Fundamental Analysis and Technical Analysis of Unitech PROJECT REPORT
Fundamental Analysis and Technical Analysis of Unitech PROJECT REPORT...
CONTENTS SI.n o 1
Introduction to the capital market
Theoretical Framework 4
7 8 9
Recommendations Conclusions Bibliography
79 80 81
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Executive Summary Project Title : Fundamental Analysis and Technical Analysis of Unitech Ltd. Company and Place: KARVY Stock Broking Ltd. Dharwad Research Process: KARVY Stock Broking Ltd. Is a premier financial services provider & ranked top five in the country. Recently the capital market crashed because of many reasons investors lost heavy amount But fundamental & Macro factors Indian market is good. Stability in market is not there currently therefore some of the investor who lost money in market crash, so many of them are shaky to enter into market again. Therefore getting investor confidence is more important which will happen when the market stabilizes. So for that matter broking firms should provide proper guidance to their investors for facilitating their decision making in investments. Research Objectives: Main Objective: To know the future increase and decrease of stock price in selected company stocks through Fundamental And Technical Analysis. Sub Objectives: To understand how best we can use this analysis is to meet the financial goal of the investors. To understand the effect of Industry specific factors on the stock prices through Industry Analysis. To know which securities to be bought and when to be bought. To know which securities to be sold and when to sell.
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To provide investors with a basket of securities to be stay invested to have a sound portfolio. Research Plan: The data collected for the study is secondary data. The data I have used for the study is 1. Historical shares value of the stocks collected from www.nseindia.com 2. The balance sheet and Income statement got from companies web site. 3. Some of the information about the industry is collected from the web site. The Measurement Techniques The following techniques are used for the study. 1. The bar chart 2. Candlestick charting 3. Point & figure chart 4. Moving average. 5. Exponential moving average (EMA) 6. The relative strength index (RSI) 7. Oscillators (ROC, RSI, MACD,STOCHASTICS) Analysis: Using MS-Excel
Findings: General: One of the most important areas for any investor to look when researching a company is the financial statement. Financial reports are required by law and are published both quarterly and annually. Management discussion give investors a better understanding of what the company does and usually points out some key areas where they did well. Audited financial reports have much more credibility than unaudited ones. The income statement takes into account some non-cash items such as depreciation. The cash-flow statement strips away all non-cash items and tells you how much actual money the company generated.
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For Stock: First, the projected MPS of the stock next three years are Rs.231.05, Rs.286.03 and Rs.352.68. Short term support for scrip: 265-275; Next support has been established at 150165. Long term target by technical analysis is 620-40 but this is unlikely to happen in the medium term because short term trend has been bearish and long term trend has been flat and undergoing long consolidation For market: Short term support or intermediate support: 4500-4600; next long term support lies at3100-3150 Resistance for Nifty is at present is at 6000 Short term and intermediate trend has been bearish and long term trend is still bullish. Long term nifty target is a 6980- 7020.
Recommendations: Long term investors can include Unitech, because the growth rates and earnings are good compared to others stocks. Therefore investors can include this in their portfolio to earn the higher return on their investment. The Long term investors should buy the stocks fair value found out by the fundamental analysis. Short term investors should look on various support and resistance of stocks to buy or sell and make profit.
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Stock market or capital market provides the industry with a lot of capital needed by the industry, which leads to the growth of the industry and economy as a whole; hence the stock market plays an important role in the development of the industry. Some times Using Technical and fundamental analysis individually leads to incorrect results hence both Fundamental and technical analysis should be used at a time to get the desired result. Fundamental analysts study everything from the overall economy and industry conditions, to the financial condition and management of companies before deciding on any particular stock. Technical analyst’s look for peaks, bottoms, trends, patterns and other factors affecting a stock's price movement and then make buy/sell decisions based on those factors.
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INTRODUCTION TO CAPITAL MARKETS Introduction to Capital Markets Transfer of resources from those with idle resources to others who have a productive need for them is perhaps most efficiently achieved through the securities markets. Stated formally, securities markets provide channels for allocation of savings to investments and thereby decouple these two activities. As a result, the savers and investors are not constrained by their individual abilities, but by the economy’s abilities to invest and save respectively, which inevitably enhances savings and investment in the economy. Market Segments The securities market has two interdependent and inseparable segments, the new issues (primary market) and the stock (secondary) market. The primary market provides the channel for sale of new securities while the secondary market deals in securities previously issued. The price signals, which subsume all information about the issuer and his business including associated risk, generated in the secondary market, help the primary market in allocation of funds. The issuers of securities issue (create and sell) new securities in the primary market to raise funds for investment and/or to discharge some obligation. They do so either through public issues or private placement. There are two major types of issuers who issue securities. The corporate entities issue mainly debt and equity instruments (shares, debentures, etc.), while the governments (central and state governments) issue debt securities (dated securities, treasury bills). The secondary market enables participants who hold securities to adjust their holdings in response to changes in their assessment of risk and return. They also sell securities for cash to meet their liquidity needs. A variant of secondary market is the forward market, where securities are traded for future delivery and payment. Pure forward is out side the formal market. The versions of forward in formal market are futures and options. In futures market, standardized securities are traded for future delivery and settlement. These futures can be on a basket of securities like an index or an individual security. In case of options, securities are traded for conditional future delivery. There are two types of options – a put option permits the owner to sell a security to the writer of options at a predetermined price while a call option permits the owner to purchase a security from the BABASAB PATIL -6-
writer of the option at a predetermined price. These options can also be on individual stocks or basket of stocks like index. Two exchanges, namely NSE and BSE provide trading of derivatives of securities. Products and Participants Savings are linked to investments by a variety of intermediaries through a range of complex financial products called “securities” which is defined in the Securities Contracts (Regulation) Act, 1956. Which includes shares, scrip’s, stocks, bonds, debentures, debenture stock, or other marketable securities of like nature in or of any incorporate company or body corporate, government securities, derivatives of securities, units of collective investment scheme, security receipts, interest and rights in securities, or any other instruments so declared by the central government These demand for and supply of securities and funds determine, under competitive market conditions in goods and securities market, the prices of securities. Securities Market and Economic Growth A well functioning securities market is conducive to sustained economic growth. There have been a number of studies, starting from World Bank and IMF to various scholars, which have established robust relationship not only one way, but also the both ways, between the development in the securities market and the economic growth. The securities market fosters economic growth to the extent that it•
Augments the quantities of real savings and capital formation from any given level of national income,
Increases net capital inflow from abroad,
Raises the productivity of investment by improving allocation of investible funds, and (d) Reduces the cost of capital.
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International Linkage The securities market facilitates the internationalization of an economy by linking it with the rest of the world. This linkage assists through the inflow of capital in the form of portfolio investment. Moreover, a strong domestic stock market performance forms the basis for well performing domestic corporate to raise capital in the international market. This implies that the domestic economy is opened up to international competitive pressures, which help to raise efficiency. It is also very likely that existence of a domestic securities market will deter capital outflow by providing attractive investment opportunities within domestic economy. There are also other developmental benefits associated with the existence of a securities market. •
The securities market provides a fast-rate breeding ground for the skills and judgment needed for entrepreneurship, risk bearing, portfolio selection and management.
An active securities market serves as an ‘engine’ of general financial development and may, in particular, accelerate the integration of informal financial systems with the institutional financial sector. Securities directly displace traditional assets such as gold and stocks of produce or, indirectly, may provide portfolio assets for unit trusts, pension funds and similar FIIs that raise savings from the traditional sector.
The existence of securities market enhances the scope, and provides institutional mechanisms, for the operation of monetary and financial policy
A Profile of Indian Securities Market The past decade in many ways has been remarkable for securities market in India. It has grown exponentially as measured in terms of amount raised from the market, number of stock exchanges and other intermediaries, the number of listed stocks, market capitalization, trading volumes and turnover on stock exchanges, and investor population. The market has witnessed fundamental institutional changes resulting in drastic reduction in transaction costs and significant improvements in efficiency, transparency and safety. Securities and Exchange Board of India (SEBI) BABASAB PATIL -8-
With the objectives of improving market efficiency, enhancing transparency, checking unfair trade practices and bringing the Indian market up to international standards, a package of reforms consisting of measures to liberalize, regulate and develop the securities market was introduced during the 1990s. This has changed corporate securities market beyond recognition in this decade. The practice of allocation of resources among different competing entities as well as its terms by a central authority was discontinued. The secondary market overcame the geographical barriers by moving to screen-based trading. Trades enjoy counterparty guarantee. Bombay Stock Exchange (BSE) Bombay Stock Exchange Limited is the oldest stock exchange in Asia with a rich heritage. Popularly known as "BSE", it was established as "The Native Share & Stock Brokers Association" in 1875. It is the first stock exchange in the country to obtain permanent recognition in 1956 from the Government of India under the Securities Contracts (Regulation) Act, 1956.The Exchange's pivotal and pre-eminent role in the development of the Indian capital market is widely recognized and its index, SENSEX, is tracked worldwide. With Demutualisation, the trading rights and ownership rights have been delinked effectively addressing concerns regarding perceived and real conflicts of interest. The Exchange is professionally managed under the overall direction of the Board of Directors. The Board comprises eminent professionals, representatives of Trading Members and the Managing Director of the Exchange. The Exchange has a nation-wide reach with a presence in 417 cities and towns of India. The systems and processes of the Exchange are designed to safeguard market integrity and enhance transparency in operations. During the year 2004-2005, the trading volumes on the Exchange showed robust growth. The Exchange provides an efficient and transparent market for trading in equity, debt instruments and derivatives. The BSE's On Line Trading System (BOLT) is a proprietary system of the Exchange and is BS 7799-2-2002 certified. The surveillance and clearing & settlement functions of the Exchange are ISO 9001:2000 certified.
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BSE as a brand is synonymous with capital markets in India. The BSE SENSEX is the benchmark equity index that reflects the robustness of the economy and finance. At par with international standards, •
First in India to introduce Equity Derivatives
First in India to launch a Free Float Index
First in India to launch US$ version of BSE Sensex
First in India to launch Exchange Enabled Internet Trading Platform •
First in India to obtain ISO certification for Surveillance, Clearing & Settlement
'BSE On-Line Trading System’ (BOLT) has been awarded the globally recognized the Information Security Management System standard
First to have an exclusive facility for financial training
Moved from Open Outcry to Electronic Trading within just 50 days
An equally important accomplishment of BSE is the launch of a nationwide investor awareness campaign - Safe Investing in the Stock Market -
In 2002, the name The Stock Exchange, Mumbai, was changed to BSE.
National Stock Exchange (NSE) The National Stock Exchange of India Limited has genesis in the report of the High Powered Study Group on Establishment of New Stock Exchanges, which recommended promotion of a National Stock Exchange by financial institutions (FII’s) to provide access to investors from all across the country on an equal footing. Based on the recommendations, NSE was promoted by leading Financial Institutions at the behest of the Government of India and was incorporated in November 1992 as a tax-paying company unlike other stock exchanges in the country On its recognition as a stock exchange under the Securities Contracts (Regulation) Act, 1956 in April 1993, NSE commenced operations in the Wholesale Debt Market (WDM) segment in June 1994. The Capital Market (Equities) segment commenced operations in November 1994 and operations in Derivatives segment commenced in June 2000.
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NSE has been promoted by leading financial institutions, banks, insurance companies and other financial intermediaries. NSE is one of the first de-mutualised stock exchanges in the country, where the ownership and management of the Exchange is completely divorced from the right to trade on it. Though the impetus for its establishment came from policy makers in the country, it has been set up as a public limited company, owned by the leading institutional
The NSE model however, does not preclude, but in fact accommodates involvement, support and contribution of trading members in a variety of ways. Its Board comprises of senior executives from promoter institutions, eminent professionals in the fields of law, economics, accountancy, finance, taxation, etc, public representatives. NSE Milestones Nov-92 Apr-93 May-93 Jun-94 Nov-94 Mar-95 Apr-95 Jun-95 Jul-95 Oct-95 Apr-96 Apr-96 Jun-96 Nov-96 Nov-96 Dec-96 Dec-96 Dec-96 Feb-97 Nov-97 May-98 May-98 Jul-98 Aug-98 Feb-99 Apr-99 Oct-99 Jan-00
Incorporation Recognition as a stock exchange Formulation of business plan Wholesale Debt Market segment goes live Capital Market (Equities) segment goes live Establishment of Investor Grievance Cell Establishment of NSCCL, the first Clearing Corporation Introduction of centralised insurance cover for all trading members Establishment of Investor Protection Fund Became largest stock exchange in the country Commencement of clearing and settlement by NSCCL Launch of S&P CNX Nifty Establishment of Settlement Guarantee Fund Setting up of National Securities Depository Limited, first depository in India, copromoted by NSE Best IT Usage award by Computer Society of India Commencement of trading/settlement in dematerialised securities Dataquest award for Top IT User Launch of CNX Nifty Junior Regional clearing facility goes live Best IT Usage award by Computer Society of India Promotion of joint venture, India Index Services & Products Limited (IISL) Launch of NSE's Web-site: www.nse.co.in Launch of NSE's Certification Programme in Financial Market CYBER CORPORATE OF THE YEAR 1998 award Launch of Automated Lending and Borrowing Mechanism CHIP Web Award by CHIP magazine Setting up of NSE.IT Launch of NSE Research Initiative BABASAB PATIL - 11 -
Feb-00 Commencement of Internet Trading Jun-00 Commencement of Derivatives Trading (Index Futures) Sep-00 Launch of 'Zero Coupon Yield Curve' Launch of Broker Plaza by Dotex International, a joint venture between NSE.IT Ltd. and Nov-00 i-flex Solutions Ltd. Dec-00 Commencement of WAP trading Jun-01 Commencement of trading in Index Options Jul-01 Commencement of trading in Options on Individual Securities Nov-01 Commencement of trading in Futures on Individual Securities Dec-01 Launch of NSE VaR for Government Securities Jan-02 Launch of Exchange Traded Funds (ETFs) NSE wins the Wharton-Infosys Business Transformation Award in the OrganizationMay-02 wide Transformation category Oct-02 Launch of NSE Government Securities Index Jan-03 Commencement of trading in Retail Debt Market Jun-03 Launch of Interest Rate Futures Aug-03 Launch of Futures & options in CNXIT Index Jun-04 Launch of STP Interoperability Aug-04 Launch of NSE’s electronic interface for listed companies Mar-05 ‘India Innovation Award’ by EMPI Business School, New Delhi Jun-05 Launch of Futures & options in BANK Nifty Index Dec-06 'Derivative Exchange of the Year', by Asia Risk magazine Jan-07 Launch of NSE – CNBC TV 18 media centre Mar-07 NSE, CRISIL announce launch of IndiaBondWatch.com Jun-07 NSE launches derivatives on Nifty Junior & CNX 100 Oct-07 NSE launches derivatives on Nifty Midcap 50 Jan-08 Introduction of Mini Nifty derivative contracts on 1st January 2008 Mar-08 Introduction of long term option contracts on S&P CNX Nifty Index Depository System The Depositories Act, 1996 was passed with the objective of ensuring free transferability of securities with speed, accuracy and security. It does so by •
Making securities of public limited companies freely transferable subject to certain exceptions
Dematerializing the securities in the depository mode
Providing for maintenance of ownership records in a book entry form.
In order to streamline both the stages of settlement process, the Act envisages transfer ownership of securities electronically by book entry without making the securities move from person to person. The Act has made the securities of all public limited companies freely transferable, restricting the company's right to use discretion in effecting the transfer of securities, and the transfer deed and other procedural requirements under the Companies BABASAB PATIL - 12 -
Act have been dispensed with. Two depositories, viz., NSDL and CDSL, have come up to provide instantaneous electronic transfer of securities.
Capital Market Intermediaries There are several institutions, which facilitate the smooth functioning of the securities market. They enable the issuers of securities to interact with the investors in the primary as well as the secondary arena. •
Credit Rating Agencies
R& T Agents - Registrars to Issue
Players (investors) in securities market • • • •
Individual investors Institutional investors FII’s Mutual fund investor
Capital Market Instruments The changes in the regulatory framework of the capital market and fiscal policies have also resulted in newer kinds of financial instruments (securities) being introduced in the market. Also, a lot of financial innovation by companies who are now permitted to undertake treasury operations, has resulted in newer kinds of instruments - all of which can be traded – being introduced. The variations in all these instruments depend on the tenure, the nature of security, the interest rate, the collateral security offered and the trading features, etc. •
Preference Shares BABASAB PATIL - 13 -
Capital Market Processes There are various processes that Issuers of securities follow or utilize in order to tap the savers for raising resources. Some of the commonly used processes and methods are described below. •
Initial Public Offering (IPO)
Preferential Offer/Rights Issue
Dependence on Securities Market Three main sets of entities depend on securities market. While the Corporates and governments raise resources from the securities market to meet their obligations, the households invest their savings in securities. While the corporate sector and governments together raised a sum of Rs. 226,911 crore during 2001-02, the household sector invested 4.3% of their financial savings through the securities market during 2000-01. Corporate Sector The 1990s witnessed emergence of the securities market as a major source of finance for trade and industry. The share of capital market based instruments in resources raised externally increased to 53% in 1993-94, but declined thereafter to 31% by 2000-01. Governments Along with increase in fiscal deficits of the governments, the dependence on market borrowings to finance fiscal deficits has increased over the years. The state governments and the central government financed about 14% and 18% respectively of their fiscal deficit by market borrowings during 1990-91. In percentage terms, dependence of the state governments on market borrowing did not increase much during the decade 1991-2002. In case of central government, it increased to 69.4% by 2001-02.
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Household According to the RBI data, the household sector accounted for 84.8 % of gross domestic savings in Fixed income investment instruments during 2006-07; which has increased in comparison to 83.9% in 2005-06. In fiscal 2006-07, the household sector has invested 55.7 % of financial savings in deposits, 24.2 % in insurance/provident funds, 4.9 % in small savings, and 6.5 % in securities market including government securities , units of mutual funds and other securities. Investor population and profile According to the SEBI-NCAER survey of Indian investors conducted in early 1999, an estimated 12.8 million, or 7.6% of all Indian households representing 19 million individuals had directly invested in equity shares and/or debentures as at the end of financial year 1998-99. The investor households increased at a compound growth rate of 22% between 1985-86 and 1998-99. About 35% of investor households became investors in equity shares prior to 1991, while 47% of the investors entered the market between 1991 and 1995 and 17% after 1995. More than 156 million or 92% of all Indian households were non-investor households who did not have any investments in equity/debentures. Low per capita income, apprehension of loss of capital, and economic insecurity, which are all inter-related factors, significantly influenced the investment attitude of the households. The lack of awareness about securities market and absence of a dependable infrastructure and distribution network coupled with aversion to risk inhibited non-investor households from investing in the securities market.
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About KARVY The Karvy group was formed in 1983 at Hyderabad, India. Karvy ranks among the top player in almost all the fields it operates. Karvy Computer share Limited is India’s largest Registrar and Transfer Agent with a client base of nearly 500 blue chip corporate, 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 COM trade, Member of NCDEX and MCX ranks among the top 3 commodity brokers in the country. Karvy Insurance Brokers is registered as a Broker with IRDA and ranks among the top 5 insurance agent 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 – Early Days Karvy the name comes from the names of the directors: K - Mr. V. Kutumba Rao A - Mr. K Ajay Kumar R - Mr. M S Ramakrishna V - Mr. Vikram Singh Y - Mr. M Yugandhar The birth of Karvy was on a modest scale in 1979. It began with the vision and enterprise of a small group of practicing Chartered Accountants who founded the flagship company …Karvy Consultants Limited. Karvy started with consulting and financial accounting automation, and carved inroads into the field of registry and share accounting by 1985. Since then, Karvy have utilized its experience and superlative expertise to go from strength
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to strength…to better its services, to provide new ones, to innovate, diversify and in the process, evolved Karvy as one of India’s premier integrated financial service enterprise. GROWTH AND DEVELOPMENT OF KARVY Over the last 20 years Karvy has traveled the success route, towards building a reputation as an integrated financial services provider, offering a wide spectrum of services. And Karvy have made this journey by taking the route of quality service, path breaking innovations in service, versatility in service and finally…totality in service. Karvy’s highly qualified manpower, cutting-edge technology, comprehensive infrastructure and total customer-focus has secured for Karvy the position of an emerging financial services giant enjoying the confidence and support of an enviable clientele across diverse fields in the financial world. Karvy’s values and vision of attaining total competence in its servicing has served as the building block for creating a great financial enterprise, which stands solid on its fortresses of financial strength - its various companies. With the experience of years of holistic financial servicing behind it and years of complete expertise in the industry to look forward to, Karvy have now emerged as a premier integrated financial services provider. And today, Karvy can look with pride at the fruits of its mastery and experience comprehensive financial services that are competently segregated to service and manage a diverse range of customer requirements.
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AT PRESENT STATUS OF KARVY Presently Karvy is a member of National Stock Exchange (NSE), the Bombay Stock Exchange (BSE), and The Hyderabad Stock Exchange (HSE). Market analysis and market predictions are done by professional management team. KARVY is covering the entire spectrum of financial services such as Stock Broking Services, Advisory Services, Stock broking, Depository Participants, Distribution of financial products - mutual funds, bonds, fixed deposit, equities, Insurance Broking, Commodities Broking, Personal Finance Advisory Services, Merchant Banking & Corporate Finance, placement of equity, IPOs, among others. It is the largest mobiliser of funds as per PRIME DATABASE. It is among the top 5 stock brokers in India (4% of NSE volumes). India's No. 1 Registrar & Securities Transfer Agents (Ranked as “The Most Admired Registrar" by MARG). Among the top 3 Depository Participants. Largest Network of Branches & Business Associates. First ISO 9002 Certified Registrar in India. Among top 10 Investment bankers. Largest Distributor of Financial Products are -Every 50th Indian is serviced by KARVY Every 20th trade in stock market is done through KARVY. Every 6th Investor in India invests through KARVY India's No.1 Registrars and Transfer agent : KARVY Every 10th Demat Account is held at KARVY.
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ORGANISATION STRUCTURE OF KARVY
LEVEL-I Board of Directors CMD, MD, & other Directors
Karvy Stock Broking Limited
Karvy Investor Service Limited
Karvy Consultants Limited
Karvy Insurance Broking Private Limited
Karvy Computershare Pvt. Limited
Karvy Regional HQs / Branches
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Karvy Global Service Limited
Karvy Commodities Broking Private Limited
Level-II Regional Branch Head ISO CELL
ADMN, PURCHASE, & STORES
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STUDY OF COMPANY PROFILE WITH RESPECT TO Mc KINSEY’S 7S MODEL
STRATEGY: In modern times the word strategy has found its way into the management field. In the context of a business concern, strategy indicates specific program of action for achieving the organization objectives by employing the firm’s resources efficiently and economically. It involves preparing oneself for meeting unforeseen factor. It is also concerned with meeting the challenges posed by the policies and actions of other competitors in the market. Quality Policy To achieve and retain leadership, Karvy shall aim for complete customer satisfaction, by combining its human and technological resources, to provide superior quality financial services. In the process, Karvy will strive to exceed Customer's expectations. Quality Objectives are to: •
Build in-house processes that will ensure transparent and harmonious relationships with its clients and investors to provide high quality of services.
Establish a partner relationship with its investor service agents and vendors that will help in keeping up its commitments to the customers.
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Provide high quality of work life for all its employees and equip them with adequate knowledge & skills so as to respond to customer's needs.
Continue to uphold the values of honesty & integrity and strive to establish unparalleled standards in business ethics.
Use state-of-the art information technology in developing new and innovative financial products and services to meet the changing needs of investors and clients.
Strive to be a reliable source of value-added financial products and services and constantly guide the individuals and institutions in making a judicious choice of same.
Strive to keep all stake-holders (shareholders, clients, investors, employees, suppliers and regulatory authorities) proud and satisfied.
STRUCTURE: Board of Directors Mr. C Parthasarathy (Chairman and Managing Director), Mr. M Yugandhar (Managing Director ), Mr. M S Ramakrishna (Director ), Mr. Prasad V Potluri (Director), William Stuart Crosby (Chairman – Karvy Computer share Pvt Ltd.), Chandra Balaraman(Director– Karvy Computer share Pvt Ltd.), Mark Davis(Director– Karvy Computer share Pvt Ltd.), Mr. Uday Raval(Director - Karvy Inc. ) Karvy’s organization structure can be viewed as accomplishing departments Operations Divisions and Support Function Division. Below the Operations Divisions there are sub divisions namely Registry and Investor Services (RIS), Depository Participant (DP), Broking Services, Financial Product Distribution (FPD). Below the Support Functions, there are sub divisions namely Accounts, System, Human Resource Development, and Administration, Purchase & Stores. These department heads controls the day-to-day affairs of the company. These department heads are directly reports to the director. Board of Directors directly appoints department heads. The departmental heads does locations of responsibilities among various positions. In Karvy Departments are inter related. Majority of decisions are taken by the top management. While taking important decision the department managers are also consulted BABASAB PATIL - 22 -
and their suggestions are also considered. Hence Participative style of management is followed in Karvy. SYSTEM: KARVY covers the entire spectrum of financial services such as Stock broking, Depository Participants, Distribution of financial products - mutual funds, bonds, fixed deposit, equities, Insurance Broking, Commodities Broking, Personal Finance Advisory Services, Merchant Banking & Corporate Finance, placement of equity, IPOs. A link called ‘Resource Center’, devoted solely to research. Karvy’s highly skilled research team, comprising of technical analysts as well as fundamental specialists, secure resultoriented information on market trends, market analysis and market predictions. This crucial information is given as a constant feedback to its customers, through daily reports delivered thrice daily; The Pre-session Report, where market scenario for the day is predicted, The Mid-session Report, timed to arrive during lunch break, where the market forecast for the rest of the day is given and The Post-session Report, the final report for the day, where the market and the report itself is reviewed. To add to this repository of information, Karvy publish a monthly magazine The Finapolis, which analyzes the latest stock market trends and takes a close look at the various investment options, and products available in the market, while a weekly report, called Karvy Bazaar Baatein, gives more information on the immediate trends in the stock market. In addition, its specific industry reports give comprehensive information on various industries. Karvy’s Stock Broking services are widely networked across India, with the number of trading terminals providing retail stock broking facilities. To empower the investor further Karvy have made serious efforts to ensure that its research calls are disseminated systematically to all our stock broking clients through various delivery channels like email, chat, SMS, phone calls etc. STYLE: An activity like forecasting and planning are made by top level managers. Major policies and plans are made by top management and it is implemented and administered by employees. In the organization the style of informal communication and meetings with employees has created workers to a friendly environment. BABASAB PATIL - 23 -
STAFF: The term staff refers to manpower planning, recruitment, performance appraisal, motivation and morale. SKILLS: The managers and workers in each department are skilled to the extent of functions they perform. Directors of the company are skilled in every activities and disciplines of organization. A 1600 team of highly qualified and dedicated professionals drawn from the best of academic and professional backgrounds are committed to maintaining high levels of client service delivery. This has propelled Karvy to a position among the top distributors for equity and debt issues with an estimated market share of 15% in terms of applications mobilized, besides being established as the leading procurer in all public issues. A link called ‘Resource Center’, devoted solely to research. Karvy’s highly skilled research team, comprising of technical analysts as well as fundamental specialists, secure resultoriented information on market trends, market analysis and market predictions. Achievements •
Largest mobiliser of funds as per PRIME DATABASE
Among the top 5 stock brokers in India (4% of NSE volumes)
India's No. 1 Registrar & Securities Transfer Agents (Ranked as " The Most Admired Registrar" by MARG)
A Category- I -Merchant banker.
Among the to top 3 Depository Participants
Largest Network of Branches & Business Associates
First ISO - 9002 Certified Registrar in India
Among top 10 Investment bankers
Largest Distributor of Financial Products
Full Fledged IT driven operations
Handled the largest- ever Public Issue - IDBI
Handled over 500 Public issues as Registrars.
Handling the Reliance Account which accounts for nearly 10 million account holders BABASAB PATIL - 24 -
Major issues managed as arrangers •
Kerala State Electricity Board.
Power Finance Corporation
A.P. Water Resources Development Corporation.
A.P. Roads Development Corporation.
A.P. State Electricity Board.
Haldia Petrochemicals Ltd.
Major issues managed as Co-Managers •
IndusInd Bank Ltd
ICICI Bonds – March 97
ICICI Bonds – Dec 97
ICICI Safety Bonds March 98
ICICI Safety Bonds – April 98. July 98, Oct 98, Dec 98, Jan 99.
The Jammu and Kashmir Bank Ltd
Major issue handled as Registrars to Issues •
Morgan Stanley Mutual Fund
Bank of Baroda
Bank of Punjab Ltd
IndusInd Bank Ltd
Jammu and Kashmir Bank Ltd
Housing and Urban Development Corporation (HUDCO) Ltd
Madras Refineries Ltd
Tamil Nadu Newsprint & Paper Ltd
Birla 3M Ltd
Essar Shipping Ltd
Essar Steels Ltd.
Hindustan Petroleum Corporation Ltd. BABASAB PATIL - 25 -
Infosys Technologies Ltd.
Jindal Vijayanagar Steels Ltd.
Nagarjuna Fertilizers & Chemicals Ltd.
Rajshree Polyfil Ltd.
Karvy Securities Ltd. Karvy has secured over Rs. 500 crore in the following debt issues. •
Andhra Pradesh Road Development Corporation Ltd
ICICI Bonds ( Private Placement)
ICICI Bonds – 96
ICICI Bonds – 97- I
ICICI Bonds – 97 – II
ICICI Safety Bonds March 98.
IDBI Bonds 96.
IDBI Flexi Bonds I
IDBI Flexi Bonds II
IDBI Flexi Bonds III
Kerala State Electricity Board
Krishna Bhagya Jala Nigam Ltd
Power Finance Corporation Ltd
Andhra Pradesh Water Resources Development Corporation
Andhra Pradesh State Electricity Board
SHARED VALUES: Employees at each level of organization are conscious about delivering customer value for his money. Each and every employee understands the mission and vision of the company. Employees of company are committed towards the quality aspects in service. The employees of Karvy themselves put forward in fulfilling the organizational principles for betterment of organization.
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STUDY OF FUNCTIONAL DEPARTMENTS OF KARVY In Karvy the functions are mainly divided into two parts namely Operational Functions and the Supporting Functions. OPERATING FUNCTIONS: Registry and Investor Services (RIS) in which Karvy carry out functions as Registrar & transfer Agent (RTA), and Registrar to the Issues. Financial Product Distribution (FPD), Here financial products include Mutual Funds, Fixed income securities, bonds, fixed deposits, Tax-saving Products, Insurance, etc. Stock Broking Services and Depository Participant (DP), which are explained in Service Profile of the Karvy group of companies. SUPPORTING FUNCTIONS:
Administration - Purchase and Stores Department HOD
To ensure preventive breakdown of equipment/accessories including computer hardware
To ensure speedy breakdown maintenance
To ensure that the maintenance status of all equipment/ accessories is entered in the service
To ensure that the maintenance is carried out efficiently
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Maintenance includes preventive, breakdown and general maintenance. Preventive maintenance shall be done as per the prefixed time schedule by the subcontractors for the purpose. The administration incharge shall make necessary arrangements for this purpose. In Breakdown / General maintenance admi9nistration team receive information regarding any breakdown or general repairs. On receipt of the same, the administrative team shall maintain a record of all maintenance done. The Procedure involves identification of subcontractors which will be done through Newspaper, advertisements, word of mouth. Both the parties meet to their requirements and enter into agreement. Subcontractors are appointed for providing services Preventive maintenance, Breakdown maintenance, Courier services and any other services. 2.62 Accounts Department Finance operations in Karvy are centralized at the Head Office Account. Periodic fund requirement at the regional level will be sort as and when required. But all cheques and such instruments would be signed by the local regional manager.
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System Administration Department
Dy. General Manager Dy.Manager Asst. Manager
In this department the functions include Trouble shooting, desktop queries, Network problems, Software and Hardware problems, Installation of new systems, creating new networks. Human resource Department The human resource Department (HRD) caters to the entire recruitment and employee upbringing in the company. The HR functions and practices, which are practiced at the Karvy, are: Manpower Planning: The departmental heads are entrusted with the responsibility of assessing the present and the future manpower requirement in their departments. Manpower planning is being done in the company in order to secure a confidence and capability Recruitment: Advertising in newspaper and other media, private employment agencies, personal contacts, colleges and universities are the sources used by Karvy. Training: The personnel department gives training for all new employees. Performance Appraisal: The HOD of the department, to which the employees belongs, presents a report of the employees, to be appraised. In addition to that other managers to whom the employee is associated is also evaluating the performance of the employee. Motivation: The Company provides both extrinsic and intrinsic motivation to the employees. Extrinsic motivation is considered with external motivators which employees get through pay, promotion, fringe benefits, holiday’s etc. Intrinsic motivation is concerned with the feeling of having accomplished something worthwhile i.e. the satisfaction one gets after doing one’s work well, praise, responsibility, recognition, participation are the
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Job rotation is undertaken to reduce the monitoring and burden of the
employees. Morale: For improving employee’s morale positive measures like job rotation, building responsibility into job etc are introduced. Both upward and downward communication takes place within the company. Participation is the key to commitment.
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SERVICE PROFILE OF THE KARVY GROUP OF COMPANIES Karvy Stock Broking Limited
Member - National Stock Exchange (NSE), the Bombay Stock Exchange (BSE), and the Hyderabad Stock Exchange (HSE). Karvy Stock Broking Limited, one of the cornerstones of the Karvy edifice, flows freely towards attaining diverse goals of the customer through varied services. Stock Broking Services It is an undisputed fact that the stock market is unpredictable and yet enjoys a high success rate as a wealth management and wealth accumulation option. The difference between unpredictability and a safety anchor in the market is provided by in-depth knowledge of market functioning and changing trends, planning with foresight and choosing one & other options with care. Karvy offer trading on a vast platform; National Stock Exchange, Bombay Stock Exchange and Hyderabad Stock Exchange. Karvy’s highly skilled research team, comprising of technical analysts as well as fundamental specialists, secure resultoriented information on market trends, market analysis and market predictions. This crucial information is given as a constant feedback to its customers, through daily reports delivered thrice daily; The Pre-session Report, where market scenario for the day is predicted, The Mid-session Report, timed to arrive during lunch break, where the market forecast for the rest of the day is given and The Post-session Report, the final report for the day, where the market and the report itself is reviewed. To add to this repository of information, Karvy publish a monthly magazine The Finapolis, which analyzes the latest stock market trends and takes a close look at the various investment options, and products available in the market, while a weekly report, called Karvy Bazaar Baatein, gives more information on the immediate trends in the stock market. In addition, it’s specific industry reports give comprehensive information on various industries. Karvy’s Stock Broking services are
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widely networked across India, with the number of trading terminals providing retail stock broking facilities. To empower the investor further Karvy have made serious efforts to ensure that its research calls are disseminated systematically to all our stock broking clients through various delivery channels like email, chat, SMS, phone calls etc. Depository Participants The onset of the technology revolution in financial services Industry saw the emergence of Karvy as an electronic custodian registered with National Securities Depository Ltd (NSDL) and Central Securities Depository Ltd (CSDL) in 1998. Karvy set standards enabling further comfort to the investor by promoting paperless trading across the country and emerged as the top 3 Depository Participants in the country in terms of customer serviced. Offering a wide trading platform with a dual membership at both NSDL and CDSL, Karvy have established live DPMs, Internet access to accounts and an easier transaction process in order to offer more convenience to individual and corporate investors. A wide national network makes its efficiencies accessible to all. Distribution of Financial Products A 1600 team of highly qualified and dedicated professionals drawn from the best of academic and professional backgrounds are committed to maintaining high levels of client service delivery. This has propelled Karvy to a position among the top distributors for equity and debt issues with an estimated market share of 15% in terms of applications mobilized, besides being established as the leading procurer in all public issues. Advisory Services Under its retail brand ‘Karvy – the Finapolis', it delivers advisory services to a crosssection of customers. The service is backed by a team of dedicated and expert professionals with varied experience and background in handling investment portfolios. They are continually engaged in designing the right investment portfolio for each customer according to individual needs and budget considerations with a comprehensive support system that focuses on trading customers' portfolios and providing valuable inputs, monitoring and managing the portfolio through varied technological initiatives. ‘Karvy -
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the Finapolis', covers the latest of market news, trends, investment schemes and researchbased opinions from experts in various financial fields. Mutual Fund Services Karvy has attained a position of immense strength as a provider of across-the-board transfer agency services to AMCs, Distributors and Investors. Nearly 40% of the top-notch AMCs including prestigious clients like Deutsche AMC and UTI swear by the quality and range of services that Karvy offers. Besides providing the entire back office processing, Karvy provides the link between various Mutual Funds and the investor, including services to the distributor, the prime channel in this operation. Carrying the ‘limitless' ideology forward, Karvy has explored new dimensions in every aspect of Mutual Fund servicing right from volume management, cost effective pricing, delivery in the least turnaround time, efficient back-office and front-office operations to customized service. Karvy has been with the AMCs every step of the way, helping them serve their investors better by offering them a diverse and customized range of services. The ‘first to market' approach that is Karvy’s anthem has earned the reputation of an innovative service provider with a visionary bent of mind. Karvy’s service enhancements such as ‘Karvy Converz', a full-fledged call center, a topline website (www.karvymfs.com), the ‘m-investor' and many more, creating a galaxy of customer advantages. 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. Today, Karvy service over 6 lakhs customer accounts in this business spread across over 250 cities/towns in India and are ranked amongst the largest Depository Participants in the country. With a growing secondary market presence, Karvy have transferred this business to Karvy Stock Broking Limited (KSBL), Karvy’s associate and a member of NSE, BSE and HSE.
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Karvy Investor Service
Merchant Banking Recognized as a leading merchant banker in the country, Karvy registered with SEBI as a Category I merchant banker. This reputation was built by capitalizing on opportunities in corporate consolidations, mergers and acquisitions and corporate restructuring. Karvy’s quality professional team and our work-oriented dedication have propelled it to offer valueadded corporate financial services and act as a professional navigator for long term growth of its clients, who include leading corporates, State Governments, foreign institutional investors, public and private sector companies and banks, in Indian and global markets. Its financial advice and assistance in restructuring, divestitures, acquisitions, de-mergers, spin-offs, joint ventures, privatization and takeover defense mechanisms have elevated its relationship with the client to one based on unshakable trust and confidence. Karvy Global Services Limited
The specialist Business Process Outsourcing unit of the Karvy Group. Here Karvy offer several delivery models on the understanding that business needs are unique and therefore only a customized service could possibly fit the bill. Be it in re-engineering and managing processes or delivering new efficiencies, Karvy’s service meets up to the most stringent of international standards. Karvy’s outsourcing models are designed for the global customer and are backed by sound corporate and operations philosophies, and domain expertise. Providing productivity improvements, operational cost control, cost savings, improved accountability and a whole gamut of other advantages. Karvy’s wide market coverage includes Banking, Financial and Insurance Services (BFIS), Retail and Merchandising, Leisure and Entertainment, Energy and Utility and Healthcare.
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Karvy Computershare Pvt. Limited
Karvy have traversed wide spaces to tie up with the world’s largest transfer agent, the leading Australian company, Computershare Limited. The company that services more than 75 million shareholders across 7000 corporate clients and makes its presence felt in over 12 countries across 5 continents has entered into a 50-50 joint venture with Karvy. Excellence has to be the order of the day when two companies with such similar ideologies of growth, vision and competence, get together. Issue Registry Karvy has emerged as the largest transaction-processing house for the Indian Corporate sector. With an experience of handling over 700 issues, Karvy today, has the ability to execute voluminous transactions and hard-core expertise in technology applications have gained the No.1 slot in the business. Karvy is the first Registry Company to receive ISO 9002 certification in India that stands testimony to its stature. It is actively coordinating with both the main depositories to develop special models to enable the customer to access depository (NSDL, CDSL) services during an IPO.
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Karvy Insurance Broking Private Limited
At Karvy Insurance Broking Pvt. Ltd., it provide both life and non-life insurance products to retail individuals, high net-worth clients and corporates. With the opening up of the insurance sector and with a large number of private players in the business, Karvy is in a position to provide tailor made policies for different segments of customers. With Indian markets seeing a sea change, both in terms of investment pattern and attitude of investors, insurance is no more seen as only a tax saving product but also as an investment product. By setting up a separate entity, Karvy would be positioned to provide the best of the products
Karvy’s wide national network, spanning the length and breadth of India, further supports these advantages. Further, personalized service is provided here by a dedicated team committed in giving hassle-free service to the clients. Karvy Commodities Broking Private Limited
At Karvy Commodities, Karvy is focused on taking commodities trading to new dimensions of reliability and profitability. Karvy has made commodities trading, an essentially age-old practice, into a sophisticated and scientific investment option. Here Karvy enable trade in all goods and products of agricultural and mineral origin that include lucrative commodities like gold and silver and popular items like oil, pulses and cotton
Regular trading workshops and seminars are conducted to hone trading strategies to perfection. Karvy’s commitment to excel in this sector stems from the immense importance that commodity broking has to a cross-section of investors – farmers, exporters, importers, manufacturers and the Government of India itself. BABASAB PATIL - 36 -
With its growing ambitions of reaching out to investors across the shores of this country, Karvy’s has set up Karvy Inc. in the US located in New York to provide various financial products and information on Indian equities to potential Foreign Institutional Investors (FIIs) in the region. This entity soon would be ACC registered and would also become a member of various important stock exchanges in the US. This entity would extensively facilitate various businesses of Karvy viz., stock broking (Indian equities), research and investment by (Qualified Institutional Buyer) QIBs in Indian markets for both secondary and primary offerings, outsourcing of various assignments for the multiple streams of business in Karvy Global Services Ltd (KGSL).
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THEROTICAL FRAMEWORK FUNDAMENTAL ANALYSIS: Fundamental analysis is the examination of the underlying forces that affect the well being of the economy, industry groups, and companies. The goal is to derive the forecasted earning growths for future price movements. Fundamental analysis is the method of evaluating securities by attempting to measure the intrinsic value of a particular stock. It is the study of everything from the overall economy and industry conditions, to the financial condition and management of specific companies (i.e., using real data to evaluate a stock’s value). The method utilizes items such as revenues, earnings, return on equity and profit margins to determine a company’s underlying value and potential for future growth. One of the major assumptions under fundamental analysis is that, even though things get mis priced in the market from time to time, the price of an asset will eventually gravitate toward its true value. This seems to be a reasonable bet considering the long upward march of quality stocks in general despite regular setbacks and periods of irrational exuberance. The key strategy for the fundamentalist is to buy when prices are at or below this intrinsic value and sell when they got overpriced. Fundamental analysis consists of: •
For the national economy we focus on economic data to assess the present and future growth of the economy.
At the industry level, there might be an examination of supply and demand forces for the products offered.
At the company level, may involve examination of financial data, management, business concept and competition.
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Economy analysis The economy is the overall economic environment in which all firms operate. The key variables used to describe the state of economy are: •
Indian economy 1. Growth rate of GDP 2. Industry growth rate 3. Agriculture and monsoons 4. Savings and investment 5. Inflation 6. Interest rates 7. Balance of payments 8. Infrastructure
World economy According to the recent statistics, the world GDP (comprising 180 economies) has reached at a sum of US $ 46,747 Billions. Top 15 contributors to the world GDP are USA, Japan, Germany, China, UK, France, Italy, Canada, Spain, Brazil, Russia, Korea, India, Mexico and
Percentage share of USA to the total world GDP is 28.3. While both the emerging economies such as India and China have a share of 1.82 and 5.41 respectively. Find next page the top 15 contributors to the world GDP. BABASAB PATIL - 39 -
Asian Economy Asian Economies have brought tremendous success in the recent years. Economic growth rate in China crossed a two-digit number, while economic growth in India’s Economy is near to 10 percent. Apart from those two emerging Asian Economic giants, economies such as Philippines, Indonesia and Malaysia are growing at a faster pace. Find below various economic indicators on the Asian Economies. GDP growth projections among various Asian Economies over years are as follows: GDP Growth Projection on Asian Economies Country Name Japan Hong Kong SAR Korea Singapore China India Indonesia Malaysia Philippines Thailand
2007 2.3 5.5 4.4 5.5 10 8.4 6 5.5 5.8 4.5
2008 1.9 5 4.4 5.7 9.5 7.8 6.3 5.8 5.8 4.8
The output over the world increased by 4.4% in the year 2005. The largest contributors of the world output were India, China and Russia. The Gross World Product (in purchasing BABASAB PATIL - 40 -
power parity) as to the 2005 estimated data has reached at $ 60.71 trillions with a real growth rate of 4.7%. The services sector contributes a largest share to the world GDP. As to the 2004 estimated data, the services sector accounted for 64% followed by industries at 32% and Agriculture 4%. The level of exports and imports over the world has reached at $10.33 trillion and 10.3 trillions f.o.b. as to 2004 estimation. World inflation: Inflation, which can be simply stated to be a state of economic activities with rising price level and falling purchasing power of money, has become global phenomenon. Fast rising oil prices over the world has pressurized the general price level in countries of the world. Present world economy is experiencing higher economic growth with some inflationary pressure. The stabilized countries have the inflation level ranging between 1-3% and the developing countries have inflation between 3-6%. Indian economy: Indian primary sector Agriculture is the mainstay of Indian economy because of its high share in employment and livelihood creation notwithstanding its reduced contribution to the nation’s GDP. The share of agriculture in the gross domestic product has registered a steady decline from 36.4 per cent in 1982-83 to 17 per cent in 2007-08. Yet this sector continues to support more than half a billion people providing employment to 52 per cent of the workforce. It is also an important source of raw material and demand for many industrial products, particularly fertilizers, pesticides, agricultural implements and a variety of consumer goods. This is first time after green revolution that the India has become dependent in satisfying its own food need. Growth pattern of Indian agriculture has been so irregular, because of over dependency on the monsoon. This year we could achieve dismal growth of 2.5%.India is expecting its agriculture to grow at least 4% (CAGR) in the 11th plan to have sustainable and consistent growth of overall GDP. Industrial sector (secondary sector)
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Industrial growth in India has been inspired by the LPG in 1991. in the 10th plan we could achive growth rate of 8-9%. At present industry sector is contributing 28% to country’s GDP. Though at present India is experiencing slowdown in growth of industry production, the long term growth of 8-10% is still intact. The first eight months of the current fiscal, till November 2007, witnessed a moderate slowdown in the growth of the industrial sector. The slowdown has mainly been on account of the manufacturing sector. The mining and quarrying sector grew at a faster pace, while the growth in electricity remained unchanged from April- November 2006. Nonetheless, the 9.2 per cent growth achieved during AprilNovember 2007 by the industrial sector, when seen against the backdrop of the robust growth during the preceding four years, suggests that the buoyancy in this sector has continued, albeit with a degree of moderation. Two important changes have occurred in the growth pattern of the use-based industrial categories: First, capital goods have grown at an accelerated pace, over a high base attained in the previous years, which augurs well for the required industria capacity addition. Secondly, the consumer durables basket that forms part of the Index of Industrial Production (IIP) showed a negative growth during the period, thereby forcing a visible decline in the growth of the total consumer goods basket, despite reasonable growth in the non-durables. Dimension of Indian Economy
GDP Composition 17%
28% Manufacturing Service Agriculture
Gross domestic product: measure of the total production of final goods and services in the economy during a specified period usually a year. Higher the growth rate, the other things being equal, the more favorable it is for the stock market.
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The growth rate of GDP is more important indicator of the performance of the economy. The average growth rate of Indian economy during 1950-1980 was around 3.5% in real terms. In 1980 it was 5% and 6.2% in 2004. At present it is 8.7 and estimated to cross 9%.
Industrial growth rate: stock market analysts mainly focus on the industrial sector. Higher the growth rate, more favorable is the things for stock market. The industrial sector witnessed a slowdown in the first nine months of the current financial year. The growth of 9 per cent during April-December 2007, when viewed against the back drop of the robust growth witnessed in the preceding four years, suggests that there is a certain degree of moderation in the momentum of the industrial sector. At the product group level, the moderation in growth has been selective. Industries like chemicals, food products, leather, jute textiles, wood products and miscellaneous manufacturing products witnessed acceleration in growth, while basic metals, machinery and equipments, rubber, plastic and petroleum products and beverages and tobacco recorded lower but strong growth during April-December 2007. Agriculture and monsoons: agriculture accounts for about a quarter of the Indian economy and has important linkages both direct and indirect with the industry. There has been a loss of dynamism in the agriculture and allied sectors in recent years. A gradual degradation of natural resources through overuse and inappropriate use of chemical fertilizers has affected the soil quality resulting in stagnation in the yield levels. Public investment in agriculture has declined and this sector has not been able to attract private investment because of lower/unattractive returns. Savings and investment: A notable feature of the recent GDP growth has been a sharply rising trend in gross domestic investment and saving, with the former rising by 13.1 per cent of GDP and the latter by 11.3 per cent of GDP over five years till 2006-07. The BABASAB PATIL - 43 -
average investment ratio for the Tenth Five Year Plan at 31.4 per cent was higher than that for the Ninth Five Year Plan, while the average saving rate was also 31.4 per cent of GDP higher than the average ratio of 23.6 per cent during the Ninth Five Year Plan. Money supply: For policy purposes for 2007-08, the RBI assumed a real GDP growth of 8.5 per cent with inflation close to 5 per cent, and targeted the monetary expansion in the range of 17-17.5 per cent and credit expansion in the range of 20 to 24 per cent as consistent with envisaged growth and inflation.
Interest rates: interest rates affect the cost of financing to the firms. Higher the interest rates, higher will be the cost and if lower, lower the cost and more will be the profitability. Below table shows that interest rates are decreasing year after year which is a good sign for the growth. Year April 1997 April 1998 March 1999 March 2001 April 2003
Interest(bank) rates % p.a. 11 10 8 7 6
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Inflation: The Wholesale Price Index (WPI), which is available on a weekly basis, continues to be the most popular measure of headline inflation in India.
Balance of payments: The strength, resilience and stability of the country’s external sector is reflected by various indicators. These include a steady accretion to reserves, moderate levels of current account deficit, changing composition of capital inflows, flexibility in exchange rates, sustainable external debt levels with elongated maturity profile and an increase in capital inflows. The current account has followed an inverted “U” shaped pattern during the period from 2001-02 to 2006-07, rising to a surplus of over 2 per cent of GDP in 2003-04. Thereafter it has returned close to its post-1990s reform average, with a current account deficit of 1.2 per cent in 2005-06 and 1.1 per cent of GDP in 200607.Capital inflows, as a proportion of GDP, have been on a clear uptrend during the six years (2001-02 to 2006-07) of this decade. They reached a high of 5.1 per cent of GDP in 2006-07 after a somewhat modest growth rate of 3.1 per cent in 2005-06.The net result of these two trends has been a gradual rise in reserve increase to reach 4 percent of GDP in 2006-07 (Figure 6.1). With capital inflows exceeding financing requirements, foreign exchange reserve increase was of the order of US$ 15.1 billion in 2005-06 and US$ 36.6 billion in 2006-07 (Table 6.2). As a proportion of GDP, external debt was 17.2 per cent and 17.9 per cent in 2005-06 and 2006-07 respectively.
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Infrastructure: with the rapid growth of the economy in recent years the importance and the urgency of removing infrastructure constraints have increased. Traditionally, power, railways, roads, ports, airports and telecommunications were the exclusive domain of the government. Policy has changed gradually over the past two decades under the pressure of rising gaps between demand and supply of infrastructure and deteriorating quality of assets.
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Industry Analysis Growth of Construction Industry: Since the beginning of economic reforms in 1991, the Indian economy has recorded a compounded annual growth rate (CAGR) of over 6.7%. That is impressive in itself, and makes India the second fastest growing large economy in the world — bettered only by China. More significant is the orbit change in India’s GDP growth since 2003-04. With 9.4% growth in 2006-07 following 9% growth in 2005-06, India’s CAGR since 2003-04 has exceeded 8.6%. There is a wide consensus among economists, policy-makers and industry that India can now sustain a CAGR of around 8.5% for the foreseeable future. Indeed, the general feeling is that with more investments in physical infrastructure, it is quite feasible for the country to achieve double-digit growth by 2011-12 — the terminal year of the Eleventh Five Year Plan. This strong economic growth, along with the demographic impetus of a growing population in the working-age category, is creating a massive demand supply mismatch across the real estate sector. The sheer increase in the ‘need for built-up space’ is opening up several opportunities for developers — be it for constructing residential properties, creating commercial space for offices or retail, setting up of SEZs, or developing entertainment zones. Current situation of Constructions The turnover of the construction industry witnessed 57% growth on Year of Year(YoY) basis to reach Rs150,933m in December 2007. This is because investments planned in the infrastructure both by government and private sector, booming housing construction and expansion in corporate production facilities, is likely to fast forward the growth in the Indian construction industry. Aggregate operating profit increased by 35% to Rs22,186.55m. The other income of the industry was Rs8,481.04m. The depreciation increased to Rs2,048.49m. The net profit increased by 83% to reach Rs19,819.89m on YoY basis. The overall cost for the construction industry as the percentage of sales is 90.27% from Rs87 billion in December 2006 to Rs1,35 billion in December 2007. The cost of raw materials to the total sales is 37.82% during December 2007. The staff costs and other operating expenses are 7.34% and 8.04% of the total sales, as compared to the corresponding quarter of the previous year. Depreciation and tax decreased but the interest rate was high. BABASAB PATIL - 47 -
Inversement Real estate investments account for about 60% of the total construction investments. Demand-supply gap for residential housing, favorable demographics, rising affordability levels, availability of financing options as well as fiscal benefits available on availing of home loan are the key drivers supporting the demand for residential construction. In addition to this, demand for office space from IT/BPO segment is expected to continue due to emergence of India as a preferred outsourcing destination. Also, boom in organized retail is expected to result in huge demand for real estate construction. According to industry estimates, the Indian real estate industry is expected to grow at a compounded rate of 33% between FY05 to FY10, mainly driven by the residential segment. Regulations: Construction Industry in India According to the 11th five-year plan (2007-12), the core infrastructure sector, comprising power, roads, highways, railways, ports, airports, mining and irrigation, will require massive investments to the tune of US$490 billion over the next five years to sustain current 9-10% GDP growth per annum. The construction industry accounts for 40-50% of the plan outlays and contributes about 20%, nearly US$59.4 billion to the national GDP. It employs around 31m people, second only to the agriculture sector. The industry has witnessed a sustained growth of 30% per annum during the last four years and is poised to grow at 55% in the current fiscal 2007-08, outperforming even the growth of IT and biotech industry in the knowledge sector. Jawaharlal Nehru National Urban Renewal Mission, with an outlay of approximately Rs1,200 billion, is one of the most ambitious projects currently underway in the nation for strengthening the urban infrastructure. While the government announced the withdrawal of tax benefits under Section 80 IA of the Income Tax Act, there is a lot of confusion regarding its interpretation. While some companies are of the opinion that they can no more claim benefits under this section (i.e. they will have to pay taxes at marginal rate), others feel that the benefit has been withdrawn only on the subcontracted work i.e. they can still claim tax benefits on self-executed projects.
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Budget 2008-09 India is on the verge of witnessing a sustained investment phase in infrastructure buildup. With a slew of announcements in housing, road, port and airport development, we are seemingly on a path of sustained higher economic growth on the back of improvement in infrastructure construction in the country. From a policy perspective, there has been a growing consensus that a private-public partnership is required to remove difficulties concerning the development of infrastructure in the country. A substantial chunk of the abovementioned investment target is likely to come from the private sector. Budget measures The general CENVAT rate has been reduced to 14% from 16%. Allocation for National Highway Development Programme (NHDP) has been enhanced to Rs 12,966 crore in 2008-09 from Rs 10,867 crore bn in 2007-08. The budget has given special attention to development of roads in North Eastern region where 180 kms of roads will be completed in 2007-08 and 300 kms of road is being targetted for completion in 2008-09. The corpus of Rural Infrastructure Development Fund (RIDF-XIV) has been raised to Rs14,000 crore, with a separate window for rural roads. The budget has also given considerable thrust to irrigation project where the outlay for 2008-09 has been increased to Rs 20,000 crore from Rs 11,000 crore in 200708. The government is setting up 14 irrigation projects with initial capital of Rs 100 crore to fund long-gestation major and medium irrigation projects. Budget Impact The Bharat Nirman and water irrigation programmes will benefit companies involved in road construction and BOT irrigation projects. Reduction of CENVAT is also a big positive for the sector as it indicates government’s commitment towards the Goods and Service Tax Act. Company Impact Companies like Jain Irrigation and Madhucon Projects will benefit from increased outlay in irrigation spending.
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Industry Wish list Builders’ Association of India Alter existing customs duty structure on imported steel bars and rods – fix the duty at 5% without levy of special additional duty and countervailing duty Extend existing structure of import duty, countervailing duty and special duty on cement for another year, to discourage domestic manufacturers from hiking prices Project exporters who have executed projects abroad to be allowed to import equipment purchased abroad at 5% duty instead of current 50% Scrap 2% TDS on construction companies as margins are wafer thin at 4-5%. Allow companies to pay advance tax instead
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PORTER’S FIVE FORCE MODEL Supply
Past 2-3 years have seen a substantial increase in the number of contractors and builders, especially in the housing and road construction segment.
Demand exceeds supply by a large margin. Demand for quality infrastructure construction is mainly emanating from the housing, transportation and urban development segments.
Barriers to entry
Low for road and housing construction. However, high working capital requirements can create growth problems for companies with weak financial muscle.
Bargaining power Low. Due to the rapid increase in the number of contractors and of suppliers construction service providers, margins have been stagnant despite strong growth in volumes. Bargaining power Low. The country still lacks adequate infrastructure facilities and of customers citizens have to pay for using public services. Competition
Very high across segments like road construction, housing and urban infrastructure development. Relatively less in airport and port development.
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COMPANY ANALYSIS Established in 1971, Unitech today is India’s leading real estate company with a market capitalization of around US$ 10 billion. From being a National Capital Region (NCR) focused real estate developer, Unitech is fast establishing a pan India presence. It is already a market leader in NCR and Kolkata and endeavors to attain leadership in every market that it operates in. Unitech has the most diversified product mix comprising residential, commercial, Information Technology (IT) parks, Retail, Amusement parks and Hotels. It is known for the quality of its product and is the first real estate developer to have been certified ISO 9001:2000 certificate in North India. Future expansion plans As of 31 March 2007, the Company has 22 major ongoing residential projects. The total residential space offering from on-going projects is over 25 million square feet. Of these 22 major projects, nine are in Gurgaon, five in Greater Noida, six in Kolkata and one each in Lucknow and Bangalore. Ongoing Projects Project
Multi-Storied BABASAB PATIL - 52 -
Upcoming Township Projects Project Location Type Unitech Grande
Villa & Multi-Storied
Uniworld City Greater Noida
Villa & Multi-Storied
Villa & Multi-Storied
Risk factors: In the course of its business, Unitech is exposed to a wide variety of risks. The company is pursuing a strategy of high growth through entry into new markets. Though the company has, in the recent past, significantly scaled up its internal as well as external resources in keeping with its strategy, it remains to be seen if the company can manage this growth effectively. Demand for real estate especially residential real estate is sensitive to interest rate movements. Interest rats have been rising in the recent past owing to a Reserve Bank of India’s credit tightening policy. This could adversely affect company’s business plans considering that residential segment constitutes a significant portion of company’s business. Also, recent curbs by RBI and the Government of India to reduce credit flow to real estate sector may affect company’s plans. Rise in cost of raw materials could impact company’s performance. While the prices of cement and steel are beyond company’s control, we have been leveraging the bargaining power of scale to manage the cost of other materials through consolidated purchase of those materials. Real estate business in India being highly regulated by Governments at various levels, several regulatory
approvals, permits, licenses etc. are required to be obtained from the
Government from time to time for our projects. Any delay in obtaining such approvals can affect the timely execution of our projects. While there remain a number of risks to our
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business, due to Unitech’s experience of over two decades in real estate development, its relatively low average cost of the land bank, its capital efficiency and its innovative methods of turning around cash flows, we believe that the company will continue to generate healthy shareholder returns for the future. Therefore, Unitech’s outlook for 200708 remains positive. Financial performance analysis: Ratios Current Ratio Quick Ratio Inventory Turnover Ratio Debt Equity Ratio Operating Profit Ratio Return On Equity P/E Price to Book Value Ratio Dividend Payout Ratio Earning Yield Dividend Yield Total Asset Turnover Ratio Capital Turnover Ratio Gross Profit Margin Net Profit Margin
Industry 1.74 1.46 14.23 1.85 23.49 28.46 29.02 7.26 13.34 3.46 0.47
2007 0.95 0.93 32.16 3.11 56.83 84.72 31.97 16.37 4.13 3.13 0.13
2006 0.48 0.46 16.45 3.06 19.41 31.01 50.04 18.35 152.1 2 0.04
2005 0.43 0.4 15.78 1.86 9.73 17.2 13.99 2.63 127.47 7.15 1.19
0.88 2.31 21.84 12.78
0.22 0.91 56.64 39.22
0.58 2.36 18.94 10.32
0.93 2.66 9.31 5.67
Interpretation: Liquidity ratios: Ratios Current Ratio Quick Ratio
Industry 1.74 1.46
Company 0.95 0.93
Though company’s current ratio is increasing year by year still it is lesser than industry average. But as the company has got ability to use capital more efficiently, this ratio gives it more leverage in terms of earnings. So it can be justifiable.
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Turnover ratios: Ratios Total Asset Turnover Ratio Capital Turnover Ratio Inventory Turnover Ratio
Industry 0.88 2.31 14.23
Company 0.36 0.54 32.16
Inventory turnover ratio is exceptionally good compared to industry. Inventory turnover ratios are improving year by year. Asset and Capital Turnover Ratios are lower than industry, because company has not yet realized good from its newly restructured capital . Leverage ratios: Ratios Debt Equity Ratio
Company is in the comfortable zone. So that it can still use more Financial Leverage in future. Profitability ratios: Ratios Operating Profit Ratio Gross Profit Margin Net Profit Margin
Industry 23.49 21.84 12.78
Company 56.83 56.64 39.22
All profitability ratios for the company are exceptionally good and they are more than double the industrial average. Perhaps this could be possible because of its volume, very good companies business strategies and mainly because of high project execution expertise that the company has got over the year. Valuation ratios: Ratios P/E Price to Book Value Ratio Dividend Payout Ratio Earning Yield Dividend Yield
Industry 29.02 7.26 13.34 3.46 0.47
Company 31.97 16.37 4.13 3.13 0.13
P/E of company is higher than industry average; it is because of the company brand and almost de-risked business operations and company’s higher earning ratios. Coming BABASAB PATIL - 55 -
to Price to BV ratio company higher ratio than industry average which is substantiable from the companies past financial track record point of view. The DY and EY for scrip is lower than industry average, because of lower proportion of dividend payout owing to companies high growth potential. Summary: So I can conclude company’s scrip is over valued. Note: Adjustment factor for P/E: I have considered only Historical P/E but not the Weighted P/E ratio. Because Constant Growth Dividend Model can not be applied for the company. ( because there is no consistent dividend pay out).
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Period & months INCOME Net Operating Income EXPENSES Material Consumption Manufacturing Expenses Personnel Expenses Selling Expenses Administrative Expenses
2007/03 2006/03 2005/03 2004/03
853.98 65.62 13.13
396.1 31.11 10.62
359.62 15.95 8.35
298.87 10.38 4.3
174.36 8.71 0.91
Cost of Sales
Reported PBDIT Other Recurring Income Adjusted PBDIT Depreciation Other Write-offs Adjusted PBIT Financial Expenses Adjusted PBT Tax Charges Adjusted PAT Non-recurring Items Other Non-cash Adjustments REPORTED PAT No. of shares
1,387.69 65.66 1,453.35 4.54 0 1,448.81 193.71 1,255.11 361.27 893.84 89.72
126.84 21.45 148.29 3.1 0 145.19 37.14 108.05 38.48 69.57 0.07
49.57 17.41 66.98 2.14 0 64.84 21.92 42.92 13.46 29.47 0.45
25.56 8.1 33.66 1.69 0 31.97 9.54 22.43 6.46 15.98 -1.91
17.75 12.01 24.55 1.84 0 22.71 12.01 10.7 4.61 6.1 4.52
0.44 983.56 81.17
-0.51 69.64 1.25
-1.05 29.92 1.25
2.5 14.07 1.25
0.02 10.61 1.25
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Estimated EPS: Period & months INCOME Net Operating Income EXPENSES Material Consumption Manufacturing Expenses Personnel Expenses Selling Expenses Administrative Expenses
3150.59 4065.22 5245.37
98.29 122.33 152.25 1048.42 1287.14 1580.22 90.21 124.02 170.49 24.27 44.85 82.90 56.83 76.26 102.33
1.24 1.23 1.37 1.85 1.34
Cost of Sales
1318.02 1654.60 2088.20
Reported PBDIT Other Recurring Income Adjusted PBDIT Depreciation
1832.57 2410.62 3157.17 75.91 87.75 101.44 1908.47 2498.36 3258.61 5.17 5.89 6.71
1.16 1.57 1.14
Adjusted PBIT Financial Expenses Adjusted PBT Tax Charges Adjusted PAT Non-recurring Items Other Non-cash Adjustments REPORTED PAT No. of shares
1903.30 292.50 1610.80 469.65 1141.15 31.65 0.11 1172.90 81.17
2492.47 441.68 2050.79 610.55 1440.25 11.17 0.03 1451.44 81.17
3251.90 666.93 2584.97 793.71 1791.26 3.94 0.01 1795.20 81.17
EPS Adjusted EPS(factor is 1/2)*
1.51 1.30 0.35 0.24
Note: recently company has issued 1:1 bonus, so the adjustment factor of ½ is considered for calculation of expected EPS and Book Value.
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Estimated Book Value: Book value Calculation 2007 2006 2005 2004 2003 2008 2009 2010 CAGR Dividend 40.58 16.23 5 3.75 2.5 70.86 123.73 216.04 1.75 REPORTE 1172.9 1451.4 D PAT 983.56 69.64 29.92 14.07 10.61 0 4 1795.20 Equity Share Capital 162.34 12.49 12.49 12.49 12.49 162.34 162.34 162.34 Reserves & Surplus 998.66 212.05 161.42 138.2 125.86 998.66 998.66 998.66 Number of Equity shares outstanding 81.17 1.25 1.25 1.25 1.25 81.17 81.17 81.17 Net worth Book value Price to B.V.Ratio
2103.9 8 25.92
3212.1 1 39.57
4560.1 5 56.18
Projection of MPS Basis P/E(Historical Method) Price to BV
Formula EPS * P/E
MPS 2008 231.04
BV * price 231.08 to BV ratio
Data: P/E multiple = 32
Fair value of stock: Weight age assigned to different basis for calculating MPS of stock: •
For P/E basis: 1.5
For price to BV basis: 1
Particular Fair Value
Formula 2008 (1.5*P/E MPS + 231.05 1* P to BV MPS )/2.5
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TECHNICAL ANALYSIS: Technical analysis is the examination of past price movements to forecast future price movements. Technical analysts are sometimes referred to as chartists because they rely almost exclusively on charts for their analysis. Technical stock analysis is based on three basic principles namely: 1. Market action discounts everything; 2. Prices move in trends; 3. History repeats itself. Technical analysis is a forecasting method of price movements using past Prices, volume, and open interest. Pring (2002), a leading technical Analyst provides a more specific definition: “The technical approach to investment is essentially a reflection of the idea that prices move in trends that are determined by the changing Attitudes of investors toward a variety of economic, monetary, political, and psychological forces. The art of technical analysis, for it is an art, is Testing of Technical Analysis Tools”. Two technical indicators have been used to analyze the patterns on the chart. They are moving averages both simple and exponential moving averages and relative strength index. They are explained in detail as below: Moving Average:
Zigzag movement of prices often makes it difficult to judge the underlying trend. Trend lines do help as we have already seen.
Another popular way is to smooth the price data with the help of moving averages.
Technical analysts use two different types of moving averages - simple moving average, exponential moving average and weighted moving average.
The moving average system of trading is also known as the trend following system because the trader waits for the trend to be established before initiating a trade.
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Moving averages are one of the most popular and easy to use tools available to the technical analyst. They smooth a data series and make it easier to spot trends, something that is especially helpful in volatile markets. They also form the building blocks for many other technical indicators and overlays. The two most popular types of moving averages are the Simple Moving Average (SMA) and the Exponential Moving Average (EMA). They are described below: Simple Moving Average (SMA) A simple moving average is formed by computing the average (mean) price of a security over a specified number of periods. While it is possible to create moving averages from the Open, the High, and the Low data points, most moving averages are created using the closing price. For example: a 5-day simple moving average is calculated by adding the closing prices for the last 5 days and dividing the total by 5. 10+ 11 + 12 + 13 + 14 = 60 (60 / 5) = 12 The calculation is repeated for each price bar on the chart. The averages are then joined to form a smooth curving line - the moving average line. Continuing our example, if the next closing price in the average is 15, then this new period would be added and the oldest day, which is 10, would be dropped. The new 5-day simple moving average would be calculated as follows: 11 + 12 + 13 + 14 +15 = 65 (65 / 5) = 13 Over the last 2 days, the SMA moved from 12 to 13. As new days are added, the old days will be subtracted and the moving average will continue to move over time. Table 14
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Source: stockcharts.com In the example above, using closing prices from Eastman Kodak (EK), day 10 is the first day possible to calculate a 10-day simple moving average. As the calculation continues, the newest day is added and the oldest day is subtracted. The 10-day SMA for day 11 is calculated by adding the prices of day 2 through day 11 and dividing by 10. The averaging process then moves on to the next day where the 10-day SMA for day 12 is calculated by adding the prices of day 3 through day 12 and dividing by 10. The chart above is a plot that contains the data sequence in the table. The simple moving average begins on day 10 and continues. Exponential Moving Average (EMA) In order to reduce the lag in simple moving averages, technicians often use exponential moving averages (also called exponentially weighted moving averages). EMA's reduce the lag by applying more weight to recent prices relative to older prices. The weighting applied to the most recent price depends on the specified period of the moving average. The shorter the EMA's period, the more weight that will be applied to the most recent price. For example: a 10-period exponential moving average weighs the most recent price 18.18% while a 20-period EMA weighs the most recent price 9.52%. As we'll see, the calculating and EMA is much harder than calculating an SMA. The important thing to remember is that the exponential moving average puts more weight on recent prices. As such, it will react BABASAB PATIL - 62 -
quicker to recent price changes than a simple moving average. Here's the calculation formula. Exponential Moving Average Calculation Exponential Moving Averages can be specified in two ways - as a percent-based EMA or as a period-based EMA. A percent-based EMA has a percentage as it's single parameter while a period-based EMA has a parameter that represents the duration of the EMA. The formula for an exponential moving average is: EMA (current) = ( (Price(current) - EMA(prev) ) x Multiplier) + EMA(prev) For a percentage-based EMA, "Multiplier" is equal to the EMA's specified percentage. For a period-based EMA, "Multiplier" is equal to 2 / (1 + N) where N is the specified number of periods. For example, a 10-period EMA's Multiplier is calculated like this: (2 / (Time periods + 1) ) = (2 / (10 + 1) ) = 0.1818 (18.18%) This means that a 10-period EMA is equivalent to an 18.18% EMA. Note: StockCharts.com only support period-based EMA's. Below is a table with the results of an exponential moving average calculation for Eastman Kodak. For the first period's exponential moving average, the simple moving average was used as the previous period's exponential moving average (yellow highlight for the 10th period). From period 11 onward, the previous period's EMA was used. The calculation in period 11 breaks down as follows: (C - P) = (57.15 - 59.439) = -2.289 (C - P) x K = -2.289 x .181818 = -0.4162 ( (C - P) x K) + P = -0.4162 + 59.439 = 59.023 Table 15
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Source: stockcharts.com *The 10-period simple moving average is used for the first calculation only. After that the previous period's EMA is used. Note that, in theory, every previous closing price in the data set is used in the calculation of each EMA that makes up the EMA line. While the impact of older data points diminishes over time, it never fully disappears. This is true regardless of the EMA's specified period. The effects of older data diminish rapidly for shorter EMA's. than for longer ones but, again, they never completely disappear. Uses: There are many uses for moving averages, but three basic uses stand out: 1. Trend identification/confirmation 2. Support and Resistance level identification/confirmation 3. Trading Systems Interpretation:
A moving average smoothens the underlying price data and represents the trend for the period used to calculate the average.
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More importantly, it acts as a curved trendline providing support in an uptrend and resistance in a downtrend.
Since the moving average reflects the trend, intersection of the price with the moving average signals at least a pause in the trend by way of a correction and possibly a trend reversal.
In an uptrend, both the price and the moving average are rising and price is above the moving average. If the price were now to move below the moving average while the moving average is still rising, it would probably signal just a correction.
After a while renewed buying usually pushes the price again over the moving average. If the moving average is still rising, such a crossover of the price over the moving average indicates resumption of the uptrend.
However, caution is indicated if the moving average has begun to move sideways. A trend reversal is now more likely and is signalled when the price again crosses below the moving average.
Penetration of a very short term average such as the 5-day average occurs often in long lasting trends and often signals temporary pauses in the trend by way of correction or consolidation. This happens after a sharp upmove or a downmove when profit-taking sets in a countertrend move in the opposite direction. However, when prices retrace 50 to 60% of the previous move, players who missed the earlier move usually enter leading to resumption of the underlying trend.
On the other hand, penetration of say 20-day average accompanied by a change in the direction of the moving average itself, would usually confirm trend reversal or prolonged and deep correction.
Relative Strength Index (RSI): Developed by J. Welles Wilder and introduced in his 1978 book, New Concepts in Technical Trading Systems, the Relative Strength Index (RSI) is an extremely useful and popular momentum oscillator. The RSI compares the magnitude of a stock's recent gains to the magnitude of its recent losses and turns that information into a number that ranges from 0 to 100. It takes a single parameter, the number of time periods to use in the calculation. In his book, Wilder recommends using 14 periods.
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Calculation: 100 RSI = 100 - -------(1 + RS) RS = Average Gain / Average Loss Average Gain = [(previous Average Gain) x 13 + current Gain] / 14 First Average Gain = Total of Gains during past 14 periods / 14 Average Loss = [(previous Average Loss) x 13 + current Loss] / 14 First Average Loss = Total of Losses during past 14 periods / 14 Note: "Losses" are reported as positive values. To simplify our explanation of the formula, the RSI has been broken down into its basic components which are the RS, the Average Gain, and the Average Loss. To start the running calculation, the First Average Gain is calculated as the total of all gains during the past 14 periods divided by 14. Similarly, the First Average Loss is calculated as the total magnitude of all losses during the past 14 periods divided by 14. The next values for the "averages" are calculated by taking the previous value, multiplying it by 13, adding in the next Gain (or Loss), and then dividing by 14. This is Wilder's modified "smoothing" technique in action. The RS value is simply the Average Gain divided by the Average Loss for each period. Finally, the RSI is simply the RS converted into an oscillator that goes between zero and 100 using this formula: 100 - (100 / RS + 1). When the Average Gain is greater than the Average Loss, the RSI rises because RS will be greater than 1. Conversely, when the Average Loss is greater than the Average Gain, the RSI declines because RS will be less than 1. The last part of the formula ensures that the indicator oscillates between 0 and 100. Note: If the Average Loss ever becomes zero, RSI becomes 100 by definition. BABASAB PATIL - 66 -
Important Note: The more data points that are used to calculate the RSI, the more accurate the results. Interpretation: When Wilder introduced the Relative Strength Index, he recommended using a 14day Relative Strength Index. Since then, the 9-day and 25-day Relative Strength Indexes have also gained popularity. The fewer days used to calculate the Relative Strength Index, the more volatile the indicator. The Relative Strength Index is a price-following oscillator that ranges between 0 and 100. A popular method of analyzing the Relative Strength Index is to look for a divergence in which the security is making a new high, but the Relative Strength Index is failing to surpass its previous high. This divergence is an indication of an impending reversal. When the Relative Strength Index then turns down and falls below its most recent trough, it is said to have completed a "failure swing." The failure swing is considered a confirmation of the impending reversal. In Mr. Wilder's book, he discusses five uses of the Relative Strength Index: 1. Tops and Bottoms. The Relative Strength Index usually tops above 70 and bottoms below 30. It usually forms these tops and bottoms before the underlying price chart. 2. Chart Formations. The Relative Strength Index often forms chart patterns such as head and shoulders or triangles that may or may not be visible on the price chart. 3. Failure Swings (also known as support or resistance penetrations or breakouts). This is where the Relative Strength Index surpasses a previous high (peak) or falls below a recent low (trough). 4. Support and Resistance. The Relative Strength Index shows, sometimes more clearly than price themselves, levels of support and resistance. 5. Divergences. As discussed above, divergences occur when the price makes a new high (or low) that is not confirmed by a new high (or low) in the Relative Strength Index. Prices usually correct and move in the direction of the Relative Strength Index. Technical analysis consists of: BABASAB PATIL - 67 -
Market analysis: Nifty is considered as market index. Both short as well as long term analysis has been done using moving averages (simple and exponential MA) and relative strength index (RSI). Analysis: fundamentals of market Evaluating the fundamentals of market ie Nifty though gives us right estimation about the performance of market and also helps us in forecasting future growth of market, it has got little importance in present scenario. Because, market is sentiment driven then the actual fact driven, so swings of market make it so unstable beyond compare. In notable future of GDP growth rate that there has been sharply rising trend in GDP investment and savings with former rising by 13.1% of GDP and latter by 11.3% of the GDP over five years till 2006-07. So there is slight increase in the gap. Average investment ratio for 10th five year plan is at 31.4% and average savings rate was also at the same level 28.32%. We can say that gap between investment and saving is very which is usually being satisfied by FDI flow. This fact clearly shows that Indian investments are not dependent on foreign countries. On the other side of the growth ie demand, India has domestic demand which forms major portion of total demand. So we are not dependent on foreign demand. Balance of payment: At present the biggest trade partner is US with whom India is having some $11bn surplus trade which might be at stake (US recession) and marginally affect foreign trade that to in service sector. One more thing we need to critically look at is rupee appreciation v/s dollar which has been so furious and India needs to adjust to the pace at which it is being appreciated.
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Inflation: Major concern for India than anything else is alarming inflation which is primarily driven by the capital goods price and other food items. So keeping inflation below 5-7 percent is the immediate as well as long term prime objectives of governing bodies here. In the same light the honorable FM proposed budget which has an element of inflationary containment. (Across the board cut in excise duty) After looking at all these major factors of economy, we also need to to look at many other stock markets across the world like dow jones, Nikkei, shanghai, hangsang which are shaken because of world economy slow down (US recession). After critically examining these factors, we come to conclusion that Indian economy is not so much affected by above discussed factors and LT story of it going to be intact. According to Indian planning commission expected the GDP growth rate for next plan is between 8%-9%. At present stock market growth rate (CAGR) is pegged at 18- 20 percent. I expect the same level of growth in stock market for coming years. If we look at the market from other side ie technical side, market is in total chaos.
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Analysis: (Short term or intermediate) Market Trend: If we look at 90 day EMA of Nifty chart, for the past one and half year the trend has been Bullish. From 20th Jan 2008 onwards there has been shift in the trend towards Bearish. The 18day EMA & SMA of Nifty has broken down below 90 day EMA. So this is one more conclusive evidence for reversal of trend from Bull to Bear. Immediate Future: As we can see from the graph it is clear that market is finding support at 4450 to 4600(which is previous resistance for the market). At this level market is likely to consolidate for the medium time period. Significance of Future Trend: In future unless and until market finds required strengths to come to the previous level i.e. resistance at 5630 – 50, there will be no signs of market turning Bullish. And if in future market breaks the resistance level i.e. 5630-50 then it will rally up to 69807020. (Target) Long term analysis Market is sentiment driven and swings and hypes in market are so strong that they prevail even for years that have happened at present. There has been shift in market trend and it has turned bearish though there is no clear sign of bear trend (it’s a long term correction not exactly bearish) but present situation is of complete chaos has left market in a state of volatility so we should wait and see market movement closely. Market’s long term support is at 3118-3130 and next support is at 4500 level so next rally from that level 4500 is 1380-1400(4500-3110) and we can see some 150-200 points abortive rally has been occurred and has reached 6050. At that level market was waiting for correction. Bad clues from US slow down had made market to take LT correction and market has turned to be volatile and has yet to settle down at previous support of 4500.
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Company technical analysis: Stock taken is Indian hotels which operates the brand name “Taj hotel resorts and palaces”. Both short and long term analysis has been done using moving averages (simple and exponential MA) and relative strength index (RSI). Short term analysis: 1) Trend short term or intermediate trend for the scrip has been flat. Now terning in to bearish. 2) Key short term support and resistance levels for the scrip. As we can see from the 10 day EMA &SMA graph the scrip has established strong support at 130-140 price band. Price movement; the scrip has undergone major consolidation (sideway movement) phase. And it seems that the scrip has made abortive attempt to breach the flat trend and start rally, but in vain and the obvious reason for this failure is market crash. In the month Feb 2008 the scrip has broken the key support (130-140) and turned out to be bearish Future; as the scrip has already broken the key support, the short term traders should sell it and the fresh buy signal for the stock is known only when scrip establishes support. If in case scrip regains the strength to come back to the level of 130-140, investors should still wait till it clearly breaches above that level but with expanding volume. Trading tactics for short term investors: As it can be clearly seen from the graph, the stock is purely a trading stock. So to trade in the scrip one should look for key support and also look for cue from RSI. If the stock is at support and selling pressure is high i.e. RSI value 30 and below, it should be bought and sold at high buying pressure i.e. at RSI value 70 & above. Here the identifying future target price (for the short term) is very difficult as scrip was undergoing phase of consolidation and has no established resistance level.
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UNITECH RSI, M.A. & Volume
EMA 10 SMA 10 EMA 40 Support Resistance Buy Sell
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Short term analysis: Trend: The long term trend was bullish but turned flattish. The short term trend is bearish and stock undergoing consolidation. Short term resistance: Short term resistance is at 365 and support at 275 though the trend seems to be bullish, the intermediate trend has been flat because for year scrip has shown a sign of consolidation. Now the scrip is slightly on down trend and settling down to the intermediate support of 265-275. Future: If market turns back to old levels then scrip will get the strength to regain its previous momentum at resistance level of 365 and even break away that level of resistance with expanding volume then rally is set to be resumed and is expected to rally till 455-475 (target) or else if it doesn’t get support from market it fails to take support at then straight away goes down to settle at the rock bottom i.e. 150 level. Note: Buying and selling is suggested to be followed at support level in combination with right RSI values i.e. when RSI value is in oversold region 30. If possible investors should also have a close eye on expanding volume which is a conclusive evidence for aggressive bull or bear run.
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Unitech Long Term RSI, M.A. & Volume
Long term analysis: Long term resistance: Long term resistance is at 500 and support at 300 then 200. Future: Movement of scrip is mainly dependent on the market (Nifty) performance. If market turns back to old levels then scrip will get the strength to regain its previous momentum at resistance level of 500 and even break away that level of resistance with expanding volume then rally is set to be resumed and is expected to rally till 620-640 (target) or else if it doesn’t get support from market it fails to take support at then straight away goes down to
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settle at the rock bottom ie 150 level. If it crosses 620-40 range successfully then it may rally till 700. Note: Buying and selling is suggested to be followed at support level in combination with right RSI values ie when RSI value is in oversold region 30. if possible investors should also have a close eye on expanding volume which is a conclusive evidence for aggressive bull or bear run.
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FINDINGS: General: •
One of the most important areas for any investor to look when researching a company is the financial statement. Financial reports are required by law and are published both quarterly and annually.
Management discussion give investors a better understanding of what the company does and usually points out some key areas where they did well.
Audited financial reports have much more credibility than unaudited ones.
The income statement takes into account some non-cash items such as depreciation. The cash-flow statement strips away all non-cash items and tells you how much actual money the company generated.
The share prices of the company are very sensitive and may change very rapidly (upward or downward), but if we follow a systematic study, it is possible to predict the share prices to a certain extent.
The stock prices always take a correction after a major climb.
Technical analysts evaluate securities by analyzing statistics generated by market activity, past prices and volume.
The bar chart is used more than a straight-line graph because it shows the high, low, open and close for each particular day.
One of the most basic and easy to use technical analysis indicators is the moving average, which shows the average value of a security's price over a period of time. The most commonly used moving averages are 20-, 30-, 50-, 100- and 200-day.
Support and resistance levels are price levels, at which movement should stop and reverse direction. Think of support/resistance (S/R) as levels that act as a floor or a ceiling to future price movements. BABASAB PATIL - 77 -
For Stock: •
First, the projected MPS of the stock next three years are Rs.231.05, Rs.286.03 and Rs.352.68.
Short term support for scrip: 265-275; Next support has been established at 150165.
Short term resistance for scrip: 365
Short term support for scrip: 265
Long term resistance for scrip: 500
Long term support is at 200 level;
Now the scrip is slightly on the down trend(short term) and settling down to the intermediate support of 265-275
Long term target by technical analysis is 620-40 but this is unlikely to happen in the medium term because short term trend has been bearish and long term trend has been flat and undergoing long consolidation
For market: •
Short term support or intermediate support: 4500-4600; next long term support lies at3100-3150
Resistance for Nifty is at present is at 6000
Short term and intermediate trend has been bearish and long term trend is still bullish.
Long term nifty target is a 6980- 7020.
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Recommendations: Long term investors can include Unitech, because the growth rates and earnings are good compared to others stocks. Therefore investors can include this in their portfolio to earn the higher return on their investment. The Long term investors should buy the stocks fair value found out by the fundamental analysis. Short term investors should look on various support and resistance of stocks to buy or sell and make profit. The investors are watch the news which affects the stocks and market because market is very much driven by sentiments, so they see its effects the market or stocks that they can make more profit out of it.
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Stock market or capital market provides the industry with a lot of capital needed by the industry, which leads to the growth of the industry and economy as a whole; hence the stock market plays an important role in the development of the industry.
Some times Using Technical and fundamental analysis individually leads to incorrect results hence both Fundamental and technical analysis should be used at a time to get the desired result.
Fundamental analysts study everything from the overall economy and industry conditions, to the financial condition and management of companies before deciding on any particular stock.
Technical analyst’s look for peaks, bottoms, trends, patterns and other factors affecting a stock's price movement and then make buy/sell decisions based on those factors.
Stock market or capital market provides the industry with a lot of capital needed by the industry, which leads to the growth of the industry and economy as a whole; hence the stock market plays an important role in the development of the industry.
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BIBLIOGRAPHY Books referred Security Analysis and Portfolio Management - Fisher and Jordan Investment Analysis and Portfolio Management -Prasanna Chandra Websites; -
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