A Summer Internship Project Report on

Equity Analysis of I.T. Sector in India

Submitted in partial fulfillment of the requirement for the degree of

Master of Business Administration

(Affiliated to Savitribai Phule Pune University)

By
Vikram C Dixit

Roll No.D1F20

Under the guidance of

Dr. Komal Singh

A study conducted for

Motilal Oswal Financial Services Ltd.

At

IndIra School of BuSIneSS StudIeS

TaThawade, Pune – 411033

2019-2021
Acknowledgement
It is a matter of Great Pleasure for me in submitting the project report on “Equity
Analysis of I.T. Sector in India” for the fulfillment of the requirement of my course from
Motilal Oswal securities.

I wish to express my deep sense of gratitude to Dr. Komal Singh for her excellent guidance
during the period of this project work was invaluable.

I express my sincere thanks to the whole Motilal Oswal Securities for giving me all the
facilities during my project and helping & guiding me during my whole internship period.

Student Name:- Vikram Dixit

Roll No. / Batch:- D1F20 / 2019-2021

Indira School of Business Studies, Pune

1
 Summer Internship Project Certificate

Date:15/4/2021

To Whomsoever It May Concern

This is to certify that Mr. Vikram Dixit is a bonafide student of this Institute and has

successfully completed his project entitled Equity Analysis of I.T. Sector in India at Motilal

Oswal Financial Services Ltd. for partial fulfillment of the course Master of Business

Administration (Finance), affiliated to Savitribai Phule Pune University from Indira School of

Business Studies,Pune

Dr. Renu Bhargava Prof. __________

Director, ISBS Internal Guide

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3
Executive Summary

Equity analysis of IT sector in India. Was done at Motilal Oswal Securities. The objectives
of the project are to analyze the financial health of selected IT companies’ stock. To
examine the growth of IT sector in Indian capital market. To prepare comparative study of
top IT companies. To find out potentiality of selected companies through current ratios. To
check company’s performance on the basis of historical data. The methodology adopted is
the use of Secondary data. It refers to data which is collected from the various websites and
published publicly available data on companies. The learning from the project are that the
stock market is a very volatile market; It is not for an investor looking for making a quick
buck; It is vastly dependent on the research which is conducted before the investment is
made;The average returns expected from the equity market is 14- 16%.The project is been
helpful to the organization as the organization has also been able to concentrate on the IT
sector. It has helped to re-initiate the focus on the IT sector. The project has given a fresh
and new perspective on the IT sector investments. In the COVID-19 crisis, the I.T. sector
has shown great resilience and the ability to quickly bounce back from a crisis. It has also
shown the ability to adapt as after the unlock started, the sector is almost completely back at
full speed.In conclusion this project has been helpful in understanding the basics of the
equity market. It has proved to be a very important in understanding the basics of
investments. It has also shown how the stocks and the shares move. The sentiments and the
emotions that are attached in investments of the investors, which prove to be the moving
factor in the market. The IT sector is vastly dependent on the US market. Most of the
projects of the IT sector come from the outsourcing that takes place. This is done in order to
save money. The market remuneration is cheaper in the Indian market than the US and UK
market.

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Index / Table of Contents

Sr. No. Contents Pg. No.

1 Introduction 1

2 Sector Analysis 4

3 Company Analysis 9

4 News Analysis (w.r.t selected sector & 20

company)

5 Review of Literature/ Theoretical 26

Background

6 Objectives 28

7 Research Methodology 30

8 Data Analysis/ Data visualization, 35

Results and Interpretation

9 Conclusions / Learnings from the 46

Project

10 Limitations of the project 49

11 Recommendations 51

5
 12 -Bibliography 54

-Appendices

List of Tables

Sr. Title Page

No. No.

1 Infosys Ratios 42

2 TCS Ratios 42

3 Wipro Ratios 43

4 Tech Mahindra 43

6
List of Figures

Sr. Title Page

No. No.

1 NIFTY I.T. Sectoral Distribution 8

2 Infosys Ltd. Variations In Stock Price 11

3 TCS Variations in Stock Price 14

4 Wipro Variations In Stock Price 15

5 Tech Mahindra Variations In Stock Price 18

6 PESTEL Analysis 31

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Chapter 1: Introduction

8
Introduction
In this ever-changing world, Indian Economy is standing out and growing at a
phenomenal rate. Today each and every citizen of India is earning more. Thus,
today’s generation wants to save and invest more.

But today’s investor is not aware about the pitfalls of the equity market but is
genuinely trying to know them. When the investor looks hard enough and does
all the research and homework correctly, there is still a chance for growth in the
market.

The price of a security is the price at which one person agrees to buy and another
agrees to sell. The price at which an investor is willing to buy or sell depends
primarily on his expectations. If he expects the security's price to rise, he will buy
it; if the investor expects the price to fall, he will sell it. These simple statements
are the cause of a major challenge in forecasting security prices, because they
refer to human expectations.

Investor v/s Trader:

People can make money in equity market by investing or trading or both.
However, to avoid disappointment of losing money, customers should make very
prudent and informed decisions. "Investors" put their money into stocks for a
long term. This is under the principle that over time, the underlying investment
will increase in value, and the investment will be profitable. On the other hand
"Traders" take a proactive approach to their investing.

They follow or predict a trend in the stock and use strategies like buy-low, sell-
high and make profits.
Though there is really no right or wrong type of stock trading, it is necessary for
investors to identify which type of trading is right for them. They can make a
great amount of money either way however, they must consider their time frame,
risk, and how much work they want to put into it.

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 SIGNIFICANCE OF THE STUDY –

This project studies various methods used to evaluate the stocks that are present
in the IT sector. It also helps in understanding the various factors that affect the
share prices of the companies that are present. It also studies why the companies
selected in the IT sector are the leaders in the aforementioned field.
The study also is helpful in understanding the mentality of the investors. It
shows the insights of what are the various commanding factors that are
responsible for the variations that occur in the stock price of the IT
companies in the IT sector.

10
Chapter 2: Sector Analysis

11
Sector Analysis
OVERVIEW OF THE INDUSTRY/SECTOR –

Indian IT sector consist of the two major components which are IT services and
the BPO Industries which stands for Business Process Outsourcing.
India's IT Services industry was born in Mumbai in 1967 with the establishment
of the Tata Group in partnership with Burroughs.
The first software export zone, SEEPZ – the precursor to the modern-day IT
park – was established in Mumbai in 1973. More than 80 percent of the
country's software exports were from SEEPZ in the 1980s.
The Indian economy underwent major economic reforms in 1991, leading to a
new era of globalization and international economic integration, and annual
economic growth of over 6% from 1993– 2002. The new administration under
Sri Atal Bihari Vajpayee placed the development of Information Technology
among its top five priorities and formed the Indian National Task Force on
Information Technology and Software Development.
Major Technological Hub to be Present in India are:
1. Bangalore
Known as the Silicon Valley of India, it is the most prominent IT Hub if
India. Notable tech park are Electronics City Phase I & II, ITPL, Bagmane
Tech Park, Embassy Golf Links, Manyata Tech Park, Global Village Tech
Park, Embassy TechVillage.

2. Pune
The Rajiv Gandhi IT park in Hinjewadi is the major IT park present in the
city which is built on the massive 28,00-acre land.
It is a project by the MIDC of India. As of 2017, it employees more than
300,000 people in the city.

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3. Chennai
As of 2012, Chennai is India's second-largest exporter of information
technology (IT) and business process outsourcing (BPO) services. Tidel Park
in Chennai was billed as Asia's largest IT park when it was built. Major
software companies have their offices set up here, with some of them making
Chennai their largest base.

4. Hyderabad
Hyderabad – known for the HITEC City or Cyberabad – is a major global
information technology hub, and the largest bioinformatics hub in India.
Hyderabad has emerged as the second largest city in the country for software
exports pipping competitors Chennai and Pune. Notable tech and pharma
parks are HITEC City, Genome Valley, and Hyderabad Pharma City.

Contribution towards GDP

The contribution of India's IT industry to economic progress has been quite

significant. The rapidly expanding socio- economic infrastructure has proved to
be of great use in supporting the growth of Indian information technology
industry.
The flourishing Indian economy has helped the IT sector to maintain its
competitiveness in the global market. The IT and IT enabled services industry in
India has recorded a growth rate of 6.1% in the last fiscal year. The total revenue
from this sector was valued at 191 billion Indian rupees in FY 20. Out of this
figure, the domestic IT market in India accounted for 44 billion rupees. So, the
IT sector in India has played a major role in drawing foreign funds into the
domestic market.

13
The growth and prosperity of India's IT industry depends on some crucial
factors. These factors are as follows:

 India is home to a large number of IT professionals, who have the necessary

skill and expertise to meet the demands and expectations of the global IT
industry.
 The cost of skilled Indian workforce is reasonably low compared to the
developed nations. This makes the Indian IT services highly cost efficient
and this is also the reason as to why the IT enabled services like business
process outsourcing and knowledge process outsourcing have expanded
significantly in the Indian job market.
 India has a huge pool of English-speaking IT professionals. This is why the
English-speaking countries like the US and the UK depend on the Indian IT
industry for outsourcing their business processes.
 The emergence of Indian information technology sector has brought
about sea changes in the Indian job market. The IT sector of India offers a
host of opportunities of employment.
 With IT biggies like Infosys, Wipro, Tata Consultancy Services,
Accenture and several other IT firms operating in some of the major
Indian cities, there is no dearth of job opportunities for the Indian
software professionals. The IT enabled sector of India absorbs a large
number of graduates from general stream in the BPO and KPO firms. All
these have solved the unemployment problem of India to a great extent.
 The average purchasing power of the common people of India has improved
substantially. The consumption spending has recorded an all-time high. The
aggregate demand has increased as a result. All these have improved the
gross production of goods and services in the Indian economy.

14
 Top Players of the IT Sector:

Fig 1: NIFTY I.T. Sectoral Distribution

15
Chapter 3: Company Analysis

16
Company Analysis

1) Infosys
Infosys Limited (Infosys), formerly Infosys Technologies Limited, provides business consulting,
technology, engineering and outsourcing services. Its end-to-end business solutions include
consulting and systems integration comprising consulting, enterprise solutions, systems
integration and advanced technologies; business information technology (IT) services consisting
application development and maintenance, independent validation services, infrastructure
management, engineering services comprising product engineering and life cycle solutions and
business process management; products, business platforms and solutions, including Finacle, its
banking product, which offers solutions to address core banking, mobile banking and e-banking
needs of retail, corporate and universal banks globally, and areas, such as cloud computing,
enterprise mobility and sustainability. On January 4, 2012, Infosys BPO Limited acquired
Portland Group Pty Ltd. In October 2012, it acquired Lodestone Holding AG..The company also
in the business segment of Financial Services, Energy & utilities, Life Sciences and Healthcare,
Consumer packaged goods and Logistics.

Executive Members of the Board

Salil Parekh Pravin Rao

CEO and MD COO and Whole-time Director

17
Non-Executive Chairman of the Board Lead Independent Director

Nandan M. Nilekani Kiran Mazumdar-Shaw

Fig 2:- Infosys Ltd. Variations In Stock Price

18
Key Acquisitions

2) TCS

Tata Consultancy Services Limited provides information technology (IT) and IT

enabled services worldwide. It operates through Banking, Financial Services and
Insurance; Manufacturing; Retail and Consumer Business; Communication, Media and
Technology; and Others segments. The company offers CHROMA, a cloud-based
talent management solution; ignio, a cognitive automation software product; iON, an
assessment platform; TAP, a procurement offering; TCS MasterCraft, a platform to
automate and manage IT processes; and Quartz, a blockchain solution. Tata
Consultancy Services Limited (TCS) is an Indian multinational information
technology (IT) service and consulting company headquartered in Mumbai,
Maharashtra, India. It is a subsidiary of Tata Group and operates in 147 locations
across 46 countries. TCS is the largest Indian company by market capitalization. TCS
is now placed among the most valuable IT services brands worldwide. In 2015, TCS is
ranked 64th overall in the Forbes World's Most Innovative Companies ranking,
making it both the highest-ranked IT services company and the top Indian company. It
is the world's largest IT services provider. As of 2017, it is ranked 10th on the Fortune
India 500 list. In April 2018, TCS became the first Indian IT company to breach $100

19
billion market capitalization, and second Indian company ever (after Reliance
Industries achieved it in 2007) after its m-cap stood at Rs 6,79,332.81 crore ($102.6
billion) in Bombay Stock Exchange.

Chairman C.E.O & M.D

(Non-Independent, Non-Executive)

N.Chandrasekaran Rajesh Gopinathan

Dir (Independent Non-Executive) C.O.O & Executive Director

O.P. Bhatt N. Ganapathy Subramaniam

20
 Fig 3:-Tata Consultancy Services Ltd. Variations in Stock Price

Key Acquisitions

21
 3) Wipro
Wipro Limited is an Indian multinational corporation that provides information technology,
consulting and business process services. It is headquartered in Bangalore, Karnataka, India. In
2013, Wipro separated its non-IT businesses and formed the privately owned Wipro Enterprises.
Chairman C.E.O, M.D

Rishad Premji Thierry Delaporte

Fig 4:-Wipro Ltd. Variations in Stock Price

22
Key Acquisitions
1) Newlogic in 2005 for $56 Million.
2) Enabler in 2006 for $52 Million.
3) cMango Inc in 2006 for $20 Million
4) Infocrossing Inc in 2007 for $600 Million
5) SAIC Oil and Gas in 2011 for $150 Million
6) Proxima Applications in 2012 for $36 Million
7) Opus CMC in 2013 for $75 Million
8) Atco I-Tek in 2014 for $195 Million
9) Designit in 2015 for $94 Million
10) Cellent AG in 2015 for $77 Million
11) Viteos Group in 2016 for $130 Million
12) Health Plan Services in 2016 for $460 Million
13) Appirio in 2016 for $500 Million
14) Infoserver in 2017 for $8.7 Million

4) Tech Mahindra
Tech Mahindra Limited provides information technology (IT) services and solutions in the
Americas, Europe, India, and internationally. The company operates through IT Business and
Business Processing Outsourcing (BPO) segments. It offers IT outsourcing, consulting,
application outsourcing, network, infrastructure outsourcing, integrated engineering, BPO,
platform, and mobile value added services. The company also provides consulting-led integrated
portfolio services to telecom equipment manufacturers and service providers, IT infrastructure
service providers, and business process outsourcing service providers; and IT and IT-enabled
enterprise solutions. In addition, it offers IT enabled, application development and maintenance,
consulting and enterprise business solutions, extended engineering solutions, and infrastructure
management services. Further, the company provides data and analytics; IT infrastructure and
cloud services; customer experience solutions; enterprise platforms; and enterprise business
solutions. Additionally, it offers testing, telecom product engineering, digital supply chain,
performance engineering, and enterprise security and risk management services. The company

23
serves insurance, banking and financial, manufacturing, telecommunication, transportation and
logistics, engineering, entertainment, and public and government sectors; and retail and
consumer goods industries. Tech Mahindra Limited has strategic partnerships with Openet,
ChampTrax, and Lucideus. The company was founded in 1986 and is based in Pune, India.
M.D & C.E.O President,EMEA Business

CP Gurnani Vikram Nair

President, Communications, Media President, Americas Strategic Verticals

and Entertainment Business
The CEO, Network Services

Manish Vyas Lakshmanan Chidambaram

24
 Fig 5:-Tech Mahindra Ltd. Variations in Stock Price

Key Acquisitions
1) Acquisition of SATYAM Computers After scandal of SATYAM computers, Mahindra
and Mahindra group acquired Satyam computers with a bid offer of Rs. 58.90 per share.
This marked the highest acquisition of TECH industry in India.
2) In 2014, Tech Mahindra acquired Lightbridge Communications Corporation (LCC), the
largest independent telecom services company in the world with local presence in over 50
countries.
3) In 2015, Tech Mahindra acquired SOFGEN Holdings, a 450- employee Swiss IT firm
serving the financial services industry.
4) Tech Mahindra purchased a controlling stake in Pininfarina S.p.A., an Italian brand in
automotive and industrial design.
5) Tech Mahindra announced the launch of its Automation Framework AQT (Automation,
Quality, Time) by March 2016, Tech Mahindra's post-tax earnings had surged past that of
M&M.
6) Tech Mahindra said it would buy financial technology firm Target Group to boost its
platform business process-as-a-service offering in the banking sector.
7) In 2017, Tech Mahindra and Midad Holdings, a part of diversified business conglomerate
Al Fozan Group today announced the launch of a joint venture, Tech Mahindra Arabia
Ltd.

25
8) On the basis of a global partnership agreement signed, Tech Mahindra will market
Huawei's enterprise products and services across 44 countries including India.
9) Tech Mahindra announced that it has signed a definitive agreement to acquire CJS
Solutions Group LLC, a US-based healthcare Information Technology consulting
company which does business as (DBA) “The HCI Group.”
10) In 2019, Tech Mahindra acquired DynaCommerce BV.

26
Chapter 4: News Analysis (w.r.t selected
sector & company)

27
News Analysis with respect to I.T. sector

1) India Inc goes slow on increments; super-specialized profiles can expect

over 15% growth(11 Aug, 2020)

According to TeamLease Jobs & Salaries Primer Report 2020, the COVID-19 pandemic has not
only impacted the employment landscape, it has disrupted the way India Inc rewards its talent.

2) FSDC meeting: Regulators commit to strengthen financial sector (31 Aug,

2020)

It also discussed issues relating to inter-Regulatory coordination and reviewed the initiatives and
activities of NCFE, activities of various technical groups under FSDC-SC and functioning of
SLCCs in various states and Union Territories.

3) Coronavirus: IT sector looks at staggered opening (16 Apr, 2020)

Prodded the lockdown, India’s large IT firms have ensured as many as 85% of their employees
are working from home, even while continuing to support global clients.

4) Blowout earnings spur biggest upgrades for Indian tech since 2013 (28 Jul,
2020)
Twelve-month forward earnings estimates for the 50-member S&P BSE Information Technology
Index have climbed 4.6% in July, the most since October 2013, according to calculations by
Bloomberg.

5) Nasscom seeks slew of relief measures for IT sector (07 Apr, 2020)
Nasscom urged the government to extend the Sunset Clause by one year in order to ensure that
SEZs continue to attract investment and contribute to exports and employment generation. The
industry body, which represents the $191 billion information technology sector, also said
expenses incurred by companies for enabling employees to work from home should be
considered as eligible business expenses.

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6) Coronavirus impact on economy to be like 2008 financial crisis: Former
Infosys CFO Balakrishnan (11 Mar, 2020)
"It's (now) exactly like 2008 when everything got shut down over a period of time but again
recovery then was in a V-shape because central banks and all got in and stabilised," Balakrishnan
said. "Now, central banks are helpless; interest rates are almost zero in most parts of the world...I
think the pain is going to be similar to what we saw in 2008 and we don't know how long this is
going to last."

7) Hiring sentiment showing signs of recovery: TeamLease Employment

Outlook for Apr-Sep (21 Jul, 2020)

The hiring sentiment, which had sunk by 86% from the previous half-year, is showing signs of
gradual improvement since unlock 1.0, the report stated. Until unlock 1.0 the hiring sentiment for
the current half-year (H1-April-September) was as low as 11%, however, it has improved to
18%.

29
News Analysis Company
1) Infosys

 Infosys to hire 12,000 more in the US by 2022 (Sep 02, 2020):-

Infosys currently has about 13,000 workers in the US with a localisation of more than 60
percent.

 Infosys inks 5-year pact with Genesys (Aug 27, 2020):-

The five-year partnership with Genesys enables both companies to develop and deploy
innovation and best-in-class solutions in the customer experience market, a statement
said.

 Infosys fired almost on all cylinders in June quarter earnings, which gave
confidence to investors and as a result six out of 10 fund houses raised
exposure to the stock last month. (Aug 19, 2020)

2) TCS

 COVID-19 impact - TCS, Infosys to gain the most as clients step up IT

spending, says report (Aug 26, 2020):-
According to Gartner, outsourced IT services spend will increase to 6-8 percent between
2021-24, from 4-5 percent in the last 10 years due to acceleration in digital
transformation spending.

30
  ICICI Direct recommended hold rating on Tata Consultancy Services
with a target price of Rs 2400 in its research report dated July 10, 2020.

 Emkay Global Financial is bearish on Tata Consultancy Services has

recommended sell rating on the stock with a target price of Rs 1750 in
its research report dated July 14, 2020.

3) Wipro

Wipro, US-based ProcessMaker ink pact (Sep 14,2020)

This collaboration will leverage Wipro’s proprietary technology platform iCaaS (Intelligent
Content as a Service) along with ProcessMaker’s Workflow automation platform to deliver
Cognitive Content Automation solutions to customers, a Wipro statement said.

Wipro shares rise over 4% on multi-year contract from Marelli (Sep 08,2020)
Wipro and Marelli have entered into a multi-year global agreement for automotive engineering
services.

Former Wipro CEO Abidali Neemuchwala joins Dallas Venture Partners

(Sep 14,2020)
The fund will invest $300-500 million in India over the next 10 years. Neemuchwala and the
venture fund will help the startups scale up through mentoring and funding to cater to the global
market.

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4) Tech Mahindra

 Tech Mahindra, Hinduja Group's CyQureX sign global pact for cyber
security business
Under the partnership, Tech Mahindra will provide consulting, planning, designing,
integration, orchestration and automation of services and CyQureX will prioritise
capabilities in the cyber security domain, a joint statement of both the entities said.

 Tech Mahindra Q1 profit jumps 21% to Rs 972 crore, revenue falls but
beats estimates (Jul 27, 2020):-
Tech Mahindra said active clients increased by 8 percent sequentially to 981 but the
headcount declined by 1,820 1,23,416 during the June quarter.

 ICICI Direct recommended hold rating on Tata Consultancy Services

with a target price of Rs 2400 in its research report dated July 10, 2020.

32
Chapter 5: Review of Literature/
Theoretical Background

33
Review of Literature/ Theoretical Background
The Indian software exports have grown in spectacular fashion. Its success has, for
the most part, been a combination of resource endowments, a mixture of benign
neglect and active encouragement from a normally intrusive government, and good
timing. The bulk of the Indian software exports have consisted of fairly mundane
services such as low level programming and maintenance. The marked reliance on
access to low cost human capital has prompted considerable skepticism about the
ability of the Indian software industry to sustain its performance, given the rapid
growth in the demand for engineers and the relatively inelastic supply of engineers.
This paper reports on the results of research on the Indian software industry.
We use a variety of sources, including a questionnaire survey of Indian software
firms, and field visits and interviews with industry participants, observers, and US
based clients. Although, maintaining the current rate of growth will pose a number
of challenges, these challenges are not insurmountable. Not only can the available
pool of human capital be expanded by tapping and training the very large pool of
English-speaking college graduates, the leading Indian firms are making strong
efforts to move up the value chain by acquiring better software project
management capability and deeper knowledge of business domains, and reducing
costs and improving quality by developing superior methodologies and tools. The
impact of IT is not restricted to its passive contribution to GDP alone. IT
acts as a transformational agent in Indian economic development helps to promote
infrastructure like power, road, electricity etc. Growth of domestic market shows a
CAGR of 23% over 05-06. The infrastructures cost tends to going down with this
prosperous growth. But several problems like absence of active demand, scarcity in
proper infrastructure also exists. It also recognizes that a vibrant and innovative
domestic IT market is sine qua non for sustaining the countries IT industry’s
competitive advantage. IT, a fastest growing industry in India makes a significant
34
contribution to GDP in
way of exportation of IT services and ITES product and becomes a preferred
global
sourcing base in this sector. But some problems are there in relation to risk
management, human capital attraction and retention and cost management. A key
demand driver for Indian IT services and ITES industry has been the changing
global
business landscape, which has exerted performance pressure on MNC enterprises.

35
Chapter 6: Objectives

36
Objectives:-
1. To analyze the financial health of selected IT
companies’ stock.
2. To examine the growth of IT sector in Indian capital market.
3. To prepare comparative study of top IT companies.
4. The primary objective of equity research is to
analyze the earnings persistence.
5. To find out potentiality of selected companies
through current ratios.
6. To check company’s performance on the basis of
historical data.

Scope of Project:-

1. The study will help many investors who are looking

out to invest in IT sector.
2. The Both domestic and foreign investors can look
out for IT sector.

3. In India IT sector is prominent one to give jobs and is

looked upon as a high paying jobs sector. Hence
people need to understand the ins and outs of the IT
sector of India.

37
Chapter 7: Research Methodology

38
Research Methodology:-
PESTLE Analysis :

Fig 6:- PESTEL Analysis

A PESTEL analysis or PESTLE analysis (formerly known as PEST
analysis) is a framework or tool used to analyses and monitor the macro-
environmental factors that may have a profound impact on an
organization’s performance. This tool is especially useful when starting a
new business or entering a foreign market. It is often used in
collaboration with other analytical business tools such as the SWOT
analysis and Porter’s Five Forces to give a clear understanding of a
situation and related internal and external factors. PESTEL is an acronym
39
 that stand for Political, Economic, Social, Technological, Environmental
and Legal factors. However, throughout the year’s people have expanded
the framework with factors such as Demographics, Intercultural, Ethical
and Ecological resulting in variants such as STEEPLED, DESTEP and
SLEPIT. In this article, we will stick simply to PESTEL since it
encompasses the most relevant factors in general business. Each factor
will be elaborated on below:

Political Factors:
These factors are all about how and to what degree a government
intervenes in the economy or a certain industry. Basically all the
influences that a government has on your business could be classified
here. This can include government policy, political stability or instability,
corruption, foreign trade policy, tax policy, labour law, environmental
law and trade restrictions. Furthermore, the government may have a
profound impact on a nation’s education system, infrastructure and health
regulations. These are all factors that need to be taken into account when
assessing the attractiveness of a potential market.

Economic Factors:
Economic factors are determinants of a certain economy’s performance.
Factors include economic growth, exchange rates, inflation rates, interest
rates, disposable income of consumers and unemployment rates. These
factors may have a direct or indirect long term impact on a company,
since it affects the purchasing power of consumers and could possibly
change demand/supply models in the economy. Consequently, it also
affects the way companies’ price their products and services.

Social Factors:
This dimension of the general environment represents the demographic

40
 characteristics, norms, customs and values of the population within which
the organization operates. This includes population trends such as the
population growth rate, age distribution, income distribution, career
attitudes, safety emphasis, health consciousness, lifestyle attitudes and
cultural barriers.
These factors are especially important for marketers when targeting
certain customers. In addition, it also says something about the local
workforce and its willingness to work under certain conditions.

Technological Factors:
These factors pertain to innovations in technology that may affect the
operations of the industry and the market favorably or unfavorably. This
refers to technology incentives, the level of innovation, automation,
research and development (R&D) activity, technological change and the
amount of technological awareness that a market possesses. These
factors may influence decisions to enter or not enter certain industries, to
launch or not launch certain products or to outsource production
activities abroad. By knowing what is going on technology-wise, you
may be able to prevent your company from spending a lot of money on
developing a technology that would become obsolete very soon due to
disruptive technological changes elsewhere.

Environmental Factors:
Environmental factors have come to the forefront only relatively recently.
They have become important due to the increasing scarcity of raw
materials, pollution targets and carbon footprint targets set by
governments. These factors include ecological and environmental aspects
such as weather, climate, environmental offsets and climate change
which may especially affect industries such as tourism, farming,
agriculture and insurance. Furthermore, growing awareness of the
potential impacts of climate change is affecting how companies operate
41
 and the products they offer. This has led to many companies getting more
and more involved in practices such as corporate social responsibility
(CSR) and sustainability

Legal Factors:
Although these factors may have some overlap with the political factors,
they include more specific laws such as discrimination laws, antitrust
laws, employment laws, consumer protection laws, copyright and patent
laws, and health and safety laws. It is clear that companies need to know
what is and what is not legal in order to trade successfully and ethically.
If an organization trades globally this becomes especially tricky since
each country has its own set of rules and regulations. In addition, you
want to be aware of any potential changes in legislation and the impact it
may have on your business in the future. Recommended is to have a legal
advisor.

42
Chapter 8: Data Analysis/ Data
visualization, Results and Interpretation

43
Financial analysis:

The best source of financial information about a company is its

own financial statements. This is a primary source of information for
evaluating the investment prospects in the particular company’s stock.
Financial statement analysis is the study of a company’s financial
statement from various viewpoints. The statement gives the historical and
current information about the company’s operations. Historical financial
statement helps to predict the future and the current information aids to
analyze the present status of the company. The two main statements used
in the analysis are Balance sheet and Profit and Loss Account. The
balance sheet is one of the financial statements that companies prepare
every year for their shareholders. It is like a financial snapshot, the
company's financial situation at a moment in time. It is prepared at the
year end, listing the company's current assets and liabilities. It helps to
study the capital structure of the company. It is better for the investor to
avoid a company with excessive debt component in its capital structure.

From the balance sheet, liquidity position of the company can

also be assessed with the information on current assets and current
liabilities.

Ratio analysis:

Ratio is a relationship between two figures expressed

mathematically. Financial ratios provide numerical relationship between
two relevant financial data. Financial ratios are calculated from the
balance sheet and profit and loss account. The relationship can be either
expressed as a percent or as a quotient. Ratios summarize the data for
easy understanding, comparison and interpretations. Ratios for
investment purposes can be classified into profitability ratios, turnover
ratios, and leverage ratios. Profitability ratios are the most popular ratios
since investors prefer to measure the present profit performance and use

44
this information to forecast the future strength of the company. The most
often used profitability ratios are return on assets, price earnings
multiplier, price to book value, price to cash flow, and price to sales,
dividend yield, return on equity, present value of cash flows, and profit
margins.

a) Return on Assets (ROA)

ROA is computed as the product of the net profit margin and the total
asset turnover ratios.

ROA = (Net Profit/Total income) x (Total income/Total Assets)

This ratio indicates the firm's strategic success. Companies can

have one of two strategies: cost leadership, or product differentiation.
ROA should be rising or keeping pace with the company's competitors if
the company is successfully pursuing either of these strategies, but how
ROA rises will depend on the company's strategy. ROA should rise with
a successful cost leadership strategy because the company’s increasing
operating efficiency.

An example is an increasing, total asset, turnover ratio as the

company expands into new markets, increasing its market share. The
company may achieve leadership by using its assets more efficiently.
With a successful product differentiation strategy, ROA will rise because
of a rising profit margin.

b) Return on Investment (ROI):

ROI is the return on capital invested in business, i.e., if an

investment Rs 1 crore in men, machines, land and material is made to
generate Rs. 25 lakhs of net profit, then the ROI is 25%. The computation

45
of return on investment is as follows: Return on Investment (ROI) =
(Net profit/Equity investments) x 100

As this ratio reveals how well the resources of a firm are being
used, higher the ratio, better are the results. The return on shareholder’s
investment should be compared with the return of other similar firms in
the same industry. The inert-firm comparison of this ratio determines
whether the investments in the firm are attractive or not as the investors
would like to invest only where the return is higher.

c) Return on Equity:

Return on equity measures how much an equity shareholder's

investment is actually earning. The return on equity tells the investor how
much the invested rupee is earning from the company. The higher the
number, the better is the performance of the company and suggests the
usefulness of the projects the company has invested in. The computation
of return on equity is as follows:

Return on equity = (Net profit to owners/value of the specific owner's

Contribution to the business) x 100

The ratio is more meaningful to the equity shareholders who are

invested to know profits earned by the company and those profits which
can be made available to pay dividend to them.

Earnings per Share (EPS):

This ratio determines what the company is earning for every

share. For many investors, earnings are the most important tool. EPS is
calculated by dividing the earnings (net profit) by the total number of
equity shares. The computation of EPS is as follows:

Earnings per share = Net profit/Number of shares outstanding

46
 The EPS is a good measure of profitability and when compared
with EPS of similar other companies, it gives a view of the comparative
earnings or earnings power of a firm. EPS calculated for a number of
years indicates whether or not earning power of the company has
increased.

d) Dividend per Share (DPS):

The extent of payment of dividend to the shareholders is

measured in the form of dividend per share. The dividend per share gives
the amount of cash flow from the company to the owners and is
calculated as follows:

Dividend per share = Total dividend payment / Number of shares

outstanding

The payment of dividend can have several interpretations to the

shareholder. The distribution of dividend could be thought of as the
distribution of excess profits/abnormal profits by the company. On the
other hand, it could also be negatively interpreted as lack of investment
opportunities. In all, dividend payout gives the extent of inflows to the
shareholders from the company.

e) Dividend Payout Ratio:

From the profits of each company a cash flow called dividend is

distributed among its shareholders. This is the continuous stream of cash
flow to the owners of shares, apart from the price differentials (capital
gains) in the market. The return to the shareholders, in the form of
dividend, out of the company's profit is measured through the payout
ratio. The payout ratio is computed as follows:

Payout Ratio = (Dividend per share / Earnings per share) * 100

47
 The percentage of payout ratio can also be used to compute the
percentage of retained earnings. The profits available for distribution are
either paid as dividends or retained internally for business growth
opportunities. Hence, when dividends are not declared, the entire profit is
ploughed back into the business for its future investments.

f) Dividend Yield:

Dividend yield is computed by relating the dividend per share to

the market price of the share. The market place provides opportunities for
the investor to buy the company’s share at any point of time. The price at
which the share has been bought from the market is the actual cost of the
investment to the shareholder. The market price is to be taken as the cum-
dividend price. Dividend yield relates the actual cost to the cash flows
received from the company. The computation of dividend yield is as
follows

Dividend yield = (Dividend per share / Market price per share) * 100

High dividend yield ratios are usually interpreted as undervalued

companies in the market. The market price is a measure of future
discounted values, while the dividend per share is the present return from
the investment. Hence, a high dividend yield implies that the share has
been under priced in the market. On the other hand a low dividend yield
need not be interpreted as overvaluation of shares. A company that does
not pay out dividends will not have a dividend yield and the real measure
of the market price will be in terms of earnings per share and not through
the dividend payments.

Internally for business growth opportunities. Hence, when dividends are

not declared, the entire profit is ploughed back into the business for its
future investments.

48
g) Price/Earnings Ratio (P/E):

The P/E multiplier or the price earnings ratio relates the current
market price of the share to the earnings per share. This is computed as
follows:

Price/earnings ratio = Current market price / Earnings per share

This ratio is calculated to make an estimate of appreciation in the

value of a share of a company and is widely used by investors to decide
whether or not to buy shares in a particular company. Many investors
prefer to buy the company's shares at a low P/E ratio since the general
interpretation is that the market is undervaluing the share and there will
be a correction in the market price sooner or later. A very high P/E ratio
on the other hand implies that the company's shares are overvalued and
the investor can benefit by selling the shares at this high market price.

h) Debt-to-Equity Ratio:

Debt-Equity ratio is used to measure the claims of outsiders and the

owners against the firm’s assets.

Debt-to-equity ratio = Outsiders Funds / Shareholders Funds

The debt-equity ratio is calculated to measure the extent to which

debt financing has been used in a business. It indicates the proportionate
claims of owners and the outsiders against the firm’s assets. The purpose
is to get an idea of the cushion available to outsiders on the liquidation of
the firm.

49
 Ratio Analysis of Infosys

Infosys
Mar ' Mar ' Mar ' Mar ' Mar '
Per share ratios
20 19 18 17 16

Reported EPS (Rs) 36.50 33.75 73.97 60.18 55.28

Reported cash EPS (Rs) 41.54 37.42 80.42 65.98 60.14

Dividend per share 17.50 21.50 43.50 25.75 24.25

Quick Ratio 2.88 3.00 3.78 4.05 3.98

Table 1:Infosys Ratios

Ratio Analysis of TCS

TCS
Mar ' Mar ' Mar ' Mar ' Mar '
Per share ratios
20 19 18 17 16

Reported EPS (Rs) 88.69 80.17 132.15 120.07 117.13

Reported cash EPS (Rs) 95.90 84.75 140.77 128.06 124.54

Dividend per share 78.00 30.00 50.00 47.00 43.50

Quick Ratio 3.30 4.18 4.85 6.39 4.72

Table 2:TCS Ratios

50
 Ratio Analysis of Wipro

Wipro
Mar ‘ Mar ‘ Mar ‘ Mar ‘ Mar ‘
Per share ratios
20 19 18 17 16

Reported EPS (Rs) 14.88 12.67 16.26 33.61 33.38

Reported cash EPS (Rs) 17.19 14.17 19.31 37.89 36.74

Dividend per share 1.00 1.00 1.00 2.00 6.00

Quick Ratio 2.77 2.94 2.84 3.50 2.94

Table 3:-Wipro Ratios

Ratio Analysis of Tech Mahindra

Tech Mahindra
Mar ‘ Mar ‘ Mar ‘ Mar ‘ Mar ‘
Per share ratios
20 19 18 17 16

Reported EPS (Rs) 46.95 44.54 40.83 31.30 33.27

Reported cash EPS (Rs) 53.86 51.24 47.53 37.69 38.91

Dividend per share 15.00 14.00 14.00 9.00 12.00

Quick Ratio 3.16 2.28 2.85 2.80 2.29

Table 4:-Tech Mahindra Ratios

51
 From the study equity analysis on IT industry and data analysis and
interpretations of the ratios of four companies the following findings have been
given:

1. IT/ITeS industry has led India's economic growth and this sector's
contribution to the national GDP has risen from 1.2 per cent in 1997-
98 to an estimated 6.1 per cent in 2019-20.

2. These three companies were performing well till 2008 with a positive
trend in the earnings per share. But there was a downward trend in
2009 in most of companies because of recession.
3. Infosys is found with higher current ratio as compare to other
companies. As it proves that the company is more capable of paying
its obligations than others.
4. EPS of Wipro is lower because of its strategy to favor inorganic
growth by acquisioions for which it constantly needs capital.
5. Increasing EPS indicate good earnings.

6. The stock prices always take a correction after a major climb.

7. The P/E ratio of all the selected companies is increasing year after year.

8. The software sector in India has grown at almost double the rate of the
US software sector.
9. From the balance sheet it is found out that the reserve and surplus of
the company is increasing every year.
10. Researcher has found that the ROE of the 3 companies are increasing
year after year.
11. The three companies have witnessed a low price earnings ratio in
2008 compared to the previous years. But the ratio increased in 2009
in 3 companies. HCL Technologies has the highest P/E ratio in 2009
which indicates that it is overvalued.

12. he overall performance of the companies is good, and there is a

continuous flow of project business. The companies are continuing its

52
 drives for volume with a continuous focus on profitability.
13. By analyzing the current trend of Indian Economy and IT Industry I
have found that being a developing economy there is lot of scope for
growth and this industry still has to cross many levels so there are
huge opportunities to invest in.

53
Chapter 9: Conclusions / Learnings from
the Project

54
 Conclusion

Global recession had an effect on the growth of IT industry but it was a

short term phenomenon. The industry is bouncing back. One factor
favoring this point is that India has become a hot destination for
companies of diverse nature to invest in.

In spite of it being a tough year for all the companies across the
globe, Indian market has given good performance as compared to other
companies in the world. A continuous effort at cost cutting and
improving productivity will help the companies in making reasonable
profits despite the impact of higher commodity prices and weaker rupee.

The analysis gives an optimistic view about the industry and its
growth which recommends the investors to keep a good watch on the
major players to benefit in terms of returns on their investments.
The sector is recovering well from the COVID-19 crisis.

55
KEY LEARNINGS –

 When IT sector started in India, it was in a growing stage.

 Over the years, the growth of IT companies has been steady.
 The major payers of IT sector have been involves in project basis of work.
 Majority of IT companies are service based companies rather than
product based companies.
 Project based work is the base of most IT companies.
 The major companies include TCS, Infosys and Tech Mahindra.
 By studying various charts and growth pattern it is clear why
these players are at the top.
 Major acquisitions, organic and inorganic growth make huge
impact on the shares of the company. Thus, affecting the
performance in the market.

56
Chapter 10. Limitations of the project

57
Limitations of the Project

• The ratios used here are taken during the peak of the COVID-19 pandemic so they do not
represent the regular market and are used to demonstrate how to interpret them.

• The report gives guidelines to new investors on what to look for when investing, It does
not give sure fire strategies to make a profit.

• One should use this as a stepping stone to be more competent at evaluating companies.

• The report only focuses on the 4 companies used.

58
Chapter 11. Recommendations

59
Recommendations

 As an investor, one should be aware of economical environment, market condition,

industry policy etc.
 They should focus on internal as well as external factors before investing in a company.
Depending on type of investing whether trading or long term investing, the strategies and
the parameters will change.
 One should keep track of financial ratios and how to interpret them.

60
Chapter 12 - Bibliography - Appendices

61
Bibliography

WEBSITES -

1. www.moneycontrol.com
2. www.motilaloswal.com
3. www.morilaloswalgroup.com
4. www.economictimes.com
5. www.money.rediff.com
6. www.nseindia.com
7. www.bseindia.com
8. www.finance.yahoo.com
9. www.ibef.org

MAGAZINES –

1. Harvard Business Review

2. Bloomberg Business week
3. Economic Times

62