Summer Internship Project-nishant

SUMMER INTERNSHIP PROJECT

On Equity Research of Cement sector 

 At Birla Sun Life Insurance Ltd.

In Partial Fulfilment Of  PGDM FMG XXV FORE SCHOOL SCHOOL OF MANAGEMENT

Submitted to Prof. Vinay Kumar Dutta FORE FORE Scho School ol of Management

Submitted by Nishant FMG 25, Roll No. 251170 FORE FORE Scho School ol Of Management Management

June 2017

1

DECLARATION

Sunli fe I am, Mr. Nishant Roll No. 251170 have completed my summer internship at Birl a Sunli Insurance, Pushp Vihar and has submitted this project report entitled Equity Research on Cement Cement s ector towards partial fulfilment of the requirements for the award of the Post

Graduate Diploma in Management FMG-25 2016-2018. This Report is the result of my own work, no part of it has earlier comprised any other report, monograph, dissertation or book. Name: Nishant Roll: 251170 Place: Delhi Date:

2

CERTIFICATE

This is to certify that Mr. Nishant  Roll No. 251170 has completed his summer internship at Birl a Sunlife Insurance, Pushp Pushp Vihar  Vihar  and has submitted this project report entitled Equity Research on Cement Sector towards partial fulfilment of the requirements for the

award of the Post Graduate Diploma in Management FMG-25 2016-2018. This Report is the result of his own work and to the best of my knowledge, no part of it has earlier comprised any other report, monograph, dissertation or book. This project was carried out under my overall supervision.

Date: Place: ————————————

Prof. Vinay K. Dutta

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 ACKNOWLEDGMENT  ACK NOWLEDGMENT

I take this platform to express my sincere regards towards the various stakeholders of my Summer Internship Program underwent for period of two months. Each one of the following has a major role to play in bringing this project to a possible closure. Starting with, I would like to convey my sincere gratitude towards the entire team at Birla Sun life Insurance Pvt Pvt Lt d . for the able guidance they showered upon me which paved my

way smoother to complete the project successfully.  A special acknowledgement acknowledgement towards Mr. Nikesh Ruparel , my Industry mentor; who was a constant source of inspiration for me to work very hard and provided me with all possible inputs whenever I approached him. Vinay Kum ar Dutta  for giving On this note, I would also want to thank my Faculty guide Prof . Vinay

me timely responses and instilling great encouragement through his knowledge and experience. Without his guidance and help, the Equity research wouldn’t be a success.

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TABLE OF CONTENTS

CHAPTER NO.

SUBJECT SUBJ ECT COVERED COVERED

PAGE NO.

1.

Executive Summary

10

2.

Introduction

11

2.1 Background 2.2 Objectives 2.3 Company Profile 2.4 Literature Review 3.

11 15 15 17

Research Methodology

21

3.1 Project Design 3.2 Data Collection methods 3.3 Equity Research techniques & Valuation concepts 4.

Fundamental Analysis

29

4.1 Introduction 4.2 EIC Framework 4.3 Valuation of Cement Stocks

5.

Technical Analysis

29 29 35

42

5.1 Introduction 5.2 Chart Types 5.3 Chart Patterns 5.4 Long term Technical Analysis of Cement Stocks 5.5 Short Term Technical Analysis 5.6 Short Term Technical Analysis of Cement Stocks

6.

21 21 21

Sector Mutual Fund

42 43 47 52 56 66

70

5

7.

Conclusion

74

8.

Scope of Study

76

9.

Limitations of the study

77

10.

Annexure

78

10.1 Formulae Used 10.2 References

6

78 78

LIST OF TABLES

S. No.

TOPIC

PAGE NO.

4.1

Topline & Bottomline of L-Cap of Cement stocks

36

4.2

Value Picks

37

4.3

Growth Picks

39

4.4

Rating of Cement Stocks

40

4.5

Ranking of Cement Stocks

41

6.1

Allocation of Cement Stocks

70

6.2

Change in NAV vs Change in Benchmark Index

71-72

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LIST OF FIGURES

S. No.

TOPIC

PAGE NO.

2.1

Top Cement Producers & Consumers

13

2.2

Cement Production YoY

13

5.1

Line Chart

44

5.2

Bar Chart

45

5.3

Candlestick Chart

46

5.4

Head & Shoulders Reversal

47

5.5

Cup with Handle

48

5.6

Bump & Run Reversal

49

5.7

Double Top

50

5.8

Rounding Bottom

50

5.9

Tripple Bottom

51

5.10

Long Term trend of Ramco Cements

52

5.11

Long Term trend of OCL India

53

5.12

Long Term trend of Birla Corp

54

5.13

Long Term trend of India Cements

55

8

5.14

Candlesticks

56

5.15

Doji

57

5.16

Long White+ Doji

58

5.17

Hammer & Hanging Man (i)

59

5.17

Hammer & Hanging Man (ii)

60

5.18 (i)

Inverted Hammer & Shooting star

61

5.18 (ii)

Inverted Hammer & Shooting star

62

5.19

Star Position

63

5.20

Harami Position

64

5.21

Marubozu

65

5.22

Short term analysis of Ramco Cements

66

5.23

Short term analysis of OCL India

67

5.24

Short term analysis of Birla Corp

68

5.25

Short term analysis of India Cements

69

6.1

Mutual fund stock vs Benchmark index

72

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1. Executive Summary

This project report is about the ‘Equity research in Cement sector. It consists the study of

Cement sector on macroeconomic and microeconomic basis. It will be helpful for investors who are looking for investment in Cement sector companies. It will give them approach for investment in whichever sector they want to invest. Fundamental and Technical Analysis are the methods used to analyze the Cement sector. In Technical Analysis, two types of Technical Analysis are used i.e. Short Term Technical  Analysis and Long Term Technical Technical Analysis. Analysis. In In Long Term Term Technical Technical analysis, analysis, Various Patterns have been observed as a part of Long Term Technical Analysis and points at which the investors can buy and sell the stocks have been spotted. Also, the current trend of the stocks has been found out. In Short Term Technical Analysis various candlesticks are used to find out the different trends which helps the investors to buy and sell the stocks in the Cement sector. In fundamental analysis, we find out which stocks are growth picks and value picks. After finding the growth picks and value picks stocks from the analysis, we rank the stock based on some financial ratios which are important to Cement sector.  A portfolio portfolio consisting consisting of the selected Cement Cement sector sector stocks is created created and the Net Net Asset Value (NAV) of the portfolio is calculated. Performance of the entire portfolio is analyzed with respect to the Index NIFTY 500 (which acts as a benchmark) on daily basis to see if the portfolio of the Cement sector stocks beats the benchmark NIFTY 500.

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2. INTRODUCTION

2.1 BACKGROU B ACKGROUND: ND:

The Indian cement industry is the second largest market in the world after China and is responsible for 7-8% global production of cement. Cement, being a bulk commodity, is a freight intensive industry and transporting it over long distances can prove to be uneconomical. This has resulted in cement being largely a regional play; with the industry divided into five main regions viz. north, south, west, east and the central region. The North and South regions are the leading suppliers of cement. The East, West and Central regions however, face deficit of cement and thereby rely more on purchases from the North and South. The Southern region of India has the highest installed capacity, accounting for about one-third of the country's total installed cement capacity. The Indian Cement Industry had a total manufacturing capacity of about 384 million tonnes (MT) as of financial year ending 2015-16. Cement is a cyclical commodity with a high correlation with GDP of the economy. The demand for cement in real estate sector is spread across rural housing (40%), urban housing (25%) and construction/infrastructure/industrial activities (25%). While the rest 10% demand is contributed by commercial real estate sector. The demand for Cement is expected to reach 550-600 Million Tonnes Per Annum (MTPA) by 2025. The housing sector being the biggest demand driver of cement, accounts for about 67% of the total consumption in India. The other major contributors of cement include infrastructure at 13%, commercial construction at 11% and industrial construction at 9%. To meet the rise in demand, cement companies are expected to add 56 million tonnes capacity over the next 11

three years. Moreover, the per capita consumption of cement in India still remains substantially low at less than 200 kg when compared with the world average which stands at about 500 kg. In case of China it is over 1,000 kg per head. Herein, underlines the tremendous scope for growth in the Indian cement industry in the long term. . Financial Year 2016 :

During the financial year 2015-16 (FY16), India's cement demand stood at 284 MTPA as against the supply of 384 MTPA during FY 2015-16. The poor growth in cement demand can be attributed to slower progress in infrastructure projects and low off-take from housing and industrial user segments. While the rural demand was affected by less-than-normal monsoon, the demand from real estate market in urban areas was also poor because of frail market conditions. The demand from Industrial capital expenditure was adversely affected due to existence of excess capacities across various industrial sectors. The supply side on the other hand, continued to reflect over-capacity leading to lower capacity utilization levels by cement companies. The drop in commodity prices especially coal has however helped cement companies in rationalizing their cost of production. Cement Ce ment Sector Growth Drivers :

Cement demand is closely linked to the overall economic growth, particularly the housing and infrastructure sector. If the rate of growth of consumption remains low at 5-6%, the existing capacity would be sufficient to meet the cement demand for the next few years. Higher government spending on infrastructure and housing, and rising per capita incomes will be key growth drivers for the cement industry. There have also been positive moves on 12

the policy front, in areas related to ease of doing business, promoting start-ups, rationalizing the tax structure and administration, and opening up more areas for foreign investment through the automatic route. The government has been substantially stepping up infrastructure spending. From a long-term point of view, overall pick-up observed in the infrastructure spending by the Government and downward trend in the interest rates is expected to revive the demand across sectors. The 7th Pay Commission is expected to aid in housing demand. Government thrust on affordable housing for realizing its vision of "Housing for All " by 2022,  AMRUT (Atal Mission for Rejuvenation and Urban transformation) and Smart City program should also help in propelling demand growth for cement. Under Union Budget 2017-18, US$ 3.42 billion has been allocated to achieve government's mission of 'Housing for All by 2022. The scheme will be extended to 600 districts In the Budget 2016, the GOI, allocated a total of USD8.22 billion for the development of roads & highways of India, bracing the cement industry of India. Housing sector is considered to drive the cement industries in India to a great extent, which held nearly 67 per cent of the total cement consumption in India. Also, the metro rail projects in Mumbai, Bangalore, Hyderabad & the expansion phase in Delhi drives cement demand. Therefore, the outlook for the cement sector looks better. Nonetheless, medium term challenges remain in the form of excess capacity, the adverse impact of demonetization on economic activity, slowdown in rural demand and slow offtake of infrastructure projects.

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Fig 2.1 Top Cement Producers & Consumers

Fig 2.2 Production of Cement YoY

From the above graphs, we can see that India is one of the top two countries in the world as a Producer and Consumer of cement. And the production in cement has been increasing constantly over the years thereby, promising lot of growth opportunities for the sector. Cement production increased at a CAGR of 6.44 per cent to 282.79 million tonnes over FY07 –16. 14

2.2 Object Object ive -

➢

To provide a brief overview of the Indian Cement Industry.

➢

To study some of the major players in Indian Cement Industry which have some good potential investment prospects.

➢

To identify the main growth drivers of the sector and the recent development.

➢

To identify the top-line and bottom-line factors of the companies selected under the sector.

➢

To analyse the various stocks of the Cement sector by calculating the various ratios, the price targets and the technical analysis which would help us know which stock is outperforming and which stock is underperforming. Apart from this, the price target would help us know that by how much our shares would rise or fall when the market fluctuates in future.

2.3 Company Profile

Established in 2000 , Birla Sun Life Insurance Company Limited  (BSLI) is a joint venture between the Aditya Birla Group , a well known and trusted name globally amongst Indian conglomerates and Sun Life Financial Inc , leading international financial services organization from Canada. The local knowledge of the Aditya Birla Group combined with the domain expertise of Sun Life Financial Inc., offers a formidable protection for its

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customers' future. With an experience of over 10 years, BSLI has contributed significantly to the growth and development of the life insurance industry in India and currently ranks amongst the top 7 private life insurance companies in the country. Known for its innovation and creating industry benchmarks, BSLI has several firsts to its credit. It was the first Indian Insurance Company to introduce “Free Look Period”

and the same was made mandatory by IRDA for all other life insurance companies.  Additionally,  Additionally, BSLI pioneered pioneered the launch launch of Unit Unit Linked Life Insurance Insurance plans plans amongst amongst the private players in India. To establish credibility and further transparency, BSLI also enjoys the prestige to be the originator of practice to disclose portfolio on monthly basis. These category development initiatives have helped BSLI be closer to its policy holders’

expectations, which gets further accentuated by the complete bouquet of insurance products (viz. pure term plan, life stage products, health plan and retirement plan) that the company offers. BSLI ranks 4th in India among the private life insurers in terms of annual premium equivalent, with a market share of 7.6% for FY16. During 2015-16, it recorded a gross premium income of Rs. 5, 580 Crore, registering a y-o-y growth of 7% and posted a net profit of Rs. 140 Crore. Its assets under Management at Rs. 30, 811 Crore as on FY 16. BSLI has a nation-wide distribution presence through 489 branches, 3 bancassurance partners, over 55,000 direct selling agents and more than 150 corporate agents and brokers. BSLI is meeting its growth capital and solvency requirements through internal accruals and has not required any capital infusion during past five years. The company offers a complete range of protection solutions, children's future solutions, wealth with

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protection solutions, health and wellness solutions, retirement solutions and savings with protection solutions. solutions .

Vision

To be a leader and role model in a broad based and integrated financial services business. Mission

To help people mitigate risks of life, accident, health, and money at all stages and under all circumstances. Enhance the financial future of our customers including enterprises. Values

Integrity, Commitment, Passion, Seamlessness, Speed

2.4 Literature Review

 A few research research studies/pape studies/papers rs have been been carried carried out over a period period of time time by different academicians, researchers and economists of the country. They have been done by analyzing the performance in different aspects. But very few have been carried out, analyzing and commenting about the financial performance of the cement industry and stocks in particular. Some of such research papers are:

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•

Nair N.K. (1991)  has studied the productivity aspect of Indian Cement Industry. His

study emphasized that cement, being a construction material, occupied a strategic place in the Indian economy. This study has revealed that, in 1990-91, the industry had an installed capacity of 60 million tonnes with a production of 48 million tonnes. In this study, the cement industry was forecasted to have a capacity growth of about 100 million tonnes by the year 2000. This study has also analyzed the productivity and performance ratios of the cement industry with a view to identifying the major problem areas and the prospects for solving them.

•

SUBIR COKAVN AND REJENDRA VAIDHA (1993) have made an attempt to evaluate

the performance of cement industry after decontrol. They found that the performance of the cement industry after decontrol was characterized by outcomes that were generally competitive and welfare enhancing. Their study has revealed that the structure of the industry changed significantly with large magnitude of relative technologically and superior capacity being created by many new entrants into the industry. It was noticed in this study that there were significant real price increase and an associated increase in profitability. The performance of firms across the strategic group was different with firms operating relatively new and large plants appeared to have an advantage. Further, their study has dealt with the nature and effect of inter-firm heterogeneities in the cement industry.

•

CHANDRASEKARAN N (1993) has made an attempt to examine the determinants of

profitability in cement industry. He identified that profitability was determined by 18

structural, as well as, behavioral variables. He also identified that the other variables which influenced profitability were growth of the firm, capital turnover ratio, management of working capital, inventory turnover ratio etc. Some of the main changes in the cement industry environment during 1980’s identified this study were: from complete

control to decontrol, number of new entrants and substantial additions of capacity, changing technology from inefficient wet process to efficient dry process and from conditions of scarcity of cement to near gloat in the market.

•

Nand Nand Kis hore hor e Sharma (2002 (2002), ),  in his Study on financial appraisal of cement industry in

India, has found that the liquidity position was decreasing, current ratio and quick ratio showed a decreasing trend and also these ratios varied from time to time. On comparing the current ratio and quick ratio of cement industry, six companies were found higher than the industry average and four companies lower than industry average. The solvency position in term of debt-equity ratio has showed a decreasing trend in the first 4 years of study, after that, it registered an increasing trend. The ratio of fixed assets to total debt always showed more than 100 percent which indicated that the claims of outsiders were covered by the fixed assets of the cement companies.

•

Kumar B. Das (1987)  has made an analysis of the financial performance of the cement

industry. it can be analyzed that the net fixed assets as a percentage of total assets decreased for the period 1970-71 to 1977-78 that was 553.5% to 44.04 % respectively.

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Current liabilities have increased than the current assets. Liquidity 16 performance of the cement industry is not healthy during period of the study. The Debt Asset ratio has downward During the period of the study and Debt Equity ratio has slightly increased while net worth ratio has decreased over the years.

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3. RESEARCH METHODOLOGY

3.1 Project Design The project is on equity research analysis of the sectors. Hence study has to be done on the basis of information and news available about the sectors i.e. secondary data by various modes. This research had to be completed by doing Fundamental analysis and Technical analysis of the companies.

3.2 Data Collection Methods Secondary data was collected from the internet, company websites, magazines and various articles . Stock market data has been taken from BSE and NSE websites (Bombay Stock Exchange and National Stock Exchange, the two stock exchanges operating in India) Secondary data was also collected from the internet, company websites, magazines and various articles. However, the main source of information is the Annual Reports issued by the companies and also quarterly reports of the current year showing their performances in current market scenario. 3.3 Equity Research Technique & Valuation Concepts:

Sector Analysis was done on the basis of research and understanding various companies of the sector which had strong Fundamentals over other companies of the same sector. Companies’ growth and past performance was taken into account along with its top -line

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(Revenue) and Bottom-line (Profits) for that period. Companies with strong fundamentals were preferred. The Ratios that were taken into consideration were : (i)Price /Earni /Earni ngs Ratio (P.E Ratio) Ratio)

The price to earnings (P/E) multiple or ratio is probably the most popular indicator used by investors for valuing stocks. It is the ratio of a company's stock price to its earnings per share. (Earnings per share or EPS is a company's net profit divided by the number of shares it has issued.) Another way of looking at the P/E ratio is as a ratio of the value that the market thinks a company deserves (its market capitalization) to its net profit. It tells you how to cheap or expensive a company's stock is. It is the number of times investors must pay for the company's current earnings. For example, assume that the share price of a company is Rs.80. If its EPS is, say Rs 5, its P/E is 16. So, investors are willing to pay 16 times for every rupee of the company's earnings. Since you can use the P/E ratio to figure out if a company's stock is cheap or expensive, you can compare the stock price of one company with that of another company in the same industry, or stocks of two companies from different industries. You can have a P/E ratio for an industry as well as a stock group, like the BSE Sensex or the NSE Nifty. It is a good guide but it is not a watertight indicator. The major number entering the P/E ratio from the profit and loss statement is net profit. Some companies are known to inflate profit figures. For example, earnings under the head called 'other income' which could be by way of selling assets (and hence non-business income) can play spoilsport and result in

22

a misleadingly low P/E to lure gullible investors. Lower expenses than the actual can also inflate the net profit number and hence distort the P/E. It is calculated as •

Market Value per Share / Earnings per Share (EPS)

(ii) Price/Earni Price/Earni ngs Grow th Ratio (PEG Ratio Ratio )

The PEG ratio gives a more complete picture of stock valuation than simply viewing the price-earnings (P/E) ratio in isolation. The PEG ratio is calculated easily and represents the ratio of the P/E to the expected future earnings growth rate of the company. Stock theory suggests that the stock market should assign a PEG ratio of one to every stock. This would represent theoretical equilibrium between the market value of a stock and anticipated earnings growth. For example, a stock with an earnings multiple of 20 and 20% anticipated earnings growth would have a PEG ratio of one. PEG ratio results greater than one suggest one of the following: •

Market expectation of growth is higher than consensus estimates.

•

Stock is currently overvalued due to heightened demand for shares.

PEG ratio results of less than one suggest one of the following: •

Markets are underestimating growth and the stock is undervalued

•

Analysts' consensus estimates are currently set too low.

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 A great feature feature of the PEG ratio is that that by bringing bringing future growth growth expectations expectations into into the mix, mix, we can compare the relative valuations of different industries that may have very different prevailing P/E ratios. This makes it easier to compare different industries, which tend to each have their own historical P/E ranges. The PEG ratio is best suited to stocks with little or no dividend yield. Because the PEG ratio doesn't incorporate income received by the investor in its presentation of valuation, the metric may give unfairly inaccurate results for a stock that pays a high dividend. Thorough and thoughtful stock research should involve a solid understanding of the business operations and financials of the underlying company. This includes knowing what factors the analysts are using to come up with their growth rate estimates, and what risks exist regarding future growth and the company's own forecasts for long-term shareholder returns. Investors must always keep in mind that the market can, in the short-term, be anything but rational and efficient. While in the long run stocks may be constantly heading toward their natural PEGs of one, short-term fears or greed in the markets may put fundamental concerns on the backburner. When used consistently and uniformly, the PEG ratio is an essential tool that adds dimension to the P/E ratio, allows comparisons across diverse industries and is always on the lookout for value.

PEG RATIO is calculated as: •

PEG Ratio = P/E ratio ÷ Annual EPS Growth 24

The growth rate is expressed as a percentage above 100%, and should use real growth only, to correct for inflation. A lower ratio is "better" (cheaper) and a higher ratio is "worse" (expensive).

Top Line and and Bott om Lin e Concepts: Concepts: 1. Top Line Lin e

 A reference reference to the gross sales sales or revenues revenues of a company, company, or an allusion to a course course of action that increases or reduces revenues. The "top" reference relates to the fact that on a company's income statement, the first line at the top of the page is generally reserved for gross sales or revenue. A company that increases its revenues is said to be "growing its top line", or "generating top-line growth".

2. Bottom line

Bottom line refers to a company's net earnings, net income or earnings per share (EPS). Bottom line also refers to any actions that may increase/decrease net earnings or a company's overall profit. A company that is growing its net earnings or reducing its costs is said to be "improving its bottom line".

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Undervalued Undervalued and Overvalued Overvalued Stocks:

1. Undervalued Stock

Undervalued is a financial term referring to a security or other type of investment that is selling for a price presumed to be below the investment's true intrinsic value. A undervalued stock can be evaluated by looking at the underlying company's  financial statements and analyzing its fundamentals, its fundamentals, such  such as cash as cash flow, return flow,  return on assets, profit assets,  profit retention and capital management, to determine said stock's intrinsic value. Value investing is not foolproof, however. There is no guarantee as to when or whether a stock that appears undervalued will appreciate. There is also no single correct way to determine a stock's intrinsic stock's  intrinsic value — it is basically an educated guessing game.

 An undervalued undervalued stock stock is believed believed to be priced too low based based on current current indicators, indicators, such as those used in a valuation a  valuation model. Should a particular company’s stock be valued well below the industry average, it may be considered undervalued. In these instances,  value investors may focus on acquiring these investments as a method of pulling in reasonable returns for a lower initial cost.

Whether a stock is considered undervalued is open to interpretation. If a valuation model is inaccurate or applied in the wrong way, it is possible the stock is valued properly. In

26

contrast, a stock deemed  overvalued, or  overvalued,  or price higher than its  perceived value, it value,  it may in fact be priced appropriately.

2. Overvalued Stock

 An overvalued overvalued stock stock has a current a  current price that is not justified by its earnings its  earnings outlook or price/earnings (P/E) ratio, so it is expected to drop in price. Overvaluation may result from an emotional buying spurt, which inflates the stock's  market price, or price,  or from a deterioration in a company's financial strength. Potential investors do not want to overpay for a stock. small group of staunch efficient market theorists believe the market is perfectly efficient. They believe that fundamental that  fundamental analysis of a stock is a wasted exercise because the  stock market is all-knowing; as such, stocks are never  undervalued never  undervalued or overvalued.

Price Target :

 A price target target is the the projected projected price  price level of a financial security stated by an investment analyst investment  analyst or  advisor. It  advisor. It represents a security's price that, if achieved, results in a trader recognizing the best possible outcome for his investment. This is the price at which the trader or investor wants to exit his existing position so he can realize the most reward.

Target prices are like research reports: there are good ones and bad ones. The bad ones, which are used to deceive investors, are short on factual analysis and long on deceptive assumptions. The good ones provide information that helps investors evaluate the potential 27

risk/reward profile of the stock. The Long Term Price Target is calculated asLTPT=EPS*AVG PE

28

4. FUNDAMENTAL FUNDAMENTAL ANALYSIS: ANA LYSIS: 4.1 4.1 Introd Introd uctio n :

Fundamental analysis is the method of evaluating a security in an attempt to measure its intrinsic value, by examining related economic, financial and other qualitative and quantitative factors. Fundamental analysis determines the health and performance of an underlying company by looking at key numbers and economic indicators. When analyzing a stock, futures contract, or currency using fundamental analysis there are two basic approaches one can use; bottom up analysis  and top down analysis . The term is used to distinguish such analysis from other types of investment analysis, such as quantitative analysis and technical analysis. Here in our research, we follow the top-down approach; wherein, we start looking at the macro picture and then zooming-in into the individual stocks. Fundamental analysis is performed on historical and present data, and there are several possible objectives: ❖

To conduct a company stock valuation and predict its probable price evolution,

❖

To make a projection on its business performance,

❖

To evaluate its management and make projected decisions,

❖

To find out the intrinsic value of the share

4.2 EIC Framework :

Fundamental analysis includes the study of : ➢

Economic analysis

➢

Industry analysis

➢

Company analysis 29

On the basis of these three analyses, the intrinsic value of the shares are determined. This is considered as the true value of the share. If the intrinsic value is higher than the market price, it is recommended to buy the share. If it is equal to market price, then hold the share and if it is less than the market price then sell the shares. Here, we will see the economic and industry analysis w.r.t. the Cement Sector.

Economic Analysis

Here, our study of economic analysis is restricted to India alone. India has emerged as the fastest growing major economy in the world as per the Central Statistics Organization (CSO) and International Monetary Fund (IMF). The Government of India has forecasted that the Indian economy will grow by 7.1 per cent in FY 2016-17. As per the Economic Survey 2016-17, the Indian economy should grow between 6.75 and 7.5 per cent in FY 2017- 18. The improvement in India’s economic f undamentals has accelerated in the year 2015 with the combined impact of strong government reforms, Reserve Bank of India's (RBI) inflation focus supported by benign global commodity prices. India's consumer confidence index stood at 136 in the fourth quarter of 2016, topping the global list of countries on the same parameter, as a result of strong consumer sentiment, according to market research agency, Nielsen. Moody's has affirmed the Government of India's Baa3 rating with a positive outlook stating that the reforms by the government will enable the country perform better compared to its peers over the medium term. India's gross domestic product (GDP) grew by 7 per cent year-on-year in OctoberDecember 2016 quarter, which is the strongest among G-20 countries, as per Organization 30

for Economic Co-operation and Development (OECD) Economic Survey of India, 2017.  According to IMF World World Economic Outlook Update Update (January (January 2017), 2017), Indian Indian economy economy is expected to grow at 7.2 per cent during FY 2016-17 and further accelerate to 7.7 per cent during FY 2017-18. India's labour force is expected to touch 160-170 million by 2020, based on rate of population growth, increased labour force participation, and higher education enrolment, among other factors, according to a study by ASSOCHAM and Thought Arbitrage Research Institute. India's foreign exchange reserves stood at US$ 366.781 billion as on March 17, 2017 as compared to US$ 360 billion by end of March 2016, according to data from the RBI. Also, The Union Cabinet, Government of India, has approved the Central Goods and Services Tax (CGST), Integrated GST (IGST), Union Territory GST (UTGST), and Compensation Bill. India's industry output grew 2.74 per cent year-on-year in January 2017, led by a good performance in the capital goods sector which registered a 10.7 per cent year-on-year growth. India's unemployment rate has declined to 4.8 per cent in February 2017 compared to 9.5 per cent in August 2016, as a result of the Government's increased focus towards rural jobs and the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) scheme. Numerous foreign companies are setting up their facilities in India on account of various government initiatives like Make in India and Digital India.

Importantly, Finance Minister Arun Jaitley in his Union Budget speech announced a record allocation of Rs 3.96 lakh crore to infrastructure sector. Demonetization is expected to have

31

a positive impact on the Indian economy, which will help foster a clean and digitized economy in the long run, according to Ms Kristalina Georgieva, Chief Executive Officer, The World Bank.

Industry Analysis :

In the cement industry, the demand-supply situation is highly skewed with the latter being significantly higher. While the Housing sector acts as the principal growth driver for cement. However, industrial and infrastructure sectors have also emerged as demand drivers. Over the years, the industry has become more organized and structured, and average size of players has increased. Growing scale, coupled with improvement in manufacturing technology, has led to significant cost efficiencies as well. Cost of manufacturing cement has risen over the years, thanks to higher costs of fuel and financing, and high taxes. While the companies have been able to pass on a part of cost hike to consumers, costs are still rising faster than cement prices. Fixed costs in the cement industry are particularly high and significant relative to variable costs. Fixed costs generally account for more than 50% of the overall production costs. The fixed costs are usually sunk costs. Once built, a cement plant can serve no other purpose. As fixed costs are high with respect to the variable costs, the break-even point is high. Transportation is a major cost element for cement companies (around 20- 25% of sales). Using Porter’s Five Forces analysis gives us a better insight to the industry.

32

Porter’s Five Forces Analysis :

Barriers to entry

High capital costs and long gestation periods. The capital costs come out to be Rs 7200 per tonne, cement being a capital intensive industry. Access to limestone reserves (key input) and government clearances also acts as a significant entry barrier. Large players benefit from economies of scale, whereas, rising costs mean low IRR for new green field capacities.

Bargaining power of suppliers

Licensing of coal and limestone reserves, supply of power from the state grid, etc. are all controlled by a single entity, which is the government. However, many producers are relying more on captive power. Also, coal linkages have decreased so many producers are relying on alternative fuel sources where they can dictate the prices.

Bargaining power of customers

Cement is a commodity business and sales volumes mostly depend upon the distribution reach of the company. Cement is sold in two segments - trade and non-trade. Trade cement is the one sold to the dealers. Non-trade cement is sold directly to the consumers, mainly institutional buyers. Trade cement sells higher compared to non-trade. As such, 33

companies that have a strong distribution network and retail presence tend to have better cement realizations.

Competition

Intense competition with players expanding reach and achieving pan India-presence. The industry is a lot more consolidated than a couple of decades ago with a few large players controlling substantial market share.

Threat Threat of Substi tutes

There is no real substitute to Cement. Although steel can be used for medium to high rise buildings, building regulations require structural steel to be encased in concrete for fire protection purpose. This increases the importance of steel and reduces the threat of its substitutes.

34

4.3 Valuat Valuat ion io n of o f CEMENT CEMENT STOCKS: STOCKS:

Here, we analyze the cement stocks in 4 steps. In the First step, we see the topline and bottomline figures of Large cap cement stocks. From this, we take a call whether to buy, hold or sell. The second step is value pick. That is done on the basis of P/E ratio and Long term Target Price. The Third step is of growth pick. Here, we make use of PEG ratio to determine the growth picks. The fourth and final step is allocation and ranking of the selected stocks.

4.3. 4.3.1. 1.Topline Topline & Bottom line n umbers :

Here, in the first step we identify the topline and bottomline numbers of the major cement players; i.e. we have considered the large cap stocks of cement. The large cap stocks are taken of those stocks whose M-cap value is greater than Rs. 5000 cr. Here, we compare the current topline and bottomline values of the stocks w.r.t. to their previous topline and bottomline values, i.e. their profits after tax and their net operating revenues. We may find that in case of some stocks, the difference in both the topline and bottomline may be positive (Current> Previous), in that case it is recommended to bu y the stock. While in some cases it may be that the topline factor may be increasing and the bottomline factor maybe decreasing or vice-versa, in that case it is recommended to hold  the stock. And in some case, it may be that both the topline and bottomline maybe decreasing. Here, it is recommended to sell  the stock.

35

TOPLINE Company

Ultratech

BOTTOM LINE

Revenue

Revenue

Profits

Profits

2017

2016

2017

2016

27,162.42

24,107.36

2,627.72

2,174.65

11798.79 11798.79

11,158.34 11,158.34

581.71

602.4

 Ambuja

9745.59

9,267.82

1098.51

970.09

Shree

9,496.52

5,567.75

1,338.99

454.93

Ramco

3,678.18

3,723.63

558.26

242.35

222.51

204.31

63.37

65.55

J.K. Cement

4,420.71

3,560.32

259.58

101.54

OCL India

3,267.42

2,664.71

383.87

236.29

India Cements

4,248.95 4,248. 95

4,453.85

137.81

29.45

Prism Cements

5,550.36

5,593.88

8.36

14.7

JK Lakshmi

3,260.12

2,619.85

82

6.28

Birla corp

3,274.99

3,209.89

157.35

175.44

 ACC

Dalmia Bharat

Table 4.1: Topline & Bottomline of Cement L-Cap L -Cap stocks

Here, we can see that the topline and bottom-line values of Prism Cements  has decreased over the last year. Hence, we will not consider Prism Cements for our value pick. In the case of other Large-cap cement stocks, others have depicted the stance of either buy or hold and hence we will evaluate them further.

36

3.3.2. Value Picks: Company

Price

EPS EPS

P/E

Target Price

Undervalued/ Overvalued

Ultratech

4400.9

79.25

55.5318612

3756.58567 Overvalued

 ACC

1677.55

32.08

52.29270574 52.292705 74

1520.646919 Overvalued

 Ambuja

258.4

4.89

52.84253579 52.842535 79

231.7943713 Overvalued

Shree

19722.6

130.59

151.026878

Ramco

709.65

23

30.85434783

Dalmia Bharat

2522.7

8.02

314.5511222

J.K. Cement

1071.8

14.52

73.815427

688.2728572 Overvalued

OCL India

1221.1

41.53

29.40284132 2 9.40284132

1968.593096 Undervalued

India Cements

209.6

4.49

46.68151448

212.8336865 Undervalued

Prism

123.8

0.17

728.2352941

JK Lakshmi

505.85

0.53

954.4339623

Birla corp

772.1

20.43

37.79246207

1090.239374 Undervalued

Cements

Sect or P/E

968.4169746 Undervalued

47.40171193 47.40171193 Table 4.2: Value Picks

Here we have found out the undervalued and overvalued stocks. For this, we have taken into account each stock’s EPS value and the stock’s current market price. The market price

of the stocks have been taken as on 12.05.2017. And then we have found out the P/E ratio 37

by dividing the company’s current stock price by the EPS value. For the sector P/E, we

have excluded a few outliers. Outliers in this case refers to those stocks whose P/E ratio comes out to be exceptionally high or low which may distort the sector’s average P/E r atio. So, accordingly we have excluded Shree Cements , Dalmia Bharat, JK Lakshmi and Prism Secto r P/E comes out to be Cements while calculating the sector P/E. We find that the Secto 47.40. Next, we find the target price of each stock by multiplying the stock’s EPS value with the sector’s P/E value. Now, by comparing the company’s market price to the target price

we determine whether the stock is undervalued or overvalued. If it is less than the Target Price, we say that the stock is undervalued and if it is greater than its Target price we say that it is overvalued. The undervalued stocks are our value picks while the overvalued stock goes for further analysis.

38

3.3.3 3.3.3 Growth Growt h Pick:

Company Comp any

EPS'16 EPS'16

EPS'15 EPS'15

EPS

P/E

PEG

Growth

Ultratech

79.25

73.44

7.91

55.53

7.01

 Ambuja

4.89

5.21

-ve

52.84

-

 ACC

32.08

31.51

1.8

52.29

29.051

J.K.

0.53

8.12

-ve

73.81

-

Lakshmi Table 4.3: Growth Picks

Here, we have to find the Growth pick, ie. The overvalued stock can be a value pick if its PEG ratio comes less than 1 or about 1. But in this case, we find that PEG ratio for Ultratech Cement and ACC Cements comes out to be greater than 1, therefore, we discard it as a growth pick. While Ambuja Cements and J.K. Lakshmi have negative EPS growth, hence are not considered. Next, we do the allocation and ranking of the undervalued stocks.

39

3.3. 3.3.4. 4. Ranking Ranking & All ocation of Stocks :

Here, the stocks picked under value pick and growth pick are ranked on the basis of ratios so that further allocation of funds can be done. We, had 4 cement stocks and we have used 5 ratios for assessing the stocks’ performance. performan ce. The stock with the best performance u nder 1

particular ratio has been allocated 100 points and the remaining stocks are given weightage relative to the top performing stock under that particular ratio. Similarly, it has been done for other ratios. Then, we have calculated the net points secure by each stock out of 500 points and have ranked them accordingly. The following table depicts that: Compan

EV/

Point

Net

Points

y

Ebi

s(100

Profit

(100)

dta

)

Margi

ROE

Point

D/E

Point

ITR

Point

Total

s

s(100

s(100

points

(100)

)

)

(500)

n

Ramco

9.74

65.50

15.52

100

18.05

100

0.57

61.40

6.55

82.60

409.50

OCL

6.51

98

8.86

57.08

16.81

93.13

0.8

43.75

7.93

100

391.97

6.38

100

3.26

21

4.06

22.49

0.71

49.30

7.1

89.53

282.32

7.49

85.18

4.8

30.92

5.8

32.13

0.35

100

5.77

72.76

321

India India Cements Birla Corp Table 4.4: Rating of Cement Stocks 40

From the above table we can rank the selected cement stocks as follow:

Company

Rank

Ramco Cements

1

OCL India

2

Birla Corp

3

India Cements

4 Table 4.5 Ranking of Cement Stocks

41

5. TECHNICAL TECHNICAL ANALYSIS ANAL YSIS

5.1 5.1 Introd Introd uctio n:

Technical analysis is a financial term used to denote a security analysis discipline for forecasting the direction of prices through the study of past market data, primarily price and volume. Behavioral economics and quantitative analysis incorporate technical analysis, which being an aspect of active management stands in contradiction to much of modern portfolio theory.

Technical analysis employs models and trading rules based on price and volume transformations, such as the relative strength index, moving averages, regressions, intermarket and intra-market price correlations, business cycles, stock market cycles or, classically, through recognition of chart patterns. Technical analysis stands in contrast to the fundamental analysis approach to security and stock analysis. Technical analysis analyzes price, volume and other market information, whereas fundamental analysis looks at the actual facts of the company, market, currency or commodity.

Most large brokerage, trading group, or financial institutions will typically have both a technical analysis and fundamental analysis team.

Concepts -

✓ 

Resistance — a price level that may prompt a net increase of selling activity

✓ 

Support — a price level that may prompt a net increase of buying activity 42

✓ 

Breakout — the concept whereby prices forcefully penetrate an area of prior support or resistance, usually, but not always, accompanied by an increase in volume.

✓ 

Trending — the phenomenon by which price movement tends to persist in one direction for an extended period of time

✓

Average true range — averaged daily trading range, adjusted for price gaps

✓

Chart patterns— distinctive pattern created by the movement of security prices on a chart

✓ 

Momentum — the rate of price change

5.2 Chart Chart Types:

There are three main types of charts that are used by investors and traders depending on the information that they are seeking and their individual skill levels. The chart types are: the line chart, the bar chart, the candlestick chart.

i.

Line Lin e Chart -

The most basic of the three charts is the line charts because it represents only the closing prices over a set period of time. The line is formed by connecting the closing prices over the time frame. Line charts do not provide visual information of the trading range for the

43

individual points such as the high, low and opening prices. However, the closing price is often considered to be the most important price in stock data compared to the high and low for the day and this is why it is the only value used in line charts.

Fig 5.1 : Line Chart

ii. ii .

Bar Chart -

The bar chart expands on the line chart by adding several more key pieces of information to each data point. The chart is made up of a series of vertical lines that represent each data point. This vertical line represents the high and low for the trading period, along with 44

the closing price. The close and open are represented on the vertical line by a horizontal dash.

The opening price on a bar chart is illustrated by the dash that is located on the left side of the vertical bar. Conversely, the close is represented by the dash on the right. Generally, if the left dash (open) is lower than the right dash (close) then the bar will be shaded black, representing an up period for the stock, which means it has gained value. A bar that is colored red signals that the stock has gone down in value over that period. When this is the case, the dash on the right (close) is lower than the dash on the left (open).

Fig 5.2: Bar Chart

iii.

Candlestick Candlestick Charts Charts  –

The candlestick chart is similar to a bar chart, but it differs in the way that it is visually constructed. Similar to the bar chart, the candlestick also has a thin vertical line showing the period's trading range. The difference comes in the formation of a wide bar on the vertical line, which illustrates the difference between the open and close. And, like bar 45

charts, candlesticks also rely heavily on the use of colors to explain what has happened during the trading period. There are two color constructs for days up and one for days that the price falls. When the price of the stock is up and closes above the opening trade, the candlestick will usually be white or clear. If the stock has traded down for the period, then the candlestick will usually be red or black, depending on the site. If the stock's price has closed above the previous day’s close but below the day's open, the candlestick will be

black or filled with the color that is used to indicate an up day.

Fig 5.3: Candlestick Charts

46

5.3 Chart Patterns Patterns  –

HEAD AND SHOULDER -

This is one of the most popular and reliable chart patterns in technical analysis. Head and shoulders is a reversal chart pattern that when formed, signals that the security is likely to move against the previous trend Head and shoulders top is a chart pattern that is formed at the high of an upward movement and signals that the upward trend is about to end. Head and shoulders bottom, also known as inverse head and shoulders is the lesser known of the two, but is used to signal a reversal in a downtrend.

Fig 5.4: Head & Shoulders Reversal

Cup and Handle -

 A cup with handle chart chart is a bullish continuati continuation on pattern pattern in which the upward upward trend has paused but will continue in an upward direction once the pattern is confirmed. This price 47

pattern forms what looks like a cup, which is preceded by an upward trend. The handle follows the cup formation and is formed by a generally downward/sideways movement in the security's price. Once the price movement pushes above the resistance lines formed in the handle, the upward trend can continue. There is a wide ranging time frame for this type of pattern, with the span ranging from several months to more than a year.

Fig 5.5 Cup with Handle

Bump and Run reversal reversal :

 A Rising trend line is drawn which connects at least 3 lows of a price series (troughs) (troughs) of 3 different periods respectively as shown . Then a Bump is seen which can be observed as a bullish pattern and Finally the point where the trend line is broken, the pattern enters into a Run phase. This point is called as a sell point i.e. Investor is supposed to sell the stock.

48

Fig 5.6: Bump and Run Reversal

Double Tops -

The double top is a major reversal pattern that forms after an extended uptrend. As its name implies, the pattern is made up of two consecutive peaks that are roughly equal, with a moderate trough in between as shown in Figure 5.4. Atleast an intermediate change, if not long-term change, in trend from bullish to bearish as soon as the support is broken. Many potential double tops can form along the way up, but until key support is broken, a reversal cannot be confirmed .

49

Fig 5.7: Double Top

Rounding Bottom : The rounding bottom is a long-term reversal pattern that is best suited

for weekly charts. It is also referred to as a saucer bottom, and represents a long consolidation period that turns from a bearish bias to a bullish bias.

Fig 5.8: Rounding Bottom

50

Triple Bottom : The triple bottom is a reversal pattern made up of three equal lows followed

by a breakout above resistance. While this pattern can form over just a few months, it is usually a long-term pattern that covers many months.

Fig 5.9: Tripple Bottom

.

.

.

51

5.4 5.4 Long Term Term Technical Analysis Of Cement Cement stoc ks:

1. Ramco Ramco Cements Cements :

Fig 5.10: Long Term trend of Ramco Cements

Here, we see the patterns of Double Top, Bump and Run Reversal and Double Bottom. The final trend of the graph is an uptrend.

52

2. OCL OCL India:

Fig 5.11: Long Term Trend analysis of OCL India

Here, we see the patterns of Bump and Run Reversal and Cup with Handle. And also, the respective buy points and sell point. The final trend of the graph is an uptrend.

53

3. Birl a Corp:

Fig 5.12: Long Term trend analysis of Birla Corp

Here, we observe the patterns of Rounding Bottom and Bump and Run Reversal. The respective Buy point and Sell point could also be observed. The final trend is an uptrend.

54

4. India Cements:

Fig 5.13: Long term trend of India Cements

Here, the patterns of Rounding bottom, Double top and Cup with handle can be observed, which gives various buy and sell points. The final trend is an uptrend.

55

5.5 5.5 Short Term Technical Analysis :

5.5. 5.5.1 1 Introduct ion to Candle Sticks :

Originating in Japan over 300 years ago, candlestick charts have become quite popular in recent years. For a candlestick chart, the open, high, low and close are all required. A daily candlestick is based on the open price, the intraday high and low, and the close.

Fig 5.14: Candlesticks

White (green) candlesticks form when the close is higher than the open and black (red) candlesticks form when the close is lower than the open. The white and black portion formed from the open and close is called the body (white body or black body). The lines above and below are called shadows and represent the high and low.

56

Doji, Hammer, Hanging man, Inverted hammer and shooting star are five most important candlesticks Formation Candlesticks are formed using the open, high, low and close. Without opening prices, candlestick charts are impossible to draw. If the close is above the open, then a hollow candlestick (usually displayed as white) is drawn. If the close is below the open, then a filled candlestick (usually displayed as black) is drawn. Compared to traditional bar charts, many traders consider candlestick charts more visually appealing and easier to interpret. Each candlestick provides an easy-to-decipher picture of price action. Immediately a trader can see compare the relationship between the open and close as well as the high and low. The relationship between the open and close is considered vital information and forms the essence of candlesticks. White candlesticks, where the close is greater than the open, indicate buying pressure. Black candlesticks, where the close is less than the open, indicate selling pressure

5.5.2 5.5.2.. Types of Candlesti cks: 1. Doji:

Doji are important candlesticks that provide information on their own and as components of in a number of important patterns. Doji form when a security's open and close are virtually equal. The length of the upper and lower shadows can vary and the resulting candlestick looks like a cross, inverted cross or plus sign. Alone, doji are neutral patterns. Any bullish or bearish bias is b ased on preceding price action and future confirmation. The word “Doji” refers to both the singular and plural form. 57

Fig 5.15: Doji

Ideally, but not necessarily, the open and close should be equal. While a doji with an equal open and close would be considered more robust, it is more important to capture the essence of the candlestick. Doji convey a sense of indecision or tug-of-war between buyers and sellers. Prices move above and below the opening level during the session, but close at or near the opening level. The result is a standoff. Neither bulls nor bears were able to gain control and a turning point could be developing.

Fig 5.16: Long WHITE+ Doji 58

2. Hammer Hammer and Hangin g Man:

The Hammer and Hanging Man look exactly alike, but have different implications based on the preceding price action. Both have small real bodies (black or white), long lower shadows and short or non-existent upper shadows. As with most single and double candlestick formations, the Hammer and Hanging Man require confirmation before action.

Fig 5.17: Hammer & Hanging Man (i)

The Hammer is a bullish reversal pattern that forms after a decline. In addition to potential trend reversal, hammers can mark bottoms or support levels. After a decline, hammers signal a bullish revival. The low of the long lower shadow implies that sellers drove prices lower during the session. However, the strong finish indicates that buyers regained their footing to end the session on a strong note. While this may seem enough to act on, hammers require further bullish confirmation. The low of the hammer shows that plenty of sellers remain. Further buying pressure, and preferably on expanding volume, is needed 59

before acting. Such confirmation could come from a  gap up or long white candlestick. Hammers are similar to selling climaxes, and heavy volume can serve to reinforce the validity of the reversal.

Fig 5.17: Hammer & Hanging Man (ii)

The Hanging Man is a bearish reversal pattern that can also mark a top or resistance level. Forming after an advance, a Hanging Man signals that selling pressure is starting to increase. The low of the long lower shadow confirms that sellers pushed prices lower during the session. Even though the bulls regained their footing and drove prices higher by the finish, the appearance of selling pressure raises the yellow flag. As with the Hammer, a Hanging Man requires bearish confirmation before action. Such confirmation can come as a gap down or long black candlestick on heavy volume.

60

3. Inverted Hammer Hammer and and Shoo Shootin tin g Star:

The Inverted Hammer and Shooting Star look exactly alike, but have different implications based on previous price action. Both candlesticks have small real bodies (black or white), long upper shadows and small or nonexistent lower shadows. These candlesticks mark potential trend reversals, but require confirmation before action.

Fig 5.18 (i) : Inverted hammer & hanging Star

The Shooting Star is a bearish reversal pattern that forms after an advance and in the star position, hence its name. A Shooting Star can mark a potential trend reversal or resistance level. The candlestick forms when prices gap higher on the open, advance during the session and close well off their highs. The resulting candlestick has a long upper shadow and small black or white body. After a large advance (the upper shadow), the ability of the bears to force prices down raises the yellow flag. To indicate a substantial reversal, the upper shadow should relatively long and at least 2 times the length of the body. Bearish

61

confirmation is required after the Shooting Star and can take the form of a gap down or long black candlestick on heavy volume.

Fig 5.18(ii): Inverted Hammer & Shooting Star

The Inverted Hammer looks exactly like a Shooting Star, but forms after a decline or downtrend. Inverted Hammers represent a potential trend reversal or support levels. After a decline, the long upper shadow indicates buying pressure during the session. However, the bulls were not able to sustain this buying pressure and prices closed well off of their highs to create the long upper shadow. Because of this failure, bullish confirmation is required before action. An Inverted Hammer followed by a gap up or long white candlestick with heavy volume could act as bullish confirmation.

62

5.5. 5.5.3. 3. Candlestick Candlestick posi tions:

Star Star Positio n :

 A candlestick candlestick that gaps gaps away away from the previous candlestick candlestick is said said to be in star  star position position.. The first candlestick usually has a large real body, but not always, and the second candlestick in star position has a small real body. Depending on the previous candlestick, the star position candlestick  gaps up or down and appears isolated from previous price action. The two candlesticks can be any combination of white and black. Doj black.  Dojii, hammers, shooting  hammers, shooting stars and spinning tops have small real bodies, and can form in the star position. Later we will examine 2- and 3-candlestick patterns that utilize the star position.

Fig 5.19: Star Position

63

Harami Harami Positi on :

 A candlestick candlestick that forms within within the real body of the the previous previous candlestick candlestick is in Harami position. Harami means pregnant in Japanese and the second candlestick is nestled inside the first. The first candlestick usually has a large real body and the second a smaller real body than the first. The shadows (high/low) of the second candlestick do not have to be contained within the first, though it's preferable if they are. Doji and spinning tops have small real bodies, and can form in the harami position as well. Later we will examine candlestick patterns that utilize the harami position.

Fig 5.20: Harami Position

Murubuzu:

Even more potent long candlesticks are the Marubozu brothers, Black and White. Marubozu do not have upper or lower shadows and the high and low are represented by

64

the open or close. A White Marubozu forms when the open equals the low and the close equals the high. This indicates that buyers controlled the price action from the first trade to the last trade. Black Marubozu form when the open equals the high and the close equals the low. This indicates that sellers controlled the price action from the first trade to the last trade.

Fig 5.21: Marubozu

65

5.6. 5.6.

Short Term Term technical Analysis of Cement Cement Stocks:

1. Ramco Ramco Cements Cements :

Fig 5.22: Short term analysis of Ramco Cements

Here, we can see the candlestick Harami Position, Marubuzu, Inverted Invert ed Hammer, Black + Doji and Long White + Doji. Black + Doji and White + Doji signify trend reversals.

66

2. OCL OCL Cements Cements :

Fig 5.23: Short term analysis of OCL India

Here, we observe the candlesticks of Harami Position and Inverted Hammer. Inverted Hammer signify trend is changing. 67

3. Birl a corp:

Fig 5.24: Short term analysis of Birla Corp

Here, we can observe candlestick of Black + Doji.

68

4. India Cements:

Fig 5.25: Short term analysis of India Cements

Here, the candlesticks of Harami Position, White + Doji and Shooting Star can be observed. Shooting star signifies a downward trend.

69

6. Secto Secto r Mutual Fund:

 After picking the stocks and ranking them, we’ll now allocate allocate the fund and see the change in

 AUM and NAV value on different dates. For this purpose, we have assigned the sectorial mutual fund for Cement as 15 crores(AUM). Assuming 1 unit= 10 INR, Total no. of units = 15 cr/10= 1.5 cr. Thus, the NAV will come out to be 10 (15cr/1.5 cr). The funds are allocated based on the ranks of the stocks and the points secured. N.A.V.= AUM/No. of units Rank

Compa  Allocation

CMP

No.

of CMP on  AUM

ny

on

shares

12.05.

01.06.2

on CMP on  AUM

01.06.2017

017

09.06.2

on

09.06.2017

017

17 1

Ramco

43725388.93 709.65

61615

722.45

44513756.75 713.75

43977706.25

2

OCL

41853225.2

34275

1169.0

40069188.75 1224.4

41966310

1221.1 1 221.1

India 3

Birla

5 30145894.3

772.1

39044

888.7

34698402.8

918.9

35877531.6

34275500.1

209.6

16352 8 163528

209.3

34226410.4

213.75

34954110

Corp 4

India Cement s  AUM

150000000 150000000

153507758.7 153507758.7

70

156775657.9 156775657.9

Table 6.1: Allocation of Cement Stock

We observe here the performance of our selected portfolio of Cement stock w.r.t. to the benchmark i.e. NIFTY500 and see whether it beats the benchmark over this period. We find that on June 1st, 2017; our NAV increased to 10.23 and on 9 th June, 2017, NAV increased further to 10.45. On the other hand, NIFTY 500 increased from Rs. 8299.20 to Rs. 8367.15 on June 1

st

2017, showing an increment of 0.81%, whereas, NAV increased by 2.33%. On 9 th June, 2017; NIFTY 500 increased to Rs 8452.25, thereby showing an increment by 1.84 %. On the other hand, our NAV increased by 4.51 %. Thus, we can see that our selected portfolio stock beat the benchmark performance.

Date

% Change in NAV

% Change Chang e in NIFTY5 NIFTY500 00

15-May-17

1.16%

0.63%

16-May-17

0.89%

0.57%

17-May-17

-1.01%

-0.04%

18-May-17

-2.05%

-1.39%

19-May-17

-0.87%

-0.25%

22-May-17

-2.22%

-0.28%

23-May-17

-0.57%

-0.92%

24-May-17

-1.94%

-0.64%

25-May-17

3.12%

1.57%

26-May-17

0.53%

1.19%

29-May-17

-1.86%

-0.39%

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30-May-17

3.67%

0.35%

31-May-17

2.42%

0.26%

1-Jun-17

1.29%

0.19%

2-Jun-17

0.87%

0.47%

5-Jun-17

0.13%

0.35%

6-Jun-17

-1.23%

-0.46%

7-Jun-17

-0.78%

0.41%

8-Jun-17

1.49%

-0.03%

9-Jun-17

1.66%

0.28%

Table 6.2 Change in NAV vs Change in Benchmark Index

The above table depicts the change in % of NAV of Cement stock vs % change in NIFTY 500 over a period of nearly a month from 12 th may 2017 to 9 th June 2017.

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Fig 6.1: Mutual fund stock vs Benchmark index

The above graphs depicts the performance of the cement stock vs NIFTY500. From the graph, we can see that the Cement stock beats the benchmark NIFTY500 over the given period.

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7. Conclusion:

Equity Research plays a very critical role that fills the information gap between the buyers and sellers of shares. It plays a very crucial role in order to make wise investment decisions. An extensive research is required to properly analyse which stocks to invest in. Cement Sector shows immense growth and potential of profits are greater in the sector and thus we analysed stocks in this sector using certain fundamental ratios. A company should be fundamentally strong which shows promise of profits and thus stock appreciations. A company is said to be undervalued if its fair value is higher than its market value. We try to find those undervalued stocks and then mange them via portfolio management. After having accessed the risk capacity and tolerance followed by time horizon and intention of investment, the individual portfolio can fetch you systematic returns.

But it’s not just good stock selections that is important but it is the allocation of funds too. A good stock combination but without a proper allocation is also doomed to give losses.

Relative valuation model is one such method for value analysis. One can use long term and short term technical analysis along with fundamental analysis to determine a confirm trade signal. By calculating long term target price investor can achieve maximum profit and also get an idea for how much period they should hold the stock.

Sectorial mutual fund of Cement sector gives an idea about how the mutual fund NAV can be calculated and how the performance of portfolio be analyzed with respect to market bench mark. If mutual fund is outperforming market, it indicates that stocks selected for the 74

portfolio are fruitful. Here, in the Cement sector we found that the the mutual fund of selected stocks did manage to beat the benchmark as it progressed. Thus, reaffirming us that the we selected the right stocks.

It is however, always better and important to analyze, and do continuous updation of Funds invested because it may happen that some of the Stocks which were not there in our Portfolio have started performing well and can give better Return as time goes on and some stocks may start falling due to market situation, which makes it necessary to pullout our investment and Invest somewhere else. And it also helps if one invests in diversified portfolio stocks, as it reduces the risk. For building a diversified portfolio, we can approach it in the same way as we analysed the cement sector.

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8. Scope of Study:

➢

Detailed insights about the Cement sector in India Knowledge about the current market scenario, future prospects of investments in the stocks for various companies in this sector,  Analysis of large cap cap companies companies in Cement Cement sector. Project investment opportunities in various companies under this sector.

➢

Technical analysis of the Cement sector companies to invest in stocks by analyzing past five year data.

➢

Terminologies associated with equity research .

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9. LIMITATIONS L IMITATIONS OF THE STUDY ➢

Price to Earnings ratio has been used to value the stocks but this ratio is not always reliable because it may be lower in times of high inflation so it doesn't give a clear picture.

➢

Financial Modelling has not been done to signal the internal strength of the companies for the investment decisions.

➢

Stock market mostly work on sentiments and it ’s hard to predict stock prices movements.

➢

The portfolio's performance is measured for a relative period of 1 month which may not be enough.

➢

The findings of of this project is restricted to Cement Sector alone.

➢

The portfolio of mutual funds has been built around cement sector. Other sectors could have been added to diversify and reduce risk.

➢

The accuracy of the information available on some websites may not be foolproof or accurate.

➢

Some recent information pertaining to the company’s performance may not be yet

updated on some websites.

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10.ANNEXURE:

10.1 Formulae Used:

•

Long Term Price Target = EPS of the company X Sector P\E Ratio

•

PEG = P\E Ratio / EPS Growth

•

EPS Growth = EPS(current year)  – EPS(previous year) X 100 / EPS (previous year)

10.2. References: Literature Review ➢

Nair N.K, (1991) , Productivity in Indian Cement Industry, Productivity, (Vol. 32 No. 1,

p-141, April June) ➢

Subir Cokavn and Rajendra Rajendra Vadha, (199 (1993); 3); Derugation and Industrial

Performance-The Indian cement Industry, Economic and Political weekly,( Feb 2027, p. 106) ➢

Chandr asekaran N. (1993 (1993), ), Determinants of Profitability in Cement industry,

Cement Industry, ( Vol 20(4), p16 ) ➢

Nand Kishore Sharma, (2002), Financial Appraisal of Cement industry in India, The

Management Accountant,( 36(9), pp 622-625 )

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Websites Websites Accessed:

➢

https://www.equitymaster.com/research-it/sector-info/cement/Cement-Sector Analysis-Report.as  Analysi s-Report.asp?utm_so p?utm_source=keyurce=key-sectorsectorquote&utm_medium=website&utm_campaign=sector-report&utm_content=cement accessed on April 25, 2017.

➢

https://www.ibef.org/industry/cement-india.aspx accessed on May 1, 2017.

➢

https://www.ibef.org/economy/indian-economy-overview accessed on May 2, 2017. (last updated Apr 2017)

➢

http://economictimes.indiatimes.com/topic/cement-industry

accessed on May 8,

2017. ➢

https://insurance.birlasunlife.com/about-us/company-profile.aspx

accessed on May

14, 2017. ➢

http://stockcharts.com/school/doku.php?id=chart_school:overview:technical_analysis accessed on May 17, 2017.

➢

http://stockcharts.com/school/doku.php?id=chart_school:chart_analysis:introduction  _to_candlesticks  _to_cand lesticks accessed on May 17, 2017

➢

http://stockcharts.com/school/doku.php?id=chart_school:chart_analysis:chart_patter  ns accessed on May 17, 2017

➢

http://www.investopedia.com/terms/p/pattern.asp accessed on May 19, 2017

➢

http://www.bseindia.com/stock-share-price/the-ramco-cementslimited/ramcocem/500260/ accessed on May 21, 2017

➢

http://www.moneycontrol.com/stock-charts/birlacorporation/charts/BC07#BC07 accessed on May 25, 2017 79

➢

http://www.moneycontrol.com/stock-charts/theramcocements/charts/MC#MC accessed on May 25, 2017

➢

http://www.moneycontrol.com/stock-charts/oclindia/charts/OCL#OCL

accessed on

May 25, 2017 ➢

http://www.moneycontrol.com/stock-charts/indiacements/charts/OCL#OCL accessed on May 25, 2017

➢

http://www.moneycontrol.com/stocks/marketinfo/marketcap/bse/cement-major.html accessed on May 28, 2017

➢

https://en.wikipedia.org/wiki/Fundamental_analysis accessed on May 30, 2017

➢

http://www.investopedia.com/terms/p/pricetarget.asp accessed on June 2, 2017

➢

http://www.investopedia.com/terms/u/undervalued.asp accessed on June 2, 2017

➢

https://www.nseindia.com/products/content/equities/indices/historical_index_data.ht m accessed on June 9, 2017.

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