A PROJECT REPORT ON

“Comparative Analysis of Growth of

Equity Sectors with respect to Indices”

SUBMITTED BY

DIWAKAR SINGH

PGDM

DELHI BUSINESS SCHOOL

B-II/58,MCIE,MATHURA ROAD,NEW
DELHI,110044
2008-10
 Acknowledgement

I take this opportunity to express my deep

sense of gratitude to my superiors Mr Amrit

Pal Singh and Mr. Mannu Kumar for their

guidance and other members of the

organization for extending their valuable

support and help in the preparation of this

project report.

I am also thankful to my friends for

extending their co-operation in completion of
this project report.

Date:
Signature

Declaration

I, DIWAKAR SINGH declare that this project

report entitled “Comparative Analysis of

Growth of Equity Sectors with respect to

Indices” is an original piece of work done and

submitted by me towards partial fulfillment of

my Post Graduate Diploma in Business

Administration, under the guidance of “Mr

Amrit Pal Singh and Mr. Mannu Kumar”.

Date:

Signature

CONTENTS

1. CHAPTER - I INTRODUCTION

- Scope of the Study

- Objectives of the Study

- Literature Review

2. CHAPTER - II ORGANISATIONAL PROFILE

- Industry Profile

- Company Profile
3. CHAPTER – III METHODOLOGY AND
LIMITATION

- Sources of Data

- Tools and Techniques use

4. CHAPTER – IV ANALYSIS OF DATA

5. CHAPTER – V INTERPRETATIONS AND FINDINGS

6. CHAPTER – VI RECOMENDATIONS

BIBLIOGRAPHY

]=0-

CHAPTER-1
 INTRODUCTION

Introduction
About Indian Economy
The government has rightly chosen more inclusive and faster growth
as the goal of eleventh five year plan. The Union Budget for the next
fiscal year is both forward looking and populist. But proactive policy
can make the latter giveaways quite manageable, if economic growth
momentum can be sustained into medium term and beyond. It has
made constant effort to propel growth through increased investment
and consumption expenditure in order to boost domestic demand by
providing an extra disposable income in the common mans hand that
wil prove conducive for propelling the economy at the expected 8.9%
levels. Increased private sector participation should provide a fillip. In
the current environment of stronger rupee precious metals is likely to
continue their rising streak. In line with the expectation, precious
metals like gold and silver have substantially risen.

The macroeconomic fundamentals of Indian economy continue to

inspire confidence. This is reflected in an average growth rate of 8.8
percent in the last three years. But the challenges for Indian growth
story have become more complex due to global uncertainties. The
drivers of economic growth continue to be ‘Services’ and
‘Manufacturing’ which are estimated to grow at 10.7 percent and 9.7
percent respectively, though a few segments of manufacturing sector
pose a threat to the growth story.

In the backdrop of moderate slowdown in the industrial sector, the

finance minister delivered a growth oriented budget for 2008-09 by
providing a boost to Investment and Consumption expenditure. The
budget while providing an impetus to augment social infrastructure by
focusing on health and education, has also provided tax sops and
allocated resources to revive growth in the manufacturing sector which
has been hit by a slowdown.

Industrial production has contracted in the last few months which has
been attributed to slowdown in capital goods and some segments of
consumer durables. But industrial production is expected to increase in
coming years due to fiscal stimulus provided by the finance minister to
individual tax payers and the corporate sector. In case of individual tax
payers the increase of threshold limit of exemption of personal income
tax has significantly increased the disposable income in the hands of
consumers that in turn would stimulate production.

The BSE Sensex rallied at the beginning of February ’08, but failed to
maintain its momentum on global cues and increase in short term
capital gains tax announces in the budget. On a fiscal front, buoyant
growth of government revenues made it possible to maintain fiscal
consolidation as mandated under the Fiscal Responsibility and Budget
Management (FRBM) Act.

Therefore it is of opinion that if the economy has to grow past 8.5% on

sustainable basis, the government has to carry out structural reforms
in the areas of insurance, retail, coal, mining, fertilizers and sugar as
envisaged in the Economic Survey. This involves raising foreign equity
in insurance to 49 percent, allowing 100 percent FDI in the private-
rural agricultural banks, listing of all listed public sector enterprises
and phasing our control on sugar and fertilizers.

Inflation
The Reserve Bank of India has effectively contained the inflation
expectations in 2007 by managing the WPI inflation down from 6.6% in
Feb 2007 to around 4% in Dec 2007. This is attributed to the
moderation of prices of primary food articles and some manufactured
products.

Today the inflation levels touch about approximately 8%. This increase
is basically driven by prices of food as well as manufactured products.
With this there is a increase of 6.28% in prices of primary articles,
5.64% in prices of fuel and 4.33% in prices of manufactured products.
On a week – to – week basis, rise has been triggered by increase in
prices of ‘Food articles’ group which rose by 1.7% due to higher prices
of fish marine, mutton, fruits and vegetables etc.

Industry Production
Industrial production dropped sharply in the month of January 2008
owing to sluggish performance in the manufacturing sector. The
general index for the month of January 2008 showed a growth of only
5.3% compared to growth of 11.6% in January 2007. This was the third
successive month of low growth. In Dec ’07, the industrial production
grew by 7.7%. The lower growth has been contributed by sluggishness
in the manufacturing and mining sector. Cumulatively, industrial
production showed a growth of 8.7% between April-January 2007-08,
with 9.2% growth for manufacturing, 4.6% for mining and 6.3% for
electricity. Lagged impact of interest rate increases and decrease in
global demand have been affecting industrial growth in the last few
months.

Growth in the manufacturing sector declined to 5.9% in Jan’08 as

against 12.3% in Jan’07, and growth in mining declined to 1.8% as
against 7.7% in Jan’07. Electricity sector recorded a moderate growth
of 3.3% as against 8.3% in Jan’07.

Increases in interest rates over the last two years is impacting the
consumer durable and capital goods sector as consumer durables
production, including washing machine and television sets, fell 3.1% in
January after increasing 5.3% a year earlier and output of capital goods
increased by a meager 2.1% compared with 16.3% a year ago. Also
indices for machinery and equipment showed a sharp fall of 3.8% in
Jan ’08 against 10.7% growth in Dec ’07.

Rupee Outlook
Massive FII inflows and slumping US dollar in 2007 led to significant
appreciation of rupee. This led to curbing of inflows through external
commercial borrowing and participatory notes measures and has led to
stabilization of the rupee – US $ movement. The outlook for the US
dollar is expected to be weak in an aggressive easing stance adopted
by the US Fed.

Fed easing cycle since September 2007 has led to ‘Hold/Softening’

stance across various Central Banks globally. Global uncertainties
triggered by increase chances of US recession and increasing
commodity prices have led to risk aversion among investors across the
globe which has impacted India’s equity and debt market. In the first
two months of 2008, net investment has been $2802mn in equity and
$1103mn in debt respectively against $1173mn in equity and $268mn
in debt respectively in the same period last year.

Trade Outlook
India’s merchandise exports showed a growth of 21.62% during the
first ten months of period of April – January 2008 to US$ 124.19bn.
Exports showed a growth of 20.47% for Jan ’08 to US$ 13.14bn
compared to US$ 10.90bn Jan ’07. Exports have not performed well so
far due to 12% rupee appreciation that has affected the
competitiveness of the export focused industries.

Labour intensive sectors like textiles, leather, handicrafts and marine

products have been hit the most in recent times.
Scope of Study
This analysis attempts to study the growth pattern of equity sectors,
such as Banking and Information Technology when compared to its
sectoral indices and the national index S&P CNX Nifty. The analysis
hereby done attempts to prepare a report on the behavior of share
prices of major companies Banking and Information Technology
Sectors, so that a investor can prepare and well diversified portfolio
and logically forecast about the behavior of the share market and
invest in a manner so as to make a lucrative deal and earn a maximum
possible capital gain from the market. Moreover the study also gives a
comparative analysis of the above stated sectors with their respective
sectoral index and the national index so that a investor wanting to
invest in these sectors can check the past performance and behavior
of major companies in these sectors and analyze their growth trends
before investing making a investment in the stock market.

Objective of Study

 To study and analyze the growth trend of Banking and Information

Technology sector over the period of Aug 2002 to April 2008.
 To study the relationship between the national index S&P CNX Nifty,
Sectoral Index and the share prices of the major industries in this
sector.

 To examine the major reasons of fluctuations in share prices in the

stock market.

 Attempt to provide a direction to a investor to analyze and forecast

the stock market so as to make the best possible lucrative deal by
investing in stocks.

Literature Review
By utilizing the secondary data available for the analysis, this report
attempts to analyze the growth trends of some equity sectors over the
period of Aug 2002 to April 2008, in order to provide with the past
information the growth trends of the share market in the past, thereby
giving a direction to forecast the future in a logical manner.
 CHAPTER-2

ORGANIZATION
PROFILE
Industry Profile
The Indian financial sector is on a roll. Driven by a strong investor
interest and an expanding market, the Indian stock market rose to
record levels, with the popular sensex crossing 21,000 and Nifty
crossing the 6,000 mark for the first time.
The industry is also becoming more vibrant, with new types of products
and services being offered to meet the needs of the booming
economy. For example, in the derivatives market, the notional
principal amount outstanding has more than trebled between March
2005 and June 2007 to US$ 24.09 billion from US$ 6.836 billion.
The buoyancy in the economy is also estimated to lead to a four-fold
increase in India's investable wealth from US$ 250 billion in 2007 to
US$ 1 trillion. Simultaneously, according to a report by Celent, an
international consultancy firm, India's wealth management will rise to
an estimated 42 million by 2012 from about 13 million in 2007.
Clearly, there is huge potential in this segment. Significantly, wealth
management revenues are expected to account for 32-37 per cent of
the total full-service financial institutions by 2012. The market is also
expected to undergo a structural transformation with organized
players increasing their market share.
Stock Markets
The year 2007 saw Indian stock markets scaling new peaks. It has
emerged as the third best performing market in the world with a dollar
return of 71.23 per cent. The popular Bombay Stock Exchange (BSE)
benchmark index, sensex, also posted its highest ever absolute gain of
6500 points in over two decades.
This performance of Indian stock markets has led to the total investor
wealth of Bombay Stock Exchange (BSE) surging to a record high of
over US$ 1.7 trillion, with an average increase of over US$ 10.18
million in every minute of trading during 2007. At the end of 2006, the
total market capitalisation stood at US$ 812 billion.
Simultaneously, the National Stock Exchange (NSE) has climbed to the
top spot in stock futures contracts and number-two slot in the index
futures segment in the world.
According to Ernst & Young, India was also the fifth largest market in
terms of number of IPOs and seventh largest in terms of the proceeds
for the year. Indian companies raised a whopping US$ 11.48 billion
through public issues in 2007, which is 83 per cent higher than US$
6.28 billion mobilized in 2006.
The robust performance of the Indian stock markets can also be seen
in the huge increase in the funds mobilised by the corporate India.
During 2007-08, India Inc mobilised a whopping US$ 8.13 billion
through issue of shares on rights issue, which is almost an eight-fold
increase over US$ 926.32 million raised in 2006-07. In fact, the
mobilisation of the funds in 2007-08 was more than the combined
mobilisation of the preceding 12 years.
Simultaneously, a whopping US$ 13.07 billion has been raised through
by India Inc through public issues, according to data compiled by Prime
Database. This is almost twice that of US$ 6.25 billion mobilised in
2006-07 and the highest ever in the last six years. While initial public
offerings mobilised US$ 10.34 billion (about 79.14 per cent), follow-on
public issues mobilised US$ 2.53 billion.
The flurry of fund raising activity by the companies on the Indian stock
exchange is likely to continue in 2008-09. Already, 125 companies
have filed their draft offer documents (including rights and follow-on
issues) with the Securities and Exchange Board of India (SEBI), to
jointly raise around US$ 5.14 billion. These include: JSW Energy,
Jaiprakash Power Venture, Adani Power, Bharat Oman Refineries and
Future Ventures India among others.
Private Equity
The year 2007 was a watershed for private equity market, which has
emerged as the most preferred mode of fund mobilization for India Inc.
The capital mobilised through this route was higher than the funds
mobilized through IPOs, follow-on issues and qualified institutional
placements put together.
India, in fact, topped the Asia private equity chart for the first time in
2007 in terms of aggregate deal value. According to Grant Thornton, a
total of US$ 17.14 billion was mobilised through 386 deals by India Inc
in 2007, compared to US$ 7.8 billion in 2006. Real estate,
infrastructure, banking and financial services were the dominant
sectors attracting about 55 per cent of the total private equity
investments.
The growth continues apace in 2008. During January-March 2008,
private equity firms invested about US$ 3.3 billion across 97 billion,
which was 22.22 per cent higher than the US$ 2.7 billion clocked in the
corresponding period last year.
A study by global consulting firm Boston Analytics, the average deal
size has increased from US$ 8.4 billion in 2003 to US$ 36.8 billion in
2007. And driven by the robust economic growth and attractive market
valuations, private equity investments are estimated to continue
strongly through 2010.
Structured Finance
India has emerged as the fastest growing market in the Asia-Pacific
region for structured finance, a process of arranging funds by banks
and other entities through partly selling their loan books. It was also
the second largest market for domestic issuance in the structured
finance market.
Within this market, Asset Backed Securities (ABS) market has been the
dominant segment than Residentially Market Backed Securities
(RMBS). This market has been growing at a frenetic pace ever since
the RBI issued revised guidelines on securitisation in 2006.
For example, according to Moody's Investors service, domestic
structured finance transactions grew by a whopping 90 per cent during
the first half of 2007 to US$ 5.5 billion compared to US$ 2.9 billion in
the corresponding period in 2006. While ABS accounted for 64 per cent
of the total issuances, securitisation of single corporate loans
accounted for 20 per cent.
Mutual Funds
India is also one of the fastest growing market for mutual funds
industry attracting a host of global players. The combination of
increasing number of fund houses (along with new schemes) and
increase in the number of people parking their savings in mutual funds
has resulted in total funds mobilisation increasing at a whopping
124.93 per cent during 2007-08 to stand at US$ 1.11 trillion as against
US$ 485.13 billion in 2006-07.
The average assets under management (AUM) of the mutual fund
industry for March 2008 stood at US$ 134.76 billion as against US$
89.86 billion at the end of 2006, representing a year on year growth of
49.96 per cent.
With accelerating investor interest shown in mutual fund segment, the
number of investor folios of the MFs increased to 43.7 million at the
end of March 2008, from 27.9 million at the end of January 2007 (a
growth rate of 54 per cent). Simultaneously, there has been an
increase in the number of distributors to 72,108 (excluding 107 banks)
till March 2008 from 54,000 in January 2007.
In the new fiscal year (2008–09), the growth momentum of the mutual
fund industry continues. Total fund mobilisation has increased by a
whopping 84.08 per cent to US$ 221.73 billion during April–May 2008,
compared to US$ 120.45 billion in April–May 2007. Consequently,
average AUM of the mutual fund industry has increased to US$ 140.04
billion for May 2008, against US$ 90.1 billion in the corresponding
period in 2007.
Continuing the growth, the Indian mutual funds market is estimated to
grow at a CAGR of 18 per cent in the next five years, with the country’s
mutual funds assets expected to more than double to US$ 298.73
billion by 2012, according to a report by US-based financial services
research and consulting firm Cerulli Associates. Consequently, there
would be an entry of about 15 new fund houses, in addition to the 33
fund houses already in operation by the end of 2007.
Banking
The burgeoning economy, surging foreign investment, financial sector
reforms and a favourable demographic profile has led to the Indian
banking industry emerging as one of the fastest growing in the world.
The industry's business grew at a CAGR of 20 per cent from US$
471.11 billion as of March 2002 to US$ 1175.61 billion by March 2007.
Significantly, the newly licensed private sector business has grown
almost twice (1.75 times) as that of banking industry as a whole,
leading to their share in total banking business increasing from 9 per
cent in 2001-02 to 16 per cent in 2006-07.
This boom in the banking industry has propelled nine Indian banks to
the list of top 50 Asian Banks, as per this year's Asian Banker 300
report. Similarly, seven Indian microfinance institutions find place in
Forbes list of World's Top 50 Microfinance Institutions.
Despite such impressive performance, the potential for further growth
is huge considering the fact that India has second largest financially
excluded households (about 135 million) in the world. In fact,
according to Boston Consulting Group, India is the fastest growing
incremental revenue pool in the world.
Debt Market
While the Indian financial sector was dominated by the stellar
performance of the stock markets, the Indian debt market had its own
share of excitement. India Inc increased its collections through the
debt market by as much as 53.84 per cent to US$ 20 billion in 2007
from US$ 13 billion in 2006.
According to a report by Goldman Sachs, with insurance, mutual funds
and pension sector experiencing rapid growth, India's debt market is
estimated to grow four fold, from about US$ 400 billion (45 per cent of
GDP) in 2006 to about US$ 1.5 trillion (about 55 per cent of GDP) by
2016. Significantly, the non-government sector is expected to grow
from US$ 100 billion in 2006 to US$ 575 billion in 2016, increasing its
share in GDP from 10 per cent to 22 per cent.

Company Profile
Sharekhan is one of the leading retail brokerage of SSKI Group which
was running successfully since 1922 in the country. It is the retail
broking arm of the Mumbai-based SSKI Group, which has over eight
decades of experience in the stock broking business. Sharekhan offers
its customers a wide range of equity related services including trade
execution on BSE, NSE, Derivatives, depository services, online trading,
investment advice etc.
The firm’s online trading and investment site - www.sharekhan.com -
was launched on Feb 8, 2000. The site gives access to superior content
and transaction facility to retail customers across the country. Known
for its jargon-free, investor friendly language and high quality research,
the site has a registered base of over one lakh customers. The number
of trading members currently stands at over 6 Lacs. While online
trading currently accounts for just over 2 per cent of the daily trading
in stocks in India, Sharekhan alone accounts for 32 per cent of the
volumes traded online.
The content-rich and research oriented portal has stood out among its
contemporaries because of its steadfast dedication to offering
customers best-of-breed technology and superior market information.
The objective has been to let customers make informed decisions and
to simplify the process of investing in stocks.
On April 17, 2002 Sharekhan launched Trade Tiger, a net-based
executable application that emulates the broker terminals along with
host of other information relevant to the Day Traders. This was for the
first time that a net-based trading station of this caliber was offered to
the traders. In the last six months SpeedTrade has become a de facto
standard for the Day Trading community over the net.
Sharekhan’s ground network includes over 588 centers in 148 cities in
India, of which 32 are fully-owned branches.
Sharekhan has always believed in investing in technology to build its
business. The company has used some of the best-known names in the
IT industry, like Sun Microsystems, Oracle, Microsoft, Cambridge
Technologies, Nexgenix, Vignette, Verisign Financial Technologies India
Ltd, Spider Software Pvt Ltd. to build its trading engine and content.
The Morakhiya family holds a majority stake in the company. HSBC,
Intel & Carlyle are the other investors.
With a legacy of more than 80 years in the stock markets, the SSKI
group ventured into institutional broking and corporate finance 18
years ago. Presently SSKI is one of the leading players in institutional
broking and corporate finance activities. SSKI holds a sizeable portion
of the market in each of these segments. SSKI’s institutional broking
arm accounts for 7% of the market for Foreign Institutional portfolio
investment and 5% of all Domestic Institutional portfolio investment in
the country. It has 60 institutional clients spread over India, Far East,
UK and US. Foreign Institutional Investors generate about 65% of the
organization’s revenue, with a daily turnover of over US$ 2 million. The
Corporate Finance section has a list of very prestigious clients and has
many ‘firsts’ to its credit, in terms of the size of deal, sector tapped
etc. The group has placed over US$ 1 billion in private equity deals.
Some of the clients include BPL Cellular Holding, Gujarat Pipavav,
Essar, Hutchison, Planetasia, and Shopper’s Stop.

PRODUCTS OFFERED BY SHAREKHAN

1- BOLT for Online Trading.
2- NEAT for Online Trading.
3- Portfolio Management Services.
4- Online Trade in Commodities.
5- Mutual Fund Advisory.
6- Insurance.
REASONS TO CHOOSE SHAREKHAN LIMITED
Experience
SSKI has more than eight decades of trust and credibility in the Indian stock
market. In the Asia Money broker's poll held recently, SSKI won the 'India's
best broking house for 2004' award. Ever since it launched Sharekhan as its
retail broking division in February 2000, it has been providing institutional-
level research and broking services to individual investors.

Technology
With our online trading account you can buy and sell shares in an instant
from any PC with an internet connection. You will get access to our powerful
online trading tools that will help you take complete control over your
investment in shares.
Accessibility
Sharekhan provides ADVICE, EDUCATION, TOOLS AND EXECUTION services
for investors. These services are accessible through our centers across the
country (Over 588 locations in 148 cities) over the internet (through the
website www.sharekhan.com)as well as over the Voice Tool.

Knowledge
In a business where the right information at the right time can translate into
direct profits, you get access to a wide range of information on our content-
rich portal, sharekhan. You will also get a useful set of knowledge-based tools
that will empower you to take informed decisions.
Convenience
You can call our Dial-N-Trade number to get investment advice and execute
your transactions. We have a dedicated call-centre to provide this service via
a Toll Free Number 1800-22-7500 & 1800-22-7050 from anywhere in India.
Customer Service
Our customer service team will assist you for any help that you need relating
to transactions, billing, demat and other queries. Our customer service can
be contracted via a toll-free number, email or live chat on
www.sharekhan.com.
Investment Advice
Sharekhan has dedicated research teams of more than 30 people for
fundamental and technical researches. Our analysts constantly track the
pulse of the market and provide timely investment advice to you in the form
of daily research emails, online chat, printed reports and SMS on your mobile
phone.

Benefits
•Free Depository A/c
•Secure Order by Voice Tool Dial-n-Trade.
•Automated Portfolio to keep track of the value of your actual purchases.
•24x7 Voice Tool access to your trading account.
•Personalized Price and Account Alerts delivered instantly to your Cell
Phone & E-mail address.
•Special Personal Inbox for order and trade confirmations.
•On-line Customer Service via Web Chat.
•Anytime Ordering.
 CHAPTER-3

RESEARCH
METHODOLOGY
Methodology

SOURCE OF DATA
The following analysis is completely based on Secondary Data

Tools and Techniques

1) Research Design: Descriptive Design

2) Data Analysis: M.S. Excel with the help of Line Graphs, Moving Averages
and Correlation.

Data Processing and Analysis

For a complete analysis on equities, there are basically two parts in
which the total analysis is done.

Fundamental Analysis

Technical Analysis

Fundamental Analysis
Fundamental analysis attempts to find out the true value of the
securities so that the investors can decide to buy or not to buy the
securities at current market price. In order to find out the true value,
what is required is the forecast and analysis of the dividends and
earnings that can be expected from the firm. Therefore, the analysis of
determinants of the fair value of security is called the fundamental
analysis.

Dividends, earnings and the market price of a share are determined by

the performance of the company. The performance and success in
turn, depend upon broader industry, economic, political and social
factors. In fact the overall business environment in which a firm
operate, determines the affect and performance of the company.
Small investors can take a narrow approach to fundamental analysis.
They may start with the company to focus and analyze only the basic
information about the company. The earnings capacity of the company
is estimated in the view of the market share, competitive position, new
product lines etc. Detailed financial analysis of the financial statements
may be made to find out the long term growth prospects of the
company and the expected earnings in future. This approach may be
known as ‘bottom up approach’.

However a broader framework for fundamental analysis is known as

‘top down approach’. This approach attempts to study the economic
scenario, industry position and the company expectations and is also
known as ‘Economic-Industry-Company Approach’ (EIC)

Economic Analysis

Economic analysis deals with the analysis of forces operating in the

overall economy. In the security analysis, the expected course of the
economy may be enquired into because overall economic conditions
and economic activities affect corporate profits and investors
expectations and thereby affect the security prices in the capital
market. Economic analysis has an important role to play in investment
decisions. If the economic analysis shows a strong and vibrant
economic conditions, investors will but shares in expectation of earning
capital profits at a later stage. An expectation of sagging economic
condition can lead to lower corporate profits and the security price will
fall resulting from the selling pressure.
With reference to national economy, important variables to be looked
in are:

1. Inflation
2. Interest Rates
3. Fiscal Policy
4. Monetary Policy
5. Business Cycle

Industry Analysis

In economic analysis the direction for the above change in capital

market may be identified, however it must be realized that different
companies respond differently in the capital market. Therefore industry
analysis requires an insight into (i) the key sectors and (ii) the relative
strength and weakness of a particular sector about the economic
activities.

Therefore the industries have been classified into different classes on

the basis of sectors, such as Banking and Information Technology.

It is already noted that not all industries are equally sensitive to the
economic conditions and the business cycles. Some industries are
virtually independent and some are highly sensitive to the business
cycle. Moreover in an industry analysis, number of key factors and
characteristics should be considered to identify the industries where
investments can be made. Such as:

1. The past performance of the industry.

2. The permanence of the product and technology of the industry.
3. Role of government in the industry.
4. Labour conditions.
5. Competitive conditions in the market.
6. Industry life cycle.

Company Analysis

The third element to EIC approach to fundamental analysis is the

company analysis. The basic objective of the company analysis is to
identify specific companies or specific shares which are expected to
perform well in future. The company analysis presupposes that the
economic analysis and the industry analysis has already been made.

Therefore the basic objective of company analysis is to:

1. To find out the intrinsic value of the share.

2. To find out the expected earnings of the company.

The sources of information required for estimating the future earnings

of a firm is primarily available in the annual financial statements. Such
as:

1. Balance Sheet
2. Income Statement
3. Cash Flow Statement
4. Notes to Financial Statement

To analyze the companies earnings, in the annual reports, the

company usually provide financial information for the last several
years. This information is useful to analyze the

1. Profitability of the company

2. Liquidity of the company
3. Solvency of the company
4. Activity level of the company

The parameters on which a investor can judge and make its

investment decisions are:
 Return on Equity (ROE) : The ROE examines profitability form the
perspective of the equity investors by relating profits available for
the equity shareholders with the book value of the equity
investments.

The ROE indicates as to how well the fund of the owner has been used
by the firm. It also examines whether the firm has been able to earn
satisfactory return for the owners or not.

 Earnings Per Share (EPS) : The ROE measures the profitability in

terms of total funds and explains the return as a percentage of
funds. The profitability of the firm can also be measured in terms of
number of equity shares. Therefore EPS is derived by dividing PAT
by the number of equity shares.

 Price Earning Ratio (PE Ratio) : This is the ratio which

establishes a relationship between the EPS and the market price of
a share.

The PE ratio indicated the expectations of the equity investors about

the earnings of the firm. The investor expectations are reflected in the
market price of the share and therefore the PE ratio gives an idea of
investors’ perception of EPS. The PE ratio is one of the most widely
used measure of financial analysis in practice.

A high PE ratio may indicate that the share has low risk and therefore
the investors are content with low prospective return or the investors
expect high dividend growth and are ready to pay a higher price for
the share at present.

Technical Analysis
Technical analysis is based on the proposition that the securities price
and volume in past suggest their future price behavior. The technical
analysis believe that the demand and supply of securities are reflected
in their prices and volume and the past pattern of prices and volume
can be used to predict whether prices would be moving higher or
lower. Technical analysis is based on the concept that past information
of prices and volume can give an idea of what lies ahead. It
emphasizes that securities prices and changes therein can be forecast
by studying the market data. A trend in prices is believed to continue
unless there is some definite information leading to change, and this
trend in prices can be used to predict the future.

Technical analysis can also be called the market analysis because it

uses the market record and market information to predict the volume
and prices. It is based on the principle that let the market narrate
its own story. Technical analysis is a refection of the idea that the
capital markets move in trends.

It is already noted that in technical analysis, the basic motive is to

identify the price trend on the basis of historical data. The trend is then
used to forecast the future behavior. The price and volume data on
securities are basic raw material used by a technical analyst and the
charts and graphs are used as the basic tools to identify the trends in
prices.

Technical analysis can be used either for a specific share or for the
market in general. In case of a specific share the past data of that
security are used to show charts while in case of market, the
aggregate data on prices and volumes are used to prepare charts.
Dow Theory : The Dow Theory, named after its originator, Charter
Dow, is considered to be first theory of technical analysis. Dow theory
is based on the hypothesis that the stock market does not perform on
a random basis. Rather, it is guided by some specified trends. The
likely trend in future can be predicted by the following trends. Three
types of specific trends have been named in Dow Theory.

a) Primary Trend : It is a long trend in price and may carry on even for
number of years. It takes the entire market up or down.
b) Secondary Trend : Secondary trend appear within the primary trend
and may last for few days or few weeks or few months. Secondary
trends show interruptions in primary trend and act as a restraining
force on the primary trend. The secondary trend tend to correct
deviations form the primary trend boundaries of price movements.
c) Minor Trend : Minor trends refer to day to day trend or movements
in prices over few days. The minor trends, being of very short
duration, have little analytical value.

Bar Charts : This technique borrowed from the statistical theory, is

popular technique of showing the price variation and accompanied
volume on a particular day and then the comparative presentation
over a period of one month or half year or so. In bar charts each days
price boundaries (high and low) and the related volume are shown. The
closing price on that day is shown on a horizontal tick on the high row
bar. The volume of transaction is also shown as the vertical bars in the
lower position of the chart.

Bar charts are popular among technical analysts because these charts
have a lot of visual presentation and moreover easy to draw.

Support and Resistance Levels : These levels are determined on

the basis of past data and help determine the level below which or
above which the price may not fall or rise.
Support levels is the price below which the market is unlikely to fall. On
the other hand, the resistance level is the one above which price level
is unlikely to rise. These two levels are determined with the reference
to recent history of prices and keep on changing from one value to
another.

Point and Figure Chart : The technical analysts attempt to identify

the future price behavior in terms of the past data for prices, timing
and the volume. However, there are some analysts who consider only
past prices and ignore the timing and volume. This is based on the
proposition that future price behavior can be predicted on the basis of
past prices only. The time dimension and volume are not useful.
Rather, significant price changes and reversals should be noted to
predict future price behavior. As the time dimension is ignored, the
preparation of point to figure chart is a bit different than the bar chart.

Candlestick Chart : Candlestick chart can be considered as an

extension of bar chart. In addition to price data, the candlestick chart
also shows the trend in prices of the day. In candlestick chart, the price
data for a day is shown by a vertical box with a vertical line drawn
through the box. The top and bottom point of line passing through the
box represents the high low price respectively.

Moving Averages : Moving average of share prices refers to the

average level of share prices calculated on a continuous basis. The
moving average helps in identifying the trend in prices as well as the
quantum of change i.e. it can help in detecting the degree as well as
the direction of change. It a smoothened presentation of the
movement in prices.

When prices are rising, the moving average line will the below the Nifty
line. When the moving average line breaks through the Nifty line from
below, the prices are falling and it is a ‘sell’ signal for the investors. If
the moving average breaks through the Nifty line from above, it is
taken as a ‘buy’ signal as the prices are increasing.

Moving averages gives a visual presentation of the price behavior.

Limitations
 In this analysis, for simplicity sake, only S&P CNX Nifty, one of the
two major indices among Sensex and Nifty has been taken for the
analysis.

 Due to lack of share price data, the analysis could only be done
from the year 2002 till 2008.

 Lack of sectoral index data, restricts this analysis only to two

sectors i.e. Banking and Information Technology.

 For simplicity sake not all companies listed in the sectors chosen
has been taken. Only the major large cap companies of these
sectors have been considered for the analysis.
 CHAPTER-4

ANALYSIS OF DATA

IT Sector
About IT Sector
The Indian information technology sector has been instrumental in
driving the nation's economy onto the rapid growth curve. According to
the Nasscom-Deloitte study, the IT/ITES industry's contribution to the
country's GDP has increased to a share of 5.2 per cent in 2007, as
against 1.2 per cent in 1998.

India's IT growth in the world is primarily dominated by IT software and

services such as Custom Application Development and Maintenance
(CADM), System Integration, IT Consulting, Application Management,
Infrastructure Management Services, Software testing, Service-
oriented architecture and Web services.

CNX IT Index
Information Technology (IT) industry has played a major role in the
Indian economy during the last few years. A number of large, profitable
Indian companies today belong to the IT sector and a great deal of
investment interest is now focused on the IT sector. In order to have a
good benchmark of the Indian IT sector, IISL has developed the CNX IT
sector index. CNX IT provides investors and market intermediaries with
an appropriate benchmark that captures the performance of the IT
segment of the market.

Companies in this index are those that have more than 50% of their
turnover from IT related activities like software development, hardware
manufacture, vending, support and maintenance.

In order to have a good benchmark of the Indian IT sector, IISL has

developed the CNX IT sector index. CNX IT provides investors and
market intermediaries with an appropriate benchmark that captures
the performance of the IT segment of the market. Companies in this
index have more than 50% of their turnover from IT related activities
like software development, hardware manufacture, vending, support
and maintenance.
The index is a market capitalization weighted index with its base
period being December 1995 and the base date and base value being
January 1, 1996 and 100 respectively.

Fundamental Analysis
Economy

Information technology has been a promising sector for India,

generating revenues both for the domestic as well as the global
market. India's IT potential has attracted multinationals to grab a share
of the pie and cash in on the IT boom. India offers a market with very
high returns for multinationals flocking to invest in their India units.
Also, the increase in purchasing power and the rapid business
expansion of the small and medium enterprises (SMEs) holds promise
for global information technology (IT) giants who look at a 100 per cent
year-on-year growth in their small and medium businesses (SMBs)
market in India.
India's domestic market has also become a force to reckon, with the
existing IT infrastructure evolving both in terms of technology and
depth of penetration. Global IT companies as well as domestic biggies
like IBM, Accenture, HP, TCS, HCL and Wipro have witnessed a
remarkable growth in their business.
The domestic information technology business has become far too
attractive to ignore. India Inc's demand for IT services and products
has bolstered growth in the domestic sector with deal sizes going up
remarkably and contracts worth US$ 50-100 million up for grabs.
Therefore, the Indian information technology sector continues to be
one of the sunshine sectors of the Indian economy showing rapid
growth and promise. Though worldwide IT budgets are expected to
increase by 3.3 per cent in 2008, slightly higher than 2007, the Indian
firms would report stronger-than-average IT budget increases of
around 13 per cent, according to Gartner.

Industry

IT-ITeS one of the fastest growing sectors in India

Exports (USD Bn.)

20

10 13
11
9

0
2004 2005 2006 (Est)
  Revenues : 36 billion
CAGR (FY 2004-06) – 30%
Contribution to GDP up from 2% in 2000 to 5% in 2006

 Exports : 23.5 billion

CAGR (FY 2004-06) – 35%
Has nearly doubled in last 5 years

 Domestic Market - USD 13 billion

CAGR (FY 2004-06) - 22%
Buoyed by an economy growing at nearly 8% per annum over the
last 3 years

Exports contribute nearly 65 % of IT sector revenue

From the above graph it is clearly visible that the exports has
increased manifold at a rate of 67.74% from the year 2004 till 2006.

India’s IT industry structure is vibrant and competitive

Category No. of Share of export Revenue
player
s Revenue Performance

Tier I 3-4 • 45% of IT > than USD 1 billion

Services
• 4-5% of BPO
Tier II 7-10 • 25% of IT USD 100 million-USD 1 billion
Services
• 4-5% of BPO
Offshore 20-30 • 10-15% of IT USD 10 million-USD 500 million
operations Services
of Global IT • 10-15% of
BPO
majors

Pure play 40-50 • 20% of BPO USD 10 million-USD 200 million

BPO (Excl. leader - USD 500 million)

Captive BPO 150 • 50% of BPO USD 25 million-USD 150 million

(top 10 units)

Emerging >3000 • 10-15% of IT < USD 100 million (IT)

players Services
• 5% of BPO < USD 10 million (BPO)

Rising FDI is an indicative of India’s advantage and global interest

From the above graph we can see that the Foreign Direct Investment
has also increased a big deal from the year 2003 to 2005 by 677.78%.

India’s IT exports to touch US$ 60 billion by 2010

 Global IT-ITES spending to cross USD 1198 billion by 2010

 The addressable market for offshore IT services and BPO industry is

estimated at be USD 150-180 billion and USD 120-150 billion
respectively.

 With USD 13 billion, India has less than 10% of the current
addressable market.
  India expected to be well on track to achieve USD 60 billion by
2010.

Company

For my analysis to study the growth trend of IT sector, compared to its

Indices, I have chosen three major companies in the IT sector of India.
Those are TCS, Wipro and Infosys.

Tata Consultancy Services

Company Profile
Tata Consultancy Services (TCS) is one of the world's leading
information technology consulting, services, and business process
outsourcing organization with a presence in 34 countries across 6
continents. Their valued customers are Asian Development Bank,
British Airways, Citibank, Compaq, Ford Motor Company, General
Motors, Government of Sri Lanka, Hewlett Packard, HSBC, IBM, Nokia,
Nike, Singapore Airlines & Standard Chartered Bank etc. TCS Division
of Tata Sons Ltd was transferred to TCS with effect from 1st April 2004
for a consideration of Rs.2300 crores. Further during August2004 the
company made an Initial Public Offer from which it realized Rs.1935.88
crores. Subsequent to the IPO the company's paid-up share capital
increased to Rs.47.83 crores. TCS is not only the largest IT services
company in India, it also has everything which one would like to look
for. Comprehensive range of services, one of the best track records of
executing large end-to-end mission critical projects, long-term client
relationships, very extensive global footprint, strong Indian presence,
R&D capabilities, one of lowest employee attrition levels, strong brand
and of course strong management.

Growth Trend of TCS since 2002

TCS

2000.00

1500.00
Price

1000.00

500.00

0.00
3

8
Ju 3

Fe 4

M 05

Ja 7
Ja 2

ep 4

05

M 6
‘0
‘0

‘0

‘0
‘0

‘0

‘0
‘0

‘0

‘0
‘
‘
t‘

l‘
v
n

n
c
b

ar
ug

ug
pr

ay

ct
Ju
o

O
A
N

D
A

A
S

Months

Financials
Particulars FY FY FY FY FY 06 FY 07 FY
02 03 04 05 08E

Revenues (in - - - 8027.5 11230.5 15471.9 18533.7

Crores)
Revenue Growth - - - - 39.9 37.8 19.7

(%)

Net Profit - - -0.03 2377.2 3272.9 4300.9 5020.1

EPS - - 0.42 38.15 55.53 38.39 46.07

EPS Growth (%) - - - 8983.3 45.6 -30.9 20.0

P/E Ratio - - 2123.3 38.04 23.18 27.07 N/A

9

Wipro

Company Profile
Wipro Limited, the successful company crossed six decade of years.
Wipro though started as a edible oil producer way back in 1945 under
the name Western India Vegetable Products, a private limited company
has transformed itself into leading player in Fast Moving Consumer
Goods and IT services & Products business. It was incorporated at
Karnataka by Mr. Azim H Premji who is promoter and chairman of the
company. Five of Wipro's manufacturing and development facilities
secured the Indian Standard Organization (ISO) 9001 certification
during 1994-95. Company provides the integrated business,
technology and process solution on a global delivery platform to
customers across Americas, Europe, Middle East and Asia Pacific, they
offer business value to clients through process excellence and service
delivery innovation such as Information Technology services, Product
Engineering services, Technology Infrastructure services, Business
Process Outsourcing services and consulting services. 23 subsidiaries
running under in Wipro. This company is listed in BSE , NSE and
Newyork .In February 2001, Wipro became the first software
technology and services company in India to be certified for ISO 14001
certification for complying with the international standards for
Environmental Management System (EMS) in three major software
development and technology centers in Bangalore and also achieved
ISO 9000 certification and they are ISO 14000 certificate holder also for
good citizenship. Wipro Technologies has won the 'Banker Technology
Award' for the year 2004 Instituted by the Financial Times in the 'Risk
Management Award' category.

Growth Trend of Wipro since 2002

WIPRO

1800.00
1600.00
1400.00
1200.00
Price

1000.00
800.00
600.00
400.00
200.00
0.00
3

8
Ju 3

Ju 5

7
Fe 4

M 05

Ja 7
Ja 2

S 04

D 05

O 6

M 6
‘0
‘0

‘0

‘0
‘0

‘0

‘0
‘0

‘0

‘0
‘
‘

l‘
t‘
ov
n

n
ar
b

ec
ug

ug
pr

ay

ct
ep
A
N
A

Months

Financials
Particulars FY FY FY FY 05 FY 06 FY 07 FY
02 03 04 08E

Revenues (in 32301.3 41250.1 56446.0 78671.77 102827.6 142368.5 185354

Millions) 9

Revenue Growth - 27.7 36.8 39.4 30.7 38.5 30.2

(%)

Net Profit 8411.4 8476.6 9992.0 15832.7 26269.9 29129.9 32241

EPS 6.05 6.10 7.19 11.29 14.24 20.17 22.16

EPS Growth (%) - 0.8 17.9 57.0 26.1 41.6 9.9

P/E Ratio 233.62 193.40 107.18 46.35 37.72 24.11 N/A

Infosys

Company Profile
Infosys technologies limited, is a public limited and India's second
largest software exporter company incorporated in the year 1981 as
Infosys consultants private limited by Mr.N.R.Narayana Murthy at
karnataka, who is chairman and chief mentor of the company. It
became public limited company in the year 1992. It has received CMM-
5 status and it functioning collaborated with ANALOG DEVICES INC of
USA. Infosys is a groundbreaking company in the field of information
technology and it enjoys the privilege of being a debt free company.
It's only the company to be part of the major global index. Company
offers the services of consulting, process re-engineering, modular
global sourcing and Business Process Outsourcing services. It has
developed finacle, a universal banking solution to large and medium
size banks across India and oversees. The company has entered in
marketing and technical alliance with FileNet, IBM, Intel, Microsoft,
Oracle and System Application Products. Infosys is listed in BSE, NSE
and NASDAQ. Infosys, the country's second-biggest IT/ITES services
companies, which was the first Indian company to be listed on the
NASDAQ at the year 1999. Infosys also forms a part of the NASDAQ-
100 index. Continuously the year 2001, 2002 and 2003 company wins
the National award for excellence in corporate governance conferred
by the Govt of India.

Growth Trend of Infosys since 2002

INFOSYS

6000
5000
4000
Price

3000
2000
1000
0
Aug ‘02
Dec ‘02

Aug ‘03
Dec ‘03

Dec ‘04

Dec ‘06

Dec ‘07
Aug ‘04

Aug ‘05
Dec ‘05

Aug ‘06

Aug ‘07
Apr ‘03

Apr ‘04

Apr ‘05

Apr ‘06

Apr ‘07

Apr ‘08

Months

Financials
Particulars FY FY FY FY 05 FY 06 FY 07 FY
 02 03 04 08E

Revenues (in 545.05 753.81 1062.59 1592.0 2152.0 3090.0 4176.0

Millions)

Revenue Growth -

(%) 38.30 40.96 49.82 35.18 43.59 35.15

Net Profit 164.47 194.87 270.29 419.0 555.0 850.0 1155.0

EPS 0.31 0.37 0.51 0.76 0.99 1.5 2.02

EPS Growth (%) - 19.35 37.84 49.02 30.26 51.52 34.67

P/E Ratio 30.2 25.9 25.4 26.3 25.8 27.5 27.7

Technical Analysis

Tata Consultancy Services

Moving Averages : TCS

2000.00

1500.00
Price
Price

1000.00
Moving Averages
500.00

0.00
Nov ‘07
Jul ‘05
Aug ‘02

Dec ‘04
Mar ‘03
Oct ‘03

Feb ‘06

Apr ‘07
Sept
May

Months
From the above graph we can see the ‘12 monthly moving average’
and the ‘Growth Trend line’ of TCS.

According to the moving average analysis TCS shows a highly positive

trend with more of a ‘buy’ signal to the investor.

 Aug ’02 to Apr ’04 : In this period the moving average analysis
shows a almost constant signal, without a major ‘buy’ or ‘sell’ ones.
This is because in this period according to the diagram, the moving
average curve almost coincides with the price curve.
 May ’04 to Jun ’06 : In this period since the moving average curve is
below the price curve, this gives a ‘buy’ signal to the investors. In
this period, even though the market crashed, TCS continued its
upward trend. It also reached it all time high in Apr ’06 to Rs
1900.10.
 Jul ’06 to Apr ’08 : In this period TCS showed a almost constant
trend, and the share prices rose up by mere 0.02% in this period.
There was a sharp decline in the share price in Jul ’06 to Rs 920.01
from Rs 1706.08 in Jun ’06, But as per moving average analysis this
gives a ‘sell’ signal to the investors, even though in this period the
share prices rose up to Rs 1262.25 in Jan ’07.

Wipro

Moving Averages : Wipro

1800.00
1600.00
1400.00
1200.00
Prices

1000.00 Price
800.00 Moving Average
600.00
400.00
200.00
0.00
Nov ‘07
Jul ‘05
Mar ‘03

Oct ‘03

Dec ‘04

Feb ‘06
Aug ‘02

Apr ‘07
Sept
May

Months

From the above graph we can see the ‘12 monthly moving average’
and the ‘Growth Trend line’ of Wipro.
According to the moving average analysis Wipro shows basically a
negative pattern but with both ‘buy’ and ‘sell’ positions for the
investor.
 Nov ’02 to Jul ’03 : In this period the Wipro stocks showed a down
trend, and therefore a fall of 43.71%. In this period the stock also
fell drastically to Rs 766.10 in May ’03. Therefore giving a signal to
sell off the shares of Wipro, because of such a drastic fall in the
prices.
 Aug ’03 to May ’04 : In this period the share prices of Wipro were on
a constant rise and showed a increase of 45.17%. Here the share
also experienced a all time high in Dec ’03 at Rs 1651.55. Therefore
in this period it was advisable to buy the shares of Wipro.
 May ’04 to Jul ’05 : In this period the share prices fell drastically to
the extent of 51.34%. In this period basically the share experienced
a sharp fall in its prices in Jun ’04 to Rs 515.51 from Rs 1476.20 in
May ’04. Though after Jun ’04, the share experienced a upward
trend. Therefore in this period it was advisable to the investors to
buy the shares of Wipro.
 Aug ’05 to Apr ’08 : In this period of almost two and a half years, the
share prices of Wipro showed a more or less constant trend, with
slight variations. Over such a long period the share prices showed a
increase of about 37.42%, which can be said constant in such a long
period. Here the investor is advised to play with a mixed strategy of
buy and sell, so as to gain profit from Wipro stocks.
Infosys

Moving Averages : Infosys

6000
5000
4000
Price
Price

3000
Moving Average
2000
1000
0
Aug ‘02
Feb ‘03
Aug ‘03

Aug ‘04
Feb ‘05
Aug ‘05

Feb ‘07
Aug ‘07
Feb ‘04

Feb ‘06
Aug ‘06

Feb ‘08

Months
It is often said that “Don’t buy now as the price is too high” or “Buy on
correction” or “Buy Low and Sell High”, but the experts advocate the
view of “buying high and selling higher” which to many people seems
like going against the ‘conventional wisdom”.

From the above graph we can see the ‘12 monthly moving average’
and the ‘Growth Trend line’ of Infosys.

According to the moving average analysis Infosys shows a mixed

pattern of both ‘buy’ and ‘sell’ positions for the investor.

 Feb ’03 to Jun ’03 : The share prices for Infosys fell slightly by
2.59%. This therefore gives a sell signal to the investors who
already own shares of Infosys bought before Feb ’03.
 Jul ’03 to May ’04 : In this period the share prices increased
drastically giving a rise of 44.24%. The share price even went its all
time high to Rs 5374.43. This therefore gives a buy signal to the
investors in this period, because in this period the share prices of
Infosys were on a rise.

 May ’04 to Apr ’05 : In this period the share prices dipped down to a
very low limit i.e. to Rs 1511.41 in Jul ’04. This period experienced a
drastic fall in share price of Infosys to the extent of 59.14%, thereby
giving the its investors a sell signal for the Infosys shares.
 May ’05 to May ’06 : In this period of one year, the stock prices of
Infosys showed a increase of 32.67%. This therefore gives a buy
signal to the investors, as the stock is performing well in the
market.
 Jun ’06 to Apr ’08 : In this period of past one and a half year, the
share prices of Infosys showed a more or less constant return, with
a slight increase of 13.54%. Therefore giving the investors a buy
signal for Infosys shares, in order to hold it for a longer period so as
to gain a high and profitable return.
Comparative Analysis

Comparative Analysis

25000.00
Prices and Indices

20000.00 CNX IT
NIFTY
15000.00
Infosys
10000.00
Wipro
5000.00 TCS
0.00
Aug ‘02

Feb ‘03

Aug ‘03

Feb ‘04

Aug ‘04

Feb ‘05

Aug ‘05

Feb ‘06

Aug ‘06

Feb ‘07

Aug ‘07

Feb ‘08

Months
The above graph depicts the growth rate of NIFTY, CNX IT Index, and
the major three companies in this sector since Aug 2002 till Apr 2008.
Therefore by observation we come to know that in this period both
NIFTY and the CNX IT Index showed a upward trend, though Infosys
and Wipro, the major leaders in this sector showed a sharp decline in
Mar ’04. The major reason which was observed for the decline in the
major industries in this sector is due to the market crash which took
place in Mar ’04. Moreover the decline which is being depicted by the
CNX IT Index curve is basically due to the revision of base value from
1000 to 100 w.e.f 28th May 2004.

2002- 2003- 2004- 2005- 2006-

2003 2004 2005 2006 2007

NIFTY 21.45 44.68 28.86 48.88 37.21

CNX IT -2.77 45.56 32.60 41.73 16.54

Index

Wipro -16.33 -17.98 -41.04 -6.24 -0.52

Infosys -0.32 -20.07 -23.92 0.87 -22.31

TCS -7.73 309.34 126.58 4.46 -19.85

Inference
 The correlation coefficient between NIFTY and CNX IT Index comes
out to be r(NIFTY,CNX IT Index) = 0.88. This shows that there is a very close
positive correlation between the S&P CNX NIFTY and CNX IT Index,
as per depicted by the graph. Also from the yearly growth data we
can see that except for the year 2002-03, there is more or less a
consistent increase in the IT sector when compared to the NIFTY.
This shows that the IT sector on the whole was a growing sector
since 2002 to 2008.

 The yearly growth data of Wipro depicts a consistent fall in the

share prices of Wipro. The fall in 2004-05 is very sharp i.e. about
41.04%. This may be basically due to the market crash which took
place in May ’04.

 Infosys also depicts a more or less negative yearly trend, with a

huge fall in the year 2004-05, of about 23.92%. The reason for this
may also be the same, i.e. the market crash of May ’04.
  TCS shows a consistent rise in the share prices, with a huge jump of
even 309.34% in the year 2003-04.

Banking Sector
About Banking Sector
A burgeoning economy, financial sector reforms, rising foreign
investment, favorable regulatory climate and demographic profile has
led to India becoming one of the fastest growing banking market in the
world. The overall banking industry's business grew at a CAGR of about
20 per cent from US$ 469.4 billion as of March 2002, to US$ 1171.29
billion by March 2007.

The industry has been growing faster than the real economy, resulting
in the ratio of assets of commercial banks to GDP increasing to 92.5
per cent at end-March 2007. The Indian banks have also been doing
exceptionally well in the financial sector with the price-to-book value
being second only to china, according to a report by Boston
Consultancy Group.
CNX Bank Index
The Indian banking Industry has been undergoing major changes,
reflecting a number of underlying developments. Advancement in
communication and information technology has facilitated growth in
internet-banking, ATM Network, Electronic transfer of funds and quick
dissemination of information. Structural reforms in the banking sector
have improved the health of the banking sector. The reforms recently
introduced include the enactment of the Securitization Act to step up
loan recoveries, establishment of asset reconstruction companies,
initiatives on improving recoveries from Non-performing Assets (NPAs)
and change in the basis of income recognition has raised transparency
and efficiency in the banking system. Spurt in treasury income and
improvement in loan recoveries has helped Indian Banks to record
better profitability. In order to have a good benchmark of the Indian
banking sector, India Index Service and Product Limited (IISL) has
developed the CNX Bank Index.

CNX Bank Index is an index comprised of the most liquid and large
capitalised Indian Banking stocks. It about 79% provides investors and
market intermediaries with a benchmark that captures the capital
market performance of Indian Banks.The index will have 12 stocks
from the banking sector which trade on the National Stock Exchange.

The average total traded value for the last six months of CNX Bank
Index stocks is approximately 74% of the traded value of the banking
sector. CNX Bank Index stocks represent of the total market
capitalization of the banking sector as on March 31, 2005.
The index is a market capitalization weighted index with base date of
January 01, 2000, indexed to a base value of 1000.
Fundamental Analysis
Economy

With the Indian economy moving on to a high growth trajectory,

consumption levels soaring and investment riding high, the Indian
banking sector is at a watershed. Further, as Indian companies
globalize and people of Indian origin increase their investment in India,
several Indian banks are pursuing global strategies,
Consequently, the degree of leverage enjoyed by the banking system,
as reflected in the equity multiplier (measured as total assets divided
by total equity), has increased from 15.2 per cent at end March 2006
to 15.8 per cent at the end of March 2007.
Indian banks are one of the most technologically advanced with vast
networks of branches empowered by strong banking systems, and
their product and channel distribution capabilities are on par with
those of the leading banks in the world, says a survey by McKinsey. It
also reveals that IT effectiveness at the top Indian banks is world class.
With the economy in overdrive and buoyancy in consumption and
investment demand, nine Indian banks, led by HDFC Bank and ICICI
bank, have made it to the top 50 Asian Banks list in Asian Bankers 300
report. Simultaneously, State Bank of India has become the top loan
arranger in the Asia-Pacific region in 2007, according to UK based
Project Finance International (PFI). Also, India emerged as the top
provider of educational loans worth US$ 3.67 billion till September in
2007.
While this growth has been very impressive, the potential banking
market waiting to be tapped in India is still fairly huge. Out of the 203
million Indian households, three-fourths, or 147 million, are in rural
areas and 89 million are farmer households. In this segment, 51.4 per
cent have no access to formal or informal sources of credit, while 73
per cent have no access to formal sources of credit.
In fact, according to a report by Boston Consultancy Group, India has
the second largest financially excluded households of about 135
million, which is next only to china. Also, about 60 million new
households are expected to be added to India's bankable pool between
2005 and 2009. With such a large untapped market, the Indian
banking industry is estimated to grow rapidly, faster than even china in
the long run.

Industry

India, the fastest growing banking market in the world.

Growth of Banking Industry

1400
1171.29
1200
1000
800
600 469.4
400
200
0
2002 2007
Year

India has become one of the fastest growing banking market in the
world. The overall banking industry's business grew at a CAGR of about
20 per cent from US$ 469.4 billion as of March 2002, to US$ 1171.29
billion by March 2007.

Increasing bank deposits in the Indian Banking sector

Aggregate Bank Deposits

1000.00 865.55
800.00 714.15
584.89
600.00

400.00

200.00

0.00
2006 2007 2008
Year

Aggregate bank deposits of banks increased by US$ 129.26 billion

(22.1 per cent) at the end of March 2007 over the corresponding in
2006. It further increased by 21.2 per cent or by US$ 151.40 billion as
at end-March 2008 over the corresponding period in 2007. While
aggregate demand deposits increased by 19.2 per cent, aggregate
time deposits increased by 21.6 per cent in the same period, indicating
migration from small savings schemes of the Government.

Significantly, the asset quality of the banks has also improved over this
period. The gross non-performing assets (NPA) as a per cent of total
assets has declined from 4 per cent as of March 2002 to 1.46 per cent
as of March 2006. Simultaneously, the capital adequacy ratio of all
SCBs has improved from 11.1 per cent as of March 2002 to 12.3 per
cent by March 2007.

Also, the banking sector has been doing exceedingly well on the
financial front. For example, in the quarter ended March 2008, while
the interest income of the 18 public sector banks and seven private
banks rose by 28.4 per cent, the net profit rose at much higher rate of
33.61 per cent.
Emergence and Growth of private sector
 Growth of Private Sector

200 186.71

150

100

41.63
50

0
2002 2007
Year

Banking operations had been opened to the private sector in 1990s.

The new private banks have been increasing its role in the Indian
banking industry. Against the industry average growth of about 20 per
cent in the past five years, the new private sector banks registered a
growth of about 35 per cent per annum, growing from US$ 41.63 billion
as of March 2002 to US$ 186.71 billion by March 2007.

Growth of Private Banks Market Share

 Growth of Private Banks Market Share

16.00% 14.00%
14.00%
12.00%
10.00% 9.00%
8.00%
6.00%
4.00%
2.00%
0.00%
2002 2007
Year

The new private banks market share has increased from about 9 per
cent in 2001-02 to 16 per cent as of March 2006-07. Foreign banks,
which totaled 29 in June 2007, have also been expanding at a rapid
pace. For example, India was the fastest growing market for Global
banking major HSBC in 2006-07, with a growth rate of 64 per cent.

Company

For my analysis to study the growth trend of Banking sector, compared

to its Indices, I have chosen three major companies in the Banking
sector of India. Those are SBI, ICICI and IDBI

State Bank of India

SBI, started as Imperial Bank then named State Bank of India
commenced its operations from the year 1955, is the largest
commercial bank in India in terms of profits, assets, deposits, branches
and employees. As of March 2008, the bank has had 21 subsidiaries
and 10,000 branches. SBI offers the services of banking and as well as
non- banking services to their customers. It provides a whole range of
financial services which includes Life Insurance, Merchant Banking,
Mutual Funds, Credit Cards, Factoring, Security Trading & Primary
dealership in the Money market. The Bank is actively involved in non-
profit activity called community services banking apart from its normal
banking activity. The bank also concentrate in agriculture, for that it
took initiative spotlight kharif and spotlight rabi campaigns for higher
disbursement. It introduced Automated Teller Machine with Kishan
Credit Cards in all circles to assist agriculture peoples, cumulatively the
bank has credit linked 7.68 lac Self Help Groups and disbursed loans to
the extent of Rs 3,468 crs, so far.

Growth Trend of SBI since 2002

 SBI

2500.00
2000.00
1500.00
Price

1000.00
500.00
0.00
3

8
Ju 3

Ju 5

7
Fe 4

M 05

Ja 7
Ja 2

S 04

D 05

O 6

M 6
‘0
‘0

‘0

‘0
‘0

‘0

‘0
‘0

‘0

‘0
‘
‘

l‘
t‘
ov
n

n
b

ar
ec
ug

ug
pr

ct
ay
ep
A
N
A

A
Months

Financials
Particulars FY FY FY 04 FY 05 FY 06 FY 07 FY
02 03 08E

Revenues (in - - 30460.4 32428.0 35794.9 39491.0 48950.3

Crores)

Revenue Growth - - - 6.5 10.4 10.3 24.3

(%)

Net Profit - - 16587.0 17885.0 19676.7 25257.8 33673.0

EPS - - 69.94 81.79 83.73 86.29 106.56

EPS Growth (%) - - - 16.9 2.4 3.1 23.5

P/E Ratio - - 7.38 9.72 11.87 21.00 N/A

Industrial Credit and Investment Corporation of
India
ICICI Bank is a commercial bank promoted by ICICI Ltd, an Indian
Financial Institution. It was incorporated in Jan.'94 and received its
banking license from Reserve Bank of India in May.'94. It is the 2nd
largest bank in India. The bank has over 630 branches & extension
counters across India and over 2200 ATMs across the country. The
Bank offers a wide spectrum of domestic and international banking
services to facilitate trade, investment banking ,Insurance, Venture
Captial, asset management, cross border business & treasury and
foreign exchange services besides providing a full range of deposit and
ancillary services for both individuals and corporates through various
delivery Channels and specialized subsidiaries. All the branches are
fully computerized with the state-of-the-art technology and systems,
networked through VSAT technology. The bank is connected to the
SWIFT International network. The bank has 14 subsidiaries across India
and other countries like UK, Canada and Russia. To maintain the
leadership status bank foray into internet banking by web- enable its
existing products and services.
Growth Trend of ICICI since 2002

ICICI

1400.00
1200.00
1000.00
Price

800.00
600.00
400.00
200.00
0.00
3
Ju 3

8
Ju 5

M 05

Ja 7
Ja 2

Fe 4
S 04

D 05

O 6

M 6
‘0
‘0

‘0

‘0
‘0

‘0

‘0
‘0

‘0

‘0
‘
‘
t‘

l‘
ov
n

n
b

ar
ec
ug

ug
pr

ay

ct
ep
A
N
A

A
Months

Financials
Particulars FY FY FY FY 05 FY 06 FY 07 FY
02 03 04 08E

Revenues (in - - 9002.3 9409.9 14306.1 22994.2 30788.34

Crores)

Revenue Growth - - -

(%) 4.53 52.03 60.73 33.90

Net Profit - - 5852.5 5681.9 7710.9 14077.3 19729.5

EPS - - 26.56 27.22 28.55 34.48 37.37

EPS Growth (%) - - - 2.48 4.89 20.77 8.38

P/E Ratio - - 11.16 18.46 24.86 29.64 N/A

Industrial Development Bank of India
The concept of establishing IDBI BANK (IDBIBK) took place after RBI
issued guidelines for entry of new private sector banks in 1993.
Susequantly IDBI Bank was incorporated in 1994, With the main
promoter being Industrial Development Bank of India (IDBI) & Small
Industries Development Bank of India (SIDBI) the country's two premier
financial institution. The strategy and business plans of bank were
made in consultation with M/s KPMG Peat Marwick, world renowned
consultants. In March 1999 the Bank came out with its maiden public
issue of 4 crore equity shares of Rs. 10/- each at a premium of Rs. 8/-
per share aggregating Rs. 72 crores. The bank has maintained an
uninterrupted track record of profitability since inspection, with focus
on excellence of service, professional competence, state of art
technology, utilization of the group's synergy and backing of its
financially strong promoters, the bank is poised to become a front
ranking banking force in India. While liberalization and reforms have
thrown up a few challenges, it has also created opportunities for banks
to increase revenues by diversifying into Investment banking,
Insurance, Credit Cards, mortgage financing, depository services and
more. The bank is offering retail loan products like home finance, loans
against shares, educational loans, car loans, etc. on very competitive
terms. It has also entered into and arrangement with Standard
Chartered Bank to offer a Co-branded Global Credit Card. The bank has
informed that about conversion of its entire operating technology
platform to 'Finacle', a core banking software provided by Infosys. The
bank has also implemented Kondore +a treasury Front Office software
from Reuters and ITMS-treasury back office software from Synergy
Login. The Bank has implemented Finacle core Banking Software from
Infosys Technologies Ltd. The bank had recommended a rights issue of
equity shares in the ratio of 1:2 at a price of Rs.22 per share including
a premium of Rs.12 per share.
Growth Trend of ICICI since 2002

IDBI

180.00
160.00
140.00
120.00
Price

100.00
80.00
60.00
40.00
20.00
0.00
3
Ju 3

8
M 05
Ja 2

Fe 4

Ja 7
ep 4

D 05

O 6

M 6
‘0
‘0

‘0

‘0
‘0

‘0
‘0

‘0
‘0

‘0
‘0
‘
l‘
t‘
ov
n

n
ar
ec
ug

ug
pr

ct
ay
Ju
A
N
A

A
S

Months

Financials
Particulars FY FY FY FY 05 FY 06 FY 07 FY
02 03 04 08E

Revenues (in - -
9,704.0
Crores) 0 2,655.72 5,380.72 6,345.42 8,020.84

Revenue Growth - - -

(%) -72.63 102.61 17.93 26.40

Net Profit - - 7,573.0

0 2,129.22 4,308.72 5,342.93 6,551.64

EPS - - 7.12 4.26 7.75 8.7 10.06

EPS Growth (%) - - -40.17 81.92 12.26 15.63 -40.17

P/E Ratio - - 10.55 21.48 9.57 14.36 N/A

Technical Analysis

State Bank of India

Moving Average : SBI

2500.00

2000.00

1500.00 Prices
Price

1000.00 Moving Average

500.00

0.00
Ap 06

7
Fe ‘05
D ‘ 04
O 03

Ju 4
M ‘02

M ‘03

N 07
Se ‘06

‘0
‘0

‘
‘

r‘
ay

ov
l

pt
ar

ec
g

ct

b
Au

Months

From the above graph we can see the ‘12 monthly moving average’
and the ‘Growth Trend line’ of SBI.

According to the moving average analysis SBI shows a highly positive

trend with more of a ‘buy’ signal to the investor.

In our analysis form the year 2002 to 2007, the share price of SBI
showed a consistent upward trend and a massive increase of 559.13%.
Moreover by the moving average analysis, throughout the period of
our analysis, the share of SBI shows a buy position for the investor.

During this period it also has reached its all time high of Rs 2365.00 in
Dec ’07.
Industrial Credit and Investment Corporation of
India

Moving Average : ICICI

1400.00
1200.00
1000.00
Price

800.00 Price
600.00 Moving Average
400.00
200.00
0.00

Nov ‘07
Jul ‘05
Aug ‘02

Mar ‘03

Dec ‘04

Feb ‘06
Oct ‘03

Apr ‘07
Sept
May

Months

From the above graph we can see the ‘12 monthly moving average’
and the ‘Growth Trend line’ of ICICI.

According to the moving average analysis ICICI shows a highly positive

trend with more of a ‘buy’ signal to the investor.

In our analysis ICICI also shows a consistent upward trend, therefore a

buy position for the investor. Though when compared to SBI, ICICI
shows more fluctuations, while the upward trend of SBI was quite
smooth.

ICICI also reached its all time high in this period at Rs 1265.00 in Oct
’07.
Industrial Development Bank of India

Moving Average : IDBI

180.00
160.00
140.00
120.00
Prices
Price

100.00
80.00 Moving Average
60.00
40.00
20.00
0.00
Mar ‘03

Nov ‘07
Jul ‘05
May
Aug ‘02

Feb ‘06
Oct ‘03

Dec ‘04

Apr ‘07
Sept

Months

From the above graph we can see the ‘12 monthly moving average’
and the ‘Growth Trend line’ of IDBI.

According to the moving average analysis IDBI shows a mixed trend of

both ‘buy’ and ‘sell’ position to the investor.

From the above graph, we can observe that IDBI shows great
fluctuations in its share price.

 Aug ’02 to Sept ’05 : In this period though with fluctuations, the
share price of IDBI was on a rise. In this period the share price of
IDBI increased by about 585.87%, which is a great increase in a
short span of about three years. The moving average analysis also
shows a consistent ‘buy’ position for the investor during this period.

 Oct ’05 to Sept ’06 : In this period the share price of IDBI showed a
slight decline of about 3.12%. As the moving average curve lies
 above the share price curve, it also indicates a ‘sell’ position for the
investor. The share price in this period also dipped down to Rs 55.20
in Jun ’06 from Rs 117.97 in Sept ’05, which is a very short span of
time.

 Oct ’06 to May ’08 : Over this span of time the share price of IDBI
showed a slight increase of about 8.25% in about one and a half
years. It also touched its all time high in this period to Rs 165.00 in
Dec ’07. The moving average analysis here shows a ‘buy’ position
for the investor.
Comparative Analysis

Comparative Analysis

12000.00
Prices and Index

10000.00
NIFTY
8000.00 Bank Nifty
6000.00 ICICI
4000.00 IDBI
SBI
2000.00
0.00
Aug ‘02

Aug ‘03

Aug ‘04

Feb ‘05
Aug ‘05

Aug ‘06

Feb ‘07

Aug ‘07
Feb ‘03

Feb ‘04

Feb ‘06

Feb ‘08

Months

The above graph depicts the growth rate of NIFTY, CNX Bank Index,
and the major three companies in this sector since Aug 2002 till Apr
2008. By observation, we can see that the Bank Nifty and Nifty showed
a continuous upward trend. The major company in this sector, i.e.
ICICI, IDBI and SBI, also complies with Nifty and CNX Bank Nifty
showing a upward trend.

The yearly growth rate of Nifty, CNX Bank Index and the three major
companies is shown below in the table.

2002- 2003- 2004- 2005- 2006-

2003 2004 2005 2006 2007

NIFTY 21.45 44.68 28.86 48.88 37.21

CNX Bank 60.25 54.66 45.83 22.95 45.03

Nifty

SBI 58.20 38.45 48.28 29.88 66.41

ICICI 34.46 65.04 63.59 43.59 54.36

IDBI 97.52 100.02 42.47 -22.99 63.73

Inference

 The correlation coefficient between NIFTY and CNX Bank Index

comes out to be r(NIFTY,CNX Bank Index) = 0.98. Therefore this
indicates that NIFTY and CNX Bank Index are very highly correlated
in our period of analysis.

 Also, from the above table of yearly growth rate, we can observe
that SBI and ICICI showed a consistent rise, whereas IDBI showed a
more or less mixed trend, with a 100.02% rise in 2003-04, and a fall
of -22.99% in 2005-06.
 CHAPTER-5

INTERPRETATIONS
AND FINDINGS
Following are the points which have been observed while
doing this analysis

 Though the IT sector showed a upward trend but with a very high
degree of fluctuations with CNX IT Index as high as 5625.53 points
in February 2007 from 2051.26 in June 2004. Though the IT sector
showed a upward trend.

 The correlation between CNX IT Index and S&P CNX Nifty comes out
to be 0.88, which is indeed a very high degree of correlation.

 This shows that the IT sector was on a upward trend with a

percentage increase of 410% in the observed period.

 The banking sector also showed a consistent rise in the observed

period with a maximum of 9906.63 points i.e. its all time high in
January 2008.

 The correlation between Bank Nifty and S&P CNX Nifty comes out to
be 0.98 in the observed period.

 Therefore we can say that the banking sector showed a highly

positive trend in the observed period.
 CHAPTER-6

RECOMMENDATIONS
AND SUGGESTIONS
Following is the recommendations that I would like to
suggest after having done the above analysis
 For a new investor who wants to invest his funds at minimum risk
for a long term period should in Banking sector in companies like
SBI or ICICI, because these companies show a consistent upward
trend in the observed period.

 For existing investor who wants to capitalize his funds is also

suggested to prefer Banking sector as the correlation between S&P
CNX Nifty and Bank Nifty shows a positive correlation of 0.98.

 For investor who prefers to trade for maximum return at high risk is
suggested to invest in IT Sector in companies like Infosys, whose
share price touched a maximum of 5374.43 in May 2004, and also
shows high fluctuations in the observed period.

 Therefore a individual is suggested to invest long term funds in

banking sector whereas short term investment should be done in IT
sector.
Bibliography
Text Books and Journals

 “Investment Management Theory & Practice” by R P Rustagi (Equity

Shares : Fundamental & Technical Analysis), pg 137 - 163

 “Financial Management (Ninth Edition)” by I M Pandey (Risk and

Return : An overview of Capital Market Theory), pg 70 – 77

 “Research Methods (Second Edition)” by William M. K. Trochim

(Analysis), pg 259 - 276

 N S E Fact book 2007

 NCFM Securities Market (Basic) Module

The referred Websites

 www.nseindia.com

 www.ibef.org

 www.sharekhan.com

 www.yahoofinance.com

 www.moneycentral.msn.com