Vijay Final Year Project

“FUNDAMENTAL & TECHNICAL ANALYSIS OF TATA CONSULTANCY SERVICES”

VIJAY SITAwy5RAM POTE ROLL NO: HPGD/JA14/0195 SPECIALIZATION : FINANCE

WELINGKAR INSTITUTE OF MANAGEMENT DEVELOPMENT & RESEARCH Year of Submission: December, 2016

SUBMITTED TO: WELINGKAR INSTITUTE OF MANAGEMENT MUMBAI-400050 IN PARTIAL FULFILLMENTOF THE HPGD COURSE UNDER THE UNIVERSITY OF MUMBAI

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A PROJECT REPORT ON “FUNDAMENTAL & TECHNICAL ANALYSIS OF TATA CONSULTANCY SERVICES”

SUBMITTED BY VIJAY POTE (FINANCE) ROLL NO - 0195 BATCH 2014– 2016

WELINGKAR INSTITUTE OF MANAGEMENT MUMBAI-400050 IN PARTIAL FULFILLMENTOF THE HPGD COURSE UNDER THE UNIVERSITY OF MUMBAI

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DECLARATION

I VIJAY POTE, Hereby declare that the project report titled “FUNDAMENTAL & TECHNICAL ANALYSIS OF TATA CONSULTACY SERVICES” is my work submitted in partial fulfilment of the requirement for Post Graduate Degree of WELINGKAR INSTITUTE OF MANAGEMENT DEVELOPMENT & RESEARCH, MUMBAI and not submitted for the award of any degree, diploma, fellowship or any similar titles or prizes.

Date: 16/012/2016 Place: Mumbai Signature

WELINGKAR INSTITUTE OF MANAGEMENT DEVELOPMENT & RESEARCH “FINANCE”

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CERTIFICATE This is to certify that the project titled “FUNDAMENTAL & TECHNICAL ANALYSIS OF TATA CONSULTANCY SERVICES” has been successfully completed by VIJAY POTE under my guidance during the Second year i.e. 2014 - 2016 in partial fulfillment of his/ her course, MMS under the University of Mumbai through the MET Institute of Management, Bhujbal Knowledge Centre, General Arun Kumar Vaidya Chowk, Bandra Reclamation, Bandra (W.), Mumbai – 400 050. Name of Project Guide: DR. NIRMALA JOSHI Address of Guide: _________________________________________________ __________________________________________________ __________________________________________________ Telephone No.:

__________________________________________________

Signature of Project Guide : ___________________________ Date:

_______________________

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MET Institute of Management MMS –[Semester IV] [Batch 2014 – 2016] FINANCE SYNOPSIS

Name of the Student

: Vijay pote

Course and Year

: MMS – 2014-16

Period of Project Research

: Semester IV

Area of Project Research

: Equity

Name of the Guide

: Dr. Nirmala Joshi

Title of the Project

: Fundamental and Technical Analysis of TCS

Project Details [A] Objective of Study

:  To evaluate the current situation of the company by Fundamental analysis.  To determine the future direction of the stocks by Technical analysis.  Secondary objective is to learn about the company, selection of an 5

investment and the Indian stock market.

B] Research Methodology

: Primary data  Discussion with an expert. Secondary data  Annual report study  Company website  Relevant books.

[C]Expected results of the study

:

To predict the investors position ( buy , sell or hold)

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Prof.Dr. Nirmala Joshi

KshitijGokhale

(Internal Guide)

Dr.SangeetaTandon (MMS Coordinator, METIM)

Dr. Vijay Page (Director General, METIM)

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ACKNOWLEGMENT

I express my sincere gratitude to my guide and mentor Dr. Nirmala Joshi, for guiding me right from the inception of the project till the successful completion. I sincerely acknowledge her for extending her valuable assistance and support without any hesitation and guiding me with her insights from time to time.

I would like to thank Dr. Sangeeta Tandon, MMS course coordinator for extending her support from time to time and being there for the students whenever they needed her.

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INDEX

Contents CERTIFICATE..............................................................................................................4 SYNOPSIS................................................................................................................5 FUNDAMENTAL ANALYSIS OVERVIEW.................................................11 What is Fundamental Analysis?..........................................................................11 General Steps to Fundamental Evaluation........................................................11 Economic Forecast.................................................................................................11 Group Selection......................................................................................................11 Narrow Within the Group.....................................................................................12 Company Analysis.................................................................................................12 Business Plan..............................................................................................................12 Management...............................................................................................................12 Financial Analysis......................................................................................................13 Putting it All Together...........................................................................................13 Strengths of Fundamental Analysis...................................................................13 Long-term Trends.......................................................................................................13 Value Spotting............................................................................................................13 Business Acumen.......................................................................................................13 Knowing Who's Who.................................................................................................14 Weaknesses of Fundamental Analysis...............................................................14 Time Constraints........................................................................................................14 Industry/Company Specific........................................................................................14 Subjectivity.................................................................................................................14 Analyst Bias...............................................................................................................14 9

Definition of Fair Value..............................................................................................15 TATA CONSULTANCY SERVICES: OVERVIEW......................................16 Members of the board...........................................................................................16 Capital Structure.....................................................................................................17 Areas of Business...................................................................................................18 Acquisitions.............................................................................................................19 Awards, Recognitions& Achievements.............................................................20 Corporate Social Responsibility.........................................................................22 Facts and Figures....................................................................................................23 FINANCIALS.........................................................................................................24 Ratio Analysis.........................................................................................................24 COMPARISON WITH PEER COMPANIES.................................................35 TECHNICAL ANALYSIS OVERVIEW..........................................................36 What is Technical Analysis?................................................................................36 The Basis of Technical Analysis.........................................................................36 Price Discounts Everything........................................................................................36 Prices Movements are not Totally Random................................................................36 Moving Average Convergence Divergence......................................................38 Resistance And Support........................................................................................40 Types Of Charts......................................................................................................41 Technical Analysis.................................................................................................45 CONCLUSION......................................................................................................47

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FUNDAMENTAL ANALYSIS OVERVIEW

What is Fundamental Analysis? Fundamental analysis is the examination of the underlying forces that affect the well being of the economy, industry groups, and companies. As with most analysis, the goal is to derive a forecast and profit from future price movements. At the company level, fundamental analysis may involve examination of financial data, management, business concept and competition. At the industry level, there might be an examination of supply and demand forces for the products offered. For the national economy, fundamental analysis might focus on economic data to assess the present and future growth of the economy. To forecast future stock prices, fundamental analysis combines economic, industry, and company analysis to derive a stock's current fair value and forecast future value. If fair value is not equal to the current stock price, fundamental analysts believe that the stock is either over or under valued and the market price will ultimately gravitate towards fair value. Fundamentalists do not heed the advice of the random walkers and believe that markets are weak-form efficient. By believing that prices do not accurately reflect all available information, fundamental analysts look to capitalize on perceived price discrepancies.

General Steps to Fundamental Evaluation Even though there is no one clear-cut method, a breakdown is presented below in the order an investor might proceed. This method employs a top-down approach that starts with the overall economy and then works down from industry groups to specific companies. As part of the analysis process, it is important to remember that all information is relative. Industry groups are compared against other industry groups and companies against other companies. Usually, companies are compared with others in the same group. For example, a telecom operator (Verizon) would be compared to another telecom operator (SBC Corp), not to an oil company (ChevronTexaco).

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Economic Forecast First and foremost in a top-down approach would be an overall evaluation of the general economy. The economy is like the tide and the various industry groups and individual companies are like boats. When the economy expands, most industry groups and companies benefit and grow. When the economy declines, most sectors and companies usually suffer. Many economists link economic expansion and contraction to the level of interest rates. Interest rates are seen as a leading indicator for the stock market as well. Below is a chart of the S&P 500 and the yield on the 10-year note over the last 30 years. Although not exact, a correlation between stock prices and interest rates can be seen. Once a scenario for the overall economy has been developed, an investor can break down the economy into its various industry groups. Group Selection If the prognosis is for an expanding economy, then certain groups are likely to benefit more than others. An investor can narrow the field to those groups that are best suited to benefit from the current or future economic environment. If most companies are expected to benefit from an expansion, then risk in equities would be relatively low and an aggressive growth-oriented strategy might be advisable. A growth strategy might involve the purchase of technology, biotech, semiconductor and cyclical stocks. If the economy is forecast to contract, an investor may opt for a more conservative strategy and seek out stable income-oriented companies. A defensive strategy might involve the purchase of consumer staples, utilities and energy-related stocks. To assess a industry group's potential, an investor would want to consider the overall growth rate, market size, and importance to the economy. While the individual company is still important, its industry group is likely to exert just as much, or more, influence on the stock price. When stocks move, they usually move as groups; there are very few lone guns out there. Many times it is more important to be in the right industry than in the right stock! The chart below shows that relative performance of 5 sectors over a 7-month time frame. As the chart illustrates, being in the right sector can make all the difference.

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Narrow Within the Group Once the industry group is chosen, an investor would need to narrow the list of companies before proceeding to a more detailed analysis. Investors are usually interested in finding the leaders and the innovators within a group. The first task is to identify the current business and competitive environment within a group as well as the future trends. How do the companies rank according to market share, product position and competitive advantage? Who is the current leader and how will changes within the sector affect the current balance of power? What are the barriers to entry? Success depends on an edge, be it marketing, technology, market share or innovation. A comparative analysis of the competition within a sector will help identify those companies with an edge, and those most likely to keep it. Company Analysis With a shortlist of companies, an investor might analyze the resources and capabilities within each company to identify those companies that are capable of creating and maintaining a competitive advantage. The analysis could focus on selecting companies with a sensible business plan, solid management and sound financials. Business Plan The business plan, model or concept forms the bedrock upon which all else is built. If the plan, model or concepts stink, there is little hope for the business. For a new business, the questions may be these: Does its business make sense? Is it feasible? Is there a market? Can a profit be made? For an established business, the questions may be: Is the company's direction clearly defined? Is the company a leader in the market? Can the company maintain leadership? Management In order to execute a business plan, a company requires topquality management. Investors might look at management to assess their capabilities, strengths and weaknesses. Even the best-laid plans in the most dynamic industries can go to waste with bad management (AMD in semiconductors). Alternatively, even strong management can make for extraordinary success in a mature industry (Alcoa in aluminum). Some of the questions to ask might include: How talented is the management team? Do they have a track record? How long have they worked together? Can management deliver on its promises? If management is a problem, it is sometimes best to move on.

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Financial Analysis The final step to this analysis process would be to take apart the financial statements and come up with a means of valuation. An investor will learn what works best and develop a set of preferred analysis techniques. There are many different valuation metrics and much depends on the industry and stage of the economic cycle. A complete financial model can be built to forecast future revenues, expenses and profits or an investor can rely on the forecast of other analysts and apply various multiples to arrive at a valuation. Some of the more popular ratios are found by dividing the stock price by a key value driver. Putting it All Together After all is said and done, an investor will be left with a handful of companies that stand out from the pack. Over the course of the analysis process, an understanding will develop of which companies stand out as potential leaders and innovators. In addition, other companies would be considered laggards and unpredictable. The final step of the fundamental analysis process is to synthesize all data, analysis and understanding into actual picks. Strengths of Fundamental Analysis Long-term Trends Fundamental analysis is good for long-term investments based on very long-term trends. The ability to identify and predict long-term economic, demographic, technological or consumer trends can benefit patient investors who pick the right industry groups or companies. Value Spotting Sound fundamental analysis will help identify companies that represent a good value. Some of the most legendary investors think long-term and value. Graham and Dodd, Warren Buffett and John Neff are seen as the champions of value investing. Fundamental analysis can help uncover companies with valuable assets, a strong balance sheet, stable earnings, and staying power. Business Acumen One of the most obvious, but less tangible, rewards of fundamental analysis is the development of a thorough understanding of the business. After such painstaking research and analysis, an investor will be familiar with the key revenue and profit drivers behind 14

a company. Earnings and earnings expectations can be potent drivers of equity prices. Even some technicians will agree to that. A good understanding can help investors avoid companies that are prone to shortfalls and identify those that continue to deliver. In addition to understanding the business, fundamental analysis allows investors to develop an understanding of the key value drivers and companies within an industry. A stock's price is heavily influenced by its industry group. By studying these groups, investors can better position themselves to identify opportunities that are high-risk (tech), low-risk (utilities), growth oriented (computer), value driven (oil), non-cyclical (consumer staples), cyclical (transportation) or income-oriented (high yield). Knowing Who's Who Stocks move as a group. By understanding a company's business, investors can better position themselves to categorize stocks within their relevant industry group. Business can change rapidly and with it the revenue mix of a company. This happened to many of the pure Internet retailers, which were not really Internet companies, but plain retailers. Knowing a company's business and being able to place it in a group can make a huge difference in relative valuations. Weaknesses of Fundamental Analysis Time Constraints Fundamental analysis may offer excellent insights, but it can be extraordinarily time-consuming. Time-consuming models often produce valuations that are contradictory to the current price prevailing on Wall Street. When this happens, the analyst basically claims that the whole street has got it wrong. This is not to say that there are not misunderstood companies out there, but it is quite brash to imply that the market price, and hence Wall Street, is wrong. Industry/Company Specific Valuation techniques vary depending on the industry group and specifics of each company. For this reason, a different technique and model is required for different industries and different companies. This can get quite time-consuming, which can limit the amount of research that can be performed. A subscription-based model may work great for an Internet Service Provider (ISP), but is not likely to be the best model to value an oil company.

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Subjectivity Fair value is based on assumptions. Any changes to growth or multiplier assumptions can greatly alter the ultimate valuation. Fundamental analysts are generally aware of this and use sensitivity analysis to present a base-case valuation, an average-case valuation and a worst-case valuation. However, even on a worst-case valuation, most models are almost always bullish, the only question is how much so. The chart below shows how stubbornly bullish many fundamental analysts can be. Analyst Bias The majority of the information that goes into the analysis comes from the company itself. Companies employ investor relations managers specifically to handle the analyst community and release information. As Mark Twain said, “there are lies, damn lies, and statistics.” When it comes to massaging the data or spinning the announcement, CFOs and investor relations managers are professionals. Only buy-side analysts tend to venture past the company statistics. Buy-side analysts work for mutual funds and money managers. They read the reports written by the sell-side analysts who work for the big brokers (CIBC, Merrill Lynch, Robertson Stephens, CS First Boston, Paine Weber, DLJ to name a few). These brokers are also involved in underwriting and investment banking for the companies. Even though there are restrictions in place to prevent a conflict of interest, brokers have an ongoing relationship with the company under analysis. When reading these reports, it is important to take into consideration any biases a sell-side analyst may have. The buy-side analyst, on the other hand, is analyzing the company purely from an investment standpoint for a portfolio manager. If there is a relationship with the company, it is usually on different terms. In some cases this may be as a large shareholder. Definition of Fair Value When market valuations extend beyond historical norms, there is pressure to adjust growth and multiplier assumptions to compensate. If Wall Street values a stock at 50 times earnings and the current assumption is 30 times, the analyst would be pressured to revise this assumption higher. There is an old Wall Street adage: the value of any asset (stock) is only what someone is willing to pay for it (current price). Just as stock prices fluctuate, so too do growth and multiplier assumptions. Are we to believe Wall Street and the stock price or the analyst and market assumptions? 16

It used to be that free cash flow or earnings were used with a multiplier to arrive at a fair value. In 1999, the S&P 500 typically sold for 28 times free cash flow. However, because so many companies were and are losing money, it has become popular to value a business as a multiple of its revenues. This would seem to be OK, except that the multiple was higher than the PE of many stocks! Some companies were considered bargains at 30 times revenues. Fundamental analysis can be valuable, but it should be approached with caution. If you are reading research written by a sell-side analyst, it is important to be familiar with the analyst behind the report. We all have personal biases, and every analyst has some sort of bias. There is nothing wrong with this, and the research can still be of great value. Learn what the ratings mean and the track record of an analyst before jumping off the deep end. Corporate statements and press releases offer good information, but they should be read with a healthy degree of skepticism to separate the facts from the spin. Press releases don't happen by accident; they are an important PR tool for companies.

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TATA CONSULTANCY SERVICES: OVERVIEW Tata Consultancy Services (TCS) is an IT services, consulting and business solutions organisation that delivers real results to global businesses, ensuring a level of certainty no other firm can match. TCS offers a consulting-led, integrated portfolio of IT, BPO, infrastructure, engineering and assurance services. This is delivered through its unique Global Network Delivery Model TM, recognised as the benchmark of excellence in software development. A part of the Tata group, India’s largest industrial conglomerate, TCS has over 318,000 of the world’s best-trained consultants in 46 countries. The company generated consolidated revenues of US $13.4 billion for the year ended March 31, 2014, and is listed on the National Stock Exchange and Bombay Stock Exchange in India. Tata Consultancy Services Limited was founded in 1968 by a division of Tata Sons Limited. Its early contracts included punched card services to sister company TISCO (now Tata Steel), working on an Inter-Branch Reconciliation System for the Central Bank of India, and providing bureau services to Unit Trust of India. In 1979, TCS delivered an electronic depository and trading system called SECOM for the Swiss company SIS SegaInterSettle; it also developed System X for the Canadian Depository System and automated the Johannesburg Stock Exchange. It associated with a Swiss partner, TKS Teknosoft, which it later acquired In 1981, TCS established India's first dedicated software research and development centre, the Tata Research Development and Design Centre (TRDDC) in Pune. In 1985, it established India's first client-dedicated offshore development centre, set up for clients Tandem. TCS later (1993) partnered with Canada-based software factory Integrity Software Corp, which TCS later acquired. In anticipation of the Y2K bug and the launch of a unified European currency, Euro. Tata Consultancy Services created the factory model for Y2K conversion and developed software tools which automated the conversion process and enabled third-party developer and client implementation. On 25 August 2004, TCS became a publicly listed company. In 2005, TCS became the first India-based IT services company to enter the bioinformatics market. In 2006, it designed an ERP system for the Indian Railway Catering and Tourism Corporation. By 2008, its e-business activities were generating over US$500 million in annual revenues TCS entered the small and medium enterprises market for the first time in 2011, with cloud-based offerings. On the last trading day of 2011, it overtook RIL to achieve the highest market capitalisation of any India-based company. In the 2011/12 fiscal year, TCS achieved annual revenues of over US$10 billion for the first time In May 2013, TCS was awarded a six-year contract worth over ₹ 1100 crores to provide services to the Indian Department of Posts. In 2013, the firm moved from the 13th position to 10th position in the League of top 10 global IT services companies and in July 2014, it became the first Indian company with over Rs 5 lakh market capitalization. In Jan 2015, TCS ended RIL's 23-year run as most profitable firm.

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Members of the board Cyrus Mistry

Chairman, Non-Independent, Non-Executive

N Chandrasekaran

CEO, M.D., Non-Independent, Executive

Aarthi Subramanian

Global Head of Delivery Excellence Group, Non-Independent, Executive

Aman Mehta

Independent, Non-Executive

VenkatramanThyagarajan

Independent, Non-Executive

Prof. Clayton M. Christensen Dr. Ron Sommer

Independent, Non-Executive

Dr. Vijay Kelkar

Independent, Non-Executive

Ishaat Hussain

Non-Independent, Non-Executive

Phiroz A Vandrevala

Non-Independent, Non-Executive

O. P. Bhatt

Independent, Non-Executive

Independent, Non-Executive

Capital Structure TCS has an Authorised Share Capital of 4,250,500,000 Equity Shares of Re. 1 each, 1,050,250,000 Redeemable Preference Shares of Re. 1 each totalling to Rs. 5,300,750,000. The Issued, Subscribed and Paid Up Capital of TCS is 1,958,727,979 equity shares of Re.1 each fully paid up. 1,000,000,000 Preference Shares were redeemed in 2014 for Re. 1 each

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Areas of Business Services

TCS helps clients optimise business processes for maximum efficiency and galvanise their IT infrastructure to be both resilient and robust. TCS offers the following solutions: 

Assurance services.



BI and performance management.

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Business process services.

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Consulting.



Digital enterprise.

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Eco-sustainability services.



Engineering and industrial services.

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Enterprise security and risk management.

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Enterprise solutions.

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iON - small and medium business.



IT infrastructure services.

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IT services.



Platform solutions.



Supply chain management.

Industries TCS has the depth and breadth of experience and expertise that businesses need to achieve business goals and succeed amidst fierce competition. TCS helps clients from various industries solve complex problems, mitigate risks and become operationally excellent. Some of the industries it serves are: 22



Banking and financial services.



Energy - oil and gas, oil field services and renewable.

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Government.

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Healthcare.

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High tech.

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Insurance.

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Life sciences.

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Manufacturing.

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Media and information services.

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Resources - metals, mining and construction.

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Retail and consumer products.

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Telecom.

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Travel, transportation and hospitality.



Utilities.

Software 

Digital software and solutions.

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TCS BaNCS.

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TCS MasterCraft.

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TCS technology products.

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Acquisitions NAME CMC Limited

ACQUISITION DATE 2001 October

Airline Financial Support Services India (AFS) Phoenix Global Solutions

2004 January

Swedish Indian IT Resources AB (SITAR)

2005 May

Pearl Group

2005 October

Financial Network Services (FNS)

2005 October

Comicrom

2005 November

Tata Infotech

2006 February

TCS Management TKS-Teknosoft

2006 November 2006 November

2004 May

NOTES Gets Embedded Expertise & good Domestic customer reach. CMC Amalgamated with TCS on April 28, 2015. BPO expertise in Airline and Hospitality sector Acquire expertise in insurance-domain consulting Acquire blue-chip European customers like Ericsson, IKEA, Vattenfall and Hutchison; SITAR was TCS’ exclusive partner in Sweden and a nonexclusive partner in Norway. Acquired life and pension outsourcing business from Pearl Group; Domain knowledge of life and pension underwriting business. TCS acquired core banking solution product (BANCS) and access to 116 customers in 35 countries; FNS was an existing partner for TCS. Entry into Latin America; Access to payment processing platform. The merger of Tata Infotech added 15 new Fortune 500 clients and enhanced TCS’ systems integration and infrastructure service capabilities. Access to Australian clients Expand product portfolio by acquiring rights to Quartz 24

Citigroup Global Services Limited

2008 December

Supervalu Services India

2010 September

Computational Research Laboratories

2012 August

Alti SA

2013 April

and ownership of Alpha and e-portfolio, enhanced presence in Switzerland and France TCS acquired key Banking and Financial Services (BFS) domain knowledge. TCS had a deal with Supervalu to have their Software Outsourcing to TCS and acquired Supervalu India. Acquire expertise in High Performance Computing (HPC) applications and Cloud services Access to blue-chip French and European clients in banking, luxury, manufacturing and utilities sectors

Awards, Recognitions& Achievements

2016 In Europe’s fast-paced digital economy, TCS retains #1 ranking for customer satisfaction TCS certified the “Top Employer” in Latin America for the second consecutive year TCS Certified as a Top Employer in United States for the Second Consecutive Year 25

TCS recognized as “Superbrand” in the UK TCS recognized as UK’s #1 Top Employer for the second consecutive year TCS rated as the world’s most powerful brand in IT Services TCS Recognized as a Global Leader in Microsoft Enterprise Applications Implementation by IDC MarketScape

2015 TCS Recognized as a Leader in Application Testing Services for Second Consecutive Year by Gartner TCS Recognized as a Leader in Life Sciences Clinical and R&D IT by Everest Group TCS Wins Prestigious Oracle Excellence Award for Specialized Partner of the Year Telecommunications Leading Digital and Business Solutions Provider TCS Announces Plans to Expand in Ireland TCS Wins Gold, Silver and Bronze Stevie® at 2015 American Business Awards TCS Wins Business Transformation Award from Pegasystems TCS launches Center of Excellence (CoE) for Next Gen Technology Solutions TCS Wins 2015 SAP® Pinnacle Award TCS Recognized as a Top 100 Brand in the US by Brand Finance® TCS China Awarded at Global CEO Innovation Summit 2015

2014 TCS Recognized as a Leader in Banking Business Process Outsourcing (BPO) by Everest Group TCS BaNCS wins Global Custodian award for Best Custody second time in a row TCS wins Leading Vendor Award for Quality Assurance Services 26

TCS BaNCS rated “Best in Class” for Design and Security and Enterprise Support in Online Banking Solutions Report TCS Wins Australian Service Excellence Award Gartner Recognizes TCS as a Leader in its Magic Quadrant for Worldwide SAP Application Management Service Providers Tata Consultancy Services Ranked Number One of Top 100 Companies in Asia in Sustainability Ranking TCS Recognized With Two Prestigious Oracle Excellence Awards

Corporate Social Responsibility At TCS, sustainability is seen as a state of being in balance between Corporate Economic Responsibility (CER) and Corporate Social Responsibility (CSR). The guiding principle of TCS’ Corporate Social Responsibility programs is “Impact through Empowerment,” where empowerment is a process of strengthening the future today, so that risks are minimized, value created and certainty is experienced. We strive to ensure that the communities engaged through our CSR initiatives also experience certainty in their lives. 27

The core areas for TCS’ CSR programs are education, health and environment. The choice of education as a theme flows from TCS being in the knowledge domain. Similarly, attention to the cause of health acknowledges that health is a vital precondition for promoting social good. Concern for the environment is in line with our belief that this global cause demands our attention to ensure a sustainable and productive planet. These themes are established centrally for adoption or adaptation across all geographies. TCS’ Approach TCS has chosen the following channels to drive its CSR initiatives: 

Developing innovative solutions to address large-scale societal problems by utilizing our IT core competence.



Volunteering for projects that address the felt need of communities in which TCS operates, while aligning with the core themes of TCS’ CSR.



Participating in community development program championed by our clients.

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Partnering with select non-government and civil society organizations and other government bodies.

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Supporting large-scale causes such as disaster relief or any other cause as determined by the Corporate CSR Council.

TCS’ Initiatives

Region India

Sustainable Community Initiatives Adult Literacy Programs University Alliances 28

TCS’ BPO Employability Program Academic Interface Program mKRISHI WebHealthCenter Mansuki TCS Maitree village development initiative TCS Maitree’s Advanced Computer Training Center Med Mantra InsighT Empower CSR Technical Team’s support to social organizations North America

First Book Club goIT

UK and Europe

IT Futures Environmental sustainability and the ICT industry

Asia Pacific

InsighT- Australia SINDA Computer Training Go for IT! Library Program in China Operation Smile

Latin America

Environment Leaders

Middle East and Africa

Landmark computer training Scholarships at CIDA City Campus City Ambassadors Football Club Support to Reach for Dreams 29

Facts and Figures

    

42 partners globally served 22 key programmes globally 58,362 volunteering hours 57,90,650 beneficiaries reached Rs. 51.39 cr social spend

FINANCIALS

Ratio Analysis PROFITABILITY RATIOS

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RETURN ON EQUITY (%)

Return on equity (ROE) is a ratio that provides investors insight into how efficiently a company (or more specifically, its management team) is managing the equity that shareholders have contributed to the company. In other words, Return on equity (ROE) is the amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested.

ROE is expressed as a percentage and calculated as: ROE =

Net Income Shareholder’s Equity

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RoE (%) 43 42 41 40 39 38 37

March, 2013

March, 2014

March, 2015

RoE (%)

Interpretation Return on Equity shows the amount of net income earned as a percentage of the capital invested by the shareholders in the company. As seen with TCS, the ratio is increasing over the last 3 years. It grew from 39.38% for the year ended March 2013 to 41.93% for the year ended March 2014. There was a slight increase to 42.40% for the year ended March 2015.

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NET PROFIT MARGIN (%) Profit margin is part of a category of profitability ratios calculated as net income divided by revenue, or net profits divided by sales. Net income or net profit may be determined by subtracting all of a company’s expenses, including operating costs, material costs (including raw materials) and tax costs, from its total revenue. Profit margins are expressed as a percentage and, in effect, measure how much out of every dollar of sales a company actually keeps in earnings. Net margin is the ratio of net profits to revenues for a company or business segment - typically expressed as a percentage – that shows how much of each dollar earned by the company is translated into profits.

Net margins can generally be calculated as: Net Profit Margin =

Net Profit

X100

Sales

Net Profit Margin (%) 29 28.5 28 27.5 27 26.5 26 25.5 25 24.5

March, 2013

March, 2014

March, 2015

Net Profit Margin (%)

Interpretation 33

The Net Profit Margin tells you what percentage of sales is the net profit of the company. TCS has a healthy Net Profit Margin over the last 3 years. It has gone down a little for the year ended March 2015 to 26.17% from 28.56% for the year ended March 2014. RETURN ON CAPITAL EMPLOYED (%) Return on capital employed or ROCE is a profitability ratio that measures how efficiently a company can generate profits from its capital employed by comparing net operating profit to capital employed. ROCE is a long-term profitability ratio because it shows how effectively assets are performing while taking into consideration long-term financing.

ROCE is calculated as: ROCE =

EBIT Capital Employed

ROCE (%) 42 41 40 39 38 37 36

March, 2013

March, 2014

March, 2015

ROCE (%)

Interpretation Return on Capital Employed shows you how much returns the company has earned, prior to paying off of interest and tax expenses. This return is then compared with the capital that is employed for the running of business. Higher the ratio tells you that the capital that is employed 34

in the business is put to effective use. The ROCE for TCS has grown consistently over the past 3 years going to 41.32% for the year ended March 2015 from 40.74% for the year ended March 2004. RETURN ON ASSETS (%) The return on assets ratio, often called the return on total assets, is a profitability ratio that measures the net income produced by total assets during a period by comparing net income to the average total assets. In other words, the return on assets ratio or ROA measures how efficiently a company can manage its assets to produce profits during a period. Return on assets (ROA) is an indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how efficient management is at using its assets to generate earnings. The formula for return on assets is: ROA =

Net Income Total Assets

RoA (%) 32.5 32 31.5 31 30.5 30 29.5 29 28.5

March, 2013

March, 2014

March, 2015

RoA (%)

Interpretation

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The return on assets ratio tells you how efficiently the assets are being used by a company for the generation of income. Higher the ratio, better utilised the assets are by the company. TCS has had a little dip in the RoA for the year ended March 2015 going to 30.53% from 32.07% for the year ended March 2014. Over the last 3 years, it has been steady around 30% DEBT EQUITY RATIO (Times) The debt to equity ratio is a financial, liquidity ratio that compares a company's total debt to total equity. The debt to equity ratio shows the percentage of company financing that comes from creditors and investors. A higher debt to equity ratio indicates that more creditor financing (bank loans) is used than investor financing (shareholders). Debt/Equity Ratio is a debt ratio used to measure a company's financial leverage, calculated by dividing a company’s total liabilities by its stockholders' equity. The D/E ratio indicates how much debt a company is using to finance its assets relative to the amount of value represented in shareholders’ equity. The formula for Debt Equity Ratio is: Debt Equity Ratio =

Debt Equity

Debt Equity Ratio 0.01 0.01 0.01 0.01 0 0 0

March, 2013

March, 2014

March, 2015

Debt Equity Ratio

Interpretation 36

The debt – equity ratio shows the proportion of debt and equity used by the company to finance its assets. More the ratio means the company is a highly levered company. The debt equity ratio for TCS is 0 for the year ended March 2015 and also for the year ended March 2014. This a very good thing for the investors as it shows that the company has not borrowed money from outside to finance its assets. LIQUIDITY RATIOS

CURRENT RATIO (Times) The current ratio is a liquidity and efficiency ratio that measures a firm's ability to pay off its short-term liabilities with its current assets. The current ratio is an important measure of liquidity because short-term liabilities are due within the next year. This means that a company has a limited amount of time in order to raise the funds to pay for these liabilities. Current assets like cash, cash equivalents, and marketable securities can easily be converted into cash in the short term. This means that companies with larger amounts of current assets will more easily be able to pay off current liabilities when they become due without having to sell off long-term, revenue generating assets. The formula for calculating a company’s current ratio, then, is: Current Ratio =

Current Assets Current Liabilities

Current Ratio 2.9 2.8 2.7 2.6 2.5 2.4 2.3 2.2

March, 2013

March, 2014

March, 2015

Current Ratio

Interpretation 37

Current ratio tells you how secure the company is against short term liabilities. The standard current ratio is 2:1 meaning for every 1 current liability there has to be 2 current assets to pay the liability off. The current ratio has come down to 2.46:1 for TCS for the year ended March 2015 from 2.84:1 for the year ended March 2014. Although it has reduced a little it is still above the standard ratio and this has been the case for the last 3 years. DIVIDEND PAYOUT RATIO (%) The dividend payout ratio measures the percentage of net income that is distributed to shareholders in the form of dividends during the year. In other words, this ratio shows the portion of profits the company decides to keep to fund operations and the portion of profits that is given to its shareholders. Investors are particularly interested in the dividend payout ratio because they want to know if companies are paying out a reasonable portion of net income to investors. The dividend payout ratio is the percentage of earnings paid to shareholders in dividends. Calculated as: Dividend Payout Ratio =

Dividend Net Income

Dividend Payout Ratio 90 80 70 60 50 40 30 20 10 0

March, 2013

March, 2014

March, 2015

Dividend Payout Ratio

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Interpretation Dividend payout ratio shows how much dividend has been given out to the shareholders of the company as a percentage of the net income earned. This is a ratio that attracts the shareholders as it shows how much they will earn as dividends. TCS paid higher dividends for the year ended March 2015 which was 80.35% as compared to the year before that in which they paid a dividend of 33.92%. EARNINGS PER SHARE (Rs.) Earnings per share (EPS) is the portion of a company's profit allocated to each outstanding share of common stock. Earnings per share serves as an indicator of a company's profitability. Earnings per share is also a calculation that shows how profitable a company is on a shareholder basis. So a larger company's profits per share can be compared to smaller company's profits per share. Obviously, this calculation is heavily influenced on how many shares are outstanding. Thus, a larger company will have to split its earning amongst many more shares of stock compared to a smaller company. Calculated as: EPS = Net Income – Preference Dividends Number of Shares Outstanding

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EPS 120 100 80 60 40 20 0

March, 2013

March, 2014

March, 2015

EPS

Interpretation EPS is one factor that every shareholder keeps an eye on. It shows the earning per share for the shareholders if all the profits earned by the company were to be distributed among the shareholders. Earnings per share for TCS have increased over the past 3 years going to Rs. 101.35 per share or the year ended March 2015 from Rs. 97.67 for the year ended March 2014.

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PRICE EARNING RATIO The price earnings ratio, often called the P/E ratio or price to earnings ratio, is a market prospect ratio that calculates the market value of a stock relative to its earnings by comparing the market price per share by the earnings per share. In other words, the price earnings ratio shows what the market is willing to pay for a stock based on its current earnings. Investors often use this ratio to evaluate what a stock's fair market value should be by predicting future earnings per share. Companies with higher future earnings are usually expected to issue higher dividends or have appreciating stock in the future. Calculated as: P/E Ratio = Market Price of Share EPS = 2427.25 101.35 =Rs. 23.95.

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COMPARISON WITH PEER COMPANIES

Name

RoE

N.P.

ROCE

RoA

Debt

(%)

Margi

(%)

(%)

Equity

Ratio

Payout

(Times

(Times)

(%)

n

Current Dividend

Infosys

24.38

(%) 23.20

)

Wipro

23.34

18.55

22.24

14.83

0.21

2.22

34.00

HCL

30.20

19.89

28.92

20.76

0.02

2.32

32.60

Oracle

34.61

30.53

33.56

19.01

0

1.72

471.75

MphasiS

12.31

11.64

11.43

9.09

0.1

2.60

49.83

Mindtree

26.64

15.05

26.18

20.20

0

3.06

26.55

KPIT

18.29

7.92

16.73

10.43

0.34

1.54

9.16

TCS

42.40

26.17

41.32

30.53

0.01

2.46

80.35

24.36

18.66

0

3.05

41.14

*Comparison with the year 2015.

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TECHNICAL ANALYSIS OVERVIEW

What is Technical Analysis? Technical Analysis is the forecasting of future financial price movements based on an examination of past price movements. Like weather forecasting, technical analysis does not result in absolute predictions about the future. Instead, technical analysis can help investors anticipate what is “likely” to happen to prices over time. Technical analysis uses a wide variety of charts that show price over time. Technical analysis is applicable to stocks, indices, commodities, futures or any tradable instrument where the price is influenced by the forces of supply and demand. Price refers to any combination of the open, high, low, or close for a given security over a specific time frame. The time frame can be based on intraday (1-minute, 5-minutes, 10-minutes, 15-minutes, 30-minutes or hourly), daily, weekly or monthly price data and last a few hours or many years. In addition, some technical analysts include volume or open interest figures with their study of price action. The Basis of Technical Analysis At the turn of the century, the Dow Theory laid the foundations for what was later to become modern technical analysis. Dow Theory was not presented as one complete amalgamation, but rather pieced together from the writings of Charles Dow over several years. Of the many theorems put forth by Dow, three stand out:



Price Discounts Everything



Price Movements Are Not Totally Random



“What” Is More Important than “Why”

Price Discounts Everything This theorem is similar to the strong and semi-strong forms of market efficiency. Technical analysts believe that the current price fully reflects all information. 43

Because all information is already reflected in the price, it represents the fair value, and should form the basis for analysis. After all, the market price reflects the sum knowledge of all participants, including traders, investors, portfolio managers, buy-side analysts, sell-side analysts, market strategist, technical analysts, fundamental analysts and many others. It would be folly to disagree with the price set by such an impressive array of people with impeccable credentials. Technical analysis utilizes the information captured by the price to interpret what the market is saying with the purpose of forming a view on the future. Prices Movements are not Totally Random Most technicians agree that prices trend. However, most technicians also acknowledge that there are periods when prices do not trend. If prices were always random, it would be extremely difficult to make money using technical analysis. A technician believes that it is possible to identify a trend, invest or trade based on the trend and make money as the trend unfolds. Because technical analysis can be applied to many different time frames, it is possible to spot both short-term and long-term trends. The IBM chart illustrates Schwager's view on the nature of the trend. The broad trend is up, but it is also interspersed with trading ranges. In between the trading ranges are smaller uptrends within the larger uptrend. The uptrend is renewed when the stock breaks above the trading range. A downtrend begins when the stock breaks below the low of the previous trading range.

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Moving Average Convergence Divergence Developed by Gerald Appel in the late seventies, the Moving Average Convergence/Divergence oscillator (MACD) is one of the simplest and most effective momentum indicators available. The MACD turns two trend-following indicators, moving averages, into a momentum oscillator by subtracting the longer moving average from the shorter moving average. As a result, the MACD offers the best of both worlds: trend following and momentum. The MACD fluctuates above and below the zero line as the moving averages converge, cross and diverge. Traders can look for signal line crossovers, centerline crossovers and divergences to generate signals. Because the MACD is unbounded, it is not particularly useful for identifying overbought and oversold levels.

The MACD Line is the 12-day Exponential Moving Average (EMA) less the 26-day EMA. Closing prices are used for these moving averages. A 9-day EMA of the MACD Line is plotted with the indicator to act as a signal line and identify turns. The MACD Histogram represents the difference between MACD and its 9-day EMA, the Signal line. The histogram is positive when the MACD Line is above its Signal line and negative when the MACD Line is below its Signal line. The values of 12, 26 and 9 are the typical setting used with the MACD, however other values can be substituted depending on your trading style and goals. 45

There are three common methods used to interpret the MACD: 1. Crossovers - As shown in the chart above, when the MACD falls below the signal line, it is a bearish signal, which indicates that it may be time to sell. Conversely, when the MACD rises above the signal line, the indicator gives a bullish signal, which suggests that the price of the asset is likely to experience upward momentum. Many traders wait for a confirmed cross above the signal line before entering into a position to avoid getting getting "faked out" or entering into a position too early, as shown by the first arrow.

2. Divergence - When the security price diverges from the MACD. It signals the end of the current trend.

3. Dramatic rise -

When the MACD rises dramatically - that is, the shorter moving average

pulls away from the longer-term moving average - it is a signal that the security is overbought and will soon return to normal levels.

Traders also watch for a move above or below the zero line because this signals the position of the short-term average relative to the long-term average. When the MACD is above zero, the short-term average is above the long-term average, which signals upward momentum. The opposite is true when the MACD is below zero. As you can see from the chart above, the zero line often acts as an area of support and resistance for the indicator.

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Resistance And Support Once you understand the concept of a trend, the next major concept is that of support and resistance. You'll often hear technical analysts talk about the ongoing battle between the bulls and the bears, or the struggle between buyers (demand) and sellers (supply). This is revealed by the prices a security seldom moves above (resistance) or below (support).

As you can see in Figure 1, support is the price level through which a stock or market seldom falls (illustrated by the blue arrows). Resistance, on the other hand, is the price level that a stock or market seldom surpasses (illustrated by the red arrows). Why Does it Happen? These support and resistance levels are seen as important in terms of market psychology and supply and demand. Support and resistance levels are the levels at which a lot of traders are willing to buy the stock (in the case of a support) or sell it (in the case of resistance). When these trendlines are broken, the supply and demand and the psychology behind the stock's movements is thought to have shifted, in which case new levels of support and resistance will likely be established. Round Numbers and Support and Resistance One type of universal support and resistance that tends to be seen across a large number of securities is round numbers. Round numbers like 10, 20, 35, 50, 100 and 1,000 tend be important in support and resistance levels because they often represent the major psychological turning points at which many traders will make buy or sell decisions.

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Buyers will often purchase large amounts of stock once the price starts to fall toward a major round number such as $50, which makes it more difficult for shares to fall below the level. On the other hand, sellers start to sell off a stock as it moves toward a round number peak, making it difficult to move past this upper level as well. It is the increased buying and selling pressure at these levels that makes them important points of support and resistance and, in many cases, major psychological points as well. Role Reversal Once a resistance or support level is broken, its role is reversed. If the price falls below a support level, that level will become resistance. If the price rises above a resistance level, it will often become support. As the price moves past a level of support or resistance, it is thought that supply and demand has shifted, causing the breached level to reverse its role. For a true reversal to occur, however, it is important that the price make a strong move through either the support or resistance.

For example, as you can see in Figure 2, the dotted line is shown as a level of resistance that has prevented the price from heading higher on two previous occasions (Points 1 and 2). However, once the resistance is broken, it becomes a level of support (shown by Points 3 and 4) by propping up the price and preventing it from heading lower again.

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Types Of Charts There are four 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 and the point and figure chart.

Line Chart The most basic of the four charts is the line chart 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 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.

Figure 1: A line chart

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Bar Charts

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 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).

Figure 2: A bar chart

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Candlestick 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 charts, candlesticks also rely heavily on the use of colors to explain what has happened during the trading period. A major problem with the candlestick color configuration, however, is that different sites use different standards; therefore, it is important to understand the candlestick configuration used at the chart site you are working with. 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.

Figure 3: A candlestick chart

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Point and Figure Charts The point and figure chart is not well known or used by the average investor but it has had a long history of use dating back to the first technical traders. This type of chart reflects price movements and is not as concerned about time and volume in the formulation of the points. The point and figure chart removes the noise, or insignificant price movements, in the stock, which can distort traders' views of the price trends. These types of charts also try to neutralize the skewing effect that time has on chart analysis.

Figure 4: A point and figure chart

When first looking at a point and figure chart, you will notice a series of Xs and Os. The Xs represent upward price trends and the Os represent downward price trends. There are also numbers and letters in the chart; these represent months, and give investors an idea of the date. Each box on the chart represents the price scale, which adjusts depending on the price of the stock: the higher the stock's price the more each box represents. On most charts where the price is between $20 and $100, a box represents $1, or 1 point for the stock. The other critical point of a point and figure chart is the reversal criteria. This is usually set at three but it can also be set according to the chartist's discretion. The reversal criteria set how much the price has to move away from the high or low in the price trend to create a new trend or, in other words, how much the price has to move in order for a column of Xs to become a column of Os, or vice versa. When the price trend has moved from one trend to another, it shifts to the right, signalling a trend change. 52

Technical Analysis

D is the point where the company has given out dividends. If you see properly after the declaration of dividends, the market has gone is a retracement towards the top side and once the dividend is given it falls back to its original trend. The main trend is downtrend only but towards the extreme right of the chart. There is a formation of a double bottom which is a reversal pattern indicating that now the market will move to the uptrend which tells the investors to be on the buy side. At the level of Rs. 2400 there is a strong resistance level as the market has tested this level thrice. So there is consolidation but due to the reversal pattern there is possibility of the market breaking the resistance and going upwards. The market after breaking the resistance at 2400 will go to test the resistance level at 2600 which is a sufficient amount of profit for the investors.

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On seeing the weekly chart the market had touched the support level and bounced back up breaking the previous high of Rs.2391. This also is an indication that market is bullish and that the buying interest have overwhelmed the selling interest.

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CONCLUSION We have seen the meaning and the importance of Fundamental Analysis of a company and how it is helpful to the investors. It is not only about the ratios that reflect the performance of the company during the year, but it is also down to the news regarding the company. Any major events that take place,

any recognitions that the company receives

domestically or globally, any changes that happen at the top level of the board of managers is equally important. The changes may happen and are bound to happen at one point of a time for any company but the reason behind it should be the point of scrutiny. Of course, the financial statements and their study is a very important factor in the fundamental analysis too. Determining the key ratios and calculation of those ratios and later on the conversion of the data into presentable format so that the investor can easily understand is also vital. To choose from a pool of similar companies, it is important to have the data and the knowledge of the peer companies. Comparison on the basis of ratios could be the factor of differentiation between two identical companies fundamentally. We also understood the various aspects of the technical analysis of a stock. Technical analysis is important to be aware about the exact entry and exit points from the stock. This will help in earning maximum profits and minimizing losses. Usually, the charts follow a pattern as discussed earlier and to spot the pattern and take the decision, it is important to have knowledge of reading of charts. If the two, fundamental analysis and technical analysis are combined, there could be a greater chance of making profits on the market.

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