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SUMMER INTERNSHIP
REPORT ON
EQUITY SHARE PRICE
BEHAVIOUR

SUBMITTED TO: SUBMTTED BY:
MR. AMAR JOHRI JYOTSNA AGGARWAL
B.B.A. V SEM
FINANCE
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ACKNOWLEDGEMENT
It is not possible to prepare a project report without the assistance & encouragement of other
people. This one is certainly no exception. Every work accomplished is a pleasure- a sense of
satisfaction. However a number of people always motivate, criticize and appreciate a work with
their objective, ideas and opinions. On the very outset of this report, I would like to extend my
sincere & heartfelt obligation towards all the personages who have helped me in this endeavor.
Without their active guidance, help, cooperation & encouragement, I would not have made
headway in the project. I am ineffably indebted to MR.GANESH PANDEY for conscientious
guidance and encouragement to accomplish this assignment. I am extremely thankful and pay my
gratitude to my faculty MR. AMAR JOHRI for his valuable guidance and support on
completion of this project in its presently.
I extend my gratitude to GRAPHIC ERA UNIVERSITY for giving me this opportunity. I also
acknowledge with a deep sense of reverence, my gratitude towards my parents and member of
my family, who has always supported me morally as well as economically. At last but not least
gratitude goes to all of my friends who directly or indirectly helped me to complete this project
report. Any omission in this brief acknowledgement does not mean lack of gratitude.

Thanking You
JYOTSNA AGGARWAL


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PREFACE
B.B.A. is a stepping stone to the management carrier and to develop good manager it is
necessary that the theoretical must be supplemented with exposure to the real environment.
Theoretical knowledge just provides the base and it is not sufficient to produce a good manager.
Thats why practical knowledge is needed.
Therefore the summer internship is an essential requirement for the student of B.B.A. This
research project not only helps the student to utilize her skills properly learn field realities but
also provides a chance to the organization to find out talent in the budding managers in the very
beginning.
In accordance with the requirement of my B.B.A. course I have done my summer training project
on the topic EQUITY SHARE PRICE BEHAVIOUR. The main objective of the research was
to analyze various factors effecting equity share price.
The Indian capital market has witnessed a tremendous growth. There was an explosion of
investors interest during the nineties and equity guilt emerged in statutory legislations has
helped the capital market. Foreign exchange regulation act is one such legislation in this
direction.
My work in this project is therefore, a humble attempt towards this end. In spite of my best
efforts their may be errors of omission and commissions, which may please be excused.



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EXECUTIVE SUMMARY
The project is about the study of factor that affects the companys performance. It gives the
knowledge of market position of the company. I studied as to how this company proves to an
option for the investors, by studying the internal and external factors affecting the future price of
company.
The purpose includes assessing the future market strength of company. The purpose also serves
the investors to decide whether to invest in company shares to gain returns. In this project I also
included my practical situation during the project internship, that how the market goes up and
down and why it happens.
The Indian capital Market has witnessed a tremendous growth. There was an explosion of
investor interest during the nineties and an Equity Guilt emerged in statutory legislations has
helped the capital market. Foreign Exchange regulation act is one such legislation in this
direction.
An important recent development has been the Entry of Foreign Institutional investors are
participants to the primary and secondary markets for the securities. In the past several years,
investments in developing countries have increased remarkably. Among the developing countries
India has received considerable capital inflows in recent years. The liberalization policy of the
government of India has now started fielding results and the country is poised for a big leap in
the industrial and economic growth. The Economy of the country is mainly based on the
development of the corporate sectors. A better understanding of the stock market trend will
facilitate allocation of financial sources to the most profitable investment opportunity. The
behavior of stock returns will enable the investors to make appropriate investment decisions. The
fluctuations of stock returns are due to several economic and non-economic factors. The study is
aimed at ascertaining the behavior of share returns. This project analyses the equity share
fluctuations in India Selected Industry. It also measures the strength of the trend and the money
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involved in investing in the stocks. Simple moving average model is applied for selected
companies which would give the investor a sell signal or buy signal.
In India most of the industries require huge amount of investments. Funds are raised mostly
through the issue of share. An investor is satisfied from the reasonable return from investment in
shares. Speculation involves higher risks to get return on the other hand investment involves no
such risks and returns will be fair. An investor can succeed in his investment only when he is
able to select the right shares. The investors should keenly watch the situations like market price,
economy, company progress, returns, and the risk involved in a share before taking decision on a
particular share. This study made will help the investors know the behaviour of share prices and
thus can succeed.











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DECLARATION BY STUDENT
I, the undersigned, hereby declare that the project report entitled, EQUITY SHARE PRICE
BEHAVIOUR submitted by me to GRAPHIC ERA UNIVERSITY, in partial fulfillment of
the requirement for the award of degree of BACHELORS OF BUSSINESS
ADMINISTRATION under the guidance of MR. AMAR JOHRI, is my original work and the
conclusions drawn therein are based on the data collected by myself.
The report submitted is my own work and has not been duplicated from any other source. I shall
be responsible for any unpleasure moment / situation.

Place: DEHRADUN
Date:
JYOTSNA AGGARWAL





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INDUSTRY PROFILE

An Introduction to Shares

What is a Share?
A share is a portion of the value of a company or mutual fund. When a company issues shares,
it divides its value into equal units which are offered for sale to investors. For example, if a
company is currently worth 500 million, and it has issued 100 million shares, each share is
currently worth 5.
When you buy shares, you become a part owner of that company. The more shares in that
company that you buy the larger portion of the company you own. Shares are also referred to as
equities, stocks or securities.
Trading Shares on Stock Exchanges
Shares are bought and sold on stock exchanges. A stock exchange is a regulated marketplace for
the trade of shares, bonds, funds and other financial securities. To be traded on an exchange, a
share must be listed on that exchange. Each exchange has its own regulations and requirements
that a company must meet before its shares can be listed. These requirements can include such
conditions as a minimum annual income or a minimum number of shares outstanding.
Primary and Secondary Markets
Stock exchanges have two different markets, the primary market and the secondary market.The
primary market is companies issuing shares to raise equity capital, normally through an Initial
Public Offering (IPO). In the primary market the investor buys shares directly from the
company.The secondary market is investors buying and selling shares at any time. This trade
does not directly involve the company whose shares are being bought or sold.

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Dual Listed Shares
A share can be listed on more than one exchange. This is known as dual listing. If a share is
listed on exchanges in different time zones, dual listing can increase the hours during which you
can trade the stock. Dual listed stocks can sometimes provide more liquidity.
Liquidity
The liquidity of a share is the relative ease with which it can be bought or sold, typically due to a
high level of trading activity in that stock. The higher the liquidity of a share, the more easily you
can convert your investment to cash. A share that is more difficult to sell would be described as
illiquid.
How to Invest in Shares
If you have a Self Invest trading or pension account, you can invest in shares online.
Risks of Investing in Shares
Risk is an inherent part of investing. Generally, investors must take greater risks to achieve
greater returns. However, taking on additional risk does not always lead to greater returns.
Investors who take on additional risk must be comfortable with experiencing significant periods
of underperformance in the expectation of achieving higher returns over the longer term. Those
who do not bear risk very well have a relatively smaller chance of making high earnings than do
those with a higher tolerance for risk; similarly they have a smaller chance of making significant
losses. It is crucial to understand that there is an inevitable trade off between investment
performance and risk. Higher returns are associated with higher risks of price fluctuations.
It is important to establish your attitude to risk before you begin investing. Is the security of your
capital the overriding influence in your investment decisions or are you willing to tolerate the
ups and downs of the market in the expectation of higher returns?
Although not always the case, generally speaking, the level of return on your investments will
reflect the underlying risk. If you are only willing to accept low or zero levels of uncertainty,
your investment returns are also likely to be low. However, an investment that seems very
attractive in terms of its potential return may not be the right choice if it carries an unacceptably
high risk. High risk investments generally require that the investor has the ability to hold it for
the longer term (5-10 years), in order to allow shorter term performance issues time to resolve
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them. Importantly, investors should remember however that accepting high levels of risk does
not always result in high returns.
Not all investment decisions will turn out as expected but diversification can be a key tool in
managing risk. By acquiring a portfolio of varied investments across a range of asset classes
(shares, bonds, cash, etc.), geographies and sectors, investors can minimize the effects which
poorly performing investments can have on their overall portfolio. This diversification theory
applies within asset classes as much as at portfolio level.
There are specific risks which investors should be aware of when investing in certain asset
classes. The following section deals with some of the risks which apply when investing in shares.
a. The risk of capital loss
When a company is performing poorly or when the market perception of the company is
negative, the share price may fall below the price which you originally paid for the share or even
to zero. If a company goes out of business, its shares will become untradeable and it is likely to
be delisted. Where a liquidator is appointed, shareholders are last in the list of other creditors (for
example, banks, suppliers, etc.) to receive any funds that may be realised.
b. Volatility risk
Share prices can be very volatile and investors should be aware that their shares may fluctuate
significantly in price in short periods. This can apply to individual stocks, sectors or to the
market itself.
c. Market risk
This is the chance that the entire market will decline, thus affecting the prices and values of
securities. Market risk, in turn, is influenced by outside factors such as interest rate changes.
d. Sector specific risk
This is the risk that a particular sector experiences malaise, for example the airlines industry on
news of terrorist attacks. Such periods of weakness can however provide buying opportunities,
but existing investors must decide whether they are prepared to weather the storm or whether
they should sell their shares in anticipation of further declines.



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e. Stock specific risk
Similar to sector specific risk, this is the risk that a particular investment will experience share
price declines due to negative news flow or poor sentiment towards the company. This would
usually follow a weak trading statement or perhaps a change in management which is not well
perceived by the market.
f. Timing risk
This is the risk that you buy or sell a share at the wrong time. Not all sectors of the market follow
the same price cycles. Understanding business cycles and how different companies perform
during different phases of the business cycle can help to manage the effects of timing risk.
g. Exchange rate risk
This is the risk that investments in a foreign currency lose value when converted to your local
currency, due to movements in the exchange rates between the two currencies.
These are just some of the risks that are associated with an investment in the stock market.
Individual shares will have their own individual risks. It is critical that investors understand the
effect that these risks can have on their investments.

STOCK EXCHANGE MEANING:
Stock Exchange is a market for the purchase and sale of second hand securities. I t is the
central place where industrial and financial securities are bought and sold. It is the place where
a buyer of a security can find a seller, or a seller can find a buyer. Thus, an important problem of
an investor namely, marketability of securities is removed. It provides capital to industry and
commerce, it provides finances to government .It provides an opportunity for the utilization of
the savings of the individuals. The securities dealt in at a stock exchange include the shares and
debentures of public companies, government securities, and the bonds issued by municipal
bodies or port rusts.
A stock exchange is organized by a body or an association of individuals. The association may
or may not be incorporated as a company. It is established for the purpose of assisting,
regulating and controlling business in securities. Thus, the securities contract(regulation) act,
1956 defines a Stock Exchange as an association , organization or body of individuals, whether
incorporated or not, established for the purpose of assisting, regulating and controlling business
in buying, selling and dealing in securities. Today Stock exchange constitutes a vital organ of a
free modern society.
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FEATURES OF STOCK EXCHANGE
1. It is a place where securities are purchased and sold.
2. it is an association of persons, whether incorporated or not
3. The trading in exchange is strictly regulated. rules and regulations prescribed for
various transactions
4. Genuine Investors and speculators buy and sell shares
5. The securities of corporations, trusts, Governments, Municipal corporations etc, are
allowed to be dealt on stock exchange.

The stock market occupies an important position in the financial system. It performs services to
economy in general and to the investors and companies in particular. The functions/services of
the stock exchange may be summarized as follows

Liquidity: the stock exchanges provide liquidity to securities since securities can be
converted into cash at any time according to the desire of the investor by selling them at
the listed prices. This advantage is not available to the investors in other investment
avenues.

Marketability: The continuous buying and selling of securities at the stock exchange
creates marketability to the investors in respect of securities they hold or intend to hold.
Thus they create a ready outlet for dealing in securities.

Safety of funds: Stock exchanges ensure safety of funds invested because they have to
function under strict rules and regulations and the bye-laws are meant to ensure safety
of investments. Over trading, illegimate speculation etc is prevented through carefully
designed set of rules. This would strengthen the investors confidence and promote
larger investment.


Supply of long term funds: The securities traded in the stock exchange are negotiated
and transferable in character and such they can be transferred with minimum of
formalities. So, when a security is transacted, one investor is substituted by another, but
the company is assured of long term availability of funds.



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Flow of capital to profitable ventures: The prices of the shares quoted in the stock
exchanges are the direct reflection of the performance of the company. Funds tent to
move towards securities of profitable companies and this facilitates the flow of capital
into profitable channels.

Marketing of new issues: if the new issues are listed they are readily acceptable to the
public, since, listing presupposes their evaluation by the stock exchange authorities.

Promotion of Investments: Stock exchanges mobilize the savings of the public and
promote investments through capital formation. Thus the surplus funds available with
individuals and institutions will be utilized for productive purposes.

Motivation for improved performance: The performance of a company is reflected n the
prices quoted in the stock market. These prices are more visible in the eyes of the public.
This public exposure makes a company conscious of it s status in the market and it acts
as a motivation to improve its performance.


Mirror of the economy: The changing business conditions in the economy are
immediately reflected on the stock exchanges. Economic boom and recession can be
identified through the dealings on the stock exchanges and suitable monetary and fiscal
policies can be taken by the government. Thus the stock market portrays the prevailing
economic situation to all concerned so that suitable actions can be taken.


An Introduction To The Indian Stock Market
Mark Twain once divided the world into two kinds of people: those who have seen the famous
Indian monument, the Taj Mahal, and those who haven't. The same could be said about
investors. There are two kinds of investors: those who know about the investment opportunities
in India and those who don't. India may look like a small dot to someone in the U.S., but upon
closer inspection, you will find the same things you would expect from any promising market..



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History
In 12th century France the courretiers de change were concerned with managing and regulating
the debts of agricultural communities on behalf of the banks. Because these men also traded with
debts, they could be called the first brokers. A common misbelieve is that in late 13th
century Bruges commodity traders gathered inside the house of a man called Van der Beurze,
and in 1409 they became the "Brugse Beurse", institutionalizing what had been, until then, an
informal meeting, but actually, the family Van der Beurze had a building in Antwerp where
those gatherings occurred; the Van der Beurze had Antwerp, as most of the merchants of that
period, as their primary place for trading. The idea quickly spread around Flanders and
neighboring counties and "Beurzen" soon opened in Ghent and Rotterdam.
In the middle of the 13th century, Venetian bankers began to trade in government securities. In
1351 the Venetian government outlawed spreading rumors intended to lower the price of
government funds.
Bankers in Pisa, Verona, Genoa and Florence also began trading in government securities during
the 14th century. This was only possible because these were independent city states not ruled by
a duke but a council of influential citizens. Italian companies were also the first to issue shares.
Companies in England and the Low Countries followed in the 16th century.
The Dutch East India Company (founded in 1602) was the first joint-stock company to get a
fixed capital stock and as a result, continuous trade in company stock occurred on the
Amsterdam Exchange. Soon thereafter, a lively trade in various derivatives, among which
options and repos, emerged on the Amsterdam market. Dutch traders also pioneered short
selling a practice which was banned by the Dutch authorities as early as 1610.There are now
stock markets in virtually every developed and most developing economies, with the world's
largest markets being in the United States, United Kingdom, Japan, India, China, Canada,
Germany (Frankfurt Stock Exchange), France,South Korea and the Netherlands.




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The BSE and NSE
Most of the trading in the Indian stock market takes place on its two stock exchanges: the
Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). The BSE has been in
existence since 1875. The NSE, on the other hand, was founded in 1992 and started trading in
1994. However, both exchanges follow the same trading mechanism, trading hours, settlement
process, etc. At the last count, the BSE had about 4,700 listed firms, whereas the rival NSE had
about 1,200. Out of all the listed firms on the BSE, only about 500 firms constitute more than
90% of its market capitalization; the rest of the crowd consists of highly illiquid shares.
Almost all the significant firms of India are listed on both the exchanges. NSE enjoys a dominant
share in spot trading, with about 70% of the market share, as of 2009, and almost a complete
monopoly in derivatives trading, with about a 98% share in this market, also as of 2009. Both
exchanges compete for the order flow that leads to reduced costs, market efficiency and
innovation. The presence of arbitrageurs keeps the prices on the two stock exchanges within a
very tight range.

TYPES OF TRADING

(A) Based on duration of stock holding, the different types of stock trading can be
classified as:
1. Day Trading:
It is a type of stock trading where both buying and selling of a financial instrument is done on the
same day and all the tradings are closed before the market close for the day. Traders who
participate in day trading are called active traders or day traders. Day trading demands fast
decision and fast action. This type of stock trading is not advisable for a beginner.
Some of the methods of day trading are:
Arbitrage: Arbitrage a kind of hedged investment meant to capture slight differences in
price. When there is a difference in the price of something on two different markets the
arbitrageur simultaneously buys at the lower price and sells at the higher price.
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Market making: Market Makers are appointed by stock exchanges like The New York
Stock Exchange (NYSE) and American Stock Exchange (AMEX), NASDAQ Stock
Exchange and London Stock Exchange (LSE) to continuously provide ask and bid rates for
the brokers to buy and sell the stock in these exchanges.
Momentum Day trading: It is a method of stock trading, where in a trade is made, when the
stock is making a trending movement and the trade is closed at the end of the day.
Pattern trading: As the stock prices move up and down, they tend to form recognizable
recurring designs or figurative diagrams, called chart patterns. Trading these patterns gives
us more consistent profitable trades.
Scalping: It is a technique of trading and profiting in stock market. It is a day trading
strategy and focuses on taking very small profits from hundreds of trades. It involves taking
quick and small profits, using the ask and bid differences.
Rebate trading: It is a technique of day trading and profiting in stock market. Here instead
of trader paying the commission for buying and selling, he is being paid by the service
provider. ECN rebate is the primary source of profit.
Price action trading: It is a technique of stock trading and profiting in stock market. This is
a simplistic and minimalistic approach to trading. This approach considers action of price
only, that is open, high, low and close of a time period. The time period can be a minute, five
minute, thirty or sixty minute. Some traders consider volume also for decision making,
though it is optional. The trade is closed on the same day of opening.
Swing trading: It is a technique of stock Trading. The trade is taken at the beginning of the
price swings and closing at the end of the price swing and on the same day of opening the
trade.
Trading the news (news playing): It is a technique to trade any financial instruments,
profiting on price fluctuation, that follows a sensitive news release. The trade is closed on the
same day of opening the trade.



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2. Short Term Trading:
A trade period of more than one day to a few weeks is considered as short term trade. A stock
is bought and held in position from one day to a few weeks. A short trade is entered by
creating a sell position, which is covered by buying after one day or in a few weeks.
Swing trading and pattern trading are examples of short term tradings.
3. Medium Term Trading:
A trade period from a few weeks to a few months is considered as medium term trade. A trend
is followed with tailoring stop loss.
Swing trading with higher time period (for example using weekly bars) and Elliot wave
trading are the methods suitable for this types of stock trading.
4. Long Term Trading:
In this type of stock trading, stock is held for many months to many years. Investment decision
is made by fundamental analysis of a stock. Profit from growth of the company, dividends and
bonuses attracts this type of stock trading.Examples of long term trading are Value
Investing and Buy and hold method of investing.

I never attempt to make money on the Stock Market.
I buy on the assumption that they could close the market the next
day and not reopen it for five years.
-Warren Buffet.








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(B) The types of stock trading may also be classified in relation to a trend as...

1. Trend following:
Here a trader enters a trade by buying a stock in an up trend or by selling a stock in a down trend,
anticipating that the trend will continue. The trade is continued using trailing stop loss, till the
trend reverses. Swing trading, momentum trading, pattern trading and Elliot wave trading, with
trailing stop loss, fall under this category of stock trading.
2. Contrarian investing:
Here a trader enters a trade by selling a stock in an up trend or by buying a stock in a down trend,
anticipating that the trend will reverse. It needs experience to correctly anticipate a trend
reversal. Jesse Livermore used to short the market at the peak of an up trend. Value investing is
indeed a contrarian investing.

3. Range trading:
Here a trader enters a trade by buying at the lower level of a range and selling at a higher level
of a range, anticipating that the trend continues to remain in a range. Different types
of indicators and support and resistance are studied to trade the ranges. Some types of stock
trading, though may fall under any one of the above classification, a mention has to be made
here.They are investing in IPO, insider trading, electronic trading, futures trading, option
trading, emini trading, etf trading, after hours trading, program trading and paper trading.

Trading Mechanism
Trading at both the exchanges takes place through an open electronic limit order book, in which
order matching is done by the trading computer. There are no market makers orspecialists and
the entire process is order-driven, which means that market orders placed by investors are
automatically matched with the best limit orders. As a result, buyers and sellers remain
anonymous. The advantage of an order driven market is that it brings more transparency, by
displaying all buy and sell orders in the trading system. However, in the absence of market
makers, there is no guarantee that orders will be executed.
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All orders in the trading system need to be placed through brokers, many of which provide
online trading facility to retail customers. Institutional investors can also take advantage of
the direct market access (DMA) option, in which they use trading terminals provided by brokers
for placing orders directly into the stock market trading system.

Settlement Cycle and Trading Hours
Equity spot markets follow a T+2 rolling settlement. This means that any trade taking place on
Monday, gets settled by Wednesday. All trading on stock exchanges takes place between 9:55
am and 3:30 pm, Indian Standard Time (+ 5.5 hours GMT), Monday through Friday. Delivery of
shares must be made in dematerialized form, and each exchange has its own clearing house,
which assumes all settlement risk, by serving as a central counterparty.

Market Indexes
The two prominent Indian market indexes are Sensex and Nifty. Sensex is the oldest market
index for equities; it includes shares of 30 firms listed on the BSE, which represent about 45% of
the index's free-float market capitalization. It was created in 1986 and provides time series data
from April 1979, onward.Another index is the S&P CNX Nifty; it includes 50 shares listed on
the NSE, which represent about 62% of its free-float market capitalization. It was created in
1996 and provides time series data from July 1990, onward.

Market Regulation
The overall responsibility of development, regulation and supervision of the stock market rests
with the Securities & Exchange Board of India (SEBI), which was formed in 1992 as an
independent authority. Since then, SEBI has consistently tried to lay down market rules in line
with the best market practices. It enjoys vast powers of imposing penalties on market
participants, in case of a breach.

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Who Can Invest In India?
India started permitting outside investments only in the 1990s. Foreign investments are classified
into two categories: foreign direct investment (FDI) and foreign portfolio investment (FPI). All
investments in which an investor takes part in the day-to-day management and operations of the
company, are treated as FDI, whereas investments in shares without any control over
management and operations, are treated as FPI.
For making portfolio investment in India, one should be registered either as a foreign
institutional investor (FII) or as one of the sub-accounts of one of the registered FIIs. Both
registrations are granted by the market regulator, SEBI. Foreign institutional investors mainly
consist of mutual funds, pension funds, endowments, sovereign wealth funds, insurance
companies, banks, asset management companies etc. At present, India does not allow foreign
individuals to invest directly into its stock market. However, high-net-worth individuals (those
with a net worth of at least $US50 million) can be registered as sub-accounts of an FII.
Foreign institutional investors and their sub accounts can invest directly into any of the stocks
listed on any of the stock exchanges. Most portfolio investments consist of investment in
securities in the primary and secondary markets, including shares,debentures and warrants of
companies listed or to be listed on a recognized stock exchange in India. FIIs can also invest in
unlisted securities outside stock exchanges, subject to approval of the price by the Reserve Bank
of India. Finally, they can invest in units of mutual funds and derivatives traded on any stock
exchange.
An FII registered as a debt-only FII can invest 100% of its investment into debt instruments.
Other FIIs must invest a minimum of 70% of their investments in equity. The balance of 30%
can be invested in debt. FIIs must use special non-resident rupee bank accounts, in order to move
money in and out of India. The balances held in such an account can be fully repatriated.

Restrictions/Investment Ceilings
The government of India prescribes the FDI limit and different ceilings have been prescribed for
different sectors. Over a period of time, the government has been progressively increasing the
ceilings. FDI ceilings mostly fall in the range of 26-100%.
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By default, the maximum limit for portfolio investment in a particular listed firm, is decided by
the FDI limit prescribed for the sector to which the firm belongs. However, there are two
additional restrictions on portfolio investment. First, the aggregate limit of investment by all FIIs,
inclusive of their sub-accounts in any particular firm, has been fixed at 24% of the paid-up
capital. However, the same can be raised up to the sector cap, with the approval of the company's
boards and shareholders.
Secondly, investment by any single FII in any particular firm should not exceed 10% of the paid-
up capital of the company. Regulations permit a separate 10% ceiling on investment for each of
the sub-accounts of an FII, in any particular firm. However, in case of foreign corporations or
individuals investing as a sub-account, the same ceiling is only 5%. Regulations also impose
limits for investment in equity-based derivatives trading on stock exchanges.
Investment Opportunities for Retail Foreign Investors
Foreign entities and individuals can gain exposure to Indian stocks through institutional
investors. Many India-focused mutual funds are becoming popular among retail investors.
Investments could also be made through some of the offshore instruments, like participatory
notes (PNs) and depositary receipts, such as American depositary receipts(ADRs), global
depositary receipts (GDRs), and exchange traded funds (ETFs) andexchange-traded
notes (ETNs).
As per Indian regulations, participatory notes representing underlying Indian stocks can be
issued offshore by FIIs, only to regulated entities. However, even small investors can invest in
American depositary receipts representing the underlying stocks of some of the well-known
Indian firms, listed on the New York Stock Exchange and Nasdaq. ADRs are denominated in
dollars and subject to the regulations of the U.S. Securities and Exchange Commission (SEC).
Likewise, global depositary receipts are listed on European stock exchanges. However, many
promising Indian firms are not yet using ADRs or GDRs to access offshore investors.

Retail investors also have the option of investing in ETFs and ETNs, based on Indian stocks.
India ETFs mostly make investments in indexes made up of Indian stocks. Most of the stocks
included in the index are the ones already listed on NYSE and Nasdaq. As of 2009, the two most
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prominent ETFs based on Indian stocks are the Wisdom-Tree India Earnings Fund (NYSE: EPI)
and the PowerShares India Portfolio Fund (NYSE:PIN). The most prominent ETN is the MSCI
India Index Exchange Traded Note (NYSE:INP). Both ETFs and ETNs provide good investment
opportunity for outside investors.
The Bottom Line
Emerging markets like India, are fast becoming engines for future growth. Currently, only a very
low percentage of the household savings of Indians are invested in the domestic stock market,
but with GDP growing at 7-8% annually and a stable financial market, we might see more
money joining the race. Maybe it's the right time for outside investors to seriously think about
joining the India bandwagon.

IMPORTANCE OF STOCK MARKET
Stock market is an important part of the economy of a country. The stock market plays a play a
pivotal role in the growth of the industry and commerce of the country that eventually affects the
economy of the country to a great extent. That is reason that the government, industry and even
the central banks of the country keep a close watch on the happenings of the stock market. The
stock market is important from both the industrys point of view as well as the investors point of
view.
Whenever a company wants to raise funds for further expansion or settling up a new business
venture, they have to either take a loan from a financial organization or they have to issue shares
through the stock market. In fact the stock market is the primary source for any company to raise
funds for business expansions. If a company wants to raise some capital for the business it can
issue shares of the company that is basically part ownership of the company. To issue shares for
the investors to invest in the stocks a company needs to get listed to a stocks exchange and
through the primary market of the stock exchange they can issue the shares and get the funds for
business requirements. There are certain rules and regulations for getting listed at a stock
exchange and they need to fulfill some criteria to issue stocks and go public. The stock market is
22

primarily the place where these companies get listed to issue the shares and raise the fund. In
case of an already listed public company, they issue more shares to the market for collecting
more funds for business expansion. For the companies which are going public for the first time,
they need to start with the Initial Public Offering or the IPO. In both the cases these companies
have to go through the stock market.
This is the primary function of the stock exchange and thus they play the most important role of
supporting the growth of the industry and commerce in the country. That is the reason that a
rising stock market is the sign of a developing industrial sector and a growing economy of the
country.
Of course this is just the primary function of the stock market and just an half of the role that the
stock market plays. The secondary function of the stock market is that the market plays the role
of a common platform for the buyers and sellers of these stocks that are listed at the stock
market. It is the secondary market of the stock exchange where retail investors and institutional
investors buy and sell the stocks. In fact it is these stock market traders who raise the fund for the
businesses by investing in the stocks.
For investing in the stocks or to trade in the stock the investors have to go through the brokers of
the stock market. Brokers actually execute the buy and sell orders of the investors and settle the
deals to keep the stock trading alive. The brokers basically act as a middle man between the
buyers and sellers. Once the buyer places a buy order in the stock market the brokers finds a
seller of the stock and thus the deal is closed. All these take place at the stock market and it is the
demand and supply of the stock of a company that determines the price of the stock of that
particular company.
So the stock market is not only providing the much required funds for boosting the business, but
also providing a common place for stock trading. It is the stock market that makes the stocks a
liquid asset unlike the real estate investment. It is the stock market that makes it possible to sell
the stocks at any point of time and get back the investment along with the profit. This makes the
stocks much more liquid in nature and thereby attracting investors to invest in the stock market

23

Different Types Of Stocks
There are two main types of stocks: common stock and preferred stock.
Common Stock
Common stock is, well, common. When people talk about stocks they are usually referring to
this type. In fact, the majority of stock is issued is in this form. We basically went over features
of common stock in the last section. Common shares represent ownership in a company and a
claim (dividends) on a portion of profits. Investors get one vote per share to elect
the board members, who oversee the major decisions made by management.
Over the long term, common stock, by means of capital growth, yields higher returns than almost
every other investment. This higher return comes at a cost since common stocks entail the most
risk. If a company goes bankrupt and liquidates, the common shareholders will not receive
money until the creditors, bondholders and preferred shareholders are paid.
Preferred Stock
Preferred stock represents some degree of ownership in a company but usually doesn't come with
the same voting rights. (This may vary depending on the company.) With preferred shares,
investors are usually guaranteed a fixed dividend forever. This is different than common stock,
which has variable dividends that are never guaranteed. Another advantage is that in the event of
liquidation, preferred shareholders are paid off before the common shareholder (but still after
debt holders). Preferred stock may also be callable, meaning that the company has the option to
purchase the shares from shareholders at anytime for any reason (usually for a premium).
Some people consider preferred stock to be more like debt than equity. A good way to think of
these kinds of shares is to see them as being in between bonds and common shares.

Different Classes of Stock
Common and preferred are the two main forms of stock; however, it's also possible for
companies to customize different classes of stock in any way they want. The most common
reason for this is the company wanting the voting power to remain with a certain group;
therefore, different classes of shares are given different voting rights. For example, one class of
24

shares would be held by a select group who are given ten votes per share while a second class
would be issued to the majority of investors who are given one vote per share.
When there is more than one class of stock, the classes are traditionally designated asClass
A and Class B. Berkshire Hathaway (ticker: BRK), has two classes of stock. The different forms
are represented by placing the letter behind the ticker symbol in a form like this: "BRKa, BRKb"
or "BRK.A, BRK.B".










25

COMPANY PROFILE

INTRODUCTION
The Karvy group was formed in 1983 at Hyderabad, India. Karvy ranks among the top player in
almost all the fields it operates. Karvy Computershare Limited is Indias largest Registrar and
Transfer Agent with a client base of nearly 500 blue chip corporates, managing over 2 crore
accounts. Karvy Stock Brokers Limited, member of National Stock Exchange of India and the
Bombay Stock Exchange, ranks among the top 5 stock brokers in India. With over 6,00,000
active accounts, it ranks among the top 5 Depositary Participant in India, registered with NSDL
and CDSL. Karvy Comtrade, Member of NCDEX and MCX ranks among the top 3 commodity
brokers in the country. Registered with AMFI as a corporate Agent, Karvy is also among the top
Mutual Fund mobilizer with over Rs. 5,000 crores under management. Karvy Realty Services,
which started in 2006, has quickly established itself as a broker who adds value, in the realty
sector. Karvy Global offers niche off shoring services to clients in the US.
Karvy has 575 offices over 375 locations across India and overseas at Dubai and New York.
Over 9,000 highly qualified people staff Karvy.
Karvy was started by a group of five chartered accountants in 1979. The partners decided to
offer, other than the audit services, value added services like corporate advisory services to their
clients. The first firm in the group, Karvy Consultants Limited was incorporated on 23rd July,
1983. In a very short period, it became the largest Registrar and Transfer Agent in India. This
business was spun off to form a separate joint venture with Computershare of Australia, in 2005.
Karvys foray into stock broking began with marketing IPOs, in 1993. Within a few years, Karvy
began topping the IPO procurement league tables and it has consistently maintained its position
among the top 5. Karvy was among the first few members of National Stock Exchange, in 1994
and became a member of The Stock Exchange, Mumbai in 2001. Dematerialization of shares
gathered pace in mid-90s and Karvy was in the forefront educating investors on the advantages
of dematerializing their shares.
26

Today Karvy is among the top 5 Depositary Participant in India.While the registry business is a
50:50 Joint Venture with Computershare of Australia, we have equity participation by ICICI
Ventures Limited and Barings Asia Limited, in Karvy Stock Broking Limited.
Vision and Mission
VISION AND MISSION
Vision
to be a leading loans provider delivering superior value to all stakeholders.

Mission
To be a loans provider focused on a friendly, fast, and balanced lending philosophy
enabled through strong customer advocacy, innovative distribution, superior risk
profiling and robust processes.
MESSAGE FROM CEO
At Karvy Finance, our Vision is to be a leading loans provider delivering superior value to all
stakeholders. We have defined our opportunity space as the Micro, Small & Medium Enterprise
(MSME) customer segment that is underserved in the current financial services dispensation.
This is the customer who has the security to give and ability to repay but finds themselves on the
sidelines as opportunities go by. This individual does not need a dole or a subsidy from the
society or even sympathy, just needs a helping hand, understanding & a little wind beneath their
wings to soar into the sky.
Loans are really the energy that move the economy. At a ratio of around 15% household &
business loans to the countrys GDP, our country ranks at the bottom on the loan availability. In
comparison the developed world has nearly 100% debt to GDP ratio for household and small
businesses. The gap in loan to GDP ratio is highly pronounced in Micro & Small Medium
Enterprise Segments, our opportunity area. As per economic experts, 70-80% ratio is necessary
for an economy to grow. Hence, we have a long way to go. This is the reason why the Central
Bank (RBI) in its latest report, has recommended encouraging financial institutions to give loans
to small households and businesses with various policy measures.
27

At Karvy Finance we have built the right platform to plug ourselves firmly into this opportunity
space with Secured Business loans to Micro & Small Enterprises, Small Commercial Vehicle &
Loan against Gold products.
From a wider perspective, we at Karvy Finance are not only building a profitable & large
company for our stakeholders but also serving a larger objective of fulfilling dreams of the
deserving individuals and helping to grow the economy by lending to the right customer
segments. This larger purpose should be on our mind when we come to work every day &
interact with our customers.
With the new political landscape, the economy is revving up again. We have all the ingredients
to succeed. However, we will need to execute with a missionary zeal & immaculate precision to
achieve our objectives of building a large & profitable company serving the underserved
customer and contributing to the Indias economic growth story.
Look forward to building a best in class organization and write a glorious chapter in Corporate
History for Karvy Finance.
Warm regards
Amit Saxena
CEO






28

PRODUCTS OF KARVY
Group Companies


Karvy Investor Services Limited
Deepening of the Financial Markets and an ever-increasing sophistication in corporate
transactions, has made the role of Investment Bankers indispensable to organizations
seeking professional expertise and counselling, in raising financial resources through
capital market apart from Capital and Corporate Restructuring, Mergers & Acquisitions,
Project Advisory and the entire gamut of Financial Market activities. Karvy Investor
Services Limited (KISL), a SEBI registered Merchant Banker has emerged as a leading
Investment Banking entity in the country with over a decade of experience. KISL has
built its reputation by capitalizing on its qualified professionals, who have successfully
executed a large number of complex and unique transactions.
Karvy Data Management Services
Karvy Data Management Services is emerging as a leading provider of business and
knowledge process services by focusing on delivery of business services for our clients
through an innovative framework that is directly tied to improving service delivery along
the value chain. With a reach across the length and breadth of the country and an ISO
9001:2008 compliant service delivery mechanism, we deliver services that result in
customer success stories through a collaborative approach with our clients. Our
capabilities in large scale process management services across industry verticals is
making us a partner of choice for leading organizations in the country.
KDMSL is striving to achieve leadership position by tapping the Indian retail sector
boom, through a combination of our extensive branch network and proprietary IT
backbone. Needless to say, KDMSL is run as an independent outfit with seasoned
29

professionals on board, who have decades of expertise in the industry.
KDMSL is a fully owned subsidiary of Karvy Stock Broking Limited (KSBL),
incorporated in April 2008 and is head quartered at Hyderabad.

Karvy Realty
At Karvy Realty, we seek to provide quality advisory services and solutions to clients,
which have been developed by highly qualified and diverse team of individuals. The
solutions we provide are developed through a diligent approach, while encouraging
innovation and timely execution. We adhere to the highest standard in ethics and
maintain great integrity in our client services.

Karvy Capital Ltd.
Karvy Capital Ltd is the Asset Management and Investment Advisory arm of Karvy
Group, a 30 year-old diversified financial services conglomerate in India with presence in
Stock Broking, Data Management, Institutional Equities, Wealth Management besides
Asset Management.
Karvy Capital Ltd is a thought leader in specialized investments and offers a wide range
of investment ideas spread across various asset classes including Equity, Structured
Products, Absolute Return Strategies, High Yield Debt.
These products are designed for distribution by private banking teams and wealth
management companies, which are managed independently of other businesses of Karvy
Group.

Karvy Global Services
Karvy Global Services is a knowledge services company. We provide specialist resources
to extend in house analyst teams in driving clear business results. We serve investment
banks, insurance providers, brokerages, hedge funds, research agencies, and life
settlement providers across the United States, Middle East, and Europe. Our clients have
found our cost advantage, ability to scale efforts, and specialist knowledge regarding
emerging markets to be a strong advantage in the new, fast, and unpredictable world.
Our areas of focus include equity research, investment banking support, commodity
research, business research and specialized transaction processing
services in BFSI & Healthcare verticals.
Incorporated in 2004, we are backed by over 25 years of experience through Indias
largest financial services company, the Karvy Group. We are located in New York and
have our primary global delivery center in Hyderabad, India.




30

Karvy Computershare
Karvy Computershare is the largest registrar and a market leader, servicing over 70
Million investor Accounts spread over 900 issuers including banks, PSUs and mutual
funds. With a work force of over 2500 experienced professionals drawn from various
disciplines.Karvy Computershare has emerged as a market leader in Investor Servicing in
the country by offering its services through its network of 450 Branches + 400 locations
spread across the country. Head quartered in Hyderabad, India, Karvy Computershare
Pvt. Ltd. is a 50:50 Joint Venture between Karvy and Australia-based Computershare -
the world's largest Transfer Agent. The joint venture with Computershare Limited helps
us adopt international practices in client and investor servicing.

KARVY Stock Broking Limited
One of the cornerstones of the KARVY edifice, flows freely towards attaining diverse
goals of the customer through varied services. It creates a plethora of opportunities for
the customer by opening up investment vistas backed by research-based advisory
services. Here, growth knows no limits and success recognizes no boundaries. Helping
the customer create waves in his portfolio and empowering the investor completely is the
ultimate goal. KARVY Stock Broking Limited is a member of:
1) National Stock Exchange (NSE),
2) Bombay Stock Exchange (BSE),
3) MCX Stock Exchange (MCX-SX)

Karvy Consultants Limited
As the flagship company of the KARVY Group, KARVY Consultants Limited has
always remained at the helm of organizational affairs, pioneering business policies, work
ethic and channels of progress. Having emerged as a leader in the registry business, the
first of the businesses that we ventured into, we have now transferred this business into a
joint venture with Computershare Limited of Australia, the worlds largest registrar. With
the advent of depositories in the Indian capital market and the relationships that we have
created in the registry business, we believe that we were best positioned to venture into
this activity as a Depository Participant. We were one of the early entrants registered as
Depository Participant with NSDL (National Securities Depository Limited), the first
Depository in the country and then with CDSL (Central Depository Services Limited).
Today, we service over seven lakh customer accounts in this business spread across over
540 cities/towns in India and are ranked amongst the largest Depository Participants in
the country. With a growing secondary market presence, we have transferred this
business to KARVY Stock Broking Limited (KSBL), our associate and a member of
NSE, BSE and HSE.
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Karvy Commodities Broking
An ISO 9001:2008 certified company, Karvy Comtrade Limited (KCTL) is Indias
leading commodities brokerage house. We have membership of Multi Commodity
Exchange of India (MCX), National Commodity and Derivatives Exchange (NCDEX),
National Multi-Commodity Exchange of India (NMCE), National Spot Exchange
(NSEL), NCDEX Spot Exchange (NSPOT), Ace Commodity Exchange (ACE) and
Indian Commodity Exchange (ICEX).Using a superior trading platform, we facilitate
futures trading in commodities as per the exchanges. KCTL offers both trading and
exclusive research services to its clients. A subsidiary of Karvy Stock Broking Limited
(KSBL), KCTL commenced operations in early 2005.
At KCTL, we offer a wide reach through our network of around 900 offices located
across 400 cities in India. That makes us among the top-3 players in the country, both in
terms of number of terminals as well as clients. Apart from offering benefits of price
discovery and risk management, we also provide our huge investor and trader base an
opportunity to diversify their portfolios through commodities as an asset class.

WHERE KARVY STAND IN THE MARKET?
KARVY is a legendary name in financial services, Karvys credit is defined by its mission to
succeed, passion for professionalism, excellent work ethics and customer centric values.
Today KARVY is well known as a premier financial services enterprise, offering a broad
spectrum of customized services to its clients, both corporate and retail. Services that KARVY
constantly upgrade and improve are because of companys skill in leveraging technology. Being
one of the most techno-savvy organizations around helps company to deliver even more cost
effective financial solutions in the shortest possible time.
What bears ample testimony to Karvys success is the faith reposed in company by valued
investors and customers, all across the country. Indeed, with Karvys wide network touching
every corner of the country, even the most remote investor can easily access Karvys services
and benefit from companys expert advice.


32

MARKETING STRATEGY OF KARVY
Market Positioning:
Market positioning statements of Karvy are At Karvy we give you single window
service and We also ensure your comfort.
So, Karvy focus on the consumers who prefer almost all investment activities at same
place by providing number of various financial services. At Karvy a person can purchase
or sell shares, debentures etc. and at the same place also demat it. Karvy also provides
other investment option to the same person at same place like Mutual Fund, Insurance,
Fixed Deposit, and Bonds etc. and help the person in designing his portfolio. By this way
Karvy provides comfort to its customers. Karvy is also positioned according to Ries and
Trout. Karvy is promoted as a no. 1 investment product distributor and R & T agent of
India.

Target Market:
Karvy uses demographic segmentation strategy and segment people based on their
occupation. Karvy uses selective specialization strategy for market targeting. Target
person for the Karvy Stock Broking and Karvy Investment Service are persons who can
work as sub-broker for the companies. Companies focus on Advisors of Insurance and
post office, Tax consultants and CAs for making sub-broker.

Marketing channel System:
Karvy uses one level marketing channel for investment product distribution. Sub-brokers
work as intermediary between consumer and company. Company has both forward and
backward flow of activity through channel. Company distributes stationery, brokerage,
and information forward to its sub-broker. The sub-brokers send filled forms, queries,
amount of investment etc. back to the company.

Training Channel Members:
Karvy provides training to the sub-brokers because they will be viewed as the company
by the investors. The executives of Karvy explain various new schemes of investment to
33

the sub-brokers with its objective, risk factors and expected return. Company also
periodically arrange seminar to guide sub-brokers.

Advertising and Promotion:
The objective of advertising of Karvy is to create awareness about services of Karvy
among investors and sub-brokers and increase sub-brokers of Karvy.
Company doesnt give advertisement in media like TV, Newspapers, and Magazines etc.
Karvys advertisement is made indirectly by the companies associate with it. Karvy is R
& T agent of around 700 companies. They publish name, address and logo of Karvy on
their annual report.
Karvy also publish its weekly Stock Market Newsletter Karvy Bazaar Baatein and
monthly magazine The Finapolis to guide investors and sub-brokers about market.

HR POLICY OF KARVY
KARVY HR Department is located at Hyderabad.
Recruitment and Selection Policy:
The upper level members like zonal managers, regional managers, branch managers and
senior executives are recruited by publishing recruitment advertisement in leading
national level newspaper. The qualified applicant are then called for interview and
selected.
The regional manager has authority to select lower level employee like peon, marketing
executives, accountant etc. by approval of zonal manager.

Training and Development:
Continuous training and upgrading technical, behavioral and managerial skills is a way of
life in Karvy. Karvy encourages employees to hone their skills regularly to enable them
to face the challenges of the changing requirements of customers that fit market up and
down.
34

Training needs analysis is done on a regular basis and systematic methodologies are
ensured that skills and capabilities of all employees are constantly upgraded to enable
them to perform in the challenging work environment.
New employee has given training under experienced employee. The new employee work
under experience employee and observe his all activities. When company employs new
technology or there is any change in the working of company the training program is
arranged.

Employee Motivation:
Karvys employees are highly empowered. They dont have to report any person of the
same branch but they report upper level branch. E.e. Marketing executive of Jamnagar
branch directly reports Senior Marketing executive of Baroda zonal office.
If particular branch earn certain profit then Karvy gives them special incentives. E.g. last
year Karvy had arranged two days tour of Div for their employees of Rajkot, Jamnagar,
Junagadh and Bhavnagar branch which was totally free of cost. This also helps in
maintaining co-operation between employees.

COMPETITORS
These are the competitors of karvy brokerage ltd.
IL& FS Investment Ltd.
Kotak Securities Ltd.
ICICI Securities Ltd.
Motilal and Oswal Securities Ltd.
Stock holding corporation Ltd
India bulls Securities Ltd.
Edelweiss Financial Services Ltd.
India Infoline
Religare Securities Ltd.
35


PRODUCT PROFILE

EQUITY SHARES
In accounting and finance, equity is the residual value or interest of the most junior class of
investors in assets, after all liabilities are paid; if liability exceeds assets, negative equity exists.
In an accounting context, shareholders' equity(or stockholders' equity, shareholders' funds,
shareholders' capital or similar terms) represents the remaining interest in the assets of a
company, spread among individual shareholders of common or preferred stock; a negative
shareholders' equity is often referred to as a positive shareholders' deficit.
At the very start of a business, owners put some funding into the business to finance operations.
This creates a liability on the business in the shape of capitalas the business is a separate entity
from its owners. Businesses can be considered, for accounting purposes, sums of liabilities and
assets; this is theaccounting equation. After liabilities have been accounted for, the positive
remainder is deemed the owners' interest in the business.
This definition is helpful in understanding the liquidation process in case ofbankruptcy. At first,
all the secured creditors are paid against proceeds from assets. Afterwards, a series of creditors,
ranked in priority sequence, have the next claim/right on the residual proceeds. Ownership equity
is the last or residual claim against assets, paid only after all other creditors are paid. In such
cases where even creditors could not get enough money to pay their bills, nothing is left over to
reimburse owners' equity. Thus owners' equity is reduced to zero. Ownership equity is also
known as risk capital or liable capital.




36

Equity investments
An equity investment generally refers to the buying and holding of shares of stock on a stock
market by individuals and firms in anticipation of income from dividends and capital gains, as
the value of the stock rises. Typically equity holders receive voting rights, meaning that they can
vote on candidates for the board of directors (shown on a proxy statement received by the
investor) as well as certain major transactions, and residual rights, meaning that they share the
company's profits, as well as recover some of the company's assets in the event that it folds,
although they generally have the lowest priority in recovering their investment. It may also refer
to the acquisition of equity (ownership) participation in a private (unlisted) company or a startup
company. When the investment is in infant companies, it is referred to as venture
capital investing and is generally regarded as a higher risk than investment in listed going-
concern situations.
The equities held by private individuals are often held as mutual funds or as other forms
of collective investment scheme, many of which have quoted prices that are listed in financial
newspapers or magazines; the mutual funds are typically managed by prominent fund
management firms, such as Schroders, Fidelity Investments or The Vanguard Group. Such
holdings allow individual investors to obtain the diversification of the fund(s) and to obtain the
skill of the professional fund managers in charge of the fund(s). An alternative, which is usually
employed by large private investors and pension funds, is to hold shares directly; in the
institutional environment many clients who own portfolios have what are called segregated
funds, as opposed to or in addition to the pooled mutual fund alternatives.
A calculation can be made to assess whether an equity is over or underpriced, compared with a
long-term government bond. This is called the yield gap or Yield Ratio. It is the ratio of
the dividend yield of equity and that of the long-term bond.
Accounting
In financial accounting, owner's equity consists of the net assets of an entity. Net assets is the
difference between the totalassets of the entity and all its liabilities.[1] Equity appear on the
balance sheet / statement of financial position, one of the four primary financial statementsThe
assets of an entity includes both tangible and intangible items, such as brand names and
37

reputation or goodwill. The types of accounts and their description that comprise the owner's
equity depend on the nature of the entity and may include:
Share capital (common stock)
Preferred stock
Capital surplus
Retained earnings
Treasury stock
Stock options
Reserve
Book value
The book value of equity will change in the case of the following events:
Changes in the firm's assets relative to its liabilities. For example, a profitable firm
receives more cash for its products than the cost at which it produced these goods, and so in the
act of making a profit, it is increasing its retained earnings, therefore its shareholders' equity.
Depreciation - Equity will decrease, for example, when machinery depreciates, which is
registered as a decline in the value of the asset, and on the liabilities side of the firm's balance
sheet as a decrease in shareholders' equity.
Issue of new equity in which the firm obtains new capital increases the total shareholders'
equity.
Share repurchases, in which a firm gives back money to its investors, reducing on the
asset side its financial assets, and on the liability side the shareholders' equity. For practical
purposes (except for its tax consequences), share repurchasing is similar to a dividend payment,
as both consist of the firm giving money back to investors. Rather than giving money to all
shareholders immediately in the form of a dividend payment, a share repurchase reduces the
number of shares (increases the size of each share) in future income and distributions.
38

Dividends paid out to preferred stock owners are considered an expense to be subtracted
from net income(from the point of view of the common share owners).
Other reasons - Assets and liabilities can change without any effect being measured in the
Income Statement under certain circumstances; for example, changes in accounting rules may be
applied retroactively. Sometimes assets bought and held in other countries get translated back
into the reporting currency at different exchange rates, resulting in a changed value.
Shareholders' equity
When the owners are shareholders, the interest can be called shareholders' equity; the accounting
remains the same, and it is ownership equity spread out among shareholders. If all shareholders
are in one and the same class, they share equally in ownership equity from all perspectives.
However, shareholders may allow different priority ranking among themselves by the use of
share classes and options. This complicates both analysis for stock valuation and accounting.
The individual investor is interested not only in the total changes to equity, but also in the
increase or decrease in the value of their own personal share of the equity. This reconciliation of
equity should be done both in total and on a per share basis.
Equity (beginning of year)
+ net income inter net money one gained
dividends how much money one gained or lost so far
+/ gain/loss from changes to the number of shares outstanding.
= Equity (end of year) if one gets more money during the year or less or not anything




39

Market value of shares
In the stock market, market price per share does not correspond to the equity per share calculated
in the accounting statements. Stock valuations, which are often much higher, are based on other
considerations related to the business' operating cash flow, profits and future prospects; some
factors are derived from the accounting statements.
Equity in real estate
The notion of equity with respect to real estate comes the equity of redemption. This equity is a
property right valued at the difference between the marketof the property and the amount of any
mortgage or other encumbrance.












40


OBJECTIVES OF STUDY

1. The purpose of doing study is to analyze the factor that affect the companys
performance

2. To examine the internal and external factors affecting the future price of company

3. The purpose includes assessing the future market strength of company

4. The purpose also serves the investors to decide whether to invest in company shares to
gain returns









41


RESEARCH METHODOLOGY

Defining objective wont suffice unless and until a proper methodology is to achieve the
objectives. In the following research my major aim was to study the factors affecting equity
share price behaviour and to study the effect of UNION BUDGET 2014 on top 5 companies
according to market capitalization and volume of shares traded. Research is based on secondary
data such as various reference books, websites and newspapers. Top 5 companies have been
taken for research purpose.











42


FUNDAMENTAL ANALYSIS

Fundamental analysis is a stock valuation method that uses financial analysis - that is, an
analysis of a company's financial data - to predict the movement of that company's stock price. A
potential (or current) investor uses fundamental analysis to examine a company's operations and
the market in which the company is operating to understand half the stability and growth
potential of that company. Company factors to examine include the dividends that company
issues, the way a company manages its cash, the amount of debt a company has, and the growth
of a company's costs and income.
The theory underpinning fundamental analysis is that, to truly make money in the long run, an
investor must focus on the company itself rather than merely on the movement of its stock price.
As Benjamin Graham and David Dodd say in their classic work "Security Analysis", in the short
run, the market is a voting machine, not a weighing machine. An investor uses fundamental
analysis to find the companies that are built to last .Fundamental analysis adherents believe a
company's "intrinsic value" will be eventually be reflected in the stock price through market
forces, but that, while the market is efficient, some stocks (for any number of reasons) are either
over- or under-valued in the short run.
Therefore, the use of fundamental analysis can be viewed as a type of arbitrage. To this end,
earnings multiples, such as the P/E ratio, are used to determine value, where cash flows are
relatively stable and predictable.Theobvious caveat hereis that the P/E ratio is ultimately not an
objective. measure, because it must be interpreted. A high P/E ratio might be an overvalued
stock, or it might be a company with high potential for growth. Other techniques include
discounted cash flow, book value, and dividend yield analysis
One method for combatting this interpretation problem is to use the valuation equations in the
works of Aswath Damodaran or on web sites like ValueTool that interpret equations such as
P/E, P/BV, or FCFE as dollar values, so that they may be easily compared to the stock price.
43

Fundamental analysis is the process of looking at a business at the basic or fundamental financial
level. This type of analysis examines key ratios of a business to determine its financial health and
gives you an idea of the value its stock.
Many investors use fundamental analysis alone or in combination with other tools to evaluate
stocks for investment purposes. The goal is to determine the current worth and, more
importantly, how the market values the stock. This article focuses on the key tools of
fundamental analysis and what they tell you. Even if you dont plan to do in-depth fundamental
analysis yourself, it will help you follow stocks more closely if you understand the key ratios and
terms.

Earnings
Its all about earnings. When you come to the bottom line, thats what investors want to know.
How much money is the company making and how much is it going to make in the future.
Earnings are profits. It may be complicated to calculate, but thats what buying a company is
about. Increasing earnings generally leads to a higher stock price and, in some cases, a regular
dividend. When earnings fall short, the market may hammer the stock. Every quarter, companies
report earnings. Analysts follow major companies closely and if they fall short of projected
earnings, sound the alarm. While earnings are important, by themselves they dont tell you
anything about how the market values the stock. To begin building a picture of how the stock is
valued you need to use some fundamental analysis tools. These ratios are easy to calculate, but
you can find most of them already done on sites like cnn.money.com or MSN
MoneyCentral.com.
The intrinsic value of an equity shares depends on a multitude of factors. The earnings of the
company, the growth rate and the risk exposure of the company have a direct bearing on the
price of share. These factors in turn rely on the host of other factors like economic environment
in which they function, the industry they belong to, and finally companies own performance. The
fundamental school of thought appraised the intrinsic value of shares through.

44

Economic Analysis
The level of economic activity has an impact on investment in many ways. If the economy grows
rapidly, the industry can also be expected to show rapid growth and vice versa. When the level of
economic activity is low, stock price are low, and when the economic activity is high, stock
prices are reflecting the prosperous out look for sales and profit of the firm. The analysis of
Macro Economic environment is essential to understand the behavior of the stock prices. The
economically analyzed the macro economic factors are as follows
A. Gross Domestic product (GDP):
GDP indicates the rate of growth of the economy. GDP represents the aggregate value of goods
and services produced in the economy. GDP consist of personal consumption expenditure, gross
private domestic investment and government Expenditure on goods and services and net
exports of goods and services. The growth rate of economy points out the prospects for the
industrial sector and the return investor can expect from investment in shares. The higher the
growth rate is more favorable stock market
B. Savings & Investment:
It is obvious that growth requires investment, which in turn requires substantial amount of
domestic savings. Stock market is a channel through which the savings of the investors are made
available to the corporate bodies. Savings are distributed over various assets like equity shares,
deposits, mutual funds units, real estate and bullion. The savings and Investment patterns of the
public affect the stock to a great extent.
C. Inflation
Along with the growth of GDP, if the inflation rate also increases then real rate of growth would
be very little. The demand in the consumer product industry is significantly affected. The
industries that come under the Government price control policy may loose the market, for
example sugar. The government control over this industry, affects the price of the sugar and
there by the profit ability of the industry itself. If there is a mild level of inflation, it is good to
the stock market but high rate of inflation is harmful to the stock market.

45

D. Interest rates
Interest rates affect the cost of financing to the firms. A decrease in interest rate implies lower
cost of finance and more profitability resulting in companies taking more finances for their
expansion plans. More money is available at a lower interest rate for the brokers who are doing
business with borrowed money. Availability of cheap funds encourages speculation and raises
the share prices. Further it also encourages new people to come into business generally. In the
recent past, Indian economy has been experiencing low interest rates which have been
encouraging for the industrial development.
E. Budget
Another important of the economy analysis is budget. Budget can be defined as a draft
providing an elaborate account of the government revenues and expenditure. A deficit Budget
may lead to high rate of inflation and adversely affect the cost of production. Surplus budget may
result in deletion. Hence, balanced budget is highly favorable to the stock market.
F. The Tax Structure
Tax structure of a country also plays a major role in the development of a country and its
industrialization. It is well known fact that high tax rate of a country makes it an unattractive
destination for investments, then it has to maintain every flexible and low tax structure. For
example it is widely accepted fact that tax rate in the industrialized nations is far more less than
the tax structures in the developing countries. For instance, tax rate in India are reportedly
highest for corporate when compared to some of the developed nations.
G.The Balance of Payment

The Balance of Payment is the record of a countrys receipt from and payment abroad. The
difference between receipts and payments may be surplus or deficit. Balance of payment is a
measure of the strength of rupee on external account. If the deficit increases, the rupee may
depreciate against other currencies, there by affecting the cost of imports. The industries
involved in the export and import are considerably affecting by the changes in foreign exchange
rate. The volatility of the foreign exchange rate affects the investment of the foreign exchange
rate. The volatility of the foreign exchange rate affects the investments of the foreign
46

institutional investors in the Indian stock market. A favorable balance of payment renders a
positive effect on the stock market.
H. Monsoon and Agriculture
Agriculture is directly linked with the industries. For example sugar, cotton, textile and food
processing industries depend upon agriculture for raw material. Fertilizers and insecticide
industries are supplying inputs to the agriculture. A good monsoon leads to higher demand for
input and results in bumper crop. This would lead to buoyancy in the stock market. When the
monsoon is bad, agriculture and hydel power production would suffer. They cast a show on the
share market.
I. Infrastructure facilities
Infrastructural facilities are essential for the growth of industrial and agricultural sector. A wide
network of communication system is a must for the growth of the economy. Regular supply of
power without any power cut would boost the production. Banking and Financial sector also
would be sound enough to provide adequate support to the industry and agriculture. Good
infrastructure facilitates affect the stock market favorably. In India even through infrastructural
facilities have been developed, still they are not adequate. The Government has liberalized its
policies regarding the communications, transport and power sector. For example, power sector
has been up to foreign investors with assured rates of returns.
J. Demographic factors
The Demographic date provides details about the population by age, occupation, literacy and
geographic location. This is needed to forecast the demand for the consumer goods. The
population indicates the availability of workforce. The cheap labor force in India has encouraged
many multinationals to start their venture. Indian labor is cheaper compared to western labor
force. Population, which provides labor and demand for products, affects the industry and stock
market.




47

Industry Analysis
An industry is a group of firm that has similar technology structure of production and produce
similar products. For the convenience of the investor the board classification of the industry is
given in financial dailies and magazines. Companies are directly classified to give a clear picture
about their manufacturing process and products. For example food products, textiles, wood and
wood products, leather and leather products, chemical products and there are many other
industries.
These industries can be again classified on the basis of the business cycle i.e. classified
according to their reactions to the different phases of the business cycle. They are classified into
growth, cyclical, defensive and cyclical growth industry.
A. Growth industry
The growth industries have special features of high rate of earnings and growth in expansion,
independent of the business cycle. The expansion of the industry mainly depends on the
technological change. For instance, in spite of the recession in the Indian economy in 1997-1998,
there was a spurt in the growth of information technology industry. It defined the business cycle
and continued to grow. Like wise in every phase of the history certain industries like color
televisions, pharmacy and telecommunication industries have shown remarkable growth.
B. Cyclical industry
The growth and the profitability of the industry move along with the business cycle. During the
boom period they enjoy growth depression they suffer a set back. For example, the white goods
like fridge, washing machine and kitchen range products command a good market in the boom
period and the demand for them slackens during the recession.
C. Defensive industry
Defensive industry defines the movement of the business cycle. for example food and shelter are
basic requirements of humanity. The industry withstand recession period too, under the
governments umbrella of protection and counter-cyclical in nature

48

D. Cyclical growth industry
This is new type of industry that is cyclical and at the same time growing. For example, the
automobiles industry experiences period of stagnation, decline but they grew tremendously. The
changes in the technology and introduction of new models help the automobiles industry to
resume their growth path.
E. Industry life cycle
This life cycle theory is generally attributed to Julius geodesy. The life cycle of the industry is
separated into four well-defined stages such as
1. Pioneering stage
2. Rapid growth stage
3. Maturity and stabilization stage
4. Declining stage.

Pioneering stage
The prospective demand for the product is promising in this stage and the technology of the
product is low. The demand of the product attracts many producers to produce the particular
product. There would be severe competition and only fittest companies survive in this stage. The
producers try to develop the brand name, differentiate the product and create a product image.
This would lead to non-price competition too. The sever competition always leads to the change
of position of the firms in terms of market shares and profit. In this situation, it is difficult to
select companies for investment because the survival rate is unknown.
Rapid growth stage
This stage starts with the appearance of surviving firms from the pioneering stage. The
companies that have withstood the competition grow strongly in market-share and financial
performance. The technology of the production would have improved resulting in low cost of
production and good quality products. The companies have stable rate and they declare dividend
to the shareholder. It is advisable to invest in the shares of these companies.

49

Maturity and stabilization stage
In this stage the growth rate tends to moderate and the rate would be more or less equal to the
industrial growth rate or the GDP growth rate. Symptoms of obsolescence may appear in the
technology. To keep going, technological innovations in production process and products should
be introduced. The investors have to closely monitor the events that take place in the maturity
stage of the industry.
Decline stage
In this stage, the demand for the particular product and the earnings of the companies in the
industry declines. Now a days very few consumers demand black and white TV. Innovations of
the new products and changes in consumer preferences lead to this stage. The specific feature of
the declining stage is that even in boom period. The growth of the industry would be low and
decline at a higher rate during the recession. It is better to avoid investing in these shares of the
low growth industry even in the boom period. Investment in the shares of these types of
companies leads to erosion of capital.

Factors to be considered:
A part from industry life cycle analysis, the investor has to analyze some other factors too. They
are as listed below
Growth of the industry
The historical performance of the industry in terms of growth and profitability should be
analyzed. Industry wise growth is published periodically by the c.m.i.e (center for monitoring
Indian economy). The past variability in return and growth in reaction to macro economic factors
provide an insight into the future. Even though history may not repeat in the exact manner,
looking into the past growth of the industry, the analysis can predict the future.
Cost structure and profitability
The cost structure that is fixed and variable cost, affects the cost of production and profitability
of the firm. In the case of oil and natural gas industry and steel industry the fixed cost portion is
high and the required to reach the firms break-even point. Once the break-even point is reached
50

and the production is on the track, the profitability can be increased by utilizing the capacity to
full. Once the maximum capacity is reached, again capital has to be invested in the fixed
equipment. Hence, lower the fixed cost, adjustability to the changing demand and reaching the
breakeven point are comparatively easier.
Nature of the product
The consumers and other industries demand the product produced by the industries. If industrial
goods like pig iron, iron sheet and coils are produced, the demand for them depends on the
construction industry. Like wise, textile industry and the entire demand depends upon the health
of the textile industry. Several such examples can be citing. The investor has to analyze the
condition of related goods producing industry and the end user industry to find out the demand
for industrial goods.
In the case of consumer goods industry, the change in the consumers preference, technological
innovations and substitutes products affect the demand. A simple example is that the ball point
pen affects the demand for the ink pen with the change in the consumer preference towards the
easy usage of pen.
Nature of competition
Nature of competition is an essential factor that determines the demand for the particular
product, its profitability and the price of the concerned company script. The supply may arise
form indigenous manufactures and distributed locally at a comparative price. This possess a
threat to the company made products; the multinational are also entering into the filed with
sophisticated product process and better quality product. Now the companies ability to with stand
the local as well as multinational competition counts much. I f too many firms were present in
the organized sector, the competition would lead to a decline in the price of the product. The
investor before investing in the script of a company should analyzed the market share of the
particular companys product and should compare it with the top five companies.
Government policy
The government policies affect every nerve of the industry and the affects differ from the
industry to industry. Tax subsidies and tax holidays are provided export oriented product.
51

Government regulates the size of the production and the pricing of certain products. The sugar,
fertilizers and pharma industries are often affected the profitability of the sugar industry. In some
cases the government places entry barriers. In the airways, private corporate are permitted to
operate the domestic flights only. When selecting an industry, the government policy regarding
the particular industry should be carefully evaluated. Liberalization and deli censing have
brought immense threat to the existing domestic industries in several sectors.
Labor
The analysis of labor scenario in a particular industry is of great importance. The number of
trade union and their operating mode has impact on the labor productivity and modernization of
industry. Textile industry is known for it militant trade unions. If the trade unions are strong and
strikes occur frequently, it would lead to fall in production. In an industry of high fixed costs, the
stoppage of production may lead to loss. When trade unions oppose the introduction of
automation, in the product market the company may stands to lose with high cost of production.
The UN healthy labor relationship leads to loss of customers goodwill too. Skilled labor is
needed for certain industries. In case of Indian labor market, even in computer technology or in
any other industry skilled and well-qualified labor is available at a cheaper rate. This is one of
the many reasons attracting the multinational to set up companies in India.
Research and development
For any industry to survive the competition in the national and international markets, product and
production process have to be technically competitive. This depends on the R&D in the
particular company or industry. Economies of scale and new market can be obtained only
through R&D. The % expenditure made on R&D should diligently before making an investment.
Pollution standards
Pollution standards are very high and strict in the industrial sector. For some industries it may be
heavier than others; for example, in leather, chemical and pharmaceutical industries the industrial
effluents are more.

52

Swot analysis
The above mentioned factors themselves would become strength, weakness, opportunity and
threat (swot) for the industry. Hence, the investor should carry out a swot analysis for the chosen
industry. Take for instance, increase in demand for the industrys product becomes its strength,
presence numerous players in the market, I.e. competition in R&D that particular industry is an
opportunity and entry of multinationals in the industry and the cheap imports of the particular
products are threat to that industry. In the industry and the cheap imports of the particular
products are threats to that industry. In this way the factor has to be arranged and analyzed. It is
obvious that growth requires investment, which in turn requires substantial amount of domestic
savings. Stock market is a channel through which the savings of the investors are made available
to the corporate bodies. Savings are distributed over various assets like equity shares, deposits,
mutual funds units, real estate and bullion. The savings and Investment patterns of the public
affect the stock to a great extent.

Inflation

Along with the growth of GDP, if the inflation rate also increases then real rate of growth would
be very little. The demand in the consumer product industry is significantly affected. The
industries that come under the Government price control policy may loose the market, for
example sugar. The government control over this industry, affects the price of the sugar and
there by the profit ability of the industry itself. If there is a mild level of inflation, it is good to
the stock market but high rate of inflation is harmful to the stock market.

Interest rates

Interest rates affect the cost of financing to the firms. A decrease in interest rate implies lower
cost of finance and more profitability resulting in companies taking more finances for their
expansion plans. More money is available at a lower interest rate for the brokers who are doing
business with borrowed money. Availability of cheap funds encourages speculation and raises
the share prices. Further it also encourages new people to come into business generally. In the
recent past, Indian economy has been experiencing low interest rates which have been
53

encouraging for the industrial development. The primary lending rate or bank rate was 11% p.a
has been reduced to 8 % P.a in 1999.
Budget
Another important of the economy analysis is budget. Budget can be defined as a draft
providing an elaborate account of the government revenues and expenditure. A deficit Budget
may lead to high rate of inflation and adversely affect the cost of production. Surplus budget may
result in deletion. Hence, balanced budget is highly favorable to the stock market.
The Tax Structure
Tax structure of a country also plays a major role in the development of a country and its
industrialization. It is well known fact that high tax rate of a country makes it an unattractive
destination for investments, then it has to maintain every flexible and low tax structure. For
example it is widely accepted fact that tax rate in the industrialized nations is far more less than
the tax structures in the developing countries. For instance, tax rate in India are reportedly
highest for corporate when compared to some of the developed nations.
54

The Balance of Payment
The Balance of Payment is the record of a countrys receipt from and payment abroad. The
difference between receipts and payments may be surplus or deficit. Balance of payment is a
measure of the strength of rupee on external account. If the deficit increases, the rupee may
depreciate against other currencies, there by affecting the cost of imports. The industries
involved in the export and import are considerably affecting by the changes in foreign exchange
rate. The volatility of the foreign exchange rate affects the investment of the foreign exchange
rate. The volatility of the foreign exchange rate affects the investments of the foreign
institutional investors in the Indian stock market. A favorable balance of payment renders a
positive effect on the stock market.
Monsoon and Agriculture
Agriculture is directly linked with the industries. For example sugar, cotton, textile and food
processing industries depend upon agriculture for raw material. Fertilizers and insecticide
industries are supplying inputs to the agriculture. A good monsoon leads to higher demand for
input and results in bumper crop. This would lead to buoyancy in the stock market. When the
monsoon is bad, agriculture and hybel power production would suffer. They cast a show on the
share market.
Infrastructure facilities
Infrastructural facilities are essential for the growth of industrial and agricultural sector. A wide
network of communication system is a must for the growth of the economy. Regular supply of
power without any power cut would boost the production. Banking and Financial sector also
would be sound enough to provide adequate support to the industry and agriculture. Good
infrastructure facilitates affect the stock market favorably. In India even through infrastructural
facilities have been developed, still they are not adequate. The Government has liberalized its
policies regarding the communications, transport and power sector. For example, power sector
has been up to foreign investors with assured rates of returns.


55

Demographic factors
The Demographic date provides details about the population by age, occupation, literacy and
geographic location. This is needed to forecast the demand for the consumer goods. The
population indicates the availability of workforce. The cheap labor force in India has encouraged
many multinationals to start their venture. Indian labor is cheaper compared to western labor
force. Population, which provides labor and demand for products, affects the industry and stock
market.

Company Analysis
In the company analysis the investor assimilates the several bits of information
related to the company and evaluates the present value of the stocks. The risk and return
associated with the purchase of the stock in analyzed to take better investment decisions.
The valuation process depends upon investors ability to elicit information form the
relationship and inter relationship among the company related variables. The present and
future values are affected by a number of factors and they are as follows
The competitive edge of the company
Major industries in India are composed of hundreds of individual companies. In the
information technology industry even though the no of companies like NIIT, SATYAM
computers etc., controls the major market share. Like wise in all industries, some companies
rise to the position of eminence and dominance. The large companies are successful in
meeting the competition. Once the companies obtain the leadership position in the market,
they rarely lose it. Over the time they would have proved their ability to withstand
competition and to have a sizeable share in the market. The competitiveness of the company
depends upon the following factors
The market share
The growth of annual sales
The stability of annual sales
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The market share
The market share of the annual sales helps to determine a companys relative competitive
position within the industry. If the market share is high, the company would be able to meet
the competition successfully. In the information industry, NIIT and TATA InfoTech topped the
list in terms of sales in 1997. While analyzing the market share, the size of the company also
should be considered because the smaller companies may find it difficult to survive in the
future. The leading companies of todays market, should be compared with like product groups
otherwise, the result would be mis leading. A software company should be compared with
other software company to select the best in that industry.
Growth of sales
The company may be a leading company, but if the growth in sales is comparatively lower than
other company, it indicates the possibility of the company losing the leadership. The rapid
growth in sales would keep the shareholder in a better position than one with the stagnant
growth rate. Growth in sales is usually followed by growth in profits. Investor generally prefers
size and the growth in sales because the larger size companies may be able to withstand the
business cycle rather than the company of smaller size. The growth in sales of the company is
analyzed both in rupee terms in physical terms. Physical term is very essential because it shows
the growth in real terms. Here the rupee term is affected by the inflation. Companies with
diversified sales are compared in rupee terms and percentage of growth over time.
The stability of sales
If a firm has stable revenues, other things being constant, will have more stable earnings. Wide
variations in sales lead to variations in capacity utilization, financial planning dividend.
Periodically all the financial newspapers provide information about the market price of the
share of the different companies in an industry. The fall in the market price of the share
indicates the declining trend of the company, even if the sales are stable in absolute terms.
57

Hence, the stability of sales also should be with its market share and the competitors market
shares.
Earnings of the company
Sales alone do not increase the earning but the costs and expenses of the company also influence
the earnings of the company. Further, earnings do not always increase with the increase in the
sales. The companys sales might have increased but its earnings per share EPS) may decline
due to the rise in costs. The rate of change in earnings differs from the rate of change of sales.
Sales may increase by 10% in a company but earnings per share may increase only by 5%. Even
though there is a relationship between sales and earnings, it is not perfect one. Sometimes, the
volume of sales may decline but the earnings may improve due to rise in unit price of the
article. Hence, the investor should depend only on the sales, but should analyze the earnings of
the company.
The income of the company may be generated through operating sources and non operating
sources. The sources of operating income may vary form industry to industry. For service
industry no tangible product is involved and income and income is generated through sales of
services. Take the case of commercial bank; its income is the interest on loan and investment. If
Interest income is referred to opening income. But in case of industries producing tangible
goods earnings arise from the sales of goods.The companies in addition to the revenue form his
wife sales may get revenue form other sources too. The non-operating income may be generated
from interest from bonds, rentals from lease; dividends form securities and sale of assets. The
investor should analyze the income source directly whether it is from the sale of asset or it is
from investments. Sometimes EPS may seem to be attractive in a particular year but in actual
case the revenue is generated through sale s may be comparatively lower than in previous year.
The earnings might have been generated through the sale of assets. The investors should be
aware that income of the company may vary due to the following reasons:

Changes in sales
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C1hanges in cost
Depreciation method adopted
Depletion of resources in the case of oil, mining, forest products, gas etc
Inventory accounting method
Replacement cost of inventories
Wages, salaries and fringe benefits
Income taxes and other taxes

Capital structure
The equity holders return can be increased manifold with the help of financial leverage, i.e.
using debt financing along with equity financing. The effect of financial leverage is measured by
computing leverage ratios. The debt ration indicates the position of the long-term and short
term debt in the company finance. The debt may be in the form of debentures for a term loans
from financial institutions.
Preference shares: In the early days preference share capital was never a significant source of
capital. At present, many companies resort to preference shares. The preference shares induct
some degree of leverage in finance. The leverage effects of the preference shares are
comparatively lesser than the debt because the preference share dividends are not ax deductible.
If the portion of preference share in the capital is larger, it tends to create instability in the
earnings of the equity shares when the earnings of the company fluctuate. Sometimes the
preference shares may be convertible; in that case it diluted the EPS. So the preference shares
may be convertible; in that case it diluted the EPS. So the investor should look into the
preference share component on the capital structure.
Debt: Long term debt is an important source of finance. It has the specific benefit of low cost of
capital interest is tax deductible. The leverage effect of debt is highly advantageous to the equity
holders. During the boom period the +ve side of the leverage effect increases the earnings of the
share holders. At the same time, during recession the leverage effect inducts instability in EPS
59

and can lead to bankruptcy. Hence, it is important to limit the debt component of the capital to a
reasonable level. The limit depends on the firms earning capacity and its fixed assets.
Earnings limit of debt: The Earning determine whether the debt is excessive or not. The
earnings indicate the probability of insolvency. The ratio used to find out the limit of the debt is
the interest coverage ratio i.e. the ratio of the net income after taxes to inter paid bank on debt.
The ratio shows the firms ability to pay the interest charges, the number of times the interest is
covered by earnings.
Asset limit to debt: Fixed assets to debt ratio will find out the asset limit. The financing of fixed
assets by the debt should be within a reasonable limit. For industrial units the recommended level
is below 0.5.
Management: Good and capable management generates profit to the investors. The management
of the firm should efficiently plan, organize, actuate and control the activities of company. The
basic objective of the management is to attain the stated objectives of the company for the good
of equity holders, the public and employees. If the objectives of the company are achieved,
investors will have a profit. A management that ignores that one that over emphasizes it. The
good management depends on the qualities of the manager. Koontz and ODonnell suggest the
following as special traits of an able manager.
>Ability to get along with people
>Leadership
>Analytical competence
>Industry
>Judgment
>Ability to get things done
Since the traits are difficult to measure, managerial performance is evaluated against setting and
accomplishing verifiable objectives. If the investor needs greater proof of excellence of
management, he has to analyze management ability. The analysis can be carried out on the
following ways:
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1. The background of managerial personal contributes much of the success of the
management. The managers age, education background, advancement within
the company, levels of responsibility achieved and the activities in the social
sphere can be studied.
2. The record of management over the past years has to be reviewed. For several
companies what the top management has done during its tenure in office is
given financial weekly and monthly along with critical comments. This gives
an insight into the ability of top management.
3. The management skill to have market share ahead of other as proof of
managerial success. The investor can rely on this type of management and
choose the stock
4. The next criterion the investor should analyze is the companys strength to
expand. A firm may expand from within and diversify products in the known
lines. Sometimes it may acquire another company to expand its` market. The
management should adopt a realistic policy of dividend in relation to earnings.
A realistic dividend policy boosts the image of the companys stock in market.
5. The functional ability of management to work with employees and union is
another area of concern. Unions pose a threat to the smooth functioning of a
firm. In this context the management should be able to maintain harmonious
relationship with the employees and inions.
6. The managements adaptability of scientific management and quality control
techniques should be analyzed. The management should be able to give due
weight age to maintain technical competence.
After analyzing the above mentioned factors, the investor should select a company that poses
excellent management and maintain the competitive position of the company in the market. The
investor should also remember that the individual traits of a single manager alone cannot make
the company profitable and there should be a strong management system to do so.



61

Financial Analysis
Investment prospects in a companys stock can be evaluated through financial analysis of the
company. The financial analysis provides better insight into historical and current information
about companys operations. The historical financial statement of a company enable in
forecasting the future results of that company. The main components of financial analysis are as
follows
>Balance sheet
>Profit and loss account
Balance sheet: The b/s is the statement of companys sources of funds and uses at a given
point of time. The B/s allows one to get quick view of the business, whether it will be able to
expand and handle the financial problems. The B/s contains of two segments Liabilities and
Assets represent financial strength of a company. The balance sheet provides an account of
the capital structure.
The net worth and the outstanding long term debt are known from the balance sheet from
the observation of the balance sheet an investor can avoid a company that has an excessive
debt component in its capital structure. From the balance sheet, liquidity position of the
company can also be assessed with the information on current assets and current liabilities.
The overall ability to pay its short term obligations can be found out.

Profit & loss account: Analysis of the financial condition of the company requires a report
on the flow of funds too. The income statement reports the flow of funds from business
operations that take place in between two points of time. It lists down the items of income
and expenditure. The difference between the income and expenditure represent profit or
loss for period. It is also called income and expenditure statement. The investor should be
aware of the limitation of the financial statements.
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Limitations of financial statements:
1. The financial statement contains historical information. This information is
useful; but an investor should be concerned more about the present and future.
2. Financial statements are prepared on the basis of certain accounting concepts and
conventions. An investor should know them.
3. The statements contain only information that can be measured in monetary units.
For example, the loss incurred by a firm due to flood or fire is included because it
can be expressed in monetary terms. The loss incurred by the company due to the
loss of reputation is not given in the statement because it cannot be measured in
monetary units.
4. Sometimes management may resort to manipulation of data and widow dressing.
This can be carried out by
a) Method of charging depreciation
b) Valuation of inventory
c) Revaluation of fixed assets
d) Changing the accounting year
An investor should scrutinize the financial statements to find out the manipulations, if
any the auditors report and notes to that balance sheet gives vital clue to the investor n this
regard. Analysis of financial statements should be undertaken only after nullifying the effects of
any such manipulation.
Analysis of financial statements:
Financial statements analysis helps an individual to understand the relationship between
income and expenditure, and sources and application of funds. It also helps an investor to
understand the financial position and the strength of a company through this analysis. An
investor can do financial analysis through following simple analysis:
Comparative financial statements
Trend analysis
Common size statements
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Funds flow analysis
Cash flow analysis
Ratio analysis
>Comparative financial statements :This provides balance sheet figures for more than
one year and allows an investor to compare the performance of company over the years.
The comparative statements analysis provides time perspective to the B/S figures.
>Trend analysis
As the name suggests, trend analysis enables an investors to find out trend over a period for time.
In this analysis, percentages are calculated with base year, which provides details about growth
or decline of various components such as profits or sales etc.
>Common size statement
This shows the % of each asset item to the total assets and each liability item to the total
liabilities. Further it also shows each item of expense as a % of net sales. With this comparison
can be made between to different size firms belonging to the same industry.
>Fund flow analysis
Funds flow analysis presents static picture of a company on any given date, however it does not
provide any clue about financial position of a company. But investors would be able to know
following.
How are the profits utilized?
Financial source of dividend
Source of finance for repayment of debt
Source of finance for capital expenditure
The density of the sale proceeds of the fixed assets and
Use of the proceeds of the share or debenture issues or fixed deposits rose from
public
Funds flow statement is a statement of the sources and application of funds. It
enables investor to know changes in the financial condition of a company between
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two balance sheet dates. It also allows an investor to notice amount of funds
generated or lost in operations.
>Cash flow statement the
investor is interested in knowing the cash inflows and outflow of the enterprise. The cash
flow statement is prepared with the help of balance sheet, income statement and some
additional information. It can be either prepared in the vertical form or in the horizontal
form. Cash flows related to operations and other transactions are calculated. The statements
show the causes of change in cash balances between two balance sheet dates. With the help
of this statement the investor can review the cash movements over an operating cycle. The
factor responsible for the reduction of cash balance in spite of increase in profit or vice
versa can be found.
>Ratio analysis Ratio
is relationship between two figures expressed mathematically. Financial ratio provides numerical
relationship between two relevant financial data. Financial ratios are calculated from the balance
sheet and the profit and loss account. The relationship can be either expressed as a present or a
quotient. Ratios summarize the data for easy understanding, comparison and interpretation.
Financial ratios may be divided into six groups. They are listed as below.
Liquidity ratios
Turnover ratios
Leverage ratios
Profit margin ratios
Return on investment ratios
Valuation ratios
Fundamental Analysis Tools
These are the most popular tools of fundamental analysis. They focus on earnings,
growth, and value in the market. For convenience, I have broken them into separate articles.
Each article discusses related ratios.
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The articles are:
1. Earnings per Share EPS
2. Price to Earnings Ratio P/E
3. Projected Earning Growth PEG
4. Price to Sales P/S
5. Price to Book P/B
6. Dividend Payout Ratio
7. Dividend Yield
8. Book Value
9. Return on Equity
No single number from this list is a magic bullet that will give you a buy or sell
recommendation by itself, however as you begin developing a picture of what you want
in a stock; these numbers will become benchmarks to measure the worth of potential
investments.

Understanding Earnings per Share
One of the challenges of evaluating stocks is establishing an apples to apples comparison.
What I mean by this is setting up a comparison that is meaningful so that the results help you
make an investment decision. Comparing the price of two stocks is meaningless .comparing the
earnings of one company to another really doesnt make any sense, if you think about it. Using
the raw numbers ignores the fact that the two companies undoubtedly have a different number
of outstanding shares. For example, companies A and B both earn $100, but company A has 10
shares outstanding, while company B has 50 shares outstanding. Which companys stock do
you want to own? It makes more sense to look at earnings per share (EPS) for use as a
comparison tool. You calculate earnings per share by taking the net earnings and divide by the
outstanding shares.
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EPS = Net Earnings / Outstanding Shares
Using our example above, Company A had earnings of $100
and 10 shares outstanding, which equals an EPS of 10 ($100 / 10 = 10). Company B had
earnings of $100 and 50 shares outstanding, which equals an EPS of 2 ($100 / 50 = 2). So,
you should go buy Company A with an EPS of 10, right? Maybe, but not just on the
basis of its EPS. The EPS is helpful in comparing one company to another, assuming
they are in the same industry, but it doesnt tell you whether its a good stock to buy or
what the market thinks of it. For that information, we need to look at some ratios.
Before we move on, you should note that there are three types of EPS numbers:
Trailing EPS last years numbers and the only actual EPS
Current EPS this years numbers, which are still projections
Forward EPS future numbers, which are obviously projections
Understanding Price to Earnings Ratio

If there is one number that people look at than more any other it is the
Price to Earning Ratio (P/E). The P/E is one of those numbers that investors throw around with
great authority as if it told the whole story. Of course, it doesnt tell the whole story (if it did, we
wouldnt need all the other numbers.) .The P/E looks at the relationship between the stock price
and the companys earnings. The P/E is the most popular metric of stock analysis, although it is
far from the only one you should consider.
You calculate the P/E by taking the share price and dividing it by the companys EPS.
P/E = Stock Price / EPS
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For example, a company with a share price of $40 and an EPS of 8 would have a P/E of 5
($40 / 8 = 5).
What does P/E tell you? The P/E gives you an idea of what the
market is willing to pay for the companys earnings. The higher the P/E the more the
market is willing to pay for the companys earnings. Some investors read a high P/E as
an overpriced stock and that may be the case, however it can also indicate the market
has high hopes for this stocks future and has bid up the price. Conversely, a low P/E
may indicate a vote of no confidence by the market or it could mean this is a sleeper
that the market has overlooked. Known as value stocks, many investors made their
fortunes spotting these diamonds in the rough before the rest of the market
discovered their true worth. What is the right P/E? There is no correct answer to this
question, because part of the answer depends on your willingness to pay for earnings.
The more you are willing to pay, which means you believe the company has good long
term prospects over and above its current position, the higher the right P/E is for that
particular stock in your decision-making process. Another investor may not see the
same value and think your right P/E is all wrong.
Understanding the PEG
In my article on Price to Earnings Ratio or P/E , I noted that this number gave you an idea of
what value the market place on a companys earnings. The P/E is the most popular way to
compare the relative value of stocks based on earnings because you calculate it by taking the
current price of the stock and divide it by the Earnings Per Share (EPS). This tells you whether a
stocks price is high or low relative to its earnings.
Some investors may consider a company with a high P/E overpriced and they may be
correct. A high P/E may be a signal that traders have pushed a stocks price beyond the point
where any reasonable near term growth is probable. However, a high P/E may also be a strong
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vote of confidence that the company still has strong growth prospects in the future, which
should mean an even higher stock price. Because the market is usually more concerned about
the future than the present, it is always looking for some way to project out. Another ratio you
can use will help you look at future earnings growth is called the PEG ratio. The PEG factors in
projected earnings growth rates to the P/E for another number to remember. You calculate the
PEG by taking the P/E and dividing it by the projected growth in earnings.
PEG = P/E / (projected growth in earnings)
For example, a stock with a P/E of 30 and projected earning growth next
year of 15% would have a PEG of 2 (30 / 15 = 2). What does the 2 mean? Like all ratios,
it simply shows you a relationship. In this case, the lower the number the less you pay
for each unit of future earnings growth. So even a stock with a high P/E, but high
projected earning growth may be a good value.
Looking at the opposite situation; a low P/E stock
with low or no projected earnings growth, you see that what looks like a value may not
work out that way. For example, a stock with a P/E of 8 and flat earnings growth equals
a PEG of 8. This could prove to be an expensive investment.
A few important things to remember about PEG:
It is about year-to-year earnings growth
It relies on projections, which may not always be accurate
Understanding Price to Sales Ratio
You have a number of tools available to you when it comes to evaluating companies
with earnings. The first three articles listed at the bottom of this article, in particular deal with
earnings directly. You can add the two others on dividends and the one on return on equity to
the list as specific to companies that are or have made money in the past. Does that mean
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companies that dont have any earnings are bad investments? Not necessarily, but you should
approach companies with no history of actually making money with caution.
The Internet boom of the late 1990s was a classic example of hundreds of companies
coming to the market with no history of earning some of them didnt even have products yet.
Fortunately, thats behind us. However, we still have the problem of needing some measure of
young companies with no earnings, yet worthy of consideration. After all, Microsoft had no
earnings at one point in its corporate life. One ratio you can use is Price to Sales or P/S ratio.
This metric looks at the current stock price relative to the total sales per share. You calculate the
P/S by dividing the market cap of the stock by the total revenues of the company. You can also
calculate the P/S by dividing the current stock price by the sales per share.
P/S = Market Cap / Revenues
or
P/S = Stock Price / Sales Price per Share
Much like P/E, the P/S number reflects the value placed on sales by the market. The
lower the P/S, the better the value, at least thats the conventional wisdom. However,
this is definitely not a number you want to use in isolation. When dealing with a young
company, there are many questions to answer and the P/S supplies just one answer.
Understanding Price to Book Ratio
Investors looking for hot stocks arent the only ones trolling the markets. A quiet
group of folks called value investors go about their business looking for companies that the
market has passed by. Some of these investors become quite wealthy finding sleepers, holding
on to them for the long term as the companies go about their business without much attention
from the market, until one day they pop up on the screen, and some analyst discovers them
and bids up the stock. Meanwhile, the value investor pockets a hefty profit.

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Value investors look for some other indicators besides earnings growth and so on. One
of the metrics they look for is the Price to Book ratio or P/B. This measurement looks at the
value the market places on the book value of the company. You calculate the P/B by taking the
current price per share and dividing by the book value per share.
P/B = Share Price / Book Value per Share
Like the P/E, the lower the P/B, the better the value. Value investors would use a low
P/B is stock screens, for instance, to identify potential candidates.


Understanding Dividend Payout Ratio
There are some metrics used in fundamental analysis that fall into what
I call the ho-hum category. The Dividend Payout Ratio (DPR) is one of those
Numbers. It almost seems like a measurement invented because it looked like it
Was important, but nobody can really agree on why. The DPR (it usually doesnt
even warrant a capitalized abbreviation) measures what a companys pays out to
Investors in the form of dividends.
You calculate the DPR by dividing the annual dividends per share by the
Earnings Per Share.
DPR = Dividends Per Share / EPS
For example, if a company paid out $1 per share in annual
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dividends and had $3 in EPS, the
DPR would be 33%. ($1 / $3 = 33%)
The real question is whether 33% is good or bad and that
Is subject to interpretation.
Growing companies will typically retain more profits to fund growth and
Pay lower or no dividends. Companies that pay higher dividends may be in mature
industries where there is little room for growth and paying higher dividends is
the best use of profits (utilities used to fall into this group, although in recent
Years many of them have been diversifying). Either way, you must view the
Whole DPR issue in the context of the company and its industry.
By itself, it tells you very little.
Understanding Dividend Yield
Not all of the tools of fundamental analysis work for every investor on every stock. If you are
looking for high growth technology stocks, they are unlikely to turn up in any stock screens
you run looking for dividend paying characteristics. However, if you are a value investor or
looking for dividend income then there are a couple of measurements that are specific to you.
For dividend investors, one of the telling metrics is Dividend Yield.
This measurement tells you what percentage return a company pays out to shareholders
in the form of dividends. Older, well-established companies tend to payout a higher percentage
then do younger companies and their dividend history can be more consistent. You calculate
the Dividend Yield by taking the annual dividend per share and divide by the stocks price.
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Dividend Yield = annual dividend per share / stock's price per share
For example, if a companys annual dividend is $1.50 and the stock trades at $25, the
Dividend Yield is 6%. ($1.50 / $25 = 0.06)
Understanding Book Value
How much is a company worth and is that value reflected in the stock price? There are several
ways to define a companys worth or value. One of the ways you define value is market cap or
how much money would you need to buy every single share of stock at the current price.
Another way to determine a companys value is to go to the balance statement and look at the
Book Value. The Book Value is simply the companys assets minus its liabilities.
Book Value = Assets - Liabilities
In other words, if you wanted to close the doors, how much would be left after you
settled all the outstanding obligations and sold off all the assets.
A company that is a viable growing business will always be worth more than its book
value for its ability to generate earnings and growth. Book value appeals more to value
investors who look at the relationship to the stock's price by using the Price to Book
ratio. To compare companies, you should convert to book value per share, which is
simply the book value divided by outstanding shares.
Understanding Return on Equity
If you give some management teams a couple of boards, some glue, and a ball of string,
they can build a profitable growing business, while other teams cant make a profit with several
billion dollars worth of assets. Return on Equity (ROE) is one measure of how efficiently a
company uses its assets to produce earnings. You calculate ROE by dividing Net Income by
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Book Value. A healthy company may produce an ROE in the 13% to 15% range. Like all metrics,
compare companies in the same industry to get a better picture.
While ROE is a useful measure, it does have some flaws that can give you a false picture,
so never rely on it alone. For example, if a company carries a large debt and raises funds
through borrowing rather than issuing stock it will reduce its book value. A lower book value
means youre dividing by a smaller number so the ROE is artificially higher. There are other
situations such as taking write-downs, stock buy backs, or any other accounting slight of hand
that reduces book value, which will produce a higher ROE without improving profits.
It may also be more meaningful to look at the ROE over a period of the past five years,
rather than one year to average out any abnormal numbers. Given that you must look at the
total picture, ROE is a useful tool in identifying companies with a competitive advantage. All
other things roughly equal, the company that can consistently squeeze out more profits with
their assets, will be a better investment in the long run.

Criticisms
>There is very little evidence that fundamental analysis is useful to investors in developed
financial markets.
>Some experts suggest that a monkey throwing darts at the financial pages of a newspaper may
do just as well




74


TECHNICAL ANALYSIS

Technical analysis refers to the study of price action in securities markets, primarily, but
not exclusively, through charts in order to forecast future prices. There are many different
methods and tools utilized in technical analysis (some of which are listed below) but they all
rely on the same principles, namely that price patterns and price trends, that can be identified
and exploited, exist in the market. The premises of technical analysis were derived from
empirical observations of financial markets. Charles Dow's Dow Theory is considered the
foundation of technical analysis. New theories and tools have been produced and existing tools
have been enhanced at a rapidly increasing rate in recent decades. Technical analysis is less
concerned with why a price is moving (poor earnings, difficult business environment, poor
management, etc. or other [fundamentals] than it is on the fact that the price is moving in a
particular direction. To a technical analyst, profits can be made in any market by positioning
oneself in the direction of the price trend. If the price trend is up, then look for opportunities to
buy, if the price trend is down, then look for opportunities to sell.
Similarly, if a particular price pattern was identified in the market, a technical analyst
would position himself to take advantage of the expected move that follows that
pattern.Technical analysis is occasionally at odds with fundamental analysis. Essentially,
fundamental analysis maintains that it is possible that markets misprice and that a security's
current price can be overvalued or undervalued, therefore revealing an opportunity to buy or
sell. Contrastingly, a technical analyst is interested in only the price action and is less concerned
with the fundamentals driving the price. A cliche among technical analysts is, "Forget the
fundamentals and follow the money.
The effectiveness of technical analysis is hotly debated. Many academics and market
participants believe it has no predictive power except as a self-fulfilling prophecy. Yet,
technical analysis has a loyal and dedicated following, especially amongst active traders who
defend the practice and believe it can be profitable. Some research concludes that technical
analysis is effective as well
Fundamentalists forecast stock prices on the basis of economic, industry, and company
statistics. The principal decisions variables ultimately take the form of earnings and dividends.
The fundamentalist makes the judgment of stocks value with a risk return frame work based
upon earning power and the economic environment.
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Technical analysis is peace usually used to supplement to fundamental analysis rather
than as a substitute for it. Thus, technical analysis can, and frequently does, confirm findings
based on fundamental analysis. Technician does not consider if value in the sense he in which
the fundamentalists use it. The technicians believes the forces of supply and demand are
reflected in If patterns of price and volume of trading. By examination of these patterns, he
predicts whether prices are moving higher or lower, and even by how much. In the narrowest
sense, the technician believes that the price movements, whatever their cause, once in force
persists for some period of time and can be detected.
The technical analysis may be used for more than a supplement to fundamental analysis.
Fundamental analysis allows the analyst to forecast holding period yield and the risk ness of
achieving that the yield, but these figures alone do not necessarily prompt a buy or sell action.
Technical analysis, however, may be useful in timing a buy or sell order- an order that may be
implied by the forecasts of risk and return. For example, the technical analysis may reveal that a
drop in price is warranted. Postponement of a purchase, then, if the technical analysis is correct,
will raise the forecast holding period yield (hyp). Conversely, a sell order might be postponed
because the charts reveal a rise in the price of the security in question.
The technicians must (1) identify trend, and (2) recognize when one trend comes to an
end and prices start in the opposite direction. His central problem is to distinguish between
reversals within a trend and real changes in the trend itself. This problem of sorting out is
critical because prices do not change in a smooth, uninterrupted fashion. The technicians
views price changes and their significance mainly through price and volume statistics. His bag
of tools, or indicators, helps him measure price-volume, supply-demand relationships for the
overall market as well as for individual stocks. Technicians seldom rely upon reinforcement
provided by groups of indicators. There are some of major technical indicators employed to
assess the direction of the general market and the direction of individual stocks.

Assumptions of technical analysis
Market value is determined solely by the interaction of supply and demand
Supply and demand are governed by numerous factors, both rational and irrational
Ignoring minor fluctuations in the market, stock prices tend to move in trends which
persist for an pperciable length of time
Shifts in supply and demand, no matter why they occur, can be detected sooner or latter
in charts of market value
some chart patterns repeat themselves
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The market discounts every thing. The price of the security quoted represents the hopes,
fear, and inside information received by the market players.


TOOLS OF TECHNICAL ANALYSIS

>Daily fluctuation or volatility: open, high, low and close are quoted. Changes between open
and close or high and low can be taken in absolute points or in percentages to reflect the daily
volatility. such fluctuation can be worked out on weekly, monthly or yearly basis also to reflect
the daily volatility of the market
A yearly high-low indicates the possible levels within a range that the price may move which
helps to locate entry and exit points.
>Floating stock and volume of trade: Floating stock is the total no of shares available for
trading with the public volume of trade is any part of that floating stock. The higher this
proportion, the higher is the liquidity of a share which is to be purchased or sold. Volume tends
are also a supporting indicator to the price trends to interpret the market.
>Price trends and volume trends: The charist method and moving average method can be used
to depict these trends.
>Rate of change of prices and volumes or the roc method: This is useful like the moving
average method to indicate more clearly the buy and sell signals. The charist method is useful to
indicate the directions and the trend reversals. ROC is calculated by dividing the todays price
by the price of five days back or few days back. It can be expressed as percentage or positive or
negative change. Thus they can be moving around 100, in the case of % or zero line, in the case
of positive and negative % changes.
>Japanese candle stick methods: There are three main type of candlesticks with each days
trade being shown in the forms of candlesticks. Each stick has the body of the candle and a
shadow. The body shows the open and close prices while the shadow shows the high prices and
low prices. The three main types are as follows:
a) Closing price is higher than open price (white candlestick)
b) Closing price is lower than the open price (Black stick)
c) Open and close are at the same level (Doji candlestick)
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This method will indicate any likely changes in trends in the short
run.









>Elliot wave theory: The market is unfolded by a basic rhythm or pattern of 5 waves up to be
corrected by three waves down with a total of 8 waves- a philosophy of price trends.
>Theory of gaps: Gaps in price between any two days causing a discontinuity is called a gap.
The high of one day may be lower than the low of previous day when prices are falling. Gaps
indicate the likely accelerated of the trend or reversal.
Gaps are of different categories, namely:
1. Common gaps: When prices move in a narrow range, a gap can occur in prices.
2. Break out gaps: When a price trend is likely to change, a gap can occur in either
direction. This gives a break to congestion in any direction.
3. Runaway gaps: These gaps occur continuously in a downward phase or an upward
phase, accelerating or decelerating the trends.
4. Exhaustion gaps: These occur when the rally is getting exhausted. When the runway
gap is coming to an end, there can be exhausted gap to indicate the likely completion
of the uptrend.

>Advance decline line or spread of the market: The ratio between advances to declines will
indicate the relative strength of upward or downward phases. When the advances are
increasing over declines it is an upward phase and the reverse indicates the downward phase.

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>Relative strength index: It is an oscillator used to identify the inherent strength or weakness of
particular scrips.

Thus RSI=100-100/1+rs where
Rs= Average gain per day/average loss per day
RSI is calculated for one scrip while RSC or the relative strength comparative, is the ratio of two
prices of two different scrips, used or consumption of two or more scrips. RSI can be
calculated for any no of days say 5 or 10 etc. to indicate the strength of price trend.

Market indicators
The use of market indicators to measure the direction of overall market should
precede any technical analysis of individual stocks because of the systematic influence of the
general market on stock prices. In addition, some technicians feel that forecasting aggregates is
more reliable because individual errors can be filtered out.










79


FACTORS AFFECTING SHARE PRICES
Stock market is something where you can never foretell what is going to happen in the market.
You might get huge gain or incur losses when the stock market crashes. There are many factors
affecting share prices. It is very hard to say just one or two factors affect the share prices. So, let
us have a look at the factors that affect share prices.
Demand and Supply
This is the first factor that affects share prices. When you get to see that more people are buying
stocks, then there is an increase in the price of that particular stock. On the other hand price of
stock falls when more people are selling their stocks. So it is very difficult to predict the Indian
stock market. This is the main reason why you need to get in touch with a good stock market
consultant. There is consultancy for you which can help you a lot on choosing the right stocks for
you.
Market cap
It is a very big mistake when you try to guess a companys worth from the price of a stock. You
should know that the more important is the market capitalization of the particular company. This
helps to determine the worth of a company. So market cap serves as an important use to
determine share prices.
Earning per share
Now when it comes to the term, earning per share, it means the profit that a particular
company has made per share and that too on the last quarter. If you need to know the health of
the company then this is the most important factor. Whats more earning per share also
influences the buying tendency in the market that results in the increase of the particular stock
price. This is the reason why it is very important for every public company to bring out the
quarterly report. So when you wish to make a profitable investment, then the best thing for you
would be to keep a good watch on the quarterly reports of different companies. This is very
important before you wish to invest your hard earned money in the share market.
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Impact of news
News is another factor that affects the share price. When there is positive news about a particular
stock or company, people try to invest all their money in that particular stock or market. This
leads to increase in the interest of buying the stock. But there are many circumstances where
news could also bring a negative effect where it could ruin the prospect of the particular stock.
So it is very important to know the overall news of a stock or company where you can invest
your money so that it grows within a very short period of time.
There are many things that you need to consider when you go for investing your hard earned
money in the stock market. You should never be in a haste to invest your money in the stock
market. You should always get in touch with a good stock market consultancy where it can give
you some share tips. They are the one who can give you advice where to invest your money and
where not to. They know to distinguish the good stock from the bad ones.











81


EFFECT OF UNION BUDGET 2014 ON TOP 5 SHARES
A GRAPHICAL REPRESENTATION


TATA CONSULTANCY SERVICES






82



ONGC

RELIANCE

83

COAL INDIA

HDFC BANK

84

COMPARATIVE











85


EFFECT OF BUDGET A THEORATICAL APPROACH
The Union Budget, presented by finance minister Arun Jaitley on 10
th
July 2014, had much to
offer to sectors across board. heres a look at the impact on different industries:

REAL ESTATE
The housing and real estate sector is the biggest beneficiary of the budget.
The budget announced multiple measures like development of 100 smart cities, foreign
direct investment in reality- especially in low-cost housing, tax concessions for Real
Estate Investment Trusts (REITs), increase in allocation for the National Housing Bank,
and allowing slum development as one of the activities under Corporate Social
Responsibility.
This will directly affect the real estate and construction sector positively.
In addition, higher tax- exemption on hone loan interest could also help increase demand
for houses.
These are much- required measures to the sector, which has been affected by poor
demand and high costs.

FINANCIAL SECTOR
Banks are the second biggest beneficiary after real estate, especially public-sector banks.
The budget allowed for banks to raise capital by selling the government stake and hiked
the foreign direct investment limit in the insurance sector to 49%.
It also allowed banks to raise long term funds for lending to the infrastructure sector with
minimum regulatory obligations such as CRR, SLR and PSL.
This will help banks raise funds more easily for infrastructure projects and reduce
financial burden.
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Increase in tax exemptions on investments too could see funds flowing to the financial
sector through increased savings.
However, the hike in the target of credit flow to the farmers from Rs 7.0 trillion in FY14
to Rs 8.0 trillion in FY 15 could have a negative impact on PSU banks as they may be
forced to lend more.
AUTO SECTOR
The finance minister had already extended excise duty concessions to the auto sector before the
budget.
There were no direct measures for the sector in the speech.
However, measures like investment allowance benefit to the small and medium enterprises,
reduction in basic custom duty on battery scrap, and reduction in excise duty of LED raw
materials, will positively affect auto ancillary companies and suppliers.
The budgets concentration on improving agriculture too is positive for the auto sector.
This is because, a betterment in agriculture will improve rural income, which could lead to an
increase in demand for cars and two wheelers.

INFORMATION TECHNOLOGY
The government has set aside Rs 10000 crore to fund start-ups and entrepreneurs.
It has also concentrated in improving technology in governance.
This is a big positive for the sector as it will increase in the usage of technology, thus providing
more business to Indian companies.






87


FINDING & SUGESSTIONS

1. The investor should analyze the risk factors which can affect the prices of share before
marketing investment decision

2. For long term benefit emphasis should be given to both fundamental and technical
analysiss

3. Investment decision should also be based on risk return analysis

4. For Investment decisions, future prospects of the company should also be taken into
consideration

5. The Investor should also analyze the behavior of the market as a whole as well the
behavior of movement of the share in which the investor is likely to invest








88


LIMITATIONS OF STUDY

1. The study is based on information which is secondary.

2. The sample size is restricted to five companies.




















89


CONCLUSIONS


1. Helpful for investor for taking investment decisions

2. The Investor can know the risk and return of the share by analyses

3. This analysis is useful for investor who wants to go for long and short term investment

4. The Investor can estimate the future EPS with the help of historical data

5. The Financial statements of company reveal the needed information for investor to make
investment decisions

6. The ratio analysis helps the investor to study the individual parameters like profitability,
liquidity and solvency of stocks

7. Fundamental analysis is used to predict long-term share price movement

8. Technical analysis is used to forecast the supply and demand by studying the price and
volume of trading by using technical analysis the moment investor is able to know
growth of share

9. Technical analyst short term share price




90


BIBLIOGRAPHY

References:-
Financial Services-Khan M.Y(3
rd
Edition)
Financial Management Prasanna Chandra
News Papers :-
Economic Topic
Business Standard
India
Websites:
www.indiainfoline.com
www.nseindia.com
www.bseindia.com
www.sebi.com
www.google.com
www.investopedia.com
www.karvy.com