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CHAPTER S.No NUMBER CHAPTERNAME PAGE NO.
THEORETICAL 3 III ASPECTS DATA ANALYSIS AND INTERPRETATION CONCLUSIONS 5 V AND FINDINGS 55 28
Indian Capital Market since liberalization has undergone tremendous changes and has evolved as a vibrant system of investment flows. A dynamic capital market is an important segment of the financial system of any country as it plays a significant role in mobilizing savings and channeling them for productive purposes. The efficient fund allocation depends on the stock market efficiency in pricing the different securities traded in it. The project has been divided into two parts- fundamental analysis and technical analysis. This has been done because it has often been said that an ideal trading system would be to use both fundamental and technical analysis in tandem prior to making an investment. The first part of the project deals with fundamental analysis and certain key macro economic variables that are important prior to making an investment. The first of these ratios is the market capitalization to GDP ratio which indicates the overall condition of the market. It is a ratio that is used to find out if the market is undervalued or overvalued. The second important ratio is the price to earnings ratio of Sensex, which indicates how much the investor is willing to pay per rupee earning of the company. The next part of fundamental analysis deals with Maslow‟s hierarchy of needs and its importance in making investment decisions. This part of the project deals specifically with the Indian population and where they lie on the Maslow‟s hierarchy of needs level. The second part of the project deals with technical analysis and its importance to generate buy and sell signals at key points. A One year study of 15 scrips is done using an important technical indicator i.e., Exponential Moving Averages through two different strategies to generate delivery based calls. Similarly, a one year study is done on Nifty 50 scrips to generate long and short calls for Delivery trading.
The most widely used charting system is still the bar charts as they are tried and tested in the Western countries.Objectives of the study 1. 3. implying that the moving averages are formed only after the price action is generated. Limitations of the study 1. To understand the importance of macroeconomic variables and analyze its effect on the Indian stock market 3. 4. . Hence a trader may lose out on profits if he uses only moving averages to buy and sell. To relate Maslow‟s hierarchy of needs and the economic situation of an emerging Indian market. Candlesticks are not yet widely followed in the Indian scenario. 6. 2. Moving averages cannot be used as a standalone indicator as it is a lagging indicator. 7. To understand and analyze the functioning of the capital markets 2. The time frame used for technical analysis was limited and hence developing a new trading system was difficult. The data for the key ratios like the P/E ratio and the Market capitalization to GDP ratios were not easily available. To study the trends in price movements of a stock using various tools of Technical analysis. Several indicators have to be used in tandem to generate an ideal trading system. 5. To analyze intraday trading using candlestick charting. 6. 4. 5. The technical indicators used by itself are not enough to generate the buy and sell signals. Availability of data for all the asset classes was limited. To forecast the future price movements using various technical indicators.
It constitutes the blueprint for collection. Research Design Research Design is the conceptual structure within which research is conducted. The design used for carrying out this research is Exploratory. One can also define research as a scientific and systematic search for pertinent information on a specific topic.Research Methodology Research in common parlance refers to a search for knowledge. measurement and analysis of data. Data type In this research the type of data used is Secondary data Data source The sources of collection of data are: Websites Books .
CHAPTER-II COMPANY PROFILE .
and then in Jul 1865. banks. which created a surge in retail investing. thus forcing them to find a place of their own. on whose building steps share brokers used to gather to seek stock tips and share news. which later turned into the Dalal Street. .INTRODUCTION TO THE INDIAN STOCK MARKET The Indian broking industry is one of the oldest trading industries that have been around even before the establishment of BSE in 1875 Inception. which led to the formation of a trust in 1887 known as the “Native Share and Stock Brokers Association” Beginning of a new phase. disallowed them to gather there. In the aftermath of the crash. what was then used to be called the share mania ended with burst of the stock market bubble. A group of about 300 brokers formed the stock exchange in Jul 1875. with the introduction of Foreign Exchange Regulation Act (FERA) that led to divestment of foreign equity by the multinational companies.The roots of a stock market in India began in the 1860s during the American Civil War that led to a sudden surge in the demand for cotton from India resulting in setting up of a number of joint stock companies that issued securities to raise finance. Bubble burst.A new phase in the Indian stock markets began in the 1970s. Growth supporting factors-The early 1980s witnessed another surge in stock markets when major companies such as Reliance accessed equity markets for resource mobilization that evinced huge interest from retail investors.The early stock market saw a boom till 1865. A new set of economic and financial sector reforms that began in the early 1990s gave further impetus to the growth of the stock markets in India.
the industry has found its way towards sustainable growth. electronic trading. The National Securities Depository Limited (NSDL) set up by leading financial institutions. . NSE was recognized as a stock exchange under the Securities Contracts (Regulations) Act 1956 in Apr 1993. The broad objectives of the SEBI includeo to protect the interests of the investors in securities o to promote the development of securities markets and to regulate the securities markets Incorporation of NSE. To work as a broker a certificate of registration from SEBI is mandatory after satisfying all the terms and conditions. The Depositories Act 1996 was passed that allowed for dematerialization (and of dematerialization) securities in depositories and the transfer of securities through electronic book entry. It commenced operations in wholesale debt segment in Jun 1994 and capital market segment (equities) in Nov 1994.NSE was incorporated in Nov 1992 as a tax paying company. since stock exchanges earlier were trusts. being run on no-profit basis. the first of such stock exchanges in India. 1992.the Securities and Exchange Board of India (SEBI). A stock Broker is a regulated professional who buys and sells shares and other securities through market makers or Agency Only Firms on behalf of investors. To speed the securities settlement process. greater transparency in price discovery and process driven operations that had significant bearing on further growth of the stock markets in India. commenced operations in Oct 1996. Despite passing through a number of changes in the post liberalization period. The setting up of the National Stock Exchange brought to Indian capital markets several innovations and modern practices and procedures such as nationwide trading network. Setting up of SEBI. which was set up in 1988 as an administrative arrangement. was given statutory powers with the enactment of the SEBI Act.
NEED OF A BROKER A broker is a person or firm that facilitates trades between customers. however. in which they are bought and sold in standardized contracts. The membership in the stock exchange can be granted as individual membership and corporate membership. You need to deposit money with a banker to an issue if you are subscribing to public issues. does not assume any risk for the trade. the derivatives markets are the financial markets for derivatives. A broking firm acts as an intermediary between NSE and Client. One gets guidance if you are transacting through an intermediary. The broker does. in doing so. The market can be divided into two that for exchange traded derivatives and that for over-the-counter derivatives. Stock Brokers come under the category of Market Players. For example one needs to transact through a trading member of a stock exchange if they intend to buy or sell any security on stock exchanges. or fixed income market) is a financial market where participants buy and sell debt securities. It is advisable to conduct transactions through an intermediary.FINANCIAL MARKETS The financial markets have been classified as Cash market (spot market) – largest traded. One needs to maintain an account with a depository if they intend to hold securities in demat form. credit. NSE BROKER CLIENT . charge a commission. A broker acts as a go between and. the spot market or cash market is a commodities or securities market in which goods are sold for cash and delivered immediately. These raw commodities are traded on regulated commodities exchanges. Derivatives market – after cash market. Commodity markets are markets where raw or primary products are exchanged. Commodities market – after commodities market.The bond market (also known as the debt. Debt market .
10. Bhubaneswar 214 Calcutta 957 204 21.44 157 48. 2008) Sn No.90 3 2.91 213 56.08 4. 3.95 9. Delhi 374 Gauhati 103 ISE interconnecte d 935 345 36. 6. Coimbatore 135 48 35.39 7.The market intermediaries play an important role in the development of Securities Market by providing different types of services. of Stock Brokers No. There are two major stock-exchanges NSE (composition of 50 stocks) and BSE (Composition of 30 stocks). . Exchange-wise Stock Brokers Registered with SEBI (As on March 31. Ahmedabad 321 Bangalore 256 124 48.56 8.91 2. Stock Exchange Total No. Cochin 435 80 18.32 19 8. Bombay 946 767 81.88 5. of Corporate Brokers Corporate Brokers As A % of Total Stock Brokers 1.
11. 17.129 OTCEI 719 551 76.54 85 28.63 1. NSE 1. Pune 188 55 29. Ludhiana 297 Madhya Pradesh 174 34 19.69 12. Madras 181 71 39. Jaipur 488 18 3. 14.62 13. Vadodara 311 64 20.26 18.039 92. UPSE 354 78 22.58 .03 19.23 15.03 16.
SNAPSHOT Approach Client Focus. Research Driven Aim Building long term relationships with the clients and equipping the clients about the market knowledge so that they can address the day by day fast growing opportunities. Culture. distribution of financial products. research services. covers over 200 stocks across 19 sectors that accounts for about 70% of the total market capitalization . model of employee ownership. Culture Entrepreneurial and result driven emphasizing confidentiality and integrity Operations Stock broking. trying to be innovative and imaginative. USP The single minded focus on thought leadership and relentless pursuit of the „new‟ and „different‟ is it in products. The policy of the company ensures transparency and greater opportunities for all its clients. Rashesh Shah and Mr. Edelweiss strives to be a thinking organization. Execution orientation. 47 per cent of its revenue is from treasury and wholesale financing Research (POD) 90 researchers. and proprietary trading.AN INTRODUCTION TO EDELWEISS Edelweiss capital was started by two IIM graduates Mr. Professional Integrity. depository services. The Company is operating in India as an Integrated Investment Banking Company. Venkat Ramaswamy. services or people.
500 crore (Rs 55 billion). with a focus on large and medium cap stocks.Offices Operates from 56 offices in 21 Indian cities.edelweiss. which covers approximately 50 . 141 crore in FY08 from Rs. www.60 companies within 6 industry categories.edelcap. The company‟s Equities Broking division has now expanded to include 215 stocks in 19 sectors accounting for 70 percent of market capitalization Alternate Asset Management‟s total asset value currently stands at $625 million Wholesale Financing division soared to Rs. Equity Base.in HIGHLIGHTS EBL has a strong equity research team.com. enjoying a healthy 5% plus market share in the institutional broking segment .www. employs over 1600 employees Major clients ESL focuses on the wholesale equity segment. providing broking services to Institutional and corporate clients and high net worth individuals Market Capitalization.over Rs 2. 7 crore in the previous year Edelweiss is amongst the largest institutional broking firm.Rs 5.000 crorer Website.
which will broaden and strengthen its entire institutional business Asset base of over INR 800 cr. which specializes in providing a wide range of financial products and services such as investment banking. and wholesale finance. Mutual Funds. institutional . BSE: 532922. especially in areas like investment banking. Edelweiss is also in the process of widening its product portfolio by penetrating into product specific and sector specific niches. Is well positioned to leverage the growing financial sector in India and become a significant market player.IN NSE: EDELWEISS. In lending business It is empanelled with over 40 leading FIIs.Mr. 2008 Ranked among the top ten players in Annual Bloomberg and Annual Thomson. Raskesh Shah Well respected Brand with strong position in relevant market segments STRENGHTS OF THE COMPANY Has an integrated business model. institutional equities. FIs. Awarded as “Best Merchant Banker” by the Outlook Money NDTV Profit Awards. wealth management.Reuters Present Chairman and CEO. Banks and Insurance companies Listing in various stock exchanges Bloomberg: EDEL.
equities etc. catering to institutions and HNWIs and retails. 2008. The company is making a shift from ESL (Edelweiss Securities limited) to EBL (Edelweiss Broking Limited). . On the other hand alternative research utilizes quantitative techniques to identify short term and medium term investment opportunities in the capital market The company has a strong internal controls and risk management system employed throughout the firm to access and monitor risk across various business line. such as fundamental and alternative research. It is offering an online platform to the clients which will increase transparency and make business hassle free for the clients. The Risk exposure is monitored and controlled through a variety of separate but complementary financial. The fundamental research covers ~190 companies which represent ~69% of the market capitalization of all the companies listed on BSE as on August. credit and operational reporting system Is an established brand with strong track record of high growth and profitability? Is strongly focused on nurturing & maintaining strong business relationships with corporate & institutional clients Well positioned to utilize the immense opportunities in the Indian financial sector RECENT APPROACH Edelweiss is a premium broking firm whose targets were only HNWI clients. Has a strong research platform with research products. The company is providing the same research facility to its retail clients as it provided to its premium clients. But seeing the opportunity in retail sector it has forayed into it.
salestrading. Private Client Brokerage These services are targeted at high net worth and other individuals who actively invest and trade in the equity market. Wealth Management Wealth management involves providing investment advisory. planning & asset deployment services to high net-worth individuals. THE PRODUCTS AND SERVICES OFFERED BY EDELWEISS ARE AS FOLLOWS:Capital based Agency based SERVICES Recent initiatives/high growth areas Investment Banking: This includes services such as M&A advisory. Asset Management This involves both asset management as well as investment advisory services. . and infrastructure. real estate. The company is repositioning itself from a niche marketer to a mass marketer and is aiming at Brand Repositioning. Institutional Equities Edelweiss‟ Institutional equities business comprises institutional equity sales. Under this. equity markets. and research. transaction execution relating to structured finance. the company advises three funds with an aggregate corpus of over USD 330 mn.Thus the company is customer focused and protects the wealth of its customers through its innovative ideas.
PRODUCTS Advisory Based Broking (ABB) – an asset management service.Insurance Brokerage Edelweiss has also entered the non-life insurance brokerage business as an IRDA registered broker in 2005 and it distributes insurance products through its subsidiary. Margin FundingThe Company provides funds to people who wish to invest large amount in stock market but are lacking in fund. This is done through a subsidiary. or to . The company has a policy of „hair cut‟ which means that the assets that are kept as securities. This is to save the company from loss as company has those stocks in the list that are less volatile and whose market value is good. they are valued less than their original price. and loans against mutual fund units. Structured Product As such. Wholesale financing Wholesale business provides the high net worth individual and corporate clients with facilities such as loans against shares. ECL Finance Limited. as part of the asset allocation process to reduce risk exposure of a portfolio. Fund is provided for investing in only those stocks that are listed in the stock broker‟s list of the company. structured products were created to meet specific needs that cannot be met from the standardized financial instruments available in the markets. Fund is provided against securities. Structured products can be used as an alternative to a direct investment. Treasury The internal treasury operations manage the excess capital funds by investing the same in low risk strategies to achieve risk-adjusted returns. Edelweiss Insurance Brokers Limited. loans to finance IPO subscriptions.
So it is just like a bank account where actual money is replaced by shares.utilize the current market trend Mutual Fund This is a product offered by the company that takes money from the investors and invests it in the stock market on their behalf as customers are not fully aware of the stock market. As one buys and sells the shares. they are adjusted in their account. One has to approach the DPs. to open his demat account. Arbitrage Arbitrage. It is necessary to sell and buy stocks. Customers are advised where they should invest their total investment savings. Demat account It refers to Dematerialized Account. Insurance Another product offered by the company in which the agent gets commission on every insurance policy done by him.This product invites public to participate in the bidding process. They take money from many customers and collectively invest in the stock market.this product comes under wealth management. Initial Public Offering (IPO) . So one doesn‟t have to possess any physical certificates showing that you own these shares. involves buying and selling a security and taking advantage of prices differences that may exists on different markets. the DP . this does happen from time to time Portfolio Management Services. or true arbitrage. They are all held electronically in the account. Just like a bank passbook or statement. While rare.
MCX for metal products and NCDEX for agricultural products.In this market metals and agricultural products are traded. Commodity market.provides with periodic statements of holdings and transactions. CLIENT REVENUE MIX Institutional/corporate client individual clients CLIENT REVENUE MIX Institutional/corporate client individual clients 22% 78% institutional clients corporate clients .
Products. asset classes and client segments. . The popular products are wholesale financing. It basically focuses on HNWI clients. From the asset side it gets fixed income and is also into real estate. financial product distribution etc. and now it has come into the retail segment which is its source of growth.GROWTH STRATEGY The Company‟s growth areas are basically across three categories.
Projected Earning Growth (PEG) . Earnings per Share 2. Industry sector analysis. The primary assumption of fundamental analysis is that the all the factors are not discounted in the current market price. Hence if the market value at present is lower than its intrinsic value. 3. Valuation Fundamental Analysis Tools There are several tools used for fundamental analysis. Price to Earnings 3. Fundamental analysis also assumes that the market will reach its true intrinsic value in the long term and hence the market value and the intrinsic value will reach equilibrium. 2. commodities and indices. Financial analysis of the company. 5. then it is good time to invest and vice versa. which involves the analysis of companies that are a part of the sector. Macroeconomic analysis. 4. Some of the most popular are: 1. which involves considering currencies. The steps involved in fundamental analysis are: 1.INTRODUCTION Fundamental Analysis Introduction to Fundamental Analysis Fundamental analysis is a process of looking at a business at the basic or fundamental financial level. Situational analysis of a company. There is something called the intrinsic value of the stock which is its true value.
Price to Book (P/B) 6. market capitalization of an index is calculated by adding the individual market capitalization of the companies in the index. Free float market capitalization is defined as that proportion of total shares issued by the company that are readily available for trading in the market. Price to Sales (P/S) 5. Return on Equity (ROE) 10. government holding. It excludes promoter‟s holding. etc. Free float market capitalization method is used to calculate the market capitalization of SENSEX.Market capitalization of a company is determined by multiplying the price of its stock by the number of shares issued by the company. Book value 9. Gross Domestic product . Ratio analysis Stock Market Capitalization to GDP ratio Market Capitalization . Dividend yield 8. Dividend Payout ratio 7. GDP = C + I + G + NX C – Consumption expenditure I – Investment expenditure G – Government expenditure NX – Net exports = Exports –Imports .GDP is defined as the total market value of all final goods and services produced within the country in a given period of time.4. Similarly.
Warren buffet said that if the ratio is around 80% it is a good time to invest and if it is more than 200% then it is better to stay away from investing in that market. Usually a value of over 100% indicates that the market is overvalued and best not to invest.Stock Market Capitalization to GDP ratio . . A value of below 100% is considered undervalued and hence the right time to invest.The stock market cap to GDP ratio is used to measure whether a market is overvalued or undervalued.
Calculation of the ratio .It is calculated as: Quarterly Stock Market Capitalization to GDP ratios of India Year Q1 Q2 Q3 Q4 YearQ1 Q2 Q3 Q4 Table 1.2: Quarterly Market Cap to GDP ratio .
or it can be applied to the world market depending on what values are used in the calculation. Indian markets were trading near this ratio in March 2009 (when the downward rally started). The ratio can be used to focus on specific markets. And as we stand currently. the average market cap to GDP number over the past 2 decades has been 52%. such as the Indian market. the markets are back at almost their 2008 peak.Changes in Stock Market Capitalization to GDP ratio Analysis of the ratio The Stock Market capitalization to GDP ratio is used to determine whether an overall market is undervalued or overvalued. As the chart above suggests. This statistic can be observed in the graph as well. the market capitalization of the BSE crossed the country‟s domestic GDP. where the market capitalization to GDP ratio crossed 1 for the first time. . For the first time in India‟s history. for India.
EPS is calculated as the net earnings divided by the outstanding shares. . Significance of the ratio . If the P/E of the company is higher than the P/E of the industry it means that the market is expecting some positive events from the company as far as earnings are concerned. The P/E ratio also tells us how much the market is willing to pay the investor per rupee earning of the company. If the EPS is calculated based on the net earnings of the previous four quarters. If the EPS is calculated based on the estimated earnings of the next four quarters.As per Buffett. the markets are in the overvalued zone where odds of investing are not in the favor of investor.The price to earnings ratio is an important indicator used by several fundamental analysts. The P/E ratio is calculated as P/E= Stock price/Earnings per share The stock price is the current market value of the stock. Hence there are types of P/E ratio. The P/E of a company tells us how much the investor is willing to pay. It could mean that the company is outperforming the market and hence is overheated or it could mean that there are some positive events associated with the company and hence a good time to invest. The EPS can be calculated in three ways. Sometimes the EPS is calculated using the net earnings of the previous two quarters and the next two quarters. a 70-80% range on this ratio indicates that markets are somewhere between moderate valuation and fair valuation. it is called a forward P/E. One method is to compare the P/E of the company to the industry P/E. based on the earnings of the company. This can be interpreted in two ways. The second method to read the P/E is to compare the P/E of the company with its competitors in the same industry.The P/E ratio cannot be the only indicator to base one‟s investment. There are two ways to read the P/E ratio. This gives a general idea as to whether the stock price is undervalued or overvalued. it is called trailing P/E. Price To Earnings Ratio of the SENSEX P/E ratio . If the ratio exceeds 115%.
Quarterly P/E ratios of SENSEX YEAR Q1 Q2 Q3 Q4 Sensex .
The P/E of the Sensex as of June 2010 is 20.20 levels which is good P/E for a growing economy. This when compared to the emerging and developed market is quite high. It has been relatively stable from then on shifting between 15.5. . the P/E ratios of the major indices are between 12 and 17.Movement of SENSEX Changes in the P/E ratios Analysis of the ratio The P/E ratio of the BSE Sensex had been fluctuating till 1994-95. Except the US Nasdaq.
is the first level of higher level needs. financial security. etc. They include food.Analyzing India Using Maslow’s Hierarchy of Needs Physiological needs. water. achievement. The first two are internal esteem needs where as the last three are external esteem needs. insurance. Social needs. etc. belonging to a group. Esteem needs. etc. Social needs are those related to interaction with others and they include friendship.Once basic needs are satisfied the attention turns to safety and security needs of the individual. The esteem needs include self-respect. attention. .This.These are the basic needs that are required to sustain life. air. Safety needs.Esteem needs can be internal esteem needs or external esteem needs. According to Maslow‟s theory. if these fundamental needs are not satisfied then one will surely be motivated to satisfy them. Higher needs such as social needs and esteem needs are not recognized until one satisfies the needs basic to existence. according to Maslow‟s. job security. recognition and reputation. The various safety and security needs include housing security.
It is the quest of reaching one‟s full potential as a person. The needs associated with self-actualization include truth. wisdom.Self-actualization is the summit of Maslow‟s hierarchy of needs. etc. justice. .Self-actualization.
CHAPTER-III THEORETICAL ASPECTS .
3% Average age: 24. Background Facts Population: 1. Through the findings. The growth patterns of the Indian economy are an indicator of not just the economic scope in the country but societal pattern as well. which may support the positioning of the Indian people on Maslow‟s Hierarchy of Needs. From 1991 – when the economic reforms began – till 2000 end. India‟s economic growth has been slow compared to the levels achieved by the other Asian economies in the past. From the mid 1980s to 1991.6% 65 & above – 5. India‟s GDP per capita has grown at 4. Up to the early 1980s.6% a year.INTRODUCTION Despite the economic reforms of 1991. GDP per capita grew at only 1.9 years Poverty: The following figures show the percentage of population below poverty line 2000 – 26% 2006 – 22% . Subsequent passages show examples from the demographics of the country which may support this position of the Indian population on the Hierarchy of Needs.6% a year. it seems most probable that India has the majority of its population lying in the Security and Social Needs of Maslow‟s Hierarchy.18 Billion Demography (Age): 0-14 years – 31.2% a year. The further study analyses specific indicators of the Indian economy relative to the GDP growth. Currently the growth rate hovers around 6% to 9%. GDP per capita grew to around 2.1% 15-64 years – 63.
Literacy: 2001 . The literacy rates of India are unimpressive at a mere 61% and have decreased over the years. This by itself can lead to an assumption that the majority of the population fall in the Security and Social needs of Maslow‟s Hierarchy. From 26% in 2000.61% Infant Mortality rates: 2007 – 34. The decreasing mortality rates and increasing life expectancy show that healthcare in India has been bettering over the years.15 per 1000 babies Life expectancy: 2006 – 63 years 2009 – 69.38% 2007 . As such. which further substantiates the finding.89 years Findings The demography pattern of India shows that the majority of the population lies in the 15 – 64 years age bracket.8% 2009 . .64. which is not a promising sign.65. The poverty figures have been declining over the years. the population below the poverty line by 2006 estimates dropped to 22%. If we look at the average age of the population we notice that India is by and large a young nation.31 per 1000 babies 2009 – 30.61 per 1000 babies 2008 – 32. need substantial improvement. even on the healthcare front Security needs of the Indian people even though improving.
Also a majority of the population fall under the 15-64 years age bracket which substantiates the finding that majority of the Indian population lie in the Social and Security needs of Maslow‟s hierarchy. The insurance sector is still highly untapped. more than half of the population own mobile phones. sleeping. The average is 103 sq ft per person in rural areas and 117 sq ft per person in urban areas. more impetus on rural education and finally more investment in the rural household sector.9 years and hence by and large a relatively young population. this does not indicate that the majority of the population may have surpassed the social needs status on Maslow‟s hierarchy. . However. Though the number of companies providing insurance is being increasing but the contrasting fact is only 1% of the population is insured for life. the Indian people are addressing their social needs as well. On the telecommunications front. It may then be inferred that most of the population are somehow satisfying the physiological need of housing. What this indicates is that the Indian government needs to address the security needs of the Indian population through more reforms in the insurance sector. Analysis From the GDP growth it can be understood that India is an emerging growing economy. cooking. The average age of the Indian population is 24. In absolute numbers this translates into 600 million mobile users in the country. In comparison.Other examples corroborating the findings The following specifics of India have been used to substantiate our findings: Household Insurance Telecom A majority of Indians have per capita space equivalent to or less than a 10 feet x 10 feet room for their living. washing and toilet needs. land lines are only a meager 150 million. Consequently we assume that with the shift of preference to mobile phones over the years.
index based derivatives and to evaluate the overall performance of the nation‟s stock market over time. These 30 companies account for a half of the total market capitalization of BSE. To further confirm the above findings it is important to note that only 1% of the population is insured for life and 0. Started since 1986. The fact that a large section of the population are still struggling to meet their security needs cannot be ruled out. I would also like to add that though most of the Indian people are carrying cell phones with them. On plotting the daily closing values of Sensex and Nifty for about last three and a half years (2nd Jan 2007 to 31st May 2010).2% is covered under mediclaim. Correlation between SENSEX and Nifty SENSEX is the sensitive Index of Bombay Stock Exchange (BSE). with the hypothesis that SENSEX is independent variable and . Indian population is trying to fulfill their security needs. albeit inconclusively. they cannot be placed on the social needs of Maslow‟s hierarchy. Hence it may easily be concluded that Indians lie on the Security needs stage of the Maslow‟s hierarchy. The poverty figures indicate that 22% of the population is struggling to address their physiological needs. With the increasing number of insurance companies. NIFTY is Standard & Poor‟s CRISIL NSE Index 50. that not more than 5% of the population of India has passed the social needs stage. The research also led me to believe. nifty is most widely used for benchmarking index funds. is the index for large and financially sound companies whose stocks are being traded on National of National Stock Exchange (NSE) of India. India. Only about 30% of the population is urbanized and hence this further substantiates the findings that majority of the population falls in the security needs of Maslow‟s hierarchy. a Market Capitalization Weighted average of 30 large and financially stable companies‟ BSE stock prices.The last of the three is substantiated by the fact that the poverty figures in India are very disheartening and there is an urgent requirement from the government to spend heavily on the rural household sector. SENSEX is monitored by most of the global markets as well. Started since November 1995.
the BSE is the oldest stock exchange in Asia and has its own history. their performance/daily movement is almost identical. because both the curves fit very well and mostly give identical information. The inference from above mathematical analysis is that even though both indices belong to separate markets. . The market Capitalization of NSE is almost twice of BSE. by performing ANOVA or Analysis of variables test in MS-Excel. Hence. which has a totally different role. the coefficient of correlation or R-square comes out to be 85% and the hypothesis proves to be correct with 95% confidence. Even though the competition is healthy for any company to emerge stronger. provide more value added services and work smarter. not even the SEBI is an intermediary between the two. which can be spotted visually as well. no one. So. as it‟s a regulatory authority to watch and control the legal and ethical aspects of the market and protect the interests of shareholders. it becomes totally unhealthy and destructive when there are price wars and a red ocean causing them to put their riches in advertising and other undue marketing/brand building expenses. The war between the two has intensified due to the ever rising competition between NSE and BSE. Both of them have their own USPs. the only common link between them now is SEBI. The fact that both are having many independent powers & separate entities worsens the situation. intensifying the competition between them to become the preferred exchange for top companies. thereby.Nifty is dependent on SENSEX. but.
the choice is based only on convenience and not on the performance. There are three premises on which technical analysis is based. downtrend and sideways trend. it doesn‟t matter at all. 3) History repeats itself . the term market action includes three sources of information. there will be hardly any difference in both indices. Hence a technical analyst will only study the price action and not the reasons behind the change in the price. for the purpose of forecasting future price trends. whom to track? Whom to believe and follow? Which of them is a better indicator of the market? Who is better in improving the Indian stocks? Ironically. Both SENSEX and Nifty are well diversified and contains many similar companies‟ stocks. So. Open interest is used only in futures and options.The meaning of the phrase history repeats itself is that the key to understanding the future lies in the study of the past. Technical Analysis Introduction to Technical Analysis Technical analysis is the study of market action.Anything and everything that affects the price is actually reflected in the price of that market. There is a definite difference in scale or magnitude. after scaling and equalizing both to similar bases. primarily through the use of charts.So. For technical analysts. The global markets prefer SENSEX because that was the only option with them earlier and they don‟t want to switch to other without any clear reason for that sudden change. They are price. 2) Prices move in trends . They are 1) Market action discounts everything . even though Nifty has got 20 more companies. . volume and open interest. They are uptrend. So. both SENSEX and Nifty moves in the same direction and the trend seems like totally correlated. but. The assumption of technical analysis is that a trend in motion is more likely to continue than reverse or a trend in motion will continue in the same direction until it reverses. that‟s 67% more variety. or that the future is just a repetition of the past.There are three types of trends.
The relationship between prices and volume (e.Usually the following tools & instruments are used to do the technical analysis: Price Fields Technical analysis is based almost entirely on the analysis of price and volume. It is the point at which there were more buyers than sellers (i. the Close is the most often used price for analysis.g. . The fields which define a security's price and volume are explained below.e. Due to its availability. The relationship between the Open (the first price) and the Close (the last price) are considered significant by most technicians. or expired) of a future or option." High . Open Interest . the first trade of the day). there are always buyers willing to buy at lower prices. Volume .e. the Open is especially important as it is the consensus price after all interested parties were able to "sleep on it. Close . Open . the price you will receive if you sell).This is the number of shares (or contracts) that were traded during the period.This is the price of the first trade for the period (e.. Low .g. but the Low represents the lowest price sellers were willing to accept).This is the total number of outstanding contracts (i.This is the price a market maker is willing to pay for a security (i. When analyzing daily data. closed.e.This is the highest price that the security traded during the period.. those that have not been exercised.This is the last price that the security traded during the period. there are always sellers willing to sell at higher prices..This is the lowest price that the security traded during the period.. This relationship is emphasized in candlestick charts. increasing prices accompanied with increasing volume) is important. Open interest is often used as an indicator..e. but the High represents the highest price buyers were willing to pay). It is the point at which there were more sellers than buyers (i. Bid ..
e. Candlestick Chart. Chart Styles Price in a chart can be displayed in following styles: 1. . the price you will pay to buy the security). 2. 1) Bar Charts: The highs and lows of a stock are plotted in a diagram and the points are joined with vertical lines (bars). 3. Line Chart.This is the price a market maker is willing to accept (i. Bar Chart. A small horizontal tick to the left denotes the opening level while a small horizontal tick to the right represents the closing price of each interval..Ask .
official fixings. but can also work with daily. A candlestick is black if the closing price is lower than the opening price. A candlestick is white if the closing price is higher than the opening price.2) Line Chart It gives the detailed information about every aspect. Prices on the y-axis and time on the x-axis. there is one important distinction: candlestick charts are far more dramatic in their presentation. . Instead of the standard high-to-low vertical lines accompanied by horizontal ticks that identify the day's open and close. The line chart chooses for example the closing price of consecutive time periods. The stock prices for each time period are plotted in a diagram and the points are joined. candlestick charts employ twodimensional bodies to depict the open-to-close trading range and upper and lower stems (or shadows) to mark the day's high and low. 3) Candlestick Chart Although candlestick charts are nearly identical to typical Western bar charts.
Candlestick Patterns Bullish Patterns 1) Long white (empty) line. it is called a Hanging Man. .e. This is a bullish line if it occurs after a significant downtrend. The body can be empty or filled-in. 3) Piercing line.. This is a bullish pattern and the opposite of a dark cloud cover. If the line occurs after a significant up-trend. It occurs when prices open near the low and close significantly higher near the period's high 2) Hammer. and close). The second line opens lower than the first line's low. the low is significantly lower than the open. but it closes more than halfway above the first line's real body. The first line is a long black line and the second line is a long white line. This is a bullish line. high..e. A Hammer is identified by a small real body (i. a small range between the open and closing prices) and a long lower shadow (i.
this pattern usually indicates a reversal following an indecisive period. 5) Morning star. The first line can be empty or filled in. It occurs when a small bearish (filled-in) line is engulfed by a large bullish (empty) line.e. 6) Bullish doji star. A "star" indicates a reversal and a doji indicates indecision. it acts as a reversal pattern).. The "star" indicates a possible reversal and the bullish (empty) line confirms this. as in the morning star. You should wait for a confirmation (e. . This pattern is strongly bullish if it occurs after a significant downtrend (i. Thus.. above) before trading a doji star. The star can be empty or filled-in. This is a bullish pattern signifying a potential bottom.g.4) Bullish engulfing lines.
it acts as a reversal pattern). These lines are bearish if they occur after a significant uptrend. They are identified by small real bodies (i.. This is a bearish pattern. and close). It occurs when a small bullish (empty) line is engulfed by a large bearish (filled-in) line. The pattern is more significant if the second line's body is below the center of the previous line's body (as illustrated).e.Bearish Patterns 1) Long black (filled-in) line.. The bodies can be empty or filled-in.e.e. 4) Bearish engulfing lines. . the low was significantly lower than the open. 3) Dark cloud cover. This pattern is strongly bearish if it occurs after a significant uptrend (i. it is called a Hammer. If this pattern occurs after a significant downtrend. high. This is a bearish line. It occurs when prices open near the high and close significantly lower near the period's low 2) Hanging Man. a small range between the open and closing prices) and a long lower shadow (i..
. 6) Shooting star. This pattern suggests a minor reversal when it appears after a rally. This is a bearish pattern signifying a potential top. high. this pattern usually indicates a reversal following an indecisive period. The star can be empty or filled in. . and the range between the high and low is relatively large. Thus. The star's body must appear near the low price and the line should have a long upper shadow. It occurs when the open and close are the same. It occur when the open and close are the same. This line often signifies a turning point. A star indicates a reversal and a doji indicates indecision. and the low is significantly lower than the open. as in the evening star illustration) before trading a doji star. 5) Doji star. 2) Dragon-fly doji.5) Evening star. The "star" indicates a possible reversal and the bearish (filled-in) line confirms this.g. This line also signifies a turning point. Reversal Patterns 1) Long-legged doji. You should wait for a confirmation (e. and closing prices.
This line also signifies a turning point. low. You should wait for a confirmation (e. close.g. 4) Star. It occurs when the open. Thus. A star indicates a reversal and a doji indicates indecision. The shadows may overlap. Stars indicate reversals. 5) Doji star. and closing prices. . this pattern usually indicates a reversal following an indecisive period. as in the evening star illustration) before trading a doji star. A star is a line with a small real body that occurs after a line with a much larger real body. and the high is significantly higher than the open. and low are the same. where the real bodies do not overlap.3) Gravestone doji..
The security opened and closed at the same price. 3) Harami ("pregnant" in English). This implies a decrease in the bullish momentum. except the second line is a doji (signifying indecision).Neutral Patterns 1) Spinning tops. 2) Doji. This pattern indicates a decrease in momentum. This line implies indecision. a bullish (empty) line with a long body is followed by a weak bearish (filled in) line. They occur when the distance between the high and low. It occurs when a line with a small body falls within the area of a larger body. and the distance between the open and close. The pattern is similar to a harami. In this example. . This pattern also indicates a decrease in momentum. Double doji lines (two adjacent doji lines) imply that a forceful move will follow a breakout from the current indecision. These lines can appear in several different patterns. 4) Harami cross. These are neutral lines. are relatively small.
CHAPTER-IV DATA ANALYSIS AND INTERPRETATION .
But I have chosen to highlight the following indicators as I have used some of these further in the project. Its purpose is to track the progress of the trend.The moving average essentially a trend following indicator or a lagging indicator as it is formed after the price movement occurs. Larry William‟s % R 4. Moving average Convergence Divergence (MACD) 5. Its purpose is to identify or signal that a new trend has begun or that an old trend has ended or reversed. . 1.Key Technical Indicators There are several indicators that are used in technical analysis. Fibonacci tools 1) Moving average . Relative Strength Index (RSI) 3. Moving average 2.
the 9th day with 9.There are two ways to analyze moving averages. One is a shorter moving average and the other a longer moving average. when the price line moves below the moving average. The advantage of using exponential moving averages is that it reacts quicker to the price movement than a simple moving average. the 10th day closing price is multiplied with 10. a sell signal is generated. a sell signal is generated. When the shorter moving average crosses above the longer moving average.The exponential moving average assigns greater weight to more recent data and it includes in its calculation all of the data in the life of the instrument. Analyzing moving averages . They are a) Simple moving average . The disadvantage of the simple moving average is that it reacts slower to the price movement when compared to an exponential moving average.There are three types of moving averages that are used by technical analysts. a buy signal is generated.It is calculated by taking the average of the previous 10 or 15 closing prices. When the price line moves above the moving average. a buy signal is generated. They are as follows: a) Single moving average and price . The greater weight is given to the most recent closing. the weight given for the 10th day closing price is the same as the weight given for the 1st day closing price. Conversely.In this type of moving average weights are given in a linear proportion to each day‟s closing price i. b) Double crossover method . .In this case two moving averages are used. b) Linearly weighted moving average .e. c) Exponential moving average . and so on. when the shorter moving average crosses below the longer moving average. in a 10 day simple moving average.A single moving average is used to generate buy and sell signals. The weights given to each day is the same i.e. Conversely.
the 80 level usually becomes overbought level in bull market and the 20 level the oversold level in bear market. A ratio of a stock or industry group to the Sensex is one way of gauging relative strength of different stocks or industry groups against one objective benchmark. . Relative strength index solves the problem of erratic movement and the need for constant upper and lower boundary.RSI is plotted on a vertical scale of 0 to 100. Because of shifting that takes place in bull and bear market.2) Relative Strength Index (RSI) . The formula used for calculating RSI is RSI=100-100/1+RS RS=Average of x days’ up close/ Average of x days’ down close Chart 2.Relative strength generally means a ratio line comparing two different entities. Movements above 70 are considered overbought while an oversold condition would be move under 30.6: Illustration of RSI Analyzing Relative Strength Index .
In technical analysis this is a momentum indicator measuring overbought and oversold levels. The faster line is the difference between two exponential moving averages (usually 12 and 26). 4) Moving Average Convergence Divergence (MACD) .7: Illustration of William’s % R Analyzing William’s % R .Larry William‟s % R measures the latest close in relation to its price range over a given number of days. A reading over 80 usually indicates a stock is oversold.The William‟s % R produces values from 0 to -100. while reading below 20 suggests a stock is overbought. Today‟s close is subtracted from the price high of the range for a given number of days and that difference is divided by the total range for the same period. . Chart 2. It is used to determine market entry and exit points. One is called the faster line and the other the slower line. It is also called the MACD line.3) Larry William’s % R .MACD is comprised of two sets of line.
8: Illustration of MACD Analyzing MACD . It is also called the signal line.Fibonacci tools utilize special ratios that naturally occur in nature to help predict points of support or resistance. 2. Hence it is very similar to the double crossover method of moving averages. 55. 89. An oversold condition is when the lines are well below the zero line and hence indicating a buy signal. The logic most . 5. 13.618.The slower line is usually a 9 day exponential moving average of the MACD line. when the MACD line crosses below the signal line. Fibonacci numbers are 1. 21.When the MACD line (faster line) crosses above the signal line (slower line).e. An overbought condition is when the lines are well above the zero line and hence indicating a sell signal. 8. 1+1=2. Chart 2. this is found by dividing one Fibonacci number into the next in sequence Fibonacci number (55/89=0. 1. 2+3=5) The main ratio used is . a buy signal is generated. The buy and sell signals are based on the crossovers between the two lines. Another way of interpretation using MACD is by comparing it with the zero line to indicate overbought or oversold conditions.618). 34. 5) Fibonacci tools . a sell signal is generated. etc. 3. Conversely. The sequence occurs by adding the previous two numbers (i.
It is the most widely used technical analysis software. To calculate the Fibonacci Retracement levels.8%. The major competitors of Reuters are Bloomberg and Dow Jones Newswires.2%.The technical analysis software used is Metastock. futures.Arguably the most heavily used Fibonacci tool is the Fibonacci Retracement.humans. prices should retrace the initial difference (low to high or high to low) by a ratio of the Fibonacci sequence. a Thomson Reuters company. generally the 23. 38.often used by Fibonacci based traders is that since Fibonacci numbers occur in nature and the stock. a significant low to a significant high should be found. and currency markets are creations of nature . which is created by Equis International. Trading Strategy . Chart 2.6%. Technical Analysis Software . From there. the Fibonacci sequence should apply to the financial markets.4% retracement. or the 76. 50%. Therefore. 61.9: Illustration of Fibonacci retracement Fibonacci retracements .
As part of my technical analysis I worked on a technique for delivery based trading. I have used 15 minute candlestick chart along with 2 exponential moving averages (8 EMA & 34 EMA) for my study. Candlestick chart is used as they are far more dramatic in their presentation and it employ two-dimensional bodies to depict the open-to-close trading range and upper and lower stems (or shadows) to mark the day's high and low. The idea of using exponential moving average is that it assigns greater weight to more recent data, and thereby reacts quicker to the price movement than a simple moving average. I have specifically used 8 and 34 EMAs as they are Fibonacci numbers and hold much importance in analyzing stock prices. I have analyzed both the EMAs with double crossover method, i.e., when the 8 EMA crosses above the 34 EMA, a buy signal is generated. Conversely, when the 8 EMA crosses below the 34 EMA, a sell signal is generated. For my study I have considered only buy signals as we can shortsell only in intraday trading. For the buy signal, I have considered the closing price of the candlestick which is forming just after the crossover. The position has to be kept until I get a signal to close the position. To close the position I have followed two different strategies. They are: 1. Closing the position with the first candlestick being formed below the lower moving average. 2. Closing the position when a candlestick is formed whose closing is below the lower moving average.
Chart 3.1: Illustration of trading strategies Process for the study The purpose of this project was to find a successful trading system using candlesticks and moving averages in tandem. Two exponential moving averages were used namely 8 EMA and 34 EMA with the help of which trading signal has to be generated over a one year time period from May 2009 to June 2010. Two different strategies were used as mentioned above and the study was done on 14 selected securities namely, Balrampur Chini, DLF, ITC, Reliance Capital, Suzlon Energy, JP Associates, Sesa Goa, Bhushan Steel, Infosys, Ansal Properties, ICICI Bank, HUL, L&T and ONGC. Along with this the same study is also done on Nifty futures. The study was conducted by plotting fifteen minute candlestick chart along with the two EMAs simultaneously on Metastock. Findings The following table illustrates the accuracy and the returns for the study over a period of one year:
Analysis In the first strategy, the returns were highest for Bhushan Steel at 100.23% followed by Sesa Goa at 76.49% and DLF at 57.3%. On the other hand the lowest return was given by Reliance Capital at 0.65% followed by ITC at 2.73% and ONGC at 4.98%. Following charts illustrates the trend for Bhushan Steels and Reliance Capital:
25% followed by ITC at 4. On the other hand the lowest return was given by Ansal Properties at -4.94%.2: Illustration of Bhushan Steels Chart 3.3% followed by JP Associates at 32.39%. .29% and ICICI Bank at 31.13% and Sesa Goa at 9.3: Illustration of Reliance Capital In the second strategy.Chart 3. the returns were highest for DLF at 50.
Nifty Futures.Following charts illustrates the trend for DLF and Ansal Properties: Chart 3. The following table shows the outcome of the study: .e.4: Illustration of DLF Chart 3.5: Illustration of Ansal Properties Study of Nifty Futures for a period of May 2009 to June 2010 With the same strategies.. i. a similar study was conducted on one of India‟s premier Index futures.
6: Illustration of Nifty Futures .8 points. Chart 3.With the first strategy. there was a benefit of about 400 points where as. with the second strategy it was 173.
CHAPTER-V CONCLUSIONS & FINDINGS .
From the above study. Based on the outcome of the previous study. another research is carried out with the futures contract of the 50 scrips comprising the Nifty. Conversely. Based on this conclusion.CONCLUSIONS Conclusion of the study of both the trading strategies With the study of 14 different scrips and an Index future on both the trading strategies. when the 8 EMA crosses below the 34 EMA. I am considering both the long and short calls for the purpose of study. In this study. For most of the scrips the returns were higher if trading is done with the first strategy. as this will enable the readers to understand the returns in both the calls. For Nifty futures also. a sell signal is generated. a buy signal is generated.44% taking the first and the second strategies respectively. when the 8 EMA crosses above the 34 EMA.. it was observed that the first strategy was comparatively better than the second strategy. . As these are future contracts. i. a further study is conducted for the futures contract of the entire 50 scrips comprising Nifty.e. it can be clearly concluded that the first strategy stands ahead in comparison with the second. the returns were higher with the first trading strategy. I have analyzed both the EMAs with double crossover method. it has already been concluded that the first strategy stay ahead in comparison with the second one.94% and 254. Nifty Fifty Stock Futures analysis for a period of one year from May 2009 to June 2010 After an in-depth study of both the trading strategies. The return for all the 14 scrips taken together comes to 430.
This would give the investor a holistic view and hence a more informed view of the investment.A study has been made which shows the relationship between different economic variables and the market variables and the interrelationship between them. This makes the prediction of the various variables accurate to some extent. It is a common view of experts that fundamental or technical analysis by itself are strong indicators to use before investing. P/E. . Thus it has been observed that there is not a single factor that affects the movement in the stock market but a number of variables like GDP. Any investor before making an investment should analyze the general economic conditions prevailing in the economy and should make a suitable framework for investment decisions. Along with the fundamental analysis mentioned above an educated investor would always emphasize the importance of technical analysis as a tool to maximize profits and minimize risk. In the Maslow‟s hierarchy we learnt that before a company goes for overseas expansion it tries to study in which state of Maslow‟s hierarchy the desired country(India) is in. an educated investor should always use technical and fundamental analysis in tandem before making an investment. influence a market to a great extent. etc. however.
It contains the return and accuracy for both long and short calls. .FINDINGS Following table shows the outcome of the above study.
24% and Reliance Infra at 3. On the other hand the lowest return was given by Ambuja Cements at -9.02% followed by ACC at -4.73% and Sterlite Industries at 75. the returns were highest for Tata Motors at 98.3: Outcome showing returns and accuracy for long and short calls Analysis of the long calls In the long calls.75% followed by Jindal Steel at 81.41%.59%%. .Table 2.
7: Illustration of Tata Motors Chart 3.8: Illustration of Ambuja cements .Following charts illustrates the trend for Tata Motors and Ambuja Cements: Chart 3.
9: Illustration of Suzlon energy Chart 3. On the other hand the lowest return was given by Cipla at -15.10: Illustration of Cipla .57%.Analysis of the short calls In the short calls. the returns were highest for Suzlon Energy at 100.46% and DLF at 59. Following charts illustrates the trend for Suzlon Energy and Cipla: Chart 3.54% followed by Unitech at 83.91% and PNB at -8.17%.73% followed by Ambuja Cements at -10.
Greg L.rbi. pg 19-141 Websites http://www.com/ http://www.investopedia. Steven Candlestick charting explained.com/archives.BIBLIOGRAPHY Books Technical analysis of the financial markets.edelweiss.in .com/m_motivation/Hierarchy_of_Needs.com/ http://www. Morris.com/ http://www.asp http://www.com/terms/p/price-earningsratio.asp http://stockcharts. pg 239 -255 Technical analysis from A to Z.hinduonnet.com/ http://www. John J.com/ http://www. Murphy. pg 195-213.bseindia.org. Achelis.htm http://www.moneycontrol.com/ http://dbie.in/ www.candlecharts.nseindia.abrahammaslow.sebi.