END TERM PROJECT

“TECHNICAL AND FUNDAMENTAL ANALYSIS OF SELECTED SECURITIES OF INDIAN STOCK MARKET”

In partial fulfillment for the requirement of the MBA Programme

SUBMITTED BY

Under the guidance of :

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S.No. 1.

TITLE CH 1 Introduction 1.1 Rationale 1.2 Objectives 1.3 Research Methodology

Pg.No. 6 8 8 9 10 12 16 17 19 20 22 24 24 25 25 27 28 30 71 73 77 80

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CH 2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW 2.1 DOW THEORY 2.2 ELLIOT WAVES BASICS 2.3 MOVING AVERAGE

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CH 3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW 3.1 Economic Analysis 3.2 Industry Analysis 3.3 Company Analysis 3.3.1 The Management 3.3.2 The Company 3.3.3 The Annual Report 3.3.4 Ratios 3.3.5 Cash Flow

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CH 4 Analysis CH 5 Limitations CH 6 Conclusion Glossary References and Bibliography

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CHAPTER- 1 INTRODUCTION

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Special emphasis on common stocks. would you? Ok. Supply and demand 1. there are more than a few things we need to know about it. Weather 3. Price 2. maybe some of us would. er. You wouldn't get married on a first date. where applicable. Seasonal cycles 2. political. Technical analysis is a method of predicting price movements and future market trends by studying charts of past market action which take into account price of instruments.. but that's not really very Foolish. volume of trading and. The determination of the risk reward structure of equity and debt securities and their valuation. isn't something that should be entered into lightly.1 INTRODUCTION Investing. Open interest (futures 4. mutual fluids and technical analysis. Securities Analysis An analysis of securities and the organization and operation of their markets. I mean invest in a company. open interest in the instruments. Other topics include options. like marriage.1. Main differences between the two types of analysis: Fundamental analysis Technical analysis actually Focuses on what ought to Focuses on what happen in a market happens in a market Factors involved in price Charts are based on market analysis: action involving: 1. Fundamental analysis is a method of forecasting the future price movements of a financial instrument based on economic. Before we marry. Government policy only) 4 . environmental and other relevant factors and statistics that will affect the basic supply and demand of whatever underlies the financial instrument.. Volume 3.

because they refer to human expectations. humans expectations are neither easily quantifiable nor predictable. If prices are based on investor expectations. But there is usually a fairly strong consensus of a stock's future earnings that the average investor cannot disprove Fundamental analysis and technical analysis can co-exist in peace and complement each other. That's not to say that knowing what a security should sell for isn't important--it is.1. if the investor expects the price to fall.. As we all know firsthand. they just cannot afford to ignore either fundamental or technical analysis.2 RATIONALE FOR THE STUDY In an industry plagued with skepticism and a stock market increasingly difficult to predict and contend with.e. It is the price at which one person agrees to buy and another agrees to sell. then knowing what a security should sell for (i. Since all the investors in the stock market want to make the maximum profits possible. The price at which an investor is willing to buy or sell depends primarily on his expectations. if one looks hard enough there may still be a genuine aid for the Day Trader and Short Term Investor. fundamental analysis) becomes less important than knowing what other investors expect it to sell for. These simple statements are the cause of a major challenge in forecasting security prices. The price of a security represents a consensus. he will buy it. he will sell it. 1.3 OBJECTIVES OF THE STUDY Primary Objective: a) To do technical and fundamental analysis of chosen securities Sub-Objectives: a) to study the various theories of technical analysis and fundamental analysis b) understand the movement and performance of stocks c) understanding and analyzing the factors that affect the movement of stock prices in the Indian Stock Markets 5 . If he expects the security's price to rise.

1. The study has been exploratory as it aims at examining the secondary data for analyzing the previous researches that have been done in the area of technical and fundamental analysis of stocks.4 RESEARCH METHODOLOGY & DESIGN TYPE OF STUDY The research has been based on secondary data analysis. The knowledge thus gained from this preliminary study forms the basis for the further detailed Descriptive research. 6 . In the exploratory study. the various technical indicators that are important for analyzing stock were actually identified and important ones short listed. SAMPLE SIZE The sample size for the number of stocks is taken as 10 for technical analysis and 4 for fundamental analysis of stocks as fundamental analysis is very exhaustive and requires detailed study. The stocks are chosen in an unbiased manner and each stock is chosen independent of the other stocks chosen. SAMPLE DESIGN The sample of the stocks for the purpose of collecting secondary data has been selected on the basis of Random Sampling.

CHAPTER.2 TECHNICAL ANALYSIS A CONCEPTUAL OVERVIEW TECHNICAL ANALYSIS: Technical analysis can be conditionally divided into some main parts such as: 7 .

A technical analysis is based on three axioms: • • • Movement of the market considers everything Movement of prices is purposeful History repeats itself SUPPORT AND RESISTANCE Support is a level at which bulls (i. The underlying axiom of technical analysis is that all fundamentals (including expectations) are factored into the market and are reflected in exchange rates. is the point at which sellers (bears) take control of prices and prevent them from rising higher. Resistance. The price at which a trade takes place is the price at which a bull and bear agree to do business. 8 . It represents the consensus of their expectations.e.. buyers) take control over the prices and prevent them from falling lower.• • • • Types of charts Graphical methods Analytical methods Technical indicators Technical analysis is concerned with predicting future price trends from historical price and volume data. on the other hand.

The behavior patterns that he observed apply to markets throughout the world. form the basis of technical analysis. of top blue chip stocks. Dow created the Industrial Average. Similarly. Role Reversal When a resistance level is successfully broken through. The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages. that level becomes a resistance level. when a support level is successfully broken through. • • 9 . 3. Resistance levels indicate the price at which the most of investors feel prices will move lower. Three Movements Markets fluctuate in more than one time frame at the same time: Nothing is more certain than that the market has three well defined movements which fit into each other.1 DOW THEORY– TRENDS: The ideas of Charles Dow. and a second average of top railroad stocks (now the Transport Average). • The first is the daily variation due to local causes and the balance of buying and selling at that particular time. that level becomes a support level. The secondary movement covers a period ranging from ten days to sixty days. The third move is the great swing covering from four to six years.Support levels indicate the price where the most of investors believe that prices will move higher. He believed that the behavior of the averages reflected the hopes and fears of the entire market. averaging probably between thirty and forty days. the first editor of the Wall Street Journal.

• Secondary movements normally retrace from one third to two thirds of the primary trend since the previous secondary movement. Prices rise as the market responds to improved earnings • Bear markets • Bear markets start with abandonment of the hopes and expectations that sustained inflated prices. These movements are referred to as the primary trend. Daily fluctuations are important for short-term trading. • Various cycles have subsequently been identified within these broad categories. Bear markets are long declines interrupted by secondary rallies. Primary Movements have Three Phases The general conditions in the market: Bull markets • • Bull markets commence with reviving confidence as business conditions improve. but are unimportant in analysis of broad market movements. • 10 .• Bull markets are broad upward movements of the market that may last several years. interrupted by secondary reactions. Prices decline in response to disappointing earnings. Rampant speculation dominates the market and price advances are based on hopes and expectations rather than actual results.

• Distress selling follows as speculators attempt to close out their positions and securities are sold without regard to their true value. The decline. between rallies. 11 . Price fluctuates within a narrow range of about five per cent. Successive higher highs and higher lows. Advances above the upper limit of the line signal accumulation and higher prices. Volume is used to confirm price breakouts. Ranging Markets A secondary reaction may take the form of a ‘line’ which may endure for several weeks. ends above the lowest point of the previous decline. Declines below the lower limit indicate distribution and lower prices. Breakouts • • • from a range can occur in either direction. Trends Bull Trends A bull trend is identified by a series of rallies where each rally exceeds the highest point of the previous rally.

A bear trend starts at the end of a bull trend: when a rally ends with a lower peak and then retreats below the previous low.2 ELLIOT WAVES THEORY BASICS 12 . followed by a decline below the previous low (trough): End = lower High + break below previous Low. followed by a rally above the previous high (peak): Start = higher Low + break above previous High. 3. • • • A bull trend starts when price rallies above the previous high.The start of an up trend is signaled when price makes a higher low (trough). The end is signaled by a lower high (peak). A bull trend ends when price declines below the previous low. A bear trend starts at the end of a bull trend (and vice versa). The end of a bear trend is identical to the start of a bull trend. Large Corrections A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend).

TRENDLINES Breaking through support or resistance levels results in a change of traders’ expectations (which causes supply/demand lines to shift). 13 . A falling trend can be thought of as a falling resistance level: the bears are in control and are pushing prices lower. 3. A moving average is the average price of a financial instrument over a given time. A rising trend can be thought of as a rising support level: the bulls are in control and are pushing prices higher. An Uptrend is defined by successively higher low-prices.3 MOVING AVERAGES Moving averages are one of the oldest and most popular technical analysis tools. A Downtrend is defined by successively lower high-prices. The moving average represents the consensus of investor’s expectations over the indicated period of time.

The classic interpretation of a moving average is to use it in observing changes in prices. • ADVANCE/DECLINE LINE: The “advance/decline line” shows. When Wilder introduced the Relative Strength Index. the high price. TECHNICAL INDICATORS • There is a vast number of elaborated technical indicators: MOVING AVERAGE –MA • RELATIVE STRENGTH INDEX — RSI :The Relative Strength Index Technical Indicator (RSI) is a price-following oscillator that ranges between 0 and 100. for each day. • Z-BLOCK TRADES: “zBlock trades” are trades in excess of 10. the 9-day and 25-day Relative Strength Index indicators have also gained popularity. and closing price. low price. • HI-LO-CLOSE CHART: A hi-lo-close chart is a bar chart showing..000 shares. 14 . he recommended using a 14-day RSI. the cumulative difference between advancing and declining issues. Since then. Investors typically buy when the price of an instrument rises above its moving average and sell when the it falls below its moving average. for some period. • CLOSING TICK: “Closing tick” is the difference between the number of shares that closed on an uptick and those that closed on a downtick. • CLOSING ARMS: “Closing arms” or “trin” (trading index) is the ratio of average trading volume in declining issues to average trading volume in advancing issues.

A win by the National Football Conference is bullish. open. ODD-LOT: The “odd-lot” indicator looks at whether odd-lot purchases are up or down.” while a “major” down move is marked with an “O. it’s time to sell. 15 . UPSIDE/DOWNSIDE: Measures of Upside/Downside separate the volumes for rising markets from those in falling markets. analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation. POINT AND FIGURE CHARTS: Point-and-figure charts are a way of showing only major price moves and their direction. MOMENTUM: Momentum measures the speed of price change and provides a leading indicator of changes in trend. and also shows whether the closing price was above or below the opening price. When the stock price “pierces the neckline” after the right shoulder is finished.• • • • • • • • CANDLESTICK CHART: A candlestick chart is an extended version of the hilo-close chart. Since volume is independent of price. low. it makes a valuable tool for measuring the quality of a price trend. A “major” up move is marked with an “X. It plots the high. and closing prices.” A new column starts every time there is a change in direction HEAD AND SHOULDERS FORMATION: Once a chart is drawn. HEMLINE: Followers of the “hemline” indicator claim that hemlines tend to rise in good times. BETA: Beta is a risk measure comparing the volatility of a stock's price movement to the general market. SUPER BOWL: The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins.

to have an appreciation of the politico-economic factors that affect an industry and a company. government policy and societal factors (to name just a few elements) within a business cycle framework. I. price inflation. It is a method of study that attempts to predict price action and market trends by analyzing economic indicators.the world economy. It may have splendid managers and a tremendous product. The political equation 16 . its sales and its costs are affected by factors.CHAPTER. taxes and a host of others.3 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW Fundamental analysis refers to the study of the core underlying elements that influence the economy of a particular entity. However. some of which are beyond its control . ECONOMIC ANALYSIS: POLITICO-ECONOMIC ANALYSIS: No industry or company can exist in isolation. therefore. It is important.

balanced growth. If tax rates are low. high interest rates result in higher cost of production and lower consumption. Government Policy Government policy has a direct impact on the economy.A stable political environment is necessary for steady. The four stages of an economic cycle are: Depression 17 . If a country is ruled by a stable government which takes decisions for the long-term development of the country. Foreign Exchange Reserves A country needs foreign exchange reserves to meet its commitments. Restrictive Practices Restrictive practices or cartels imposed by countries can affect companies and industries. Within the country it erodes purchasing power. industry and companies will prosper. If the rate of inflation in the country from which a company imports is high then the cost of production in that country will automatically go up. employment. Taxation The level of taxation in a country has a direct effect on the economy. THE ECONOMIC CYCLE: It affects investment decisions. Interest Rates A low interest rate stimulates investment and industry. Foreign Exchange Risk This is a real risk and one must be cognizant of the effect of a revaluation or devaluation of the currency either in the home country or in the country the company deals in. India pays around $ 5 billion a year in principal repayments and interest payments. can be a tremendous burden on an economy. As a consequence. crystallizing the exposure. Inflation Inflation has an enormous effect in the economy. Foreign Debt and the Balance of Trade Foreign debt. The Threat of Nationalization The threat of nationalization is a real threat in many countries – the fear that a company may become nationalized. Conversely. A government that is perceived to be proindustry will attract investment. especially if it is very large. people have more disposable income. demand falls. demand and the profitability of companies. pay for its imports and service foreign debts.

Recovery Boom Recession Depression At the time of depression. it may actually make losses. The economy slowly begins to downturn. Investment begins anew and the demand grows. All industries evolve through the following stages: 1. Companies begin to post profits. sunrise or nascent stage 2. II. There is an increase in demand. supply begins to exceed the demand.. and 4. demand is low and falling. Prices that had been rising begin to stabilize and even fall. Entrepreneurial. INDUSTRY ANALYSIS The importance of industry analysis is now dawning on the Indian investor as never before. Recovery During this phase. Then as the boom period matures prices begin to rise again. Boom In the boom phase. Cycle The first step in industry is to determine the cycle it is in. are forced to curtail production. and let workers go. Demand starts falling. Companies. or the stage of maturity of the industry. demand reaches an all time high. Conspicuous spending begins once again. Companies start finding it difficult to sell their goods. Decline or sunset stage to properly establish itself. Investment is also high. Stabilization. Interest rates and inflation are high. Inflation is high and so are interest rates. Interest rates are low. the economy begins to recover. Recession The economy slowly begins to downturn. close down plants built at times of higher demand. Gradually as time goes on. crippled by high borrowing and falling sales. In the early days. Expansion or growth stage 3. 18 . stagnation or maturity stage.

Products are more standardized and less innovative and there are several competitors. Rewards are low and so too is the risk. The Decline or Sunset Stage Finally. 1. This occurs when its products are no longer popular. an industry matures and stabilizes. Though sales may increase. This may be on account of several factors such as a change in social habits The film and video industries. they do so at a slower rate than before. the industry is new and it can take some time for it to properly establish itself. Growth is moderate. many new companies enter the industry. the industry declines. The Expansion or Growth Stage Once the industry has established itself it enters a growth stage. The Stabilization or Maturity Stage After the halcyon days of growth. As the industry grows. The question that arises is how easy is it to enter an industry ? There are some barriers to entry: a) Economies of scale b) Product differentiation c) Capital requirement d) Switching costs e) Access to distribution channels f) Cost disadvantages independent of scale g) Government policy h) Expected retaliation j) International cartels 2.The Entrepreneurial or Nascent Stage At the first stage. THE THREAT OF SUBSTITUTION 19 . BARRIER TO ENTRY New entrants increase the capacity in an industry and the inflow of funds.

Companies resort to price cuts and advertise heavily in order to attract customers for their goods.e. 4. This rivalry occurs mainly when: a) There are many competitors and supply exceeds demand. i) The supplier's product is unique. or if there are few suppliers. g) The supplier's product is an important input for the buyer's. c) Demand for the product exceeds. COMPANY ANALYSIS: 20 . The increase in production could result in over capacity & price cutting. An industry where this occurs constantly is the packaging industry -bottles replaced by cans. d) The supplier supplies to various industries. 5. buyers are constantly forcing prices down. RIVALRY AMONG COMPETITORS Rivalry among competitors can cause an industry great harm. d) There is lack of differentiation between the product of one company and that of another. They can also force prices down. additional high cost services or offers. BARGAINING POWER FOR THE SUPPLIERS An industry unduly controlled by its suppliers is also under threat. heavy advertising. c) The economy is in a recession and companies cut the price of their products and offer better service to stimulate demand.New inventions are always taking place and new and better products replace existing ones. BARGAINING POWER OF THE BUYERS In an industry where buyers have control. This occurs when: a) The suppliers have a monopoly. 3. companies often have to spend large sums of money in advertising and promotion. b) Buyers can play one company against another to bring prices down. e) The switching costs are high. cans replaced by plastic bottles. e) In some industries economies of scale will necessitate large additions to existing capacities in a company. h) The buyer is not important to the supplier. they can destroy an industry. i. To ward off the threat of substitution. f) Competitors may have very different strategies in selling their goods and in competing they may be continuously trying to stay ahead III. b) The industry growth is slow and companies are competing with each other for a greater market share. This occurs mainly by price cuts. The factors one should check are whether: a) A particular buyer buys most of the products (large purchase volumes). and the like. demanding better services or higher quality and this often erodes profitability. In such cases. f) The supplier's product does not have a substitute. and the like. If such buyers withdraw their patronage. the buyer makes his choice on the basis of price or service. An industry that can be replaced by substitutes or is threatened by substitutes is normally an industry one must be careful of investing in. in a buyer's market. b) Suppliers control an essential.

1. 3. competence and aggressiveness. 2. There are several factors one should look at. How a company is perceived by its competitors? One of the key factors to ascertain is how a company is perceived by its competitors. The shares of market leaders do not fall as quickly as those of other companies. Company Policies 21 . the risk is less. In India management can be broadly divided in two types: Family Management Professional Management THE COMPANY: An aspect not necessarily examined during an analysis of fundamentals is the company. Its management may be known for its maturity. It is held in high regard.At the final stage of fundamental analysis. vision. the political situation and the industry. the investor analyzes the company. Whether the company is the market leader in its products or in its segment Another aspect that should be ascertained is whether the company is the market leader in its products or in its segment. This analysis has two thrusts: How has the company performed vis-à-vis other similar companies and How has the company performed in comparison to earlier years It is imperative that one completes the politico economic analysis and the industry analysis before a company is analyzed because the company's performance at a period of time is to an extent a reflection of the economy.yet it may be a good company and worth purchasing into. When you invest in market leaders. A company may have made losses consecutively for two years or more and one may not wish to touch its shares . There is a magic to their name that would make individuals prefer to buy their products as opposed to others. The investor must ascertain the reason and then determine whether the reason will continue into the foreseeable future. What does one look at when analyzing a company? The different issues regarding a company that should be examined are: The Management The Company The Annual Report Ratios Cash flow THE MANAGEMENT: The single most important factor one should consider when investing in a company and one often never considered is its management.

2. 1. Explains the performance and the financial results of the company in the period under review. It enunciates the opinion of the directors on the state of the economy and the political situation vis-à-vis the company. The results and operations of the various separate divisions are usually detailed and investors can determine the reasons for their good or bad performance. and D) The Schedules and Notes to the Accounts. C) The Financial Statements. Industry conditions and the management's knowledge of the business must be considered. a company that has bad industrial relations will lose several hundred mandays as a consequence of strikes and go slows. Discusses plans for new acquisition and investments. What is its plans for growth? What is its vision? Every company has a life. 5. A. B.. Elaborates on the directors' views of the company's prospects in the future. The Auditor's Report 22 . 4. By law. as the directors will always argue that the performance was satisfactory. 6. It is at the point of leveling out that it must be given new life. Without these. advising them of the performance of the company under their stewardship. The Annual Report is broken down into the following specific parts: A) The Director's Report. The Director’s Report details the company's plans for modernization. Where the company is located and where its factories are? One must also consider where the companies Plants and Factories are located. The Director’s Report The Director’s Report is a report submitted by the directors of a company to its shareholders. On the other hand. Labour Relations Labour relations are extremely important. If adverse economic conditions are usually at fault. 3.The policy a company follows is also important. Recommended by the directors. A company that has motivated. this is prepared every year and distributed to the shareholders. Discusses the profit earned in the period under review and the dividend. This paragraph should normally be read with some skepticism. 4. Annual Reports are usually very well presented. industrious work force has high productivity and practically no disruption of work. If it is allowed to live a normal life it will grow upto a point and then begin to level out and eventually die. B) The Auditor's Report. a company will remain static and eventually decline. 5. expansion and diversification. THE ANNUAL REPORT: The primary and most important source of information about a company is its Annual Report. This can give it renewed vigour and a new lease of life. An investor must intelligently evaluate the issues raised in a Director’s Report. This is an extremely important part. A tremendous amount of data is given about the performance of a company over a period of time.

The auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors.Financial Statements The published financial statements of a company in an Annual Report consist of its Balance Sheet as at the end of the accounting period detailing the financing condition of the company at that date. SOURCES OF FUNDS SHAREHOLDERS FUNDS SHARE CAPITAL (i) Private Placement (ii) Public Issue iii) Rights issues RESERVES i) Capital Reserves ii) Revenue Reserves LOAN FUNDS i) Secured loans: ii) Unsecured loans FIXED ASSETS INVESTMENTS STOCK OR INVENTORIES i) Raw materials ii) Work in progress iii) Finished goods CASH AND BANK BALANCES LOANS AND ADVANCES PROFIT AND LOSS ACCOUNT The Profit and Loss account summarizes the activities of a company during an accounting period which may be a month. grouped logically under specific heads. It details the income earned by the company. in fact. Investors must remember that the auditors are their representatives and that they are required by law to point out if the financial statements are not true and fair. Auditors are required to report whether the financial statements presented do. of the company's assets (that which the company owns). a year or longer. It is. be noted that the Balance Sheet details the financial position on a particular day and that the position can be materially different on the next day or the day after. the performance appraisal not only of the company but also of its management. 23 . C. BALANCE SHEET The Balance Sheet details the financial position of a company on a particular date. and the result achieved by the company. It must however. its cost and the resulting profit or loss.its competence.. and liabilities (that which the company owes). and the Profit and Loss Account or Income Statement summarizing the activities of the company for the accounting period. six months. foresight and ability to lead. in effect. present a true and fair view of the state of the company. a quarter.

4. No single ratio tells the complete story Ratios can be broken down into four broad categories: (A) Profit and Loss Ratios These show the relationship between two items or groups of items in a profit and loss account or income statement. Net income to assets employed. These relate an item on the balance sheet to another in the profit and loss account such as: 1. Book value to market value. Gross profit to sales. Sales to stock. (C) Balance Sheet and Profit and Loss Account Ratios. 2.RATIOS: Ratios express mathematically the relationship between performance figures and/or assets/liabilities in a form that can be easily understood and interpreted. 4. 3. Net profit to sales and 4. Earnings to shareholder's funds. 3. (B) Balance Sheet Ratios These deal with the relationship in the balance sheet such as : 1. Cost of goods sold to creditors. The more common of these ratios are: 1. (a) Market value (b) Earnings (c) Profitability (d) Liquidity (e) Leverage (f) Debt Service Capacity (g) Asset Management/Efficiency (h) Margins. Debt to assets and 5. 24 . 3. Market value to earnings and 2. Sales to cost of goods sold. (D) Financial Statements and Market Ratios These are normally known as market ratios and are arrived at by relative financial figures to market prices: 1. Liabilities to assets. Selling expenses to sales. Liabilities to net worth. 2. Sales to debtors and 5. 2. Current assets to current liabilities. Shareholders equity to borrowed funds.

Investors must be concerned if a company is financing either its inventories or paying dividends from borrowings without real growth as that shows deterioration. Investors must examine a company's cash flow as it reveals exactly where the money came from how it was utilized. 25 . The net result shows whether there has been an excess or deficit of funds and how this was financed.The major ratios that are considered: (i) Market value (ii) Price.earnings ratio (iii) Market-to-book ratio (iv) Earnings (v) Earning per share (vi) Dividend per share (vii) Dividend payout ratio (viii) Leverage ratios (ix) Return on investments/total assets CASH FLOW: A statement of sources and uses begins with the profit for the year to which are added the increases in liability accounts (sources) and from which are reduced the increases in asset accounts (uses).

CHAPTER-4 ANALYSIS 26 .

Real GDP growth has. thus. Fiscal Policies and Inflation and money supply etc. averaged over eight per cent during the 27 .5 per cent during 2004-05 to 8. Industry Analysis 3. Monetary policies of India. GDP Real GDP growth accelerated from 7. Company Analysis 1) TATA MOTORS I Market/ Economy Analysis It covers the macro economy analysis and the various macro economic factors on the national level like GDP.I FUNDAMENTAL ANALYSIS OF STOCKS Basically fundamental analysis is covered in 3 parts : 1. Market/ economy analysis 2.4 per cent during 200506 on the back of buoyant manufacturing and services activity supported by a recovery in the agricultural sector.

for policy purposes. which have gone strength to strength.3 per cent by end-March 2007 within the indicative trajectory of 5. For 56% of the GDP an acknowledged strength in knowledge driven industries like Information technology. Assuming trend growth in agriculture under normal monsoon conditions and barring domestic or external shocks.last three years and over seven per cent in the first four years (2002-03 to 2005-06) of the Tenth Five Year Plan. in the range of 7. Over 3500 doctorates in sciences every year. Growth prospects are. however. Industry 22% and services.7 million graduate engineers.5 per cent during 2007-08. entertainment Software etc India has Over 3 million scientific & technical manpower. biotechnology. and a hardening of international interest rates along with the withdrawal of monetary accommodation. accounting. Strengths of India today are: A well diversified industrial base which profits from self-reliance in all core industries . The actual inflation was considerably lower than the 28 .0-5. India’s demographic advantage – In contrast to developed Countries. Over 0. firming up of overall inflationary pressures and expectations.0 per cent during 2007-08. subject to a number of downside risks. Inflation Inflation was contained to 6. The risks emanating from the global economy are: potential escalation and volatility in international crude oil prices. A healthy GDP composition with agriculture contributing 22%. Hence India would be the hub for R&D. the Reserve Bank in its Annual Policy Statement for 2007-08 (April 2007) placed real GDP growth.A large & sophisticated financial architecture . Over 0.5-8. India will have a younger population for the next 50 years.The robust capital Markets today have over 9000 listed companies and boast of a massive Market capitalization.6 million S&T post graduates.

The following are macroeconomic policies. and some private placement of Government securities In short. (b) Domestic content requirements (c) High tariff walls (d) Auto export requirements (e) National production to sales ratios (f) Distribution controls (g) Quotas and licensing requirements that significantly restrict imports (h) Government approval for product related decisions. The global outlook for growth is positive but downside risks in regard to inflation also RBI is applying new repo and reverse repo for the balance of inflation and monetary policies. there are continuing signs of demand pressures.indicative trajectory and this could be mainly attributed to the deferred pass-through of even the cognisable permanent component of international crude oil prices. flexible management of issuances under the market stabilisation scheme. (i) Special government categories for auto taxes 29 . Money Supply Monetary and liquidity conditions remained largely comfortable during 2006-07reflecting proactive liquidity management operations by the Reserve Bank under the liquidity adjustment facility. engine size. These pressures have the potential for impacting stability and inflation expectations. generally found as part of government-directed industrial auto policies (a) Restrictions on domestic and foreign investment. the Indian economy is exhibiting strong fundamentals and displaying considerable resilience. At the same time. especially high credit growth. including vehicle make. etc. body type. that could exert upward pressure on prices when associated with supply shocks such as from oil. While domestic developments continue to dominate the economy. global factors tend to gain more attention now than before.

In recent years we have seen increasing number of global players entering Indian market by way of Joint ventures. The automobile market is characterized by a low potential for market growth. but high sales and profit potential as the products have still not saturated the market as a whole. due to an increased number of competitors from domestic and foreign markets. 30 . Today. on the other. collaborations or wholly owned subsidiary The automobile industry is torn between trying to reduce costs on the one hand and.2.24(for every Re. locally and globally. it is amongst the main drivers of growth of Indian economy with an output multiplier of 2. dealing with the high price of performance-enhancing technology and environmental compliance. auto sector gives back Rs.24 to the economy).II INDUSTRY ANALYSIS Since. 1991 opening of the economy has changed the face of auto industry.1 invested. Key drivers in the automotive industry are: • • • • • • • Reducing air pollution Reduction of weight Recyclability Safety Better performance and engine efficiency Aesthetics Longer service Life INDUSTRY LIFE CYCLE: The automobile market is at the maturity stage of the life cycle.

2B 7.MAJOR COMPETITORS OF TATA MOTORS ARE Maruti Udyog Ltd.40 -3.21 5.05 0.64 NA 13.55 1. General Motors India Ford India Ltd.73 2517.97 Opportunities and Threats a) Opportunities 31 .52 5.6B 30.72 11.9B 15. (TM) 3.24 0.50 10.8B 24.90 1.38 0. ROE % Yield % LongPrice to Term Book Debt to Value Equity Net Price to Profit Free Cash Margin Flow (mrq) % (mrq) Sector: Consumer Goods Industry: Auto Manufacturers .85 11.0B 53.21 -0.17 1. (HMC) Tata Motors Ltd.88 17.1B 175. Ltd.5B 62.05 1.60 4.35 1.17 331. Eicher Motors Bajaj Auto Hero Motors Hindustan Motors Hyundai Motor India Ltd.54 18.19 NA -9.54 -82. (TTM) Toyota Motor Corp.03 1.50 NA 1.22 1.00 0.76 7.51 NA 62.60 -6.21 1.50 2.40 3.83 1.07 2.20 1. (F) General Motors Corporation (GM) Honda Motor Co.11 0.61 0.42 1.59 408.07 1. Royal Enfield Motors Telco TVS Motors FINANCIALS Description 1 Day Price Market Change Cap % P/E Div.64 6.42 -4.14 207.94 15.81 10.7B 16.06 1.Major (More Info) Companies 0.73 5.16 2.00 7.52 16.83 -0.71 1.40 11.15 3.48 NA NA Daimlerchrysler AG (DCX) Ford Motor Co.69 -0.

especially small cars.6% last year to record high of 11. growth in sales may be adversely impacted. the Company increased share of its overseas vehicle sales from 7. Improved road network would help in faster movement of goods between various cities and towns. Risks and Concerns: 32 . ● International: In FY 2006-07. ● Car penetration in India: Car penetration in India is 7 cars per 1. These prices are expected to increase further affecting the Company’s profitability.● Road Development: The ongoing road development program would improve connectivity to ports. cities and villages through a network of highways and interconnecting roads by 2010-11. ● Fuel Prices: The continuing fuel price increase in the domestic market could significantly impact demand of commercial and passenger vehicles. b) Threats ● Global Competition: India is increasingly attracting global players to set up manufacturing facility for producing cars.1% (as % of its total sales) and has planned further increase in this year. The Company launched TATA Novus range of vehicles in the heavy segment and TATA ACE for last mile distribution. ● Government Regulations: Stringent emission and safety requirements could bring new complexities for automotive and component manufacturers impacting the Company’s business. Global automobile manufacturers are also entering India in commercial vehicle segment to leverage India’s low cost production advantage to their favor.000 persons. non-ferrous metals. ● Input costs: Commodity items particularly steel. rubber and engineering plastics have witnessed huge price increases in the past. ● Interest rate hardening and other inflationary trends: With interest rates hardening and liquidity crunch in the system.

● Manufacturing: The Company manufactures vehicles at multiple locations and given the geographical dispersion of its suppliers it faces Logistics Problems. ● Freight rates: In FY 2006-07. ongoing road development projects and severe restriction on over-loading. by strengthening its less cyclical businesses like buses. III Company Analysis Key Highlights Symbol: TTL Sector: Consumer Goods Industry: Auto Manufacturers Major Market Cap: Rs. ● New projects: The Company currently is in midst of executing many new projects ranging from launch of new car platforms to development of new Truck models. Demand for commercial vehicles could be impacted by further change in freight rates and change in fuel prices.● Interest Rates: FY 2007-08 started with increasing interest rate regime and tightening liquidity position in the economy. ● Exchange rates: The Company exports vehicles to many countries and exchange rate fluctuations in the order execution period could impact the Company’s business. ● New Competition: Competitive activity is expected to increase in commercial vehicle and passenger vehicle domestic market in coming years. large financial capability and global branding. Increasing interest rates could further affect vehicle demand which could have an adverse impact on the Company’s revenues and profits. ● Domestic market: The Company plans to reduce the impact of this cyclicality on its business.29232 crores 33 . light trucks. freight rates in road transport sector moved up mainly due to surge in construction activity. small commercial vehicles. ● Overseas market: In overseas markets. the Company competes with global players which have multiple vehicle platforms.

5%. with sale of 33.2% in Q1FY06.35 billion*. up by around 410 bps. 742. engines and transmissions for both. from 37. Passenger Vehicle Segment 34 . The market share in this segment was 65. as compared to 55. utility vehicles and passenger cars.6% volume growth in the domestic CV segment during 4QFY06. The M/HCV goods-carrier segment registered a 54. More than 3 million Tata vehicles ply on Indian roads making Tata a dominant force in the Indian automobile industry.90 Brief Summary of the company Tata Motors is one of the largest companies in the Tata Group with a total income of US$ 2.082 units in Q3FY06. The Company has also entered into a JV with Hitachi. for manufacturing passenger vehicles.8% in Q4FY06.4% growth YoY. buses. domestic and international markets.Data Since: 1945 Last close: Rs. It would be no exaggeration to say that Tata Motors provides the wheels for India's growth. Joint Venture with Fiat and Hitachi Tata Motors has decided to enter into a 50-50 JV with Fiat. Segmental Overview Commercial Vehicle Segment The Company registered 69..515 units and a market share of 64. driven by infrastructure development and increase in international trade. to set up a new plant in Kharagpur Product Mix Tata Motors is India's only fully integrated automobile manufacturer with a portfolio that covers trucks. at Pune.228 units in Q3FY05 to 63.

Charts showing Key Statistics of tata motors.2% in the quarter. Pune in the West and Lucknow in the North. to 49. in the domestic passenger vehicle segment and a market share of 16.4% during Q4FY06 Plants Tata Motors owes its leading position in the Indian automobile industry to its strong focus on indigenisation.2% YoY.907 vehicles. 35 . Their manufacturing plants are situated at Jamshedpur in the East.The Company reported a growth of 21. The passenger vehicle industry registered a volume growth of 20.

36 .

Share holding pattern as on 31-Mar shareholding pattern 10 % 1% 7 34% pro otors m M B F anks. Fis FIIs O e th rs Pu blic 25% 1 4% Financial highlights 37 .

38 .

43 13.09 453.04 33.RATIO ANALYSIS Ratios 2006 2005 2004 Debt/equity Current ratio Operating profit margin % Gross profit margin ROCE % total assets turnover ratio ROE % Dividend-equity Retention Ratio DPS (Rs. ROE ) Market return 0.53 30.11 65.87 31.76 3.54 16.43 22.49 0.39 0.61 497.99 41 0.) Dividend Payout Ratio 0.12 39 .32 12.57 282.54% P/E ratio (on the basis of historical analysis) = 18.37 CAGR of EPS CAGR of Dividend Payout Ratio Average ROE average retention Growth % (g = Avg.43 32.25 3.76 12.73 63.42 0.11 10.) EPS (Rs.15 27.94 67.51 10.56 1.01 25 0.19 7.44 0.177 -0.017 25.08 12.38 11.74 63. RR × Avg.87 11.77 3.5 34 0.36 14.

181 Projected EPS = EPS OF 2006 + CAGR of EPS*EPS OF 2006 = Rs.when the government consolidated its control over the industry with Soviet assistance.in this period the US companies played dominant role replacing the Soviets and (iii) the economic liberalisation phase of 1990s. • • PORTER’S MODEL 40 .48.Therefore.24)/2 = 21.271 Value of Share at the end of financial year 06-07 = Projected EPS * Weighted P/E Ratio = Rs.1022 2) HPCL Globalization and the Indian Petroleum Industry Indian petroleum industry in the post independent period (1947-2001) it may be divided into three distinct phases • (i) early phase (1947 to 1969). (ii) development phase (1970 to 1989). the Weighted P/E ratio =(18.12+24.

Entry on petrochemicals and gas sector will reduce dependence on R&M sector. Diversifications in petrochemicals could trouble the company. 41 .SWOT ANALYSIS STRENGHS • • • • Favourable production – sale mix. High burden of subsidy loss on cooking gas and kerosene. Good presence in high demand regions of west and north India. WEAKNESSES • • • • Dependence on refining function high. Moderate share in high profitable retail segment. Second largest refining capacity and pipeline infrastructure in the industry.

THREATS • • • • Rising oil prices could dampen demand. Fundamental Analysis B. advising them of the performance of the company under their stewardship. Growing domestic market for gas. High regulatory risk.OPPORTUNITIES • • • • Per capita energy consumption low in country. FINANCIAL STATEMENTS It comprises of Balance Sheet. Its analysis would be discussed later.SCHEDULES The schedules detail pertinent information about the items of Balance Sheet and Profit & Loss Account. Entrance of private players in pipelines will take away monopoly of company in north India. C) The Financial Statements. administration costs. and D) The Schedules and Notes to the Accounts. It also details information about sales. Deficiency of coal will benefit oil and gas sector. manufacturing costs. Cash Flows. D. interest. THE AUDITOR'S REPORT The auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors C. A. Profit and Loss account. Loss of market share to private players. B) The Auditor's Report. and other income and expenses 42 . COMPANY ANALYSIS The Annual Report is broken down into the following specific parts: A) The Director's Report. .THE DIRECTOR’S REPORT The Director’s Report is a report submitted by the directors of a company to its shareholders. Overseas presence in upstream and downstream will determine growth.

43 . Thus from time to time it is required to watch out the various policies changed. There are some parameters of management on which a company is analysed : a. 3. Thus many factors are studied while studying a company. THE MANAGEMENT HPCL is a public sector undertaking. the depth of the knowledge of management f. This is prepared every year and distributed to its shareholders. ANNUAL REPORT The most primary and most important source of information about a company is its Annual Report. how highly is the management rated by its peers in the same industry d. how the management fares in adversity e. Thus it is a professionally managed company. That is why now it has decided to diversify itself in the oil exploration sector b) company policies As this is a PSU thus the policies are made by the government. The oil sector is one which is highly regulated by government.1. past record of management c. COMPANY Many times a company has made losses in the previous years but that does not mean that the company is bad to invest. integrity of management b. a) perception of competitors HPCL is the second largest petroleum company after IOCL. 2. open and innovative management on all these parameters HPCL scores good. Thus it is a competitor of IOCL and it is trying hard to compete with IOCL on every front.

485958 1.60504 0.19842 0.50% 14% 18.26% 44 .Ratio Analysis Evaluation of Intrinsic Value of the Security stdev mkt stdev sec 0.011934 0.120052 correlation Beta Risk Free Rate Mkt Rate k 0.03831 Retention Ratio ROE g Average 0.56765 6.

5+665/2=336.25 Price = 43. Apart from streamlining their processes through technology initiatives such as ATMs. Retail lending (especially mortgage financing) formed a significant portion of the portfolio for most banks and they customized their products to cater to the diverse demands.468+336. telephone banking. Economies of scale: Since the existing players in the market are well established and already have a customer base.0626= 387 Price= Projected EPS + Weighted P/E ratio Using CAGR EPS = 43.Thus we see that as per Dividend Discount Model our Intrinsic value is div=22(1+. the banking sector has witnessed a transformation in its vital role of intermediating between the demand and supply of funds Public sector banks have been very proactive in their restructuring initiatives be it in technology implementation or pruning their loss assets.468 Weighted P/E Ratio = 7. PORTER’S FIVE FORCES MODEL FOR THE BANKING INDUSTRY 1) BARRIERS TO ENTRY: a. Capital requirement for entry: 45 .Hence we see that here our g is less than k . online banking and web based products. mutual funds and insurance policies to augment their fee based income. they are able to bear the cost of using the advantages of technology to their maximum advantage. banks also resorted to cross selling of financial products such as credit cards. b. Windfall treasury gains made in the falling interest rate regime were used for writing off the doubtful and loss assets.012)=24/.25 = 381 3) HDFC BANK The Indian banking industry: sector overview With the economic growth picking up pace and the investment cycle on the way to recovery.

d. Some banks offer locker services to customers for yearly rates. Cost advantage independent of size: Existing banks have huge databases of customers which they use when they want to sell a new product launched by them. Banks provide interest on deposits made by people. ii. Access to distribution channels: Since banks have to set up their own distribution channels. the services offered by banks to customers have improved considerably. Customers of banks provide money to banks in the form of deposits and in return earn some interest on that. or other capital requirements as provided by RBI. RBI acts as a supplier to banks by selling govt. e. Product-for-product substitution: i. Government has declared that the foreign banks will be permitted to establish their presence in India by way of setting up a wholly owned banking subsidiary (WOS) with a minimum capital of Rs. bonds. Similar services are offered by post offices which may act as substitutes to the deposit schemes of banks. all the cost has to be directly born by them.300 crore. Call money market: Banks sometimes have to borrow from other banks to meet CRR and SLR requirements. b. The Banking Regulation Act prescribes the minimum capital requirements for a bank Moreover. securities. 2) BARGAINING POWER OF BUYERS: Due to increased competition. 3) BARGAINING POWER OF THE SUPPLIERS: Suppliers to banks can be both . RBI is the governing body of banks in India. Similar services are provided by many post offices. ii. etc. 46 . 4) THREAT OF SUBSTITUTES: a. c.the customers and RBI. banks have to maintain a capital adequacy ratio of 9% under the Basel I norms. Legislation or Government action: Banks are governed by Banking Regulation Act. govt. c. 1949 which specifies the rules and regulations applicable to banks. treasury bills.i. a.

ICICI Bank . High Exit Barriers PEST Analysis for Banking Industry. The first pillar is compatible with the credit risk. 47 . Political factors-: following. market risk and operational risk. Market growth rates:. Universal Banking has been introduced. it also casts responsibility on the supervisors to review and validate banks’ risk measurement models. Generic substitution: People who deposit their savings in banks can invest their money in other sources like mutual funds. The second pillar gives the bank responsibility to exercise the best ways to manage the risk specific to that bank. The major factors affecting the banking sector are the Banking sector reforms – As per the RBI roadmap for reforms in the first stage from 2005 to 2009 foreign banks will be allowed to set up wholly owned subsidiaries as well as get greater freedom to set up new branches.b.The new Basel Accord has its foundation on three mutually reinforcing pillars. Fulfilling the minimum priority sector credit -The government mandation of fulfilling the minimum priority sector credit (of which 18 per cent is food credit) has forced the domestic banks to cater to this segment despite the low profitability and vulnerability of asset quality. 1. Economic factors-: Basell II norms for the risk management in banking sector . . shares and other securities and life insurance schemes.HDFCs closest competitor is already into Universal Banking so HDFC is also getting into it as now it is providing retail banking and also depository facilities in the form of demat account. c. HDFC bank also acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers. Concurrently. 5) COMPETITIVE RIVALRY: a. Banks have also been allowed to set up Offshore Banking Units in SEZ’s 2. Extent of competitor balance: b. Consolidation and merger and acquisitions in the banking sector-.

auto loans etc.78 OPBDT (Rs Mn) 76352. 4.29 19. Technical factorsThe Indian Financial Network (INFINET) was inaugurated in June 1999.43 16882.36 19.2 Change (%) -1.5 CAN BANK 18550. Retail loans have grown from 19% in FY’99 to 51% FY’06.50 14.8 60.5 23317 25.6 per cent of the country's GDP and the buoyancy in the economy offers sufficient scope for it to grow.indicates the change between current and corresponding quarter.3.Consumer credit accounts for a meager 28. education loans.8 37174 22205.This is leading to a greater demand for financial products and customization by the customers.9 ICICI BANK PUNJAB NATIONAL B CAN BANK BANK OF INDIA Based on OPBDT Change (%) 54.24 14324 H D F C BANK H D F C BANK % change . It is based on satellite communication using VSAT technology and would enable faster connectivity within the financial sector.53 27. Banks (All): No of players = 40 Sector statistics: We see the sector aggregates and make a financial comparison for the major banks Top Players FY2006 Based on Total Income Total Income (Rs Mn) 63161.36 39. Geographical and Cultural diversity. car loans. Social factorsBig and growing middle class in India -: This has been a major factor in the growth of the retail loans like consumer loans in the form of home loans.91 23.48 SBI ICICI BANK PUNJAB NATIONAL B 29218 27709. TOP FOREIGN REGIONAL BANKS COMPANIES BY MARKET CAP 48 .

Symbol BBV LYG ABN IMI BBD HDB Price Change 22.5% 91.83B 30.38% 31.64 45. 5 yr expected) Revenue Growth (Qtrly YoY) EPS Growth (Qtrly YoY) Long-Term Growth Rate (5 yr) Return on Equity (ttm) Long-Term Debt/Equity (mrq) Dividend Yield (annual) LYG Industry Leader HDB BBV BMA BCA BFR IRE KB BFR HDB Rank 13 / 24 2 / 24 16 / 24 75.83 21.04 Quarterly Aggregates Total Income (Rs Mn) OPBDT (Rs Mn) PAT (Rs Mn) Equity Capital (Rs Mn) No: of Players . HDFC Bank Ltd.60% 4 / 24 33.45B 52.90% 6 / 24 30.1 HDFC Vs Industry Leaders Statistic Market Capitalization P/E Ratio (ttm) PEG Ratio (ttm.83B P/E 14.72 1.96B 55.04 0.45B 32.29 Previous Quarter 317927 74296.20% 5.65% 40.A.40 0.59 0.96B 84.58 0.22 29.8 30481.4 77730.70% 2 / 24 N/A N/A 18 / 24 Company Analysis : HDFC Bank (HDB) Key Highlights 49 .7 126435 Latest Quarter 305290 81622.00% 44.10 30.79% Market Cap 75.Company Banco Bilbao Vizcaya Argentaria Lloyds TSB Group plc ABN AMRO Holding NV SanPaolo IMI SpA Banco Bradesco S.36 3.70% 154.0% N/A 0.52 12.09% 39.13% 27.89 N/A 10.40B 30.21% 6.50B 5.51% 55.95 2.22 1.6 32705.

It was incorporated in August 1994 in the name of January 1995. ‘HDFC Bank Limited’ . with its registered office in Mumbai.Symbol: HDB Sector: Financial Industry: Foreign Regional Banks Market Cap: 43882 Cr Data Since: 2002-01-02 Last close: 1710 Full time employees: 9030 The Housing Development Finance Corporation Limited (HDFC) was amongst the first to receive an ‘in principle’ approval from the Reserve Bank of India (RBI) to set up a bank in the private sector. as part of the RBI’s liberalization of the Indian Banking Industry. HDFC began operations as a Scheduled Commercial Bank in 50 .

34 2.20 577.15% 94.03 1.00% 145.56 1.64 25.03 FINANCIAL HIGLIGHTS FOR THE LAST THREE YEARS 51 .27 1.16% 4.61 1.49% 11.343.93 1.6 234.777.00 1.12% 3 24.91 810.1 2004-05 3.72% 79.87 364.75 18.85 18325 38760 2237607 20000 224483 3042408 1175486 1338808 13.548.52 378.93 978.03% 11.Interest Income Interest Expense Net Interest Income Other Income Net Revenues Operating costs Operating Result Provisions and Contingencies Profit before tax Provision for taxation Profit after tax Funds : Deposits Subordinated debt .191.007.085.66% 3.93 651.5 24.65 465.15 139.91 288.5 22.49 1.95 20.211.40 1.315.30 570.96 821.10% 9.287.75 21.86 573.05 1.95 718.429.06 2003-04 2.44% 9.337.55 17.60% 12.94 31338 66556 3635425 50000 451985 5142900 2556630 1934981 22.92 20.05 710.817.013.55 1.14% 8.88 480.Stockholders’ Equity Working Funds Loans Investments Key Ratios : Earnings per share (Rs) Return on Average Networth Tier 1 Capital Ratio Total Capital Ratio Dividend per share (Rs) Dividend payout ratio Book value per share as at March 31 (Rs) Market price per share as at March 31 (Rs) Price to Earnings Ratio 2002-03 2.093.96 20946 50950 3040886 60000 269188 4230699 1774451 1925679 17.

(Source: HDFC bank Annual Report 2006-07) 52 .

9 2.5 1.4) JET AIRWAYS MARKET Currently the market scenario is as shown : The Dom estic A viation M arket Share 8% 8 % 2% 6 % 0 % 34% J t Airw e ays In n dia D eccan Sah ra a King Fishe r 1) ACC LIMITED 21% 2% 1 G oAir SpiceJ t e C rtered Flig ha hts AIRLINE Jet Airways Air Deccan Kingfisher Spice Jet GoAir CURRENT ACQUISITION FLEET PLANS 53 30 by 2012 29 79 by 2010 11 100 by 2012 6 38 by 2010 4 33 by 2008 INVESTMENTS US $Bn 2 2.4 STATE OF THE INDUSTRY 53 .7 4.

Main factors are: P OLITICAL E CONOMIC S OCIO-CULTURAL T ECHNOLOGICAL Other Factors DEMOGRAPHIC NATURAL ENVIRONMENT POLITICAL OPEN SKY POLICY DEREGULATIONS IN DIFFERENT SPHERES LESS ENTRY BARRIERS REDUCTION IN FDI LIMIT: 49% for airlines 100% for airport 54 .02 trips per capita per annum • Long-term GDP growth at 8% annually It is forecasted that India would be the second fastest growing travel and tourism economy in the world ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry The government is proactively looking to address the bottlenecks • • • • MACRO ENVIRONMENT Refers to the factors which influence an industry but are beyond its control.• High growth potential due to economic boom and highly under penetration in the market • 0.

tourism industry grew 8. the highest growth rate in the world.SOCIO-CULTURAL • Growing Middle Class 1993 to 1999 : 39.7m households 2005 : 300 million 2010 : 400 million estimates Increase in leisure travel by tourists by 15% in 2004 3.8 per cent over 2003. • • 55 .2 million foreign tourists visited India last year .5 million to 56.

From 32. NATURAL ENVIRONMENT HIGH ENERGY COSTS • • The cost of aviation turbine fuel ATF in india for domestic airlines is almost double for international market.A.56 to 35/litre.5%.SOCIAL TECHNOLOGICAL MODERNISATION OF AIRPORTS ILS-INSTRUMENT LANDING SYSTEMS DEMOGRAPHIC CHANGING STRUCTURE OF CONSUMERS HIGHEST % PEOPLE IN 20-50 AGE GROUP EDUCATIONAL GROUPS SHIFT TOWARDS NUCLEAR FAMILIES (Source NCAER) MIDDLE CLASS INCOME OVER RS. Govt. increased prices by 7. 56 .000 P. 90.

• • • • • • COMPETITIVE RIVALRY Increased competitive pressures due to new entrants Growth rates. no subsidy POWER OF BUYERS • Large number of buyers: Business travelers sector intensified by GDP growth.Minimal • No differentiation among the players in the same segment POWER OF SUPPLIERS ATF AIRCRAFT MFG PILOT • Switching costs. high fuel costs Compulsion to operate on uneconomical routes.high • Forward integration. It is marginally possible.large number of options available • Cost of switching.• ATF price in feb soared by 3.high projected to be 22% High fixed costs Extra capacity Acquisition of weaker companies High exit barriers Differentiation 57 .5% to the price in jan 06. PORTERS FIVE FORCE ANALYSIS • THREAT OF NEW ENTRANTS • Easy entry but execution doubtful • The capital requirement-a min of 30cr capitalization before takeoff • Network & time slots of existing players • Expected retaliation • Legislation or government action: equity capital for floating an airline • Differentiation • Exit barriers Inadequate airport infrastructure.consumers can choose between the various options such as road and rail.with technology the need to travel has reduced but it is not possible to totally do away with it. • Substitution for need.options of switching is very limited • Brand value. leisure customer market too a huge growth opportunity • Alternative source. shortage of pilots.no history in past but possible • Shortage of pilots • High fuel costs AVAILABILITY OF SUBSTITUTE • Product for product substitution.

Foreign equity allowed. Failed attempts at Merger.O.US $30 billion by 2012 and about US $50 billion by 2015.S. Duties slashed on ATF and IATT. Rising income levels and demographic profile. #Opportunities Hugh untapped international sectors Increase in domestic flight density Expanding operations into Air Freight business 58 . Key Problems: Crippling “Oil Shock” . severely limiting growth prospects. Key Developments that may Influence the future: Average growth of about 25%-30% Air Freight segment is growing faster than the Passengers segment. Absence to Institutionalized Funding. Concentrates only most profitable routes. Unplanned location of Airports. 4) JET AIRWAYS Market Share: 35% • • • • • • • • • • #Strengths Virtual monopoly on Corporate Accounts Membership of IATA One of the Youngest Fleets in the World Debt-Equity Ratio of almost one is to one #Weaknesses Required 1000 pilots in next two years. Acute shortage of trained Pilots. Pilot license applications have tripled.T of The Industry • • • • • • • • • • • • • • Key Attractions: Low entry barrier. Attraction of foreign shores. Expecting investments .W. Expected Market Size is projected to be about 50 million by 2010.

riding on the overall economic growth of eight percent. including: • • • • • Premier Airways Star Air East West Airlines Indigo Jagson 59 . Competition in the Business Class form newcomers like KingFisher Hugh investments locked in future fleet expansion plans Single source of revenue Growth Forecast World Passenger traffic grew to 52. to register a growth of 19.9 percent.47 million in 2004-05. In the last fiscal. • Raising retirement age of pilots to 65 from 61. from 43. • Training more Pilots and Air Traffic Controllers.• • • • • • • Integrate more long haul aircrafts #Threats Stiff competition in the Economy class from Low Cost Carriers.12 million in the last fiscal. New Entrants The aviation sector is likely to see the launch of many new airlines. The Positive Steps Greenfield airports –Bangalore/Hyderabad • J/Vs for Ground Handling and MRO facilities • Highly advanced GPS aided Geo augmented navigation (GAGAN) system operational this year. • AAI set up more radar stations – to bring entire Indian airspace under radar monitoring. the Indian aviation industry logged a robust growth of 24 percent and experts say the sector will expand by at least 16 percent annually for the next five years.

13 days: = 1037.II TECHNICAL ANALYSIS OF STOCKS 1) ACC LIMITED ANALYSIS: Trend: The stock after correcting to 50% of the long bull run [Bottom 676 – Top 1197] prices reversed back and are now in intermediary upward trend.46 showing synchronization with price movement. 2006 triggering price trend reversal and buyat current levels.70 40 days: = 1060. Moving Averages :The stock is currently trading above all the important trading moving averages.62 Moving Average Channels: The stock on giving a close above 1070 levels has given a breakout above the moving averagechannel signaling buy at current levels. 60 .84 30 days: = 1078.65 100 days: = 991. The moving average rossover of 13 days & 40 days is observed on 22nd Dec. Relative Strength Index (RSI): RSI on falling to 34 levels in the profit booking mode bounced back to bull zone at 53.

Pitchfork: The stock have broken the upper arms and moved out (at 1072) of the corrective trend pitchfork signaling positive trend & buy at current levels. Oscillators: Osc (10.1040 Support: --.1066 – 1063 – 1057 – 1046 Resistance: --. Volumes:The stock is trading with lack luster volumes. indicating entry of short term traders. The stock is now moving towards the median of the major pitchfork which is around 1160 levels.1167 Stop Loss: --.35) are pulling back to zero from negative.25 Up 61 . Volumes should ideally expand for the advance togather steam.1087 – 1093 – 1115 – 1122 – 1156 2) INFOSYS TECHNOLOGIES LIMITED INFOSYS TECH Date Close Trend 12th February 2007 2351.70) trading favorably in positive zone indicating presence of long term traders. 27 Dec. 2006 On the basis of above analysis price movement can be projected as follows :Target : --. 2006 28 Dec. Osc (5.

3) CIPLA LIMITED CIPLA Date Close Trend Support Stop loss 12th February 2007 248. How to trade according to the data mentioned above If an entry is made in front of support and the close is above the support. it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below. Once you have bought the stock intraday. than we will leave the support or resistance field empty. it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below. If you are a slightly longer term investor. At close one should cover if one is an intraday trader. you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down. If you are a short term trader you may use the below paragraph information and play for small moves. If an entry is made in front of resistance and the close is less then resistance. If we do not find the stock giving clear signal for intraday trading. Once you have bought the stock intraday.Support Stop loss 2340 2317 Resistance 2380 The Trend refers to the daily trend of the stock and not intraday but one may trade intraday based on it. 62 . put the Stop Loss accordingly mentioned and sell it before the market closes. put the Stop Loss accordingly mentioned and sell it before the market closes.35 Not Clear 220 205 Resistance 260 How to trade according to the data mentioned above If an entry is made in front of support and the close is above the support. it means that ne can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below.

5) RANBAXY LABORATORIES LIMITED RANBAXY 63 . At close one should cover if one is an intraday trader. If you are a short term trader you may use the below paragraph information and play for small moves. If you are a slightly longer term investor.85 Down 355 390 347 How to trade according to the data mentioned above • • • If an entry is made in front of support and the close is above the support. it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below. than we will leave the support or resistance field empty. it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below. 4) BHARAT PETROLEUM CORPORATION LIMITED BPCL Date Close Trend Support Resistance Stop loss 12th February 2007 331. Once you have bought the stock intraday. it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below. than we will leave the support or resistance field empty. If an entry is made in front of resistance and the close is less then resistance. If we do not find the stock giving clear signal for intraday trading. put the Stop Loss accordingly mentioned and sell it before the market closes. you may go on holding the stock in long if trend is up or you may go on holding the stock in short position if trend is down.If an entry is made in front of resistance and the close is less then resistance. At close one should cover if one is an intraday trader. If we do not find the stock giving clear signal for intraday trading.

it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below. At close one should cover if one is an intraday trader. it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below. Once you have bought the stock intraday. Once you have bought the stock intraday. If we do not find the stock giving clear signal for intraday trading.15 Not Clear 360 420 350 How to trade according to the data mentioned above • • • If an entry is made in front of support and the close is above the support.Date Close Trend Support Resistance Stop loss 12th February 2007 409. put the Stop Loss accordingly mentioned and sell it before the market closes. it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below. If we do not find the stock giving clear signal for intraday trading. put the Stop Loss accordingly mentioned and sell it before the market closes. 64 . If an entry is made in front of resistance and the close is less then resistance.05 Down 810 795 Resistance 895 How to trade according to the data mentioned above • • • If an entry is made in front of support and the close is above the support. 6) TATA MOTORS LIMITED TATAMOTORS Date Close Trend Support Stop loss 12th February 2007 875. If an entry is made in front of resistance and the close is less then resistance. it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below. At close one should cover if one is an intraday trader. than we will leave the support or resistance field empty. than we will leave the support or resistance field empty.

If an entry is made in front of resistance and the close is less then resistance. put the Stop Loss accordingly mentioned and sell it before the market closes. it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below.85 Not Clear 1290 1280 Resistance 1370 How to trade according to the data mentioned above • • • If an entry is made in front of support and the close is above the support. than we will leave the support or resistance field empty. 8) MAHINDRA & MAHINDRA LIMITED M&M Date Close Trend Support Stop loss 12th February 2007 880. At close one should cover if one is an intraday trader. Once you have bought the stock intraday.80 Down 930 918 Resistance 980 How to trade according to the data mentioned above 65 . If we do not find the stock giving clear signal for intraday trading.7) RELIANCE INDUSTRIES LIMITED RELIANCE Date Close Trend Support Stop loss 12th February 2007 1358. it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below.

• • • If an entry is made in front of support and the close is above the support. than we will leave the support or resistance field empty. it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below. If we do not find the stock giving clear signal for intraday trading. 10) MARUTI UDYOG LIMITED MARUTI Date Close Trend Support 12th February 2007 912 Down 950 66 . than we will leave the support or resistance field empty. If an entry is made in front of resistance and the close is less then resistance. If we do not find the stock giving clear signal for intraday trading.70 Not Clear 1120 1105 Resistance 1170 How to trade according to the data mentioned above • • • If an entry is made in front of support and the close is above the support. it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below. At close one should cover if one is an intraday trader. Once you have bought the stock intraday. 9) STATE BANK OF INDIA SBIN Date Close Trend Support Stop loss 12th February 2007 1183. At close one should cover if one is an intraday trader. If an entry is made in front of resistance and the close is less then resistance. Once you have bought the stock intraday. it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below. put the Stop Loss accordingly mentioned and sell it before the market closes. it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below. put the Stop Loss accordingly mentioned and sell it before the market closes.

it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below. 67 . At close one should cover if one is an intraday trader. If an entry is made in front of resistance and the close is less then resistance. Once you have bought the stock intraday. it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below. put the Stop Loss accordingly mentioned and sell it before the market closes. than we will leave the support or resistance field empty.Resistance Stop loss 990 940 How to trade according to the data mentioned above • • • If an entry is made in front of support and the close is above the support. If we do not find the stock giving clear signal for intraday trading.

this study also suffers from some limitations. Any other error which could have crept in the course of the Project. 1. As the study depends on human perceptions so there are chances of study getting biased. 68 .CHAPTER-5 LIMITATIONS LIMITATIONS Like all studies based on samples. 4. 2 Error due to some oversight or misinterpretation. 3 The scope of study was limited due to some constraints.

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CHAPTER-6 CONCLUSION CONCLUSION RECOMMENDATIONS: 1) ACC.At current price it is not advisable to buy the stock. Reasons for not buying the stock: The stock is currently trading above all the important trading moving averages. 70 .

engines and transmissions for both. 2) INFOSYS TECHNOLOGIES.The moving average crossover of 13 days & 40 days is observed on 22nd Dec. for manufacturing passenger vehicles. The stock is trading with good volumes. at Pune. auto sector gives back Rs. Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat. to set up a new plant in Kharagpur 4) HPCL: Strengths: Favourable production – sale mix Entry on petrochemicals and gas sector will reduce dependence on R&M sector Second largest refining capacity and pipeline infrastructure in the industry Good presence in high demand regions of west and north India Growth potential: 71 .24(for every Re. The Company has also entered into a JV with Hitachi. Reasons: The stock is currently trading below all the important moving averages. 2006 triggering price trend reversal and buy at current levels..24 to the economy). domestic and international markets. Today. Volumes are ideal and are set to gather further steam.At current market price .1 invested. we should buy the share because of the following reasons: Since.2. 3) TATA MOTORS. Volumes should ideally expand for the advance to gather steam. The stock is trading with lack luster volumes.its advisable to buy the share. it is amongst the main drivers of growth of Indian economy with an output multiplier of 2.At current market price . 1991 opening of the economy has changed the face of auto industry.

Very low volumes plus twenty day moving average both indicate that it should not be held.Per capita energy consumption low in country Deficiency of coal will benefit oil and gas sector Growing domestic market for gas Overseas presence in upstream and downstream will determine growth 5) HDFC BANK: Growing stock and its advisable to invest in this stock for long term. 8) STATE BANK OF INDIA: Should be Sold. HDFC bank acquired TIMES BANK in 2001 which increased its customer base by 3 lakh customers. Total customer asset increased by 44. 72 . 11)RANBAXY PHARMACEUTICALS: Should be bought. Growth in net revenues of 42. Charts show good volume with positive uptrend. Being market leader it has best chances but high input costs are putting pressure on margins plus rising interest costs are going against the stock. Due to tight monetary policies it will remain under pressure.9% 6) JET AIRWAYS: We should not invest in the stock because of the following reasons: ATF (Aviation Turbine Fuel) prices and airport charges in India are among the highest in the world Regulatory and infrastructure bottlenecks have prevented accelerated growth in the industry 6) RELIANCE INDUSTRIES: Good stock for any Portfolio. 10)MARUTI UDYOG: Can be held. It has taken a sharp run in the last rally and now there is a dip in the volumes in the past. Very high GRM thus it will continue to produce Positive Cash Flow. Net profit up by 32%.2%.

Due to latest permission from USFDA FOR 180 Day exclusive marketing rights for its Diabetees molecule. Its participation in the last rally was not very significant but this USFDA news it appears is acting as a trigger. Volumes are increasing so it appears there is a upside left to this stock. 12)MAHINDRA & MAHINDRA: Should be held. In the auto pack it is one of the companies which can bear the rising input cost plus higher interest rates. Twenty day moving average plus it is around a very strong support so it seems that it can show a rally.

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CHAPTER-7 GLOSSARY

GLOSSARY
SECURITY ANALYSIS: stands for the proposition that a well-disciplined investor can determine a rough value for a company from all of its financial statements, make purchases when the market inevitably under-prices some of them, earn a satisfactory return, and never be in real danger of permanent loss. 74

FUNDAMENTAL ANALYSIS: is the analysis of a stock on the basis of core financial and economic analysis to predict the movement of stocks price. TECHNICAL ANALYSIS: is the study of prices and volume, for forecasting of future stock price or financial price movements. DOW JONES THEORY: The Dow theory is a method of interpreting and signaling changes in the stock market direction based on the monitoring of the Dow Jones Industrial and Transportation Averages. ELLIOT WAVES BASICS: Breaking through support or resistance levels results in a change of traders’ expectations SUPPORT: Support is a level at which bulls (i.e., buyers) take control over the prices and prevent them from falling lower. RESISTANCE: is the point at which sellers (bears) take control of prices and prevent them from rising higher ROLE REVERSAL: When a resistance level is successfully broken through, that level becomes a support level. Similarly, when a support level is successfully broken through, that level becomes a resistance level. BULL TREND: The start of an up trend is signaled when price makes a higher low (trough), followed by a rally above the previous high (peak) BEAR TREND: when a rally ends with a lower peak and then retreats below the previous low. The end of a bear trend is identical to the start of a bull trend. LARGE CORRECTION: A large correction occurs when price falls below the previous low (during a bull trend) or where price rises above the previous high (in a bear trend). MOVING AVERAGE: A moving average is the average price of a financial instrument over a given time. RELATIVE STRENGTH INDEX: The Relative Strength Index Technical Indicator (RSI) is a price-following oscillator that ranges between 0 and 100 ADVANCE/DECLINE LINE: The “advance/decline line” shows, for some period, the cumulative difference between advancing and declining issues. CLOSING TICK: “Closing tick” is the difference between the number of shares that closed on an uptick and those that closed on a downtick. CLOSING ARMS: “Closing arms” or “trin” (trading index) is the ratio of average trading volume in declining issues to average trading volume in advancing issues. Z-BLOCK TRADES: “zBlock trades” are trades in excess of 10,000 shares. HI-LO-CLOSE CHART: A hi-lo-close chart is a bar chart showing, for each day, the high price, low price, and closing price.

CANDESTICK CHART: A candlestick chart is an extended version of the hi-lo-close chart. It plots the high, low, open, and closing prices, and also shows whether the closing price was above or below the opening price POINT AND FIGURE CHARTS: Point-and-figure charts are a way of showing only major price moves and their direction. A “major” up move is marked with an “X,” while a “major” down move is marked with an “O.” A new column starts every time there is a change in direction

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BETA: Beta is a risk measure comparing the volatility of a stock's price movement to the general market. ASI is commonly used to confirm trend line breakouts on price charts. UPSIDE/DOWNSIDE: Measures of Upside/Downside separate the volumes for rising markets from those in falling markets. MOMENTUM: Momentum measures the speed of price change and provides a leading indicator of changes in trend. SWING INDEX: Is a swing or wave system used to capitalize on breakout patterns. Since volume is independent of price. ARMS INDEX (TRIN): Short term breadth indicator showing whether volume is flowing into advancing or declining issues. 76 . ODD-LOT: The “odd-lot” indicator looks at whether odd-lot purchases are up or down. it makes a valuable tool for measuring the quality of a price trend. technical analysts examine it for various formations or pattern types in an attempt to predict stock price or market direction in the case of head-and-shoulders formation.HEAD AND SHOULDERS FORMATION: Once a chart is drawn. SUPER BOWL: The Super Bowl indicator forecasts the direction of the market based on whether the National Football Conference or the American Football Conference wins. HEMLINE: Followers of the “hemline” indicator claim that hemlines tend to rise in good times.

“A Complete Guide to Technical Trading Tactics”. Fourth Edition 1998 77 . Ninth Edition (March 26. 2004) 2) Colby. Robert W. “Beyond Candlesticks” (John Wiley & Sons.CHAPTER-8 BIBLIOGRAPHY BIBLIOGRAPHY 1) John L. “The Encyclopedia of Technical Market Indicators” (Tenth Edition 2000) 3) Nison. Person. Steve. and Thomas A. Meyers. 1994).

.tradingday.com 78 .marketscreen. 1948). Klien. Alan J. 4) Geoffrey Poitras. Myers.4) Edwards. “Security Analysis and Investment Strategy” (2001) 5) Benjamin Graham and David Dodd. McGraw-Hill.com www.economictimes. 1999) 6) Erich A. Marcus ”Fundamentals of Corporate Finance” Third Edition. first edition. Robert D.B. Section A 9) Sharekhan. “Financial Analysis: Tools and Techniques” (2000) 7) Peter J. “Getting Started in Security Analysis” (April. “Fundamental Analysis: Which Company?” (October.icicidirect. Brealey. 2002) 8) Richard A.com www.com www.com www. Technical Analysis of Stock Trends (John Magee.indiainfoline.com www.nseindia. Stewart C. 1997.. Helfert.com www. “Security Analysis” (November.investopedia. and John Magee. 2004) WEBSITES: www. D.A.

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