed out and retired early from ventures that they started and grew
into successful businesses. These self-made investors share many common characteristics.

They seek companies with high growth potentials, strong management teams, and solid business plans
to aid the angels in assessing the companys value. (Many seed or start ups may not have a fully
developed management team, but have identified key positions.)
They typically invest in ventures involved in industries or technologies with which they are personally
familiar. They often co-invest with trusted friends and business associates. In these situations, there is
usually one influential lead investor (archangel) whose judgment is trusted by the rest of the group
of angels. Because of their business experience, many angels invest more than their money. They also
seek active involvement in the business, such as consulting and mentoring the entrepreneur.
They often take bigger risks or accept lower rewards when they are attracted to the non-financial
characteristics of an entrepreneurs proposal.
Share price determination
Ultimately, at any given moment, equitys price is strictly a result of supply and demand. The supply is
the number of shares offered for sale at any one moment. The demand is the number of shares
investors wish to buy at exactly that same time. The price of the stock moves in order to achieve and
maintain equilibrium.
When buyers outnumber sellers, the price rises. Eventually, sellers attracted to the high selling price
enter the market and/or buyers leave, achieving equilibrium between buyers and sellers. When sellers
outnumber buyers, the price falls. Eventually buyers enter and/or sellers leave, again achieving
Thus, what a share of a company at any given moment is determined by all investors voting with their
money. If more investors want a stock and are willing to pay more, the price will go up. If more
investors are selling a stock and there aren't enough buyers, the price will go down.
Of course, that does not explain how people decide the maximum price at which they are willing to
buy or the minimum at which they are willing to sell. In professional investment circles the Efficient
Markets Hypothesis (EMH) continues to be popular, although this theory is widely discredited in
academic and professional circles. Briefly, EMH says that investing is rational; that the price of a stock
at any given moment represents a rational evaluation of the known information that might bear on the
future value of the company; and that share prices of equities are priced efficiently, which is to say
that they represent accurately the expected value of the stock, as best it can be known at a given
moment. In other words, prices are the result of discounting expected future cash flows.
The EMH model, if true, has at least two interesting consequences. First, because financial risk is
presumed to require at least a small premium on expected value, the return on equity can be expected
to be slightly greater than that available from non-equity investments: if not, the same rational
calculations would lead equity investors to shift to these safer non-equity investments that could be
expected to give the same or better return at lower risk. Second, because the price of a share at every
given moment is an "efficient" reflection of expected value, thenrelative to the curve of expected
returnprices will tend to follow a random walk, determined by the emergence of news (randomly)
over time. Professional equity investors therefore immerse themselves in the flow of fundamental
information, seeking to gain an advantage over their competitors (mainly other professional investors)
by more intelligently interpreting the emerging flow of information (news).
The EMH model does not seem to give a complete description of the process of equity price
determination. For example, stock markets are more volatile than EMH would imply. In recent years it
has come to be accepted that the share markets are not perfectly efficient, perhaps especially in
emerging markets or other markets that are not dominated by well-informed professional investors.
Stock market bubble
A stock market bubble is a type of economic bubble taking place in stock markets when price of stocks rise
and become overvalued by any measure of stock valuation.
The existence of stock market bubbles is at odds with the assumptions of efficient market theory which
assumes rational investor behaviour. Behavioral finance theory attribute stock market bubbles to cognitive

biases that lead to groupthink and herd behavior. Bubbles occur not only in real-world markets, with their
inherent uncertainty and noise, but also in highly predictable experimental markets [1]. In the
laboratory, uncertainty is eliminated and calculating the expected returns should be a simple
mathematical exercise, because participants are endowed with assets that are defined to have a finite
lifespan and a known probability distribution of dividends. Other theoretical explanations of stock
market bubbles have suggested that they are rational intrinsic, and contagious

Stock market crash

A stock market crash is a sudden dramatic decline of stock prices across a significant cross-section of
a stock market. Crashes are driven by panic as much as by underlying economic factors. They often
follow speculative stock market bubbles. If Stock market crashes are social phenomena where external
economic events combine with crowd behavior and

Psychology in a positive feedback loop where selling by some market participants drives more market
participants to sell. Generally speaking, crashes usually occur under the following conditions a
prolonged period of rising stock prices and excessive economic optimism, a market where P/E ratios
exceed long-term averages, and extensive use of margin debt and leverage by market participants.
There is no numerically-specific definition of a crash but the term commonly applies to steep double-
digit percentage losses in a stock market index over a period of several days. Crashes are often
distinguished from bear markets by panic selling and abrupt, dramatic price declines. Bear markets are
periods of declining stock market prices that are measured in months or years. While crashes are often
associated with bear markets, they do not necessarily go hand in hand. The crash of 1987 for example
did not lead to a bear market. Likewise, the Japanese Nikkei bear market of the 1990s occurred over
several years without any notable crashes. Indian market was crashed in the end of 2008 when FDI
was sucked from the market after that the Satyam fraud has crashed the entire market


The study of research methods provides you with the knowledge and skills you need to solve the
problems and meet the challenges of a fast-paced decision making environment. Business research is a
systematic inquiry whose objective is to provide information to solve managerial problems. It must be
remembered that a research is always problem-based. It is done to provide an answer to the question.

Problem Statement
Before investing into any kind of security it is important to know the fundamentals of the company in
which one is investing. If proper analysis is not done, then one might opt for a more risky investment.

Fundamental analysis is done of each and every sector in order to study the sector in general and the
company in particular. The sector chosen for the study is security and so before investing it is
necessary to go in for fundamental analysis. So the research problem is Fundamental Analysis of the
Profitable security

Research objectives
Each and every study is conducted keeping in mind certain objectives. It is quite obvious that no
report is ever prepared without any objective. There is at least one (primary) objective behind working
on that particular project report.
Following are the primary and secondary objectives of the researcher:
Primary objectives
To study the fundamentals of the securities as a whole prior to investment.
To study the fundamental of the top ten securities according to their market capitalization.
Choosing the best security out of the ten selected firms securities that are WIPRO, BHEL, RIIL,
Secondary objectives
Study the basics of fundamental analysis is the most important factor to be used before investing
into any security.
To get an overview of the world markets and the Indian economy which has a great impact on the
various sector of the economy and the investment pattern of an investor.
To used the ratio analysis, balance sheet, profit and loss account for finding the profitable equity
among the firms.
To study the working patterns of a broking firm and how the brokers/dealers deal with the portfolio
of their clients.
To get practical knowledge as to how the orders of the clients are executed and how actual buying
and selling is done in the stock markets
To compare the theory with practice

Scope Of The Study

The scope of the study was comparatively limited. Only ten firms securities were being studied out of
a plethora of securities which are categorized according to market capitalization. All the parameters
relating to world economy, Indian economy and the securities were not studied in great detail as it
should be. Also the securities were analyzed as per the ratios stated in the CRAMEL model. There are
various other ways in which an overview of the performance of a company can be had.

Research Design
The research design constitutes the blue print for the collection, measurement, and analysis of the data.
It is the plan and structure of investigation so conceived as to obtain answers to research questions.
The plan is the overall scheme or program of the research.
The research design used for the study is exploratory in nature. It included inspection of the activities
going on in the institute and also in the stock markets.
There are mainly three type of research.
Observational research
Survey research
Experimental research
Fresh data can be gathered by observing the ongoing things around. Observational research includes
observing the process, the environment in the organization, the consumers behavior, etc and gathers
the first hand information needed for the project. Observational research is put to practice and the
researcher has observed the working of the stock markets, analyzed the fundamentals of the banks and
studied as to how actual dealing is done in a broking firm.
Data Collection
The data collection is one of the most important parts of any research. Sometimes it becomes difficult
to get first hand information and relying on secondary data can be prone to risk. If one is relying only
on secondary data then the researcher has to be very careful about the authenticity of the source.
For the research purpose both primary and secondary research are taken into consideration. Primary
data consists of discussion with the Associate RMs of KOTAK SECURITIES about the securities and
fundamental analysis.
Secondary data is collected from Kotak securities weekly leaflets which a weekly publication is issued
by Kotak securities especially for its clients to get an overview of the stock markets and certain
specific stock and Kotaks different types of research reports. Also there has been an extensive use of
World Wide Web and an article from business standard. The other details are mentioned in the
Importance of the study
Fundamental analysis is done prior to investing in any security. Most broking firms and financial
service institutions go in for fundamental analysis to help their clients make proper decision regarding
investments. This study is based on the fundamental analysis of different types of sectors that offers an
overview of the world economy, Indian economy and economy of those sectors. Ten firms securities
are selected as per their market capitalization and ratings are given.

The whole study offers following benefits to the investors and the researcher:

The researcher will get thorough knowledge about the concept and practical use of fundamental
The researcher gets to know about the CRAMEL model that is one of the most used models for
rating banking sector (also used by CRISIL)
After analyzing the security as per their performance one can make a wise decision as to which
security is performing optimally and so the investor should choose that security (equity) to invest
into its stock which can provide maximum returns to the investor.

Analysis and Interpretation

Data about Indian economy and security is collected from the Internet. Then the company analysis i.e.
analysis of the ten different securities is done after thorough study of the companies balance sheets
and profit and loss statement and ratios are calculated as per CRAMEL model. Explanation for each
and every ratio is given in the report and then scores are given as per the figure arrived at of each ratio.
The security outstanding is given 5 points, security very good is given 4 points, for good is given 3,
for average is given 2 and for poor is given 1 point. Then the total is done and the security scoring the
maximum marks is given considered as the best performer.
Limitations of the study
All the limitations should be frankly revealed by the researcher. Some people wish to ignore the
matter, feeling that mentioning limitations detracts from the impact of the study. This attitude is
unprofessional and unethical. All the limitations of the study are revealed as under:
Only ten different firms securities are studied.
Not all the ratios are taken into consideration.
Training period was of just 8 weeks and so the limited time was a constraint to the study.
The other limitation was the vastness of the topic. As it was not possible to expand limitless, an
effort has been made to pick the most relevant and include the same.

The financial sector is going through a phase of transformation and convergence, and there have been
an increasing blurring of boundaries between the role of banks and financial institutions, which are
likely to step up competitive pressures in future. This transformation is evident on both the assets and
the liability side. On the asset side, banks are shifting from historical business model of providing
finance to corporate to aggressively focus on financial retail asset such as housing, automobiles and
commercial vehicles. This is driven both by the weak demand from corporate as well as the paucity of
clients with good credit quality. On the liability side, the transformation is from a passive retail
strategy to a very active retail thrust to attract and retain customers and increase the deposit base. The

entry of the newer private sector banks and the marketing strategy adopted by them has precipitated
this transformation.
Apart from this transformation, banks are also going through a phase of convergence wherein almost
all banks are offering the entire gamut of products and services on the asset and liability side to both
retail as well as wholesale customers. Hitherto, retail assets were primarily the domain of non-banking
finance companies and most banks did not actively offer the full range of products to their customers
even though they had the required distribution infrastructure and retail client base.
This transformation, dismantling of the consortium lending system and the deregulation in interest
rates has further presented associated challenges of managing credit risks and asset liability profiles.
The move to enhance the mark to market principle in the banking system in a scenario of volatile
interest rates has introduced instability in the earnings of the banking system. One must monitor all
these trends closely and analyze their impact on entities in the financial sector.
An entity-specific analysis of the risk profile is done through a qualitative cum quantitative approach
following a structured methodology called the CRAMEL model. Based on the rating criteria, the
relative strengths and weakness of each entity in comparison to its peer group are evaluated.
The CRAMEL model comprises the following:
Capital adequacy
Resource-raising ability
Asset quality
Earnings potential
Liquidity management
It is considered as the best available method for evaluating security performance and healthy position
of the security.


The top-down, three-step approach to security valuation starts with a forecast of the direction of the
general economy. Next, based on this economic forecast, project the outlook for each industry under
review. Third, within each industry, select the firms most likely to perform the best given these
economic and industry forecasts. As indicated, this approach is a three-step analytical process:

Economic analysis industry analysis stock analysis.

Step 1 forecast macroeconomic influences.

Fiscal policy is a direct approach to affect aggregate demand in an attempt to manage the rate of
economic growth. Tax cuts encourage spending (demand) and speed up the economy; tax increases
discourage spending and slow economic growth. Government spending creates jobs, thus increasing
aggregate demand.

Monetary policy is used by the central bank to manage economic growth. Decreasing the money
supply causes interest rates to rise, putting upward pressure on costs and downward pressure on
demand. Increasing the money supply reduces interest rates and increases demand. Inflation can result
from increasing the money supply too fast. Rising interest rates reduce the demand for investment
funds and rising consumer prices reduce product demand.
From a global (import/export) perspective, the potential domestic economic impact from political
changes in major international economies must be considered.

Step 2 Determine industry effects.

Identify industries that should prosper or suffer from the economic outlook identified in Step 1.
Consider how these industries react to economic change: some industries are cyclical, some counter-
cyclical, and some are noncyclical.
Consider global economic shifts: an industrys prospects within the global business environment
determine how well or poorly individual firms in the industry will do. Thus, industry analysis should
precede company analysis.

Step 3 Perform firm analysis.

After performing an industry analysis, compare firms within each attractive industry using financial
ratios and cash flow anlysis. For stock purchases, identify the company with the most upside potential.
For short selling, identify the firm whose stock should perform the worst. This involves not only
examining a firms performance, but also its prospects.

Five stages of the business cycle can be identified. They are:
1. Recoverythe economy begins to show signs that a recession is ending. Attractive
investments include cyclicals, commodities, and commodity-linked equities.
2. Early expansionthe recovery takes hold and the momentum of the recovery increases.
Attractive investments include stocks in general and real estate.
3. Late expansionthe recovery has continued and momentum are high. Attractive investments
include bonds and interest-sensitive stocks.
4. Slowing, entering recessiongrowth has turned flat and then negative. Attractive investments
include bonds and interest-sensitive stocks.
5. Recessiontypically, the money supply will be expanded, but recovery may take time.
Attractive investments include commodities and stocks.

Figure 1 depicts a general illustration of the industry life cycle. This figure shows sales on the
vertical axis and the phases of a firms life cycle on the horizontal axis.

The following description can be used to identify an industrys stage in its life cycle.
Pioneering phase: This is the start-up phase, where the industry experiences limited growth
in sales and low, or even negative, profit margins. Demand is low, and firms in the industry
are faced with substantial developmental costs.
Rapid accelerating growth phase: During this stage, markets develop for the industrys
products, and demand grows rapidly. There is limited competition among the few firms in
the industry, and sales growth and profit margins are high and accelerating.
Mature Growth phase: Sales growth is still above normal but ceases to accelerate.
Competitors enter the market, and profit margins start to decline.
Stabilization and market maturity phase: This is the longest phase. Industry sales growth
Approach the average growth rate of the economy. Fierce competition produces slim profit
margins, and ROE becomes normal.
Deceleration of growth and decline: Demand shifts away from the industry. Growth of
substitute products causes declining profit margins.


After analyzing the economy and determining which industries offer the most promose, the next step
in the top-down approach is selecting stocks. This is not simply a matter of identifying a good
company, defined as one with solid earnings and growth potential.
Company analysis might identify the best firms, but it does not necessarily identify the best
investments. A good company might be overpriced in the market, while a bad company might be
underpriced and represent a better investment. To select the best stocks, the investor must answer two
questions: (1) What are the best companies in the best industries? (2) Are the stocks of these
companies priced correctly? This is where the valuation techniques that we have learned come into

Growth company vs. growth stock: A growth company is one whose management has the ability to
consistently select investments (projects) that earn higher returns than required by their risk. A growth
stock is one that earns higher returns than other stocks of equivalent risk.
Even though a firm might be recognized as a growth company, its price may already reflect those
growth expectations, and the stock will earn only the risk-adjusted required return. In addition,
investor enthusiasm regarding the stock may be excessive, and this excess buying pressure may have
pushed the price too high. In this case, even though the firm earns above-normal returns, its stock can
actually earn below-normal returns.
Regardless of whether the firm is defined as a growth company, if a firms stock price is below its
intrinsic value, it can be a growth stock. Assuming the market estimates the correct value at some
point, the stock price will rise, and the stock will (temporarily) earn above-normal risk-adjusted

Defensive company vs. defensive stock: A defensive company has earnings that are relatively
insensitive to downturns in the economy. Utility companies and retail grocery chains are good
examples of defensive companies. These types of firms typically have low business risk and moderate
financial risk. A defensive stock is a stock that will not decline as much as the market when the overall
market declines. The returns of defensive stocks have a low correlation with the returns of the market.
Recalling our review of portfolio theory, defensive stocks are characterized by low betas.

Cyclical company vs. cyclical stocks: A cyclical company has earnings that tend to follow the
business cycle. Steel, automobile, and heavy equipment producers are good examples of cyclical
companies. Cyclical companies often have high levels of fixed costs (business risk) or leverage

(financial risk). A cyclical stock is a stock with rates with betas greater than one, indicating more than
a one-to-one reaction to changes in the return on the market.

Speculative company vs. speculative stock: A speculative company has assets that are very risky, but
the assets have the potential to generate very large earnings. Companies that are involved with
diamond mining, oil exploration, or some types of real estate are good examples of speculative
companies. A speculative stock is a stock that is highly likely to have very low or negative returns
because it is almost always overpriced. These stocks have a low probability of a return near that of the
market but a slight probability of an enormous return.

Growth stock vs. value stock: Often the term growth stock is used to mean something different
than he definition we used in contrasting growth stocks with growth companies. In the context of
growth versus value, growth refers to the earnings growth rate. The S&P 500/Barra Growth Index
and S&P 500/Barra Value Index separate the stocks in the S&P 500 index into growth stock and value
stock portfolios. Operationally, this is done based on price-book ratios, but separating index stocks
based on their price-earnings ratios would also be a good approximation for this purpose.

The shares of with high earnings growth rates tend to have both higher price-book and higher price-
earnings ratios than slower-growing firms. The term value stock is used to describe stocks that are
priced low in relation to their current earnings (rather than expected growth in their earnings) or in
relation to the value of their fixed assets, real estate, or cash. Value stocks are characterized by low
price-book ratios, low price-earnings ratios, and often, high dividends.


Market capitalization represents the public consensus on the value of a company's equity. A
corporation, including all of its assets, may be freely bought and sold through purchases and sales of
stock, which will determine the price of the company's shares.
Its market capitalization is this share price multiplied by the number of shares in issue, providing a
total value for the company's shares and thus for the company as a whole.
Many companies have a dominant shareholder, which may be a government entity, a family, or another
corporation. Many stock market indices (S&P 500, Sensex, FTSE, DAX, Nikkei) adjust for these by
calculating on a "free float" basis, ie the market capitalization they use is the value of the publicly
tradable part of the company.

Note that market capitalization is a market estimate of a company's value, based on perceived future
prospects, economic and monetary conditions, and therefore largely independent of a company's
history. Stock prices can also be moved by speculation about changes in expectations about profits or
about mergers and acquisitions.
Market capitalization (or market cap, for short) is the value of all outstanding shares of a corporation.
For example, if a company has 1 million shares outstanding that are trading at $100 per share, the
companys market cap is $100 million.
History tells us that, on the whole, investing in smaller companies is riskier than investing in larger
companies. Smaller companies dont have the financial resources of many larger companies to
weather a financial storm. And the products or services of smaller companies are often still unproven.
As we saw with stocks and bonds, the higher risk involved with investing in smaller companies has,
historically, resulted in higher returns. From 1926 to 2005, for example, large company stocks had an
annualized return of 11.22%, while small company stocks enjoyed an annualized return of 12.18%. If
you think this nearly 1% difference is not all that much, check out How Half a Percent Can Ruin Your
All of these still leaves open an important questionHow big (or small) must a company be to be
considered a large cap (or small cap) stock? There is no single answer to this question. Morningstar
considers the largest 5% of the stocks in its database as large cap, the next 15% as mid cap, and the
remaining 80% as small cap. Morningstar uses the familiar and convenient Style Box to indicate the
market cap of an individual stock or mutual fund.
What are mid cap, small cap, large cap in market capitalization

Small, mid and large cap just refers to the market capitalization of a publicly-traded company. A
market capitalization is the size (in Rupees amounts) of the company's public equity.
All asset classes are a good part of a diversified portfolio since they will not overlap (too much). Most
diversified portfolios will be outweighed in large cap with small % in both mid and small.
Large-cap (Big-Cap)
Companies having a market capitalization of 5,000 Cr. and above. These
references will also relate to the general characteristics of a fund - large cap
funds invest in large cap companies which are expected to be more stable,
less risky (relatively in the equity markets, which you should always
assumes certain risks).
These are the big faunas of the financial world. Examples include Bharat Heavy Electric Ltd.,
Reliance Industry Infrastructure Ltd., Tata steel Ltd. Etc However, sometimes these stocks are called
Short for "Middle Cap," mid cap refers to stocks with a market capitalization of between 1,000 Cr. to
5,000 Cr. Mid-cap are moderately sized companies that have growth potential, but are more "risky"
than large cap.
As the name implies, a mid-cap is in the middle of the pack. A mid-cap isn't too big, but at the same
time has a relatively decent market cap. Examples include Orchid Chemicals And Pharmaceuticals
Ltd., Jet Air etc.

Small Cap
Refers to stocks with a relatively small market capitalization. The definition of small cap can vary
among brokerages, but generally it is a company with a market capitalization of 1,000Cr. and
Below1,000Cr. Small cap are considered high growth, high risk because they are small and many may
go out of business, but some will succeed and move up in the cap world through growth.
Keep in mind that classifications such as "large cap" or "small cap" are only approximations that
change over time. Also, the exact definition can vary between brokerage houses.

In my project as Brief analysis of profitable parameters before investing equity share I tried to make
guideline for investors who can make the profit before investing in equity. I have showed some
parameters they have to look before investing. For comparing I have select the firms as their market
capitalization. To selecting the firms is not for the comparison purpose, it will only show, what the
effective parameters before investment in equity market are.
The selected firms are following;
5. PNB



Business Public
Industry Engineering H Chairman Mr.B.Prasad. Rao
Group Sector
BSE Code 500103 NSE Code BHEL ISIN No INE257A01018
1 Face Value Rs. 10.00 Book Closure 26/07/2010

- Company was set up at Bhopal in the name of M/s Heavy electrical (India) Ltd. in collaboration with
AEI, UK. Subsequently, three more plants were set up at Hyderabad, Hardwar and Trichy. The Bhopal
Unit was controlled by the company, the other three were under the control of Bharat Heavy
Electricals Ltd.
- The Company's object is to manufacture of heavy electrical equipments.
- In July the Operations of all the four plants were integrated.
- In January Heavy electrical (India) Ltd was merged with BHEL.
- For the manufacture of a wide variety of products, the company has developed technological
infrastructure, skills and quality to meet the stringent requirements of the power plants, transportation,
petro chemicals, oil etc.
- Bharat Heavy Electricals Limited (BHEL), Trichy, has secured orders worth Rs 15,000 crore, its all-
time high. BHEL, said the recent MOU with the TNEB for setting up two 800 Mw thermal power
stations near Chennai had resulted in the power plant major bagging orders.

-Bharat Heavy Electricals Ltd (BHEL) has informed that pursuant to order dated March 04, 2008
issued by Ministry of Heavy Industries and Public Enterprises, Department of Heavy Industry, Shri. K
Ravi Kumar Director (Power)/BHEL has been entrusted with additional charge of the post of the
Chairman and Managing Director/BHEL w.e.f. March 01, 2008.
- BHEL ties up with AP Genco for Vizag unit.
New Delhi: State-run Bharat Heavy Electricals on June 20 said it has won Rs 1,840 crore turnkey
order from Damodar Valley Corporation to set up a 500 MW unit at Bokaro Thermal Power Station in
BHEL would set up a 500 MW unit at Bokaro thermal power plant to add 12 million units a day to the
DVC Grid. The company's work includes design, engineering, manufacture, supply, erection and
commissioning of steam turbines, generators, boilers, associated auxiliaries, Balance of Plant (BoP)
and electricals besides civil works.
Three BHEL-built units of 210 MW each are already in operation at DVC's Bokaro Thermal Power
Station.The Bokaro project is slated to be synchronised during the 11th Plan.BHEL has also bagged an
Engineering Procurement Construction contract from ONGC Tripura Power Company Ltd for the
installation of a 750 MW Combined Cycle Power Plant.

Project Business Ambani

Industry Chairman Mr. Mukesh. Ambani
Consult Group Group
BSE Code 523445 NSE Code RIIL ISIN No INE046A01015
Market Book
1 Face Value Rs. 10.00 19/05/2010
Lot Closure

The company was incorporated on 29th September, 1988 as a Public Limited company and Certificate
of Commencement of business was obtained on 4th January, 1989. The immediate object of the
company is to undertake a project for the laying of two cross country pipelines from Bharat Petroleum
Corporation Ltd.'s (BPCL) Refinery at Chembur in Bombay, Maharashtra to Reliance Industries
Limited (RIL) Petrochemicals complex at Patalganga also in Maharashtra to transport petroleum
feedstock from BPCL for the exclusive use of RIL. The pipelines would be owned, maintained and
operated by the company under an agreement entered into with RELIANCE Industries Limited (RIL).
The pipelines would be used for transport of their petroleum feedstock.
At a later stage subject to necessary approvals, the company also proposes to undertake similar
projects of creating infrastructure to service industries.
It was listed on NSE on 25 Nov 1995
Closing price on 31 March 2010 -1074.25


Industry Computer Business Group TATA Chairman Mr. Ratan Tata

BSE Code 500470 NSE Code TATASTEEL ISIN No INE081A01012
Market Lot 1 Face Value Rs. 10.00 Book Closure 20/07/2010

Tata Steel is one of the oldest company in India

The Tata Steel Group has always believed that mutual benefit of countries, corporations and
communities is the most effective route to growth. Tata Steel has not limited its operations and
businesses within India but has built an imposing presence around the globe as well
With the acquisition of Corus in 2007 leading to commencement of Tata Steel's European operations,
the Company today is the tenth largest steel producer in the world with employee strength of above
81,000 across five continents
The Group recorded a turnover of Rs.102, 393 Crores in 2009 - 2010.
The Groups South East Asian operations comprise Tata Steel Thailand, in which it has 67.1% equity
and Nat Steel Holdings, which is one of the largest steel producers in the Asia Pacific with presence
across seven countries.
Listed on NSE on 18 Nov 1998.


Industry Computer Business Group Not Applicable Chairman Mr. Azim. Premji
BSE Code 507685 NSE Code WIPRO ISIN No INE075A01022
Market Lot 1 Face Value Rs. 2.00 Book Closure 22/07/2010

1945 - Incorporation as Western India Products Limited

1947 - Establishment of an oil mill at Amalner, Maharashtra, India

1960 - Manufacture of laundry soap 787 at Amalner

1970 - Manufacture of Bakery Shortening Vanaspati at Amalner

1975 - Diversification into engineering and manufacture of hydraulic cylinders as WINTROL

(now called Wipro Fluid Power) division in Bangalore.

1977 - Name of the Company changed to Wipro Products Limited

1980 - Diversification into Information Technology.

o This is the time the top IT Managers Sridhar Mitta, Dr. Laxman Rao, Venkatesh,
Sadasivam quit in one stoke from the IT division of giant public sector ECIL,
Hyderabad to join Wipro.

1988 - Crossed the $10 million mark in annualized revenues.

1990 - Incorporation of Wipro-GE medical systems

1992 - Going global with global IT services division

1993 - Busny to achieve the "TL9000 certification" for industry specific quality standard].

o Wipro acquires American Management Systems global energy practice.

o Becomes world's first PCMM Level 5 company.

o Premji established Azim Premji Foundation, a not-for-profit organization for

elementary education.

o Wipro becomes only Indian company featured in Business Weeks 100 best-performing
technology companies.

1995 - Established Wipro Academy of Software Excellence


o Wipro acquires Spectramind.

o Ranked the 7th software services company in the world by Business Week (Infotech
100, November 2002)


o Wipro acquires Nervewire.

o Wipro Technologies Wins Prestigious IEEE Award for Software Process Excellence]

o Wipro Technologies awarded prestigious ITSMA award for services marketing


o Wipro wins the 2003 Asian Most Admired Knowledge Enterprise Award.


o Crossed the $1 Billion m

o IDC rates Wipro as the leader among worldwide offshore service providers[5]

2005 - Wipro acquires mPower to enter payments spac] and also acquires European System on
Chip (SoC) design firm New Logic.

2006 - Wipro acquires Enabler to enter Niche Retail market

2007 - Wipro acquires US's Info crossing for 600mn

2009 - Wipro acquires Gallagher Financial Systems to enter mortgage loan origination space.

o Wipro stops Semiconductor IP Solutions and closes New Logic Sophia-Antipolis R&D,

- Wipro Launches ESS - Electronic Security Solutions with Products in CCTV System, Access
Control System and Building Management Systems.


Industry BANK Business Group Public Sector Chairman Mr.K.R.Kamanth

BSE Code 532461 NSE Code PNB ISIN No INE160A01014
Market Lot 1 Face Value Rs. 10.00 Book Closure 21/07/2010

1895: PNB established in Lahore.

1904: PNB established branches in Karachi and Peshawar.
1939: PNB acquired Bhagwan Dass Bank Limited.
1947: Partition of India and Pakistan at Independence. PNB lost its premises in Lahore, but continued
to operate in Pakistan.

1960: PNB amalgamated Indo-Commercial Bank Limited (established in 1933) in a rescue.
1961: PNB acquired Universal Bank of India.
1963: The Government of Burma nationalized PNB's branch in Rangoon (Yangon).
1965: After the Indo-Pak war the government of Pakistan seized all the offices in Pakistan of Indian
banks, including PNB's head office, which may have moved to Karachi. PNB also had branches in
East Pakistan (Bangladesh).
1969: The Government of India nationalized PNB and 13 other major banks on 19th July, 1969.
1978: PNB opened a branch in London.
1986: The Reserve Bank of India required PNB to transfer its London branch to State Bank of India
after the branch was involved in a fraud scandal.
1988: PNB acquired Hindustan Commercial Bank Limited in a rescue.
1993: PNB acquired New Bank of India, which the Government of India had nationalised in 1980.
1998: PNB set up a representative office in Almaty, Kazakhstan.
2003: PNB took over Nedungadi Bank (established the bank in 1899), the oldest private sector bank
in Kerala. It was incorporated in 1913 and in 1965 had acquired selected assets and deposits of the
Coimbatore National Bank. At the time of the merger with PNB, Nedungadi Bank's shares had zero
value, with the result that its shareholders received no payment for their shares.



Industry BANK Business Group Not Applicable Chairman Mr. K.M.Gherda

BSE Code 500247 NSE Code KOTAKBANK ISIN No INE237A01010
Market Lot 1 Face Value Rs. 10.00 Book Closure 30/07/2010

Kotak Mahindra Finance Limited was founded in 1985

Kotak Mahindra Finance Limited starts the activity of Bill Discounting in 1986
In 1991 The Investment Banking Division was started. Takes over FICOM, one of India's largest
financial retail marketing networks
In 1995 Brokerage and Distribution businesses incorporated into a separate company - Securities.

Investment banking division incorporated into a separate company - Kotak Mahindra Capital
In 2000 Kotak Securities launches its on-line broking site (now Commencement
of private equity activity through setting up of Kotak Mahindra Venture Capital Fund.
In 2003 Kotak Mahindra Finance Ltd. converts to a commercial bank - the first Indian company to do
In 2004 Launches India Growth Fund, a private equity fund.
In 2005 Kotak Group realigns joint venture in Ford Credit; Buys Kotak Mahindra Prime (formerly
known as Kotak Mahindra Primus Limited) and sells Ford credit Mahindra.
In 2005 launches a real estate fund
In 2006 bought the 25% stake held by Goldman Sachs in Kotak Mahindra Capital Company and

Revenue 9,985.89 crore (US$ 2.17 billion)(2010)[1]

Net income 1,327.36 crore (US$ 288.04 million)(2010)


Transport Business
Industry Not Applicable Chairman Mr. Naresh Goyal
Air Group
BSE Code 532617 NSE Code JETAIRWAYS ISIN No INE802G01018
1 Face Value Rs. 10.00 Book Closure 26/08/2010

Jet Airways was incorporated on April 1, 1992 as a private company with limited liability under the
Companies Act. We commenced operations as an Air Taxi Operator on May 5, 1993 with a fleet of
four leased Boeing 737 aircraft. We were granted scheduled airline status on January 14, 1995. Jet
Airways became a deemed public company on July 1, 1996. On January 19, 2001, Jet Airways was
reconverted into a private company. Jet Airways became a public company on December 28, 2004.
At the time of incorporation of the Company, our shareholders were Mr. P.V.V. Chalam and Mrs. Anita
Goyal. These shares were transferred to Tail Winds on May 12, 1994, and Mr. Naresh Goyal holds
them on behalf of Tail Winds in terms of an RBI approval letter No. EC.BY.CO (S)
250/2251/TS/93/94 dated December 30, 1993.
Pursuant to an application dated March 12, 1993 made by our Company, the FIPB by its letter No.
267/FC/93/NRI dated June 28, 1993 granted its approval to the foreign collaboration proposal for
investment in Tail Winds in the proportion of 60% by Mr. Naresh Goyal, 20% by Gulf Air and 20% by
Kuwait Airways. Tail Winds in turn held 100% of the Equity Share capital of our Company.

The MOCA by its letter dated April 17, 1997 directed the Company to take steps for disinvestment of
Equity Shares held, directly or indirectly, by foreign airlines pursuant to the Government of India's
policy on foreign equity and NRI/OCB equity participation in the domestic air transport services
sector. Consequently, with effect from October 15, 1997, Mr. Naresh Goyal acquired the 20% Equity
Shares from each of Gulf Air and Kuwait Airways, respectively, and became the 100% owner of Tail
Winds which is an NRI/OCB and currently owns over 99.99% of our Equity Share capital.
We currently provide regular scheduled services to 42 destinations in India and two destinations
outside India, operating 1,924 flights weekly. Our aircraft fleet has grown from four aircraft in 1993 to
currently 42 aircraft comprising 34 Boeing 737 aircraft and eight ATR 72-500 aircraft.
-South African Airways ties up with Jet Airways
- Jet Airways has launched daily direct flights between Mumbai and Bangkok with effect from May
14.This will be its third service to Bangkok from the country, a press release stated. The air-carrier
already operates daily services to Bangkok from Delhi and Kolkata respectively.
Listed on NSE on 14 March 2005


Industry Pharmaceuticals Not Applicable Chairman Mr. R Narayanan
BSE Code 524372 NSE Code ISIN No INE191A01019
Market Book
1 Face Value Rs. 10.00 21/07/2010
Lot Closure

- The Company was incorporated on 1st July and obtained the Certificate for Commencement of
Business on October 15. It was promoted by K.R. Rao, C.B. Rao, N. Subramanium, N. Sambasivam,
N. R. Reddy, Dr. R. Kailasam and Ms. R. Vijayalakshmi.
- The Company undertook to set up a 100% EOU for manufacture of 90 TPA of Cephalosporin group.
- A Collaboration agreement was entered into with sintofarm, Italy for state-of-the-art technology, buy
back of entire production, training of personnel etc. Also, another agreement was entered into with
M.V. Reddy for know-how for manufacture of 7-ADCA & Cephalexin.

- 17,01,800 shares issued, subscribed & paid-up, (of these 14,38,000 shares subscribed for by
signatories to the Memorandum of Association, 1,00,000 shares to NRI who are associates, friends of
promoters and 1,63,800 shares to foreign collaboration sintofarm).
- During September, the company issued 42,98,200 No. of equity shares of Rs 10 each for cash at par
of which the following were reserved for allotment on a firm basis.
- (1) 6,12,000 share to promoters, directors etc.
- (2) 1,36,200 No. of equity shares to collaborators sintofarm in repatriation basis.
- (3) 5,50,000 shares to secured India Investment on repatriation basis.
- (4) 5,00,000 shares to IDBI. Balance 25,00,000 shares issued to the public.
- Orchid Chemicals & Pharmaceuticals Ltd on February 20, 2008 has announced that it has received
approval from the US FDA for its ANDA (Abbreviated New Drug Application) for Cefouraxime
Axetil Tablets. The product is available in three dosage strengths, 125 mg, 250 mg and 500 mg.
Listed on NSE on 14 July 1997



Industry SOFTWARES Business Group Not Applicable Chairman Mr. Arun Jain
BSE Code 532254 NSE Code POLARIS ISIN No INE763A01023
Market Lot 1 Face Value Rs. 5.00 Book Closure 15/07/2010

1993 Polaris Software Lab Ltd Incorporated

1994 End to End Retail banking solution for Citi Bank India
To become 100 Crore Company by Year 2000
To be leader in chosen field of expertise
To contribute 1% of the profit to Community by ourselves
1995 operation setup in USA
In 1997 Polaris awarded "Most Innovative Company"
In 1999 First ATM Development Lab, First Secure Lab Awarded "Best International Business
Excellence" Award
2006 Worlds First Super Specialty Center for Investment Banking, The Capital, Hyderabad
Near Shore Centre in Belfast
Entry into Latin America

Recognized as Global Leader in the Specialty Application Development by Cybermedia
2007 "Corporate Banking" New Center in Mumbai
Launch of PACE Lab in Sydney
The Bankers Award for Intellect Treasury
Entering New Markets like Southern Europe & Nordic
2nd Year in a row - Global Leader in the Specialty Application Development
Near-shore Testing Center at Canada
2008 Opened new Branch office in Seoul, Korea
Acquires SEEC Inc, the worldwide SOA based Insurance solution provider
Polaris' 'Ullas Trust' wins the the Best CSR Practice Awards presented by BSE-NASSCOM-Times
2009 Lays the foundation stone for its Centre of Excellence for Insurance in Chennai, India
Marks its entry in emerging markets of Chile, Vietnam and Egypt
Launches Global Universal Banking Intellect 10.0


Industry SOFTWARES Business Group Not Applicable Chairman Mr.Pradip.P.Shah

BSE Code 532221 NSE Code EDUCOMP ISIN No INE269A01021
Market Lot 1 Face Value Rs. 1.00 Book Closure 15/06/2010

Year of Inception: 1986

Year of Incorporation: 1994
2800+ employees,8 Development Centers
Publicly traded in Indian Stock Exchanges
Wide experience in diverse technologies and practice areas
Featured in Top Outsourced Product Development Vendors by Global Services for FY 2009-2010
Listed among Top 100 Companies that define Global Outsourcing by Global Services for FY 2009-
As per the industry rankings released by NASSCOM for 2009-10, Sonata Software figured among
the Top 20 IT Software Services Exporters in India for the third consecutive year.
Ranked among Top 50 companies by Dataquest for FY 2009 - 2010
Sonata Software has also been ranked Global #2 in the 2008 Top Ten ESO: Outsourced Software
Development in The Black Book of Outsourcing.
Ranked among Top 10 R&D Services players globally by Zinnov Management Consulting Pvt. Ltd.
Ranked 6th in the Software Products segment by Zinnov Management Consulting Pvt. Ltd.
Winner in the Deloitte Technology Fast 500 Asia Pacific 2009 Program
Microsoft Gold Certified Partner
Oracle Certified Advantage Partner
SAP Gold Partner
IBM Business Partner


The specific market and economy environment may enhance the performance of the company for a
period of time but ultimately it is the firms own capabilities that will judge its performance for long
run. For this reason, the firms are to be compare with one another to find out the best performer. The
following factors are significant to company analysis:

Market policies
The most important variable; it influence the future earning in term of both quality and quantity. This
in tern is determine by the share of the company in the industry, growth of it sales.
Accounting policies
The accounting variations in the reporting costs, expenses and extraordinary item could change
earning to the grater extent, the accounting policies related to inventory pricing methods, and
depreciation method, non operating income, tax carry over affect company to grater extent and should
be critically examined.
When we put a security we are buying the right to future earning. We are interested in income
stability and growth of these earnings. To study relationship between expanse and sales, one need to
study trend of profitability ratio namely gross profit margin, net profit margin, earning per share, etc.

Dividend policies
It is observed that management tried to maintain the stable dividend policy with increase dividends.
This is possible only when a company expect increase rate of earning in future.
Capital structure
Capital structure of the company is to be study before making an investment in the company. Return
on equity holders investment can be magnified by using financing along with equity instate of equity
financing only. The mixing of fixed cost of funds such as debt and preference capital maximizes
earnings available to shareholders and should be carefully examined.


The company capability depends on the efficiency of its management. The functions of management
are to plan, organize, control and co-ordinate activities of the company to achieve desire results.

Financial statement analysis

It is the process of analyzing financial strengths and weakness of the company through various


a. Ratio analysis
Ratio analysis is a powerful tool of financial analysis. A ratio is defined as "the indicated quotient of
two mathematical expressions" and as "the relationship between two or more things." A ratio is used as
a benchmark for evaluating the financial position and performance of a firm.
Several ratios, calculated from the accounting data, can be grouped into various classes according to
financial activity or function to be evaluated. In view of the requirements of the various users of ratios,
we may classify them into the following four important categories:
I. Liquidity ratios
II. Leverage ratios
III. Activity ratios
IV. Profitability ratios.
b. Index analysis
Considering the various elements of a balance sheet and profit and loss statement during a particular
year as a base we can find out the respective values during different years relative to the base year.
This gives the indication of growth or decline in value over the duration of study.
c. Common size analysis
This analysis is useful for comparing the financial statements of different firms of varying size.

I have founded different type of profitable parameters as follows.

1. P/E Ratio (31/03/2010)
2. Net sales of the firms (Cr.)
3. EPS (Rs.)
4. Book value per share (Rs.)
5. Equity share capital (Cr.)
6. Dividend per share (Rs.)
7. Net profit/loss(Cr.)
8. Gross profit margin (%)
9. Net profit margin (%)
10. Total debt/ equity capital
11. Long term asset turnover ratio
12. Current ratio
13. Quick Ratio (Acid Test)
14. Dividend payout ratio (Net profit)
15. Inventory turnover Ratio


P/E Ratio (31/03/2010)


P/E RATIO 23.7 22.4 15.2 15 57.4 8 2.77 -12.9 11.7 10.5


Price/Earningratio = market price per share / earnings per share

Shows how much an investor is willing to pay for each dollar of earnings given the actual market
The P/E is another ratio commonly cited. Indeed, P/Es are reported in daily newspapers. A high P/E
tends to indicate that investors believe the future prospects of the firm are better than its current
performance. They are in some sense paying more per share than the firm's current earnings warrant.
Again, earnings are treated differently in different accounting practices.

This ratio usually evolves between 7 and 12 over time. Below 7 denotes either a bargain stock or one
which recent news frighten the investors. Above 14 denotes either an overpriced stock or one which
investors trust to have a great future.

Graph shows that RIIL, KOTAK BANK and BHEL having the maximum P/E it show that they are not
advisable for investment. Here ORCHID, JET AIR, SONATASOFTWARE having the lowest P/E




2292 19246 33,572 25,021 3,255 21,466 1,251. 10,359 1,143. 2360.
S 20 10 .80 .90 .60 .90 00 .60 50 9


In bookkeeping, accounting, and finance, sales are operating revenues earned by a company when it
sells its products. Sales are reported directly on the income statement as Sales or Net sales.
In financial ratios that use income statement sales values, "sales" refers to net sales, not gross sales.

Gross sales are the sum of all sales during a time period. Net sales are gross sales minus sales returns,
sales allowances, and sales discounts. Gross sales do not normally appear on an income statement. The
sales figures reported on an income statement are net sales.


Here from the graph we can say that RIIL, WIPRO, KOTAK BANK,TATASTEEL,PNB have the
maximum sales which shows that theses are the firms covering revenue by their sales.



88.0 56.8 16.1 123. 54.1
33.6 98.8 6 7 2 86 47.04 7 13.2 5.7



50 EPS



Net profit after taxes

preferred stock dividends
Earnings per share (EPS) =
Average number of
common shares
Shows the after-tax earnings generated for each share of common stock.
EPS is one of the most widely used statistics. Indeed, it is required to be given in the income
statements of publicly traded firms. As we can see, the ratio tells us how much the firm has earned per
share of stock outstanding. As it turns out, this is not generally a very helpful statistic. It says nothing
about how many assets a firm used to generate those earnings, and hence nothing about profitability.
Nor does it tell us how much the individual stockholder has paid per share for the rights over that
annual earning. Further, accounting practices in the calculation of earnings may distort these ratios.
And finally, the treatment of inventories is again problematic.

PNB, RIIL and BHEL shows the highest EPS and JET AIR shows the negative EPS. It mean PNB
have making maximum by its each shares.



Book value 350. 264. 340. 109. 416.

85.2 4 3 9 7 7 95.2 150 70.1 21.3

Book value

Book value per share = Net worth / No. of ordinary shares.
Net worth = Equity share capital + reserve and surpluses.
The book value is the based on the historical figure in the balance sheet. It is no way related with the
market value of an ordinary share. The market value of a share is the price at which it trade in the
stock market. It is generally based on expectation about the performance of economy, in general and
the company in particular.
The desirable no. for Book Value will be equivalent with the market price of that equity share.

Graph shows that PNB, TATASTEEL, RIIL and BHEL have making the more net worth on every No.
of ordinary share.



3270 489. 8874 348. 315. 86.3 105.1
Capital 2936 3.7 52 .1 14 3 70.44 3 49.48 6



RIIL and TATASTEEL have covered the maximum capital from the equity share capital rather others.



6 12.7 23.3 8 0.85 22 10 0 3.5 1.7


Dividend per share = total dividends / total no. of Equity share

From the perspective of some stockholders at least, dividend policy may be important. The DPS ratio
tells us how much of its earnings the firm pays out in dividends versus reinvestment. Rapidly growing
firms in new areas tend to have low dividend-yield ratios; more mature firms tend to have higher
ratios. Stability of dividend has a desirable policy and positive impact on the market price on the
share. Shareholder also seems generally to favorers this policy and value stable dividend higher than
the fluctuating ones.

From the data we can say that BHEL, PNB and RIIL pay higher dividend on every share,



GPM (%) 20.4 32.0 33.3 28.8 -

29.1 18.2 9 7 9 3 32.96 3.99 15.12 39.4

GPM (%)
40 39.4
30 29.1 32.0733.39
20 18.2 20.49
10 8 9 10 GPM (%)
5 6 7
2 3 4 3.99
0 0
-30 -32.96

Sales Cost of goods sold

Gross profit margin =
Net sales

Indicates the total margin available to cover other expenses beyond cost of goods sold, and still yield a

SONATA SOFTWARE, KOTAK BANK, TATASTEEL and WIPRO shows the higher grows profit
margin that mean they have more margin to cover other expenses, Where ORCHID CHEM indicates
negative line.


NPM (%)
21.4 8.4 12.53 19.5 14.45 15.7 26.48 -4.4 11.25 25.5

NPM (%)
Axis Title 15

Net profit after taxes

Net profit margin =
Net sales
Shows how much after-tax profits are generated by each unit of sales.

ORCHID and SONATA SOFTWARE shows the higher profit after tax is generated by each unit of
sales, Where JETAIR is lowest.



debt/Equity 0.3 0.5 0.01 0.67 0.05 6 1.63 16.8 - -






Total debt
Debt to equity ratio =
Shareholders equity

Measures the funds provided by creditors versus the funds provided by owners.
Debt-to-equity ratios vary considerably across industries, in large measure due to other characteristics
of the industry and its environment. A utility, for example, which is a stable business, can comfortably
operate with a relatively high debt-equity ratio. A more cyclical business, like manufacturing of
recreational vehicles, typically needs a lower D/Ea reminder that cross-industry comparisons of
these ratios is typically not very helpful. Analysts look at the debt-equity ratio to determine the ability
of an organization to generate new funds from the capital market.

Here JET AIR and PNB have the maximum debt with respect its equity capital, it is not a good sign of
profitable investment, where SONATA, POLARIS has the lowest D/E ratio.


Long Term
Assets 1.1 0.9 0.08 0.81 0.9 0.92 0.53 0.79 0.69 0.9







Fixed asset turnover =
Fixed assets
Measures the utilization of the companys fixed assets (i.e., plant and equipment); measures how many
sales are generated by each unit of fixed assets.
Typically, fixed assets are a combination of tangible assets (property, plants and equipment), intangible
assets (trademarks, goodwill) and investments in subsidiaries.
The more the sales in relation to the amount invested in fixed assets, the more efficient is the use of
fixed assets. It indicate the higher efficiency. If the sales are less as compared to investment in fixed
assets, it means that fixed assets are not adequately utilized in business. Of course excessive sale in an
indication of over trading and dangerous.
Graph shows that WIPRO, PNB, RIIL, KOTAK, and SONATA SOFTWARE are making higher from
their fixed assets. It indicates the higher efficiency. If the sales are more as compared to investment in
fixed assets, it means that fixed assets are utilized adequately in business.


Current Ratio
1.7 1.3 1.37 1.12 0.49 0.61 1.49 1.02 1.33 2.8

3 3
2 2
1.5 1.49
1.3 1.37 1.33
Current Ratio
1 1 1.12 1.02

0.5 0.49 0.61

0 0

Current assets
Current ratio =
Current liabilities
Current asset = cash and bank balance + stock + debtors + B/R+ prepaid expenses
+ loan and advance.
Current liabilities = creditors + B/P + bank OD + unclaimed dividend + provision for
taxation + proposed dividend.
A short-term indicator of the companys ability to pay its short-term liabilities from short-term assets;
how much of current assets are available to cover each unit of current liabilities. The significant level
of the ratio is 2:1, i.e. current asset should be twice the current liability.

SONATA is having a significant level. The significant level of the ratio is 2:1. Here WIPRO and
ORCHID are near with the significant level.



Quick Ratio 20.4

2.4 0.7 1.04 0.76 8.46 7 1.15 0.86 1.33 4.1


Current assets Inventory

Current liabilities

Measures the companys ability to pay off its short-term obligations from current assets, excluding
inventories. The satisfactory level for this ratio is 0.5:1.
The main difference between the current ratio and the quick ratio is that the latter does not include
inventories, while the former does.
Which ratio is a better measure of a firm's short-term position? In some ways, the quick ratio is a
more conservative standard. If the quick ratio is greater than one, there would seem to be no danger
that the firm would not be able to meet its current obligations. If the quick ratio is less than one, but
the current ratio is considerably above one, the status of the firm is more complex. In this case, the
valuation of inventories and the inventory turnover are obviously critical.
It draws a more realistic picture of a company's ability to repay current obligations than the current
ratio as it excludes inventories that may hardly be liquidated at their book value.
The significant level of the ratio is 0.5:1. Here RIIL and ORCHID are near with the significant level.



12.8 16.6 20.7
Payout Ratio 17.98 4 30.9 4 5.28 4 1.15 0 31 29.69

25 31 29.69
20 30.9
15 20.74
10 17.98 12.84
5.28 1.15 0
5 7 8 9 10
3 4 5 6
0 1
0 2

Dividend Payout Ratio

Annual dividends per share

Dividend payout ratio =
Annual earnings per share

Indicates the percentage of profit that is paid out as dividends.

BHEL and SONATA is paying highest among them; it shows that it covering maximum profit by
every. Share. JET AIR havent paid any dividend


PNB 8 8 AVERAGE As per market
ORCHID CHEM - 31.5 - -
JET AIR - - - -

Valuation is done based on P/E Ratio, if sector P/E is greater than companys P/E than value of
that share price is likely to increase, that is called under valuation it means overall sector is growing
but company is not upto that level so company share value can match with the sector P/E, how
much it will increase or decrease that is calculated based on following method
Sector P/E companys P/E
Companys P/E
It gives value in percentage, if it is positive than add that value in share price or it is negative than
subtracts form the value of that share
For example Wipro
= 23.5 23.7
= - 0.0084
= 706.5(-0.0084)
= 700


BSE SENSEX 20.9 21.6

= 21.6 20.9
= 3.34 %
The Sensex was closed on 31 March at the 17527it is likely to increase at the level of 18114

19000 19019
18000 18114
17500 17527
1 2 3

Resistance level is 17527-18114-19019

17500 1
16000 3
1 2 3

Support level is 17527-16691-15859

Resistance level saws that if the market will break the particular level than it may go to the next upper
level and support level suggest that if market goes down there is a support at particular value if that
level will break than market may go to the another lower level, generally resistance or support level is
calculated as 5 % of underlying value


GROSS PROFIT 3 1 2 4 4 3 0 1 1 5
NET PROFIT 3 1 1 2 2 2 5 0 1 4
2 4 3 2 1 5 2 0 1 1
P/E (DATED 2 3 4 3 5 1 1 0 2 1

BOOK VALUE 1 4 3 4 2 5 1 2 1 1
SALES OF FIRM 4 5 3 3 2 3 2 3 2 1
EQUITY SHARE 3 5 3 4 2 2 1 1 1 1
DIVIDENT PER 1 3 5 1 1 4 2 0 1 1
DIVIDEND 2 2 4 2 1 3 1 0 5 4
4 3 3 2 1 1 3 2 3 5
QUICK ACID 2 1 1 1 4 5 1 1 1 3
LONG TERM 5 3 1 2 3 4 1 2 1 3
TOTAL 3 3 4 3 4 1 2 1 5 5

35 38 37 33 32 40 22 13 25 35


As said earlier, fundamental analysis is one of the most important tools when it comes to stock market
investment. It guides a person as to which scripts should be selected and which ones to be rejected.
The researcher studied the world economy, Indian economy and the sectors in brief as part of the
fundamental analysis. Then the analysis is done selecting large cap, mid cap and small cap which
include different firms as WIPRO, BHEL, RIIL, TATASTEEL, PNB, KOTAK BANK, ORCHID,

JETAIR, SONATA SOFTWARE, POLARIS SOFTWARE The performances of these securities were
evaluated as per CRAMEL model and the result was found out. From the company analysis we can
see in large cap;
PNB stood first.
RIIL stood second.
BHEL stood third.
In mid cap
KOTAK BANK stood first.
ORCHID stood second.

In small cap

From the results we can see that Punjab National Bank. came out to be the best security by getting
highest 40 points in large cap. Firstly, the capital adequacy ratio of the security is highest as compared
to other securities which show that it has a strong position to meet its liabilities and other kinds of
risks involved. but the debt employed in the company is higher of others and so the debt burden is
comparatively high on the security. Other profitable like sales, net profit per share and earning per
share is higher than others. Here the P/E ratio lowest one, it shows that earning is higher than others.
Company made capital more from debt rather than equity therefore acid test and debt equity ratio is
higher. but current ratio is acceptable, One factor that book value is not nearer with the equity price,
which is the contrary factor for investment.
Kotak Mahindra Bank stood very good position with 35 points in mid cap security. We can see from
the analysis that Kotak Mahindra Bank group growth prospects are quite high. There is continuous
growth in its deposits and also its advances year on year. The net profit increasing and is the highest of
others. The other most important thing that all of its profitable measure having the average stand. The
companys ability to pay off its short-term obligations from current assets is well enough and the sales
of the firm should be moderate. This shows that profitability of the bank is increasing which enhances
the shareholders wealth. The company lags behind when it comes to the capital structure of the
company. Its size of the capital and also its capital adequacy ratio is on a higher side.
ORCHID stands second in mid cap group; it is one of the largest pharmacy sectors in India. In latest
2008 company made a strategy alliance with RANBAXY which is another pharmacy firm in India.
The acid test of company is nearer with significant level; it draws a more realistic picture of a
company's ability to repay current obligations than the current ratio as it excludes inventories that may
hardly be liquidated at their book value. Debt burden is also huge on the company. Liquidity position

have ideal stand. Earning per share, book value per share and P/E ratio of the firm has the satisfactory
Sonata software stands first in small cap group, company has a zero debt thats why debt equity ratio is
Current ratio of the company is at the acceptable level, Company has made very good amount of
Out of that they paid higher amount of dividend to their shareholders,
As sawn in valuation table securities which are undervalued they are likely to go up because that
particular sector P/E is higher than that stock so it is likely to go up, but in case of overvaluation the
share price of that share is likely to go down because that companys P/E is higher than the sector P/E.
Bottom to the final, investing in smaller companies is riskier than investing in larger companies. That
seems sensible. Smaller companies dont have the financial resources of many larger companies to
weather a financial storm. And the products or services of smaller companies are often still unproven.
As we saw with stocks and bonds, the higher risk involved with investing in smaller companies has,
historically, resulted in higher returns.
After analyzing all the profitable measures it will be suggestion able that security of large cap
generates more profit rather than others; the investors should invest their saving income in large cap
securities. Securities of mid cap also have the profitable parameters. Last some year whenever
liquidity created than stock holders had made the profit from mid cap and large cap. Volatility of
market is mostly depending on large cap stocks where the mid cap makes stability, in some unfair
situation. The given parameters can be helpful to the investor before their investment in any of
particular stock.