Industry Profile

Origin and development of the industry

Everyone has similar, yet distinct, financial planning needs regarding their families' financial
futures. While more wealthy people (think millions of dollars) have greater complexity to
their financial affairs (caused largely by our incredibly convoluted U.S. personal tax
codes), everyone needs sophisticated financial lifecycle planning. Whether wealthy or not
yet wealthy, families need a personalized way to understand how their current financial
behaviors could affect their families in the future.

However, few people already own enough assets to justify the high cost of a competent and
objective advisor. Only those who are already wealthy now can afford to pay directly for highly
personalized, professional financial planning assistance. Direct client payments help to avoid the
conflicts-of-interest that are inherent and pervasive in the structure of the financial services
industry.

The financial services and advisory industry is almost exclusively focused on the interests of
those who already have substantial financial assets and not on the mass of Americans
who were trying to become more secure financially.

Using many hundreds of thousands of what the securities industry calls "producer"
employees, the brokerage industry sells investment products and services to clients for
transactional fees, asset holding charges, and many other more or less visible investment
costs. Governed by the Securities and Exchange Act of 1934, as amended, and state laws,
the legal standard of client care by these brokers is the "suitability" of an investment to a
client.

A business that provides investing advice or counsel to an investor in exchange for a fee.
Investment advisory services may interact directly with a client — for example, by
managing assets — or may provide passive, general advice on which securities or
industries are bullish or bearish. Investment advisory services managing a certain amount
of money must register with the SEC; the actions of all investment advisory services are
governed by the Investment Advisors Act of 1940. Importantly, it is a criminal offense
 for investment advisory services to provide false or misleading information, and to sell or
buy their own securities to or from a client.

Growth and present status of the industry

The Indian capital markets have witnessed a transformation over the last decade during which
various initiatives were taken. Depository and share de-materialization systems have enhanced
the efficiency of the transaction cycle.

Forward trading mechanism with rolling settlement has brought about transparency. India has a
vibrant capital market comprising 23 stock exchanges with over 9000 listed companies. Market
capitalization of stocks traded on the Indian bourse touched an all time high of USD 292 billion
in April 2004. The independent regulator for the sector, Securities and Exchange Board of India
(SEBI), with statutory powers is functioning effectively. .

The Mumbai stock exchange being the second largest in the world after the NYSE, continues to
be the premier exchange in the country with an increase in market capitalization from USD 40
billion in 1990-91 to over USD 250 billion in 2003. The stock exchange has about 5,600 listed
companies and an average daily volume of approximately USD 1 billion.

India has one of the lowest transaction costs based on screen based transactions, paperless
trading and a T+2 settlements cycle. Many new instruments have been introduced in the markets,
including index futures, index options, derivative, options and futures in select stocks. The
volumes in derivatives trading have been increasing across the National Stock Exchange and
Mumbai Stock Exchange.
Future of the industry
Future of the industry is very bright the world is shrinking down in the digital age the economic
collaboration is increasing so the need to manage the wealth surplus is of at most priorities so,
the scope of the financial services is increasing with leaps and bounds to present the future of the
industry here is a glimpse of job potential and other things.

Financial analysts and personal financial advisors held 397,000 jobs in 2006, of which financial
analysts held 221,000. Many financial analysts work at the headquarters of large financial
institutions, most of which are based in New York City or other major financial centers. More
than 2 out of 5 financial analysts worked in the finance and insurance industries, including
securities and commodity brokers, banks and credit institutions, and insurance carriers. Others
worked throughout private industry and government.

Personal financial advisors held 176,000 jobs in 2006. Jobs were spread throughout the country.
Much like financial analysts, more than half worked in finance and insurance industries,
including securities and commodity brokers, banks, insurance carriers, and financial investment
firms. However, about 30 percent of personal financial advisors were self-employed, operating
small investment advisory firms, usually in urban area

Job Outlook

Employment of financial analysts and personal financial advisors is expected to grow much
faster than the average for all occupations. Growth will be especially strong for personal
financial advisors, which are projected to be among the 10 fastest growing occupations. Despite
strong job growth, keen competition will continue for these well paid jobs, especially for new ent
 NEED FOR THE STUDY

Capital market in India is always uncertain. Anything can happen in the market. A
stock picker carefully purchases securities based on a sense that they are worth more than the
market price. An investor who would like to be rational and scientific in his investment activity
has to evaluate a lot of information about the past performance and the expected future
performance of companies, industries and economy as a whole before taking an investment
decision.

SCOPE OF THE STUDY

 The only certain thing in share market is the uncertainty in the share price.

 The share prices are very much volatile. So far the investor to earn from the market, an
analytical mind is necessary.

 As the same information which are collected through this project will be very much useful to
the new investor coming in future period and making good decisions to invest the shares
which have better opportunity.

LIMITATIONS OF THE STUDY

This study also has some limitations, like all other surveys. Some of them are as follows.

 Entire fundamental analysis is based on figures drawn from financial publications and
websites.

 Time was a major limitation. The study has to be conducted within a period of two
months.

 Only five securities were taken for the study.

 Study is time bounded.

 The data which are used in the study are mostly collected from secondary sources.

 There may be chances of window-dressing effects on the study.

 The present study uses ratios as an important tool of analysis which itself has a number of
limitations on its applicability.

 This study is limited to Infosys Company only.

 CHAPTER 2

COMPANY PROFILE

Security limited is a premier brokerage house in India on the fast

growth trackIndiabulls Securities Limited is part of the Indiabulls group of companies. Indiabulls
group is leading financial services and Real estate player with a pan India presence. ISL offer
ease, convenience and reliability in all our products ranging from securities trading to customers
finance, mortgages to real estates development. Started functioning in the stock market in 2000.
Over the years, the company has grown from strength to strength to become a major player in
India's financial services sector.

The Company was promoted by three engineers from IIT Delhi, resp. Sameer Gehlaut, Rajiv
Ranjan and Saurabh Mittal.

Attracted more than Rs.700 million as investments from venture capital, private equity and
institutional investors such as LNM India Internet Ventures Ltd., Transatlantic Corporation Ltd.,
Farallon Capital Partners, R R Capital Partners and Infinity Technology Trustee Pvt. Ltd. Today
Indiabulls Securities limited is India’s leading capital markets company with All India Presence
and an extensive client base. Indiabulls Securities is the first and only brokerage house in India
to be assigned the highest rating BQ – 1 by CRISIL. Indiabulls Securities Ltd is listed on NSE,
BSE & Luxembourg stock exchange., the National Securities Depository Ltd and Central
Depository Services (India) Limited.

To help the clients better Indiabulls Securities limited has located their offices in
major towns, and placed highly qualified and experienced financial experts to man them. A team
of dynamic finance professionals with decades of experience leads them. These professionals
share a common vision not only to transform the company into a highly professional
organization, but also make their clients earn the maximum from their hard-earned money.
ORIGIN OF THE ORGANIZATION
Indiabulls Securities Limited was originally incorporated in India on June 9, 1995,
under the Companies Act as a private limited company as GPF Securities Private Limited under
certificate of incorporation bearing number 55-69631. The name of the Company was changed to
Orbis Securities Private Limited on December 15, 1995. The Company was subsequently
converted into a public limited company and its name was further changed to Orbis Securities
Limited on January 5, 2004.The name of the Company was again changed to Indiabulls
Securities Limited on February 16, 2004

Vision:
Indiabulls Securities Limited was born out of a vision to explore the immense investment
opportunities in the Indian financial market, to benefit the investors. The vision of the Indiabulls
Securities Limited is to be a Financial Super Market. It aims to provide all types of financial
services to its clients at one place to save them from going from place to place to meet their
investment needs. “Creating a world of smart investors”.

Growth and development of the Organization:

We have emerged as a diversified financial services company that offers a wide range of
financial products and services under the brand “Indiabulls”. On March 30, 2001 our Company
was registered as an NBFC under section 45-IA of RBI Act to carry on the business of NBFC,
not accepting public deposits, as our company is a holding company. Subsequently, our
Company has started investing and providing loans to our subsidiary companies engaged in
different activities as mentioned in the above diagram. With effect from April 1, 2004, our
Company has also commenced the activity of providing credit facilities to retail customers. We
operate through our three subsidiaries– Indiabulls Securities Limited, Indiabulls Insurance
Advisors Pvt. Ltd. and Indiabulls Commodities Pvt. Ltd. with a presence in equity, debt and
derivatives brokerage, depositary services, access to third party insurance products from Birla
Sunlife Insurance Company and mutual fund products of various asset management companies,
and related financial services. Our Company and our subsidiaries provide brokerage,services and
third party financial products and other services through a variety of channels to retail and
institutional clients and operate nationally in India. We are headquartered in New Delhi with a
network of 70 offices spread across 55 cities. Our Company and our subsidiaries target the retail
and the institutional segment of the market through direct and indirect channels. The direct
channel for business is through our sales employees who operate out of our 70 offices in 55
cities.
The indirect channel for business is through our network of marketing associates, people who are
not on the rolls of the company.
ISL has invested heavily in building a strong sales team and as on April 30, 2004 it had over 476
relationship managers in its 70 offices spread all over the country. With the sales and marketing
team, our Company and our subsidiaries are able to cross sell many financial products such as
insurance and mutual funds.

Present status of the Company

During 2007-08, the company earned an after tax profit of Rs. 248.41 cr ores as compared
to Rs. 137.39crores during the previous year. This is an increase of more than 80% over the past
previous year. The total revenue also increased by 46.2%. In 2008, the company raised its funds
through the issue 50.69Crores equity. ISL, which is into capital market operations generate a
volume of Rs 40000-50000 crore everyday, its subsidiary, generates volumes of Rs 10000-
20000 cr everyday through commodity futures transactions.

Capital structure

Indiabulls Securities Ltd. Capital Structure in Rupees(crores)

Class of Auth. Issued Paid-up Shares Face Value Paid-up
From To
Shares Capital Capital (No's) (Rs) Capital
2006 2007 Equity Share 19.00 17.83 17834099 10 17.83
2007 2008 Equity Share 100.00 50.69 253426989 2 50.69

Share holder
Indiabulls Securities Ltd. : Share Holding

Share Holding Pattern

31/03/2009 31/12/2008 30/09/2008
as on :
FaceValue 2.00 2.00 2.00
No. Of % No. Of % No. Of %
Share Holder
Shares Holding Shares Holding Shares Holding
PROMOTER'S HOLDING
Foreign Promoters 0 0.00 0 0.00 0 0.00
Indian Promoters 68713425 27.11 68713425 27.11 68713425 27.11
Person Acting in
0 0.00 0 0.00 0 0.00
Concert
Sub Total 68713425 27.11 68713425 27.11 68713425 27.11

NON PROMOTER'S HOLDING

Institutional Investors
0 0.00 0 0.00 30000 0.01
Mutual Funds and UTI
Banks Fin. Inst. and
87250 0.03 76200 0.03 12600 0.00
Insurance
FII's 68553662 27.05 64151842 25.31 61895898 24.42
Sub Total 68640912 27.09 64228042 25.34 61938498 24.44
Other Investors
Private Corporate
18280191 7.21 21700178 8.56 17318889 6.83
Bodies
NRI's/OCB's/Foreign
39185279 15.46 38937489 15.36 38798087 15.31
Others
GDR/ADR 0 0.00 0 0.00 0 0.00
Directors/Employees 0 0.00 0 0.00 0 0.00
Government 0 0.00 0 0.00 0 0.00
Others 17164686 6.77 18205319 7.18 30620217 12.08
Sub Total 74630156 29.45 78842986 31.11 86737193 34.23
General Public 41442496 16.35 41642536 16.43 36037873 14.22
GRAND TOTAL 253426989 100.00 253426989 100.00 253426989 100.00

Functional Departments of the Organization:

A company organized with a functional structure groups people together into functional
departments such as purchasing, accounts, production, sales, marketing, advertising,
subscriptions, Outstation business development, Book fairs and Seminar etc.. These departments
would normally have functional heads that may be called managers or directors depending on
whether the function is represented at board level.

Functional structures are perhaps the most common organizational model used by companies;
alternatives include matrix arrangements or business unit teams.

Our Company may be unable to use the proceeds of the Issue for the intended purpose, due to
unplanned acquisitions, unplanned capital expenditure requirements, unforeseen losses or
potential legal liabilities. The failure to use the proceeds for the intended purposes will be
harmful to us and would hamper our growth potential in the existing businesses. Our Company
does not have a proven track record in handling businesses that it may enter through the
acquisition route or otherwise and hence the success of new businesses in the overall growth
strategy of our Company cannot be predicted.

SALES DEVELOPMENT

Responsible for making sure that customer is happy

 • Responsible for building a positive relationship with customer.
• Communicate with customer all the time
• Process and monitor customer order

PURCHASE DEPARTMENT

Responsible for doing all the shopping of business

• Establish and maintain an excellent Supplier relationship.
• Manages stock.

FINANCE DEPARTMENT

• Responsible for managing all the finance of the company.

• Pay bills on behalf of Organization.
• Works closely with HR department so the wages can be paid to employees.

HUMAN RESOURCE DEPARTMENT

• Recruitment and training employees.

• Calculate wages.

Advertisement Department

Bring a product or service to tension and attention of potential and current customers.

Aims at profits as the advertising department generates resources for the company or institution.

2.5 Products and Services of the organization:

• Equity and Derivatives

• Depository Services

• Margin Trading

• Equity Analysis

• IPO Financing

• Loan Against Shares

• Trading Platforms
 - Power Indiabulls (PIB)

- Browser Based

Group of Companies:

From a modest beginning a decade back, Indiabulls Securities Limited is today a power
to reckon with in the financial services industry through the following Indiabulls
Securities Limited of Companies:

• Indiabulls Securities Limited

• Indiabulls financial Services

• Indiabulls real Estate

• Indiabulls Retail Services

• Indiabulls Power (2007 Sep)

Indiabulls Securities Limited

Indiabulls Securities Limited is a big player financial market that has put the brokerage
business on fast growth track over the years. They are providing through indiabulls

• Equity Research

• Commodities

• Internet Trading

• NRI Online Trading

Competitors:

Major competitors for India bulls Securities Limited Include:

• ICICI Direct

• Share khan

• Kotak Securities Limited

 • India infoline Limited

• Way 2 wealth Securities Limited

Indiabulls financial Services:

Indiabulls Financial Services Ltd is amongst 68 companies constituting MSCI -

Morgan Stanley India Index. Indiabulls Financial is also part of CLSA’s model portfolio of 30
Best Companies in Asia. Indiabulls Financial Services signed a joint venture agreement with
Sogecap, the insurance arm of Society General (SocGen) for its upcoming life insurance venture
Indiabulls Securities Limited is now providing different level of financial service and
loans etc.they are mentioning under below:

• Business loan

• Home loan

• Loan against Property

• Commercial Credit Loan

• Commercial Vehicle Loan

• Loan against share

• Insurance distribution

Indiabulls Real Estate:

Indiabulls group is leading financial services and Real estate player with a pan India
presence is India’s leading capital Markets Company with All-India Presence and an
extensive client base. Indiabulls Securities possesses state of the art trading platform, best
broking practices and is the pioneer in trading product innovations, indiabulls is providing:

• Commercial

• Residential

• Sezs
Indiabulls Retail Services:

• Organized Retails

• Indiabulls Mega store

• Indiabulls Marts

Indiabulls Power:

• Profile of Power Business

• Thermal Power Project

• Hydrogen Power Project

• Other Project

Organization structure and Organization chart:

Board of directors in Indiabulls Securities Limited:
Sl.no Name Designation
1 Mr.Saurabh K Mittal Director
2 Mr.Rajiv Rattan Director
3 Mr.Ashok Sharma Director
4 Mr.Divyesh B Shah Director
5 Mrs.Aishwarya Katoch Director
6 Mr.Prem Prakash Mirdha Director
7 Mr.Brig.Labh Singh Sitara Director
8 Mr.Karan Singh Director
Sales Hierarchy & Branch Structure

Securities Limited

SENIOR VICE PRESIDENT

BRANCH MANAGER/

Support System Sales Functions

Back office Local

Compliance officer RM/SRM
Executive

Dealer ARM

Some of the unique feature are:

•Trading via branch network, telephones and Internet account.

•Customized products for lending against shares.
•Integrated Trading and Depositary Account.
•Technology transforming desktop into NEAT like terminal for Internet trading.
•One Screen for both Cash and Derivatives Trading.
•Facility to Buy Today & Sell Tomorrow itself .
•Equity Research Department, which studies the market and provides information.
•Up-to-date news, data and analysis via Indiabulls.com
•Customized Insurance services.

SWOT ANALYSIS OF INDIABULLS

Strengths of Indiabulls – What makes Indiabulls better than it’s competitors?

•Online trading platform.

•Diverse Branch Network provides ample opportunities to penetrate deep into the existing &
untapped market.
•Indiabulls offers its clients a pool of financial services and products:
•No annual maintenance charges.
•No custodial charge.
•It does not keep any condition as to collect minimum amount of brokerage from its clients
•Most competitive BROKERAGE and DP charges (on delivery 0.5% and on intraday 0.1%)
•Equity analysis report to support the investment decision of its clients
•Trading via branch network, telephones and internet account i.e. both online and offline
•Induction of new employees through an extensive computer based training module.
•Real time online transfer fund and exposure updating facility with HDFC, CITIBANK, ICICI

Weakness of Indiabulls:
•It should have its own mutual funds as Indiabulls is providing advises in mutual fund.
•It should provide tips via SMS.
•There should be a separate set of staff working in fields and trading on behalf of their clients:
•Position to answer the questions of their clients relating to the current market position as they
are on fields.
•Commodities are not traded online.
•It does not provide with the indices of major world markets, ADR prices of Indian scripts.
•Unlike some of its competitors like ICICI and Kotak, Indiabulls does not provide a complete
catalogue of financial services (e.g. Banking facility).
•Due to the continuous need to meet the targets, some of the Relationship managers crack under
pressure and thus leave the organization
OPPURTUNITIES TO INDIABULLS
•Market expansion i.e. opening branches at untapped areas
•Indiabulls is registered with Luxembourg stock exchange and so can target other stock
exchanges.
•ATM facility should be provided for easy withdrawals.
•The Capital market in the last few years has turned out to be one of the favorable avenues for
the retail investors
•Scope of online trading on BSE.
•Indiabulls has tied up with other third party companies to sell their products. Due to the high
client base of Indiabulls

THREATS TO INDIABULLS
Companies like Share khan, ICICI Direct, Kotak, and Private Brokers are major threats to
Indiabulls.
•Banks with demat facility jockeying for position.
•Local brokers capable of charging lower brokerage.
•Industry competitors vying for the same target segment.
•Changes in SEBI guidelines & other tax implications.
•Government Regulations.

LIMITATION
•Most of people don’t know about the Share Market.
•Mostly people believe in saving a\c, fixed deposits etc. they don’t want bear any risk. They want
safety and security of their money.
•Lack of data because of the Company certain constraint of data sharing.
•Lack of co-operation from the employees of the Company because of their busy schedule.
•To understand the concept of Share Market is a very tough job.
•Time constraint play important role. Nobody is having so much time to spend on people

STUDY OF SELECTED RESEARCH

 PROBLEM

Statement of research problem:

I have selected IT industry for this study because the IT industry in India has
shown a rapid growth. It contributes to the growth and development of the economy. The new
patent regime, since 2005, resulted in the increasing concentration in research and development
activities of the IT companies. This in turn has increased the market potential of these
companies. At this juncture, it is worthwhile to analyze the stocks of IT companies.

Statement of research objectives:

Primary objective:

 To compare the intrinsic value of the scrip with market value and recommend buy or sell
option

Secondary objectives:

 To study the growth rate of Infosys company.

 To find out the financial performance of major players in IT industry.

 To find out the most profitable company in IT industry.

 To find out the earnings performance of companies.

RESAERCH METHODOLOGY:

Methodology implies the science of the method of study. Methodology is the

concept of method used in carrying out the study.

A detailed literature survey was done in order to identify the industries and their
respective shares which brought the entire IT industry into limelight. Various financial
publications and websites were referred for this purpose. From the literature survey Infosys
Company in the IT industry is selected based on the market capitalization.

The basic of any security analysis is that to find out whether the company is based
on strong fundamentals. Fundamental analysis covers various financial and non financial aspects
such as evaluation of economy and industry scenario, company management and company
finances and so on. Information regarding the industry and the various forces within it may have
an impact on the companies’ performance. The data in this regard were collected mainly from
financial statements of the company.

Analysis of financial statements included in-depth ratio analysis covering almost

all aspects of financial health of any company. From the results drawn from the ratio analysis, the
intrinsic value of each scrip was found out. For the calculations of ratios MS Excel was used.

Sources of Data:

Company and BSE website

Financial publications
Annual Reports

Methodology:

To achieve the objectives of the study fundamental analysis and Technical

analysis has been adopted the accounting figures collected from the company’s financial
statements.

Data collection
 The study is based on the secondary data .the audit financial statements of the
companies are the main source of data.

Data analysis

The fundamental analysis and Technical analysis is used to study the stock price
movements. Ratio analysis is used to find out the profitability of the companies, five years
audited data of company is analyzed.

Tools used:

Liquidity Ratios:

• Current Ratio:- Current Assets/Current Liabilities

• Leverage Ratio:-Long term debt/shareholder’s equity

• Proprietary Ratio:-shareholder’s equity/Total assets

Profitability Ratios:-

• Profitability related to sales:

Operating profit ratio=EBIT/Sales

Net Profit Ratio=EAT/Sales

Administrative expense ratio=administrative expenses/sales

Selling expense ratio=selling expenses/sales

Operating expenses ratio=(administrative expenses +selling expenses)/sales

• Profitability related to investment:

Return on assets=EAT/total assets

Return on capital employed=EBIT/total capital employed

Return on equity=EAT/shareholder’s equity

• Profitability related to equity shares:

EPS=net profit available to equity shareholders/no of equity shares

Earning yield=EPS/market price per share

Dividend yield=DPS/market price per share

Dividend payout ratio=DPS/EPS

P/E Ratio=Market price per ratio/EPS

Overall profitability:

Return on net worth=EAT/total assets

Activity Ratio:-

Current assets turnover=sales/current assets

Fixed assets turn over=sales/fixed assets

Total assets turn over=sales/ total assets

Intrinsic Value Calculation:

Dividend payout ratio=DPS/EPS
Average DPOR for years=DPOR for 5 years/5
Average retention ratio=1-average DPOR
Average return on equity=return on equity for 5 years/5

FUNDAMENTAL ANALYSIS
INTRODUCTION
Fundamental analysis is the study of economic factors, industrial environment and
the factors related to the company. The intrinsic value of equity shares depends on a multitude of
factors. The earnings of the company, growth rate and risk exposure have a direct bearing on the
prices of shares. The fundamental analysis appraises the intrinsic value of shares through
Economic analysis, Industry analysis and Company analysis.

The primary motive of buying a share is to sell it subsequently at a higher price.

On many cases, dividends are also expected. Thus dividends and price changes constitute the
return from investing in shares. Consequently, an investor would be interested to know the
dividend to be paid on the share in the future and also the future price of shares. These values can
only be estimated and not predicted with certainty. These are primarily determined by the
performance of the industry to which the company belongs and the general economic and socio-
political scenario of the country..

An investor who would like to be rational and scientific in his investment activity
has to evaluate a lot of information about the past performance and the expected future
performance of the company, industry and the economy as a whole before taking the investment
decision. The investor can obtain this information through fundamental analysis.

The fundamental school of thought appraised the intrinsic value of shares through:

 Economic Analysis

 Industry Analysis

 Company Analysis

ECONOMIC ANALYSIS
 The level of economic activity has got an impact on the investment in many ways. If
the economy grows rapidly, the industry can also be expected to show rapid growth and vice
versa. When the level of economic activity is low, stock prices are low, and when the level of
economic activity is high, stock prices are high reflecting the prosperous outlook.

The study of these economic variables would give an idea about future corporate
earnings and payment of dividends and interest to investors.

The fiscal year 2009-10 began as a difficult one. There was a significant slowdown in the growth
rate in the second half of 2008-09, following the financial crisis that began in the industrialized
nations in 2007 and spread to the real economy across the world. The growth rate of the gross
domestic product (GDP) in 2008-09 was 6.7 per cent, with growth in the last two quarters
hovering around 6 per cent. There was apprehension that this trend would persist for some time,
as the full impact of the economic slowdown in the developed world worked through the system.
It was also a year of reckoning for the policymakers, who had taken a calculated risk in
providing substantial fiscal expansion to counter the negative fallout of the global slowdown.
Inevitably, India’s fiscal deficit increased from the end of 2007-08, reaching 6.8 per cent (budget
estimate, BE) of GDP in 2009-10. A delayed and severely subnormal monsoon added to the
overall uncertainty. The continued recession in the developed world, for the better part of 2009-
10, meant a sluggish export recovery and a slowdown in financial flows into the economy. Yet,
over the span of the year, the economy posted a remarkable recovery, not only in terms of overall
growth figures but, more importantly, in terms of certain fundamentals, which justify optimism
for the Indian economy in the medium to long term.
The real turnaround came in the second quarter of 2009-10 when the economy grew by 7.9 per
cent. As per the advance estimates of GDP for 2009-10, released by the Central Statistical
Organisation(CSO), the economy is expected to grow at 7.2 percent in 2009-10, with the
industrial and the servicesectors growing at 8.2 and 8.7 per cent respectively.This recovery is
impressive for at least three reasons.First, it has come about despite a decline of 0.2 percent in
agricultural output, which was the consequence of sub-normal monsoons. Second, it foreshadows
renewed momentum in the manufacturing sector, which had seen continuous decline in the
growth rate for almost eight quarters since 2007-08. Indeed, manufacturing growth has more
than doubled from 3.2 per cent in 2008-09 to 8.9 per cent in 2009-10. Third, there has been a
recovery in the growth rate of gross fixed capital formation, which had declined significantly in
2008-09as per the revised National Accounts Statistics (NAS). While the growth rates of private
and Government final consumption expenditure have dipped in private consumption demand,
there has been a pick-up in the growth of private investment demand. There has also been a
turnaround in merchandise export growth in November 2009, which has been sustained in
December 2009, after a decline nearly twelve continuous months. 1.3 The fast-paced recovery of
the economy underscores the effectiveness of the policy response of the Government in the wake
of the financial crisis. Moreover, the broad- based nature of the recovery creates scope for a
gradual rollback, in due course, of some of the measures undertaken over the last fifteen to
eighteen months, as part of the policy response to the global slowdown, so as to put the economy
back on to the growth path of 9 per cent per annum.

The Gross Domestic Product (GDP) in India expanded at an annual rate of 8.80 percent in the
last reported quarter. From 2004 until 2010, India's average quarterly GDP Growth was
8.37 percent reaching an historical high of 10.10 percent in September of 2006 and a
record low of 5.50 percent in December of 2004. India's diverse economy encompasses
traditional village farming, modern agriculture, handicrafts, a wide range of modern
industries, and a multitude of services. Services are the major source of economic growth,
accounting for more than half of India's output with less than one third of its labor force.
The economy has posted an average growth rate of more than 7% in the decade since 1997,
reducing poverty by about 10 percentage points. This page includes: India GDP Growth
Rate chart, historical data and news.

Country Interest Rate Growth Rate Inflation Rate Jobless Rate Current account Exchange Rate
India 5.00% 8.80% 11.25% 8.00% -13 45.0150
Year March June Sep Dec
2010 8.60 8.80
2009 5.80 6.00 8.60 6.50
2008 8.50 7.80 7.50 6.10

India GDP Composition Sector Wise

The Gross Domestic Product or GDP is the indicator of the performance of an economy.
According to the estimates of 2008, India's GDP is $1.209 trillion and this is slated to
make improvement in the coming times. It is estimated that India's GDP will grow by 6.5% in
the year 2009. In 2008 the country's GDP was 9%; the slowdown that has been witnessed this
year in the estimates is largely due to the slowdown witnessed by the agriculture and the
industrial sectors. A look at the India GDP composition sector wise throws up some interesting
figures. The agriculture sector contributed 17.2%; industry contributed 29.1% while the service
sector had a contribution of 52.7% according to 2008 estimates.
Sectors contributing to India's GDP
India is a vast country, so the sectors contributing to the country's GDP is also big in numbers.
Various sectors falling under the India GDP composition includes food processing,transportation
equipment, petroleum, textiles, software, agriculture, mining, machinery, chemicals, steel,
cement and many others. Agriculture is the pre dominant occupation in India, employing more
than 50% of the population. The service sector accounts for employing more than 25% while the
industrial sector accounts for more than 10%.
India's GDP Statistics
GDP: $1.209 trillion (2008 Estimate)
GDP Growth:6.7%(2009)
GDP per capita: $1016
GDP by sector(2008Estimate):
Agriculture:17.2%
Industry:29.1%
Services: 53.7%
Inflation: 7.8% (2008 Estimate)
Labor force: 523.5 million (2008 Estimate)
Agriculture Growth Rate in India GDP had been growing earlier but in the last few years it is
Constantly declining. Still, the Growth Rate of Agriculture in India GDP in the share of the
country's GDP remains the biggest economic sector in the country. India GDP means the total
value of all the services and goods that are produced within the territory of the nation within the
specified time period. The country has the GDP of around US$ 1.09 trillion in 2007 and this
makes the Indian economy the twelfth biggest in the whole world. The growth rate of India GDP
is 9.4% in 2006- 2007. The agricultural sector has always been an important contributor to the
India GDP. This is due to the fact that the country is mainly based on the agriculture sector and
employs around 60% of the total workforce in India. The agricultural sector contributed around
18.6% to India GDP in 2005
Agriculture Growth Rate in India GDP in spite of its decline in the share of the country's GDP
plays a very important role in the all round economic and social development of the country. The
Growth Rate of the Agriculture Sector in India GDP grew after independence for the government
of India placed special emphasis on the sector in its five-year plans. Further the Green revolution
took place in India and this gave a major boost to the agricultural sector for irrigation facilities,
provision of agriculture subsidies and credits, and improved technology. This in turn helped to
increase the Agriculture Growth Rate in India GDP.
The agricultural yield increased in India after independence but in the last few years it has
decreased. This in its turn has declined the Growth Rate of the Agricultural Sector in India GDP.
The total production Agriculture Growth Rate in India GDP declined by 5.2% in 2002- 2003.
The Growth Rate of the Agriculture Sector in India GDP grew at the rate of 1.7% each year
between 2001- 2002 and 2003- 2004. This shows that Agriculture Growth Rate in India GDP has
grown very slowly in the last few years.
Agriculture Growth Rate in India GDP has slowed down for the production in this sector has
reduced over the years. The agricultural sector has had low production due to a number of factors
such as illiteracy, insufficient finance, and inadequate marketing of agricultural products. Further
the reasons for the decline in Agriculture Growth Rate in India GDP are that in the sector the
average size of the farms is very small which in turn has resulted in low productivity. Also the
Growth Rate of the Agricultural Sector in India GDP has declined due to the fact that the sector
has not adopted modern technology and agricultural practices. Agriculture Growth Rate in India
GDP has also decreased due to the fact that the sector has insufficient irrigation facilities. As a
result of this the farmers are dependent on rainfall, which is however very unpredictable.
Agriculture Growth Rate in India GDP has declined over the years. The Indian government must
take steps to boost the agricultural sector for this in its turn will lead to the growth of Agriculture
Growth Rate in India GDP.
Services
Services Sector Growth Rate in India GDP has been very rapid in the last few years. The
Services Sector contributes the most to the Indian GDP. The Growth Rate of the Services Sector
in India GDP has risen due to several reasons and it has also given a major boost to the Indian
economy.
Indian Economy
India gross domestic product (GDP) means the total value of all the services and goods that are
manufactured within the territory of the nation during the specified period of time. The Indian
economy is the second fastest major growing economy in the whole world with the growing rate
of the GDP at 9.4% in 2006- 2007. The economy of India is the twelfth biggest in the world for it
has the GDP of US$ 1.09 trillion in 2007.
Services Sector in India
India ranks fifteenth in the services output and it provides employment to around 23% of the
total workforce in the country. The various sectors under the Services Sector in India are
construction, trade, hotels, transport, restaurant, communication and storage, social and personal
services, community, insurance, financing, business services, and real estate.
Services Sector contribution to the Indian Economy
The Services Sector contributes the most to the Indian GDP. The Sector of Services in India has
the biggest share in the country's GDP for it accounts for around 53.8% in 2005. The
contribution of the Services Sector in India GDP has increased a lot in the last few years. The
Services Sector contributed only 15% to the Indian GDP in 1950. Further the Indian Services
Sector's share in the country's GDP has increased from 43.695 in 1990- 1991 to around 51.16%
in 1998- 1999. This shows the Reasons for the growth of the Services Sector contribution to the
India GDP.
The contribution of the Services Sector has increased very rapidly in the India GDP for many
foreign consumers have shown interest in the country's service exports. This is due to the fact
that India has a large pool of highly skilled, low cost, and educated workers in the country. This
has made sure that the services that are available in the country are of the best quality.
The foreign companies seeing this have started outsourcing their work to India specially in the
area of business services which includes business process outsourcing and information
technology services. This has given a major boost to the Services Sector in India, which in its
turn has made the sector contribute more to the India GDP.
The Services Sector in India must be given boost
Services Sector Growth Rate in India GDP registered a significant growth over the past few
years. The Indian government must take steps in order to ensure that Services Sector Growth
Rate in India GDP continues to rise. For this will ensure the growth and prosperity of the
country's economy
infrastructure
Infrastructure Sector Growth Rate in India GDP has been on the rise in the last few years. The
Growth Rate of the Infrastructure Sector in India GDP has grown due to several reasons and this
in its turn has given a major boost to the country's economy.
Economy of India
India gross domestic product (GDP) means the total value of all the services and goods
that are manufactured within the borders of the country within the specified period of
time. The Indian economy is the twelfth biggest in the whole world for it has the GDP of US$
1.09 trillion in 2007. The economy of India is the second major growing economy in the whole
world for it has the GDP growing at the rate of 9.4% in 2006- 2007.
The Infrastructure Sector in India
The Infrastructure Sector in India was after independence completely in the hands of the public
sector and this hampered the growth of this sector. India's less spending on real estate, power,
telecommunications, construction, and transportation prevented the country from sustaining very
high rates of growth. The amount that India was spending on the Infrastructure Sector was 6% of
GDP or US$ 31 billion in 2002.
The contribution of the Infrastructure Sector in the India GDP
Infrastructure Sector Growth Rate in India GDP came to 3.5% in 1996- 1997 and the next year,
this figure was 4.6%. The Growth Rate of the Infrastructure Sector in India GDP increased after
the Indian government opened the sector to 100% foreign direct investment (FDI). This was
done in order to boost the Infrastructure Sector in the country. The result of opening the sector to
the private sector has been that Infrastructure Sector Growth Rate in India GDP has increased at
the rate of 9%. It is estimated that the Growth Rate of the Infrastructure Sector in India GDP will
grow at the rate of 8.5% between 2006 and 2010. The biggest ongoing project in the
Infrastructure Sector in India is the Golden Quadrilateral, which is improving the main roads that
connect the four cities of Chennai, Mumbai, Delhi, and Kolkata.
The Government of India must boost the Infrastructure Sector
Infrastructure Sector Growth Rate in India GDP thus has increased over the last few years due to
the efforts that have been made by the Indian government. The government of India must
continue to take steps to improve the Infrastructure Sector in the country. For this in its turn will
help to boost the Indian economy in future.
Highlights
The service sector now accounts for more than half of India'sGDP: 51.16 percent in 1998-99.
This sector has gained at the expense of both the agricultural and industrial sectors through the
1990s. The rise in the service sector's share in GDP marks a structural shift in the Indian
economy and takes it closer to the fundamentals of a developed economy (in the developed
economies, the industrial and service sectors contribute a major share in GDP while agriculture
accounts for a relatively lower share). The service sector's share has grown from 43.69 per cent
in 1990-91 to 51.16 per cent in 1998-99. In contrast, the industrial sector's share in GDP has
declined from 25.38 per cent to 22.01 per cent in 1990-91 and 1998-99 respectively. The
agricultural sector's share has fallen from 30.93 per cent to 26.83 per cent in the respective years.
Some economists caution that if the service sector bypasses the industrial sector, economic
growth can be distorted. They say that service sector growth must be supported by proportionate
growth of the industrial sector, otherwise the service sector grown will not be sustainable. It is
true that, in India, the service sector's contribution in GDP has sharply risen and that of industry
has fallen (as shown above). But, it is equally true that the industrial sector too has grown, and
grown quite impressively through the 1990s (except in 1998-99). Three times between 1993-94
and 1998-99, industry surpassed the growth rate of GDP. Thus, the service sector has grown at a
higher rate than industry which too has grown more or less in tandem. The rise of the service
sector therefore does not distort the economy.
Within the services sector, the share of trade, hotels and restaurants increased from 12.52 per
cent in 1990-91 to 15.68 per cent in 1998-99. The share of transport, storage and
communications has grown from 5.26 per cent to 7.61 per cent in the years under reference. The
share of construction has remained nearly the same during the period while that of financing,
insurance, real estate and business services has risen from 10.22 per cent to 11.44 per cent.
The fact that the service sector now accounts for more than half the GDP probably marks a
watershed in the evolution of the Indian economy.
Share of the service sector in India's GDP (in Rs. crore).
Figures in brackets indicate percentage share of different sectors and subsectors.
Figures for 1994-95 onwards are on a changed base (1993-94=100), so they show huge
increases compared to the preceding period.
It sector
The information technology (IT) industry has increased its contribution to the country's GDP
from 1.2 per cent in
1997-98 to 5.2 per cent in 2006-07, according to a Nasscom-Deloitte study.
The report, titled Indian IT Industry: Impacting the Economy and Society, further says that
export earnings in 2007-08 will hit $40 billion, a growth of 36 per cent. Meanwhile, direct
employment is expected to be 2 million in 2007-08, growing at a CAGR of 26 per cent in the last
decade.
The report, while bringing forth the contribution of the IT sector, points out that the industry has
been the trigger for many 'firsts' and has contributed not only to unleashing the hitherto untapped
entrepreneurial potential of the middle class but also taking Indian excellence to the global
market.

Fiscal situation in India

The fiscal space generated in the 2004-05 to 2007-08 period, following the Fiscal Responsibility
Budget Management Act (FRBMA) mandate, mitigated the knock on effects of global financial
and economic crisis in 2008-09 through facilitation of an expansionary fiscal stance to boost
aggregate demand. While traditionally the assessment of public finances was confined to
analysis of fiscal indicators, the macro economy-wide impact of the crisis underscored the
importance of using national accounts data in tandem in such assessments. As per the national
accounts data, in 2008-09, the deceleration in growth in private final consumption expenditure
was partly made up for by the growth in Government consumption expenditure (over 2007-08),
which resulted in a shoring up of the overall economic growth rate. The reversal in major fiscal
deficit indicators in 2008-09 and 2009-10 constitutes a conscious policy-driven stimulus to
counter the demand slowdown.
As the impact of the crisis continued through 2009-10, the expansionary fiscal stance was
continued in the Budget for 2009-10. Given the relative levels of shares of private final
consumption expenditure and government consumption expenditure, such expansion could only
be a shortterm measure and the Medium Term Fiscal Policy Statement presented along with the
Budget for 2009- 10 favoured a resumption of the fiscal consolidation process, albeit a gradual
one, with fiscal deficit declining to 5.5 per cent of the gross domestic product (GDP) and 4.0 per
cent of the GDP in 2010-11 and 2011-12 respectively. In its Report, the Thirteenth Finance
Commission has traced the path of fiscal consolidation for the Centre and States. The resumption
of the path of fiscal prudence would complement the recovery process in the near term and lay
the foundation for reviving the growth momentum in the long term.3.3 The Budget for 2009-10,
continuing with the policy of fiscal expansion to boost aggregate demand, envisaged a fiscal
deficit of Rs 4,00,996 crore, equivalent of 6.8 per cent of the GDP (6.5 percent based on
Advanced Estimates of GDP 2004-05 series). In absolute terms, this implied a growth of 21.5 per
cent in the level of fiscal deficit over2008-09 (provisional).With growth in nominal GDP at only
10.6 per cent, as a proportion of the GDP, fiscal deficit was higher. The higher estimated levels
of fiscal deficit in 2009-10 owe largely to the fuller impact of the tax cuts announced as a part of
the fiscal stimulus packages late in the second half of fiscal 2008-09. The bulk of the expansion
was also reflected in the rise in revenue deficit in 2008-09 and BE (budget estimate) 2009-10.
The reversal of the trend of fiscal consolidation was thus marked in 2008-09 and BE 2009-10

Monetary and liquidity conditions

The liquidity constraint that had emerged consequent to the global financial crisis, led the
RBI to maintain an accommodative monetary policy stance since September 2008 which
continued during 2009-10. The slew of measures introduced after September 2008 to enhance the
liquidity in the system included a series of downward revisions in policy rates covering repo rate,
reverse repo rate, CRR and SLR, besides providing specified windows for accommodating
distressed sectors. These measures had a salutary effect on the overall liquidity situation. Though
the policy during 2009-10 continued to broadly underscore the accommodative stance, the
monetary authority reviewed the emerging economic situation from time to time. Keeping in
view the comfortable liquidity position, the SLR was restored to its earlier level of 25 percent of
NDTL with effect from November 7, 2009. A few sector-specific measures provided earlier by
way of accommodative windows, and whose utilization was lower than expected, were also
withdrawn in the Second Quarter Review of Monetary Policy 2009- 10 (October 27, 2009). In
addition, in the Third Quarter Review (January 29, 2010) the RBI announced that the CRR was
being raised from 5.0 per cent of NDTL to a level of 5.50 per cent effective the fortnight
beginning February 13,2010 and to 5.75 per cent effective the fortnight beginning February 27
2010. During 2009-10, the growth rates in reserve money (M0) and narrow money (M1) have
been higher as compared to the preceding year while broad money (M3) growth has been lower
(Table 4.13). The moderation in growth of broad money is largely on account of the deceleration
in growth of bank credit to the commercial sector. Reserve money grew by 6.4 per cent in 2008-
09 as compared to 30.9 per cent during 2007-08. During 2009-10, on financial-year basis, M0
increased by 3.8 per cent (up to January 15, 2010), as against a decline of 3.7 per cent during the
corresponding period of the preceding year Net foreign assets (NFA) of the RBI and net
domestic assets (NDA) are the two main drivers of reserve money. On financial-year basis, the
NFA declined by 0.4 per cent during end March-January 15, 2010, as against a decline of 0.9 per
cent during the corresponding period of the previous year. On a year-on-year basis, as on January
15, 2010, the NFA expanded by 4.1 per cent as against a 9.7 percent increase in the previous year
Net RBI credit to the Central Government increased by Rs 29,638 crore during the financial year
(up to January 15, 2010). This was mainly on account of unwinding of Market Stabilization
Scheme (MSS) balances and open market operations of the Reserve Bank, offset by increase in
the cash balances of the Central Government and reverse repo operations. On year-on-year
basis ,increase in the net RBI credit to the Central Government, as on January 15, 2010, was
Rs1,19,895 crore as against an increase of Rs1,27,184 crore during the corresponding period a
year ago.
Narrow Money (M1)
M1 growth decelerated in the second half of 2008-09 and staged a recovery in 2009-10. It
increased by 8.4 per cent in 2008-09 as compared to an expansion of 19.4 per cent during 2007-
08. During 2009-10, M1 increased by 7.8 per cent on a financial-year basis (up to January 15,
2010) as against a decline of 1.1 per cent during the corresponding period of the previous year.
On year-on-year basis, as on January 15, 2010, M1 growth accelerated to 18.2 per cent as
compared to 8.6 percent a year ago the components of narrow money are currency with the
public and deposit money of the public. As on January 15, 2010, currency with the public
expanded by 12.3 per cent over end-March 2009, as against an increase of 12.2 per cent during
the corresponding period of the preceding year. The main element of the other components,
namely demand deposits with banks, witnessed a modest increase of 3.1 per cent during the
period up to January 15, 2010 as against a decline of 13.6 percent during the corresponding
period of the previous year. On year-on-year basis, as on January 15, 2010, the growth of
currency with the public was marginally higher at 17.3 per cent as compared with 17.2 per cent
on the corresponding date a
year ago. During the same period, growth in demand deposits accelerated to 19.8 per cent as
compared with a decline of 0.8 per cent a year earlier Broad money (M3) increased by 18.6 per
cent during 2008-09. During the current financial year (2009-10), up to January 15, 2010, the
growth in M3 was 10.8 per cent as compared to 12.8 per cent during the corresponding period of
the previous year.On year-on-year basis, M3 grew by 16.5 per cent as on January 15, 2010, as
compared to 19.1 percent on the corresponding date of the previous year. The growth in M3 was
primarily reflected inthe expansion in aggregate deposits during this period. Within aggregate
deposits, time deposits registered a growth (year-on-year) of 16.0 per cent as on January 15,
2010, as compared to 23.1 percent on the corresponding date of the previous year. In 2009-10,
there has been gradual deceleration in the growth of time deposits, with softening of interest
rates, in contrast to the shift from demand to time deposits during the second half of 2008-09. On
the other hand, demand deposits expanded by 19.8 percent (year-on-year) as on January 15,
2010, as compared to a decline of 0.8 per cent a year ago. During 2009-10, the banking system’s
credit to the Government was the major driver of growth in broad money, a trend which has
persisted since the third quarter of 2008-09. The increase in Government’s borrowing
programme to finance the expansionary fiscal response to the economic slowdown was the
underlying reason. However, M3 growth has shown signs of deceleration after September 2009.
This owes to the fact that being front loaded, the major part of the government borrowing was
completed in the first half of the year.
Among the sources of M3, bank credit to the commercial sector, which had been decelerating
since October 2008, has shown a revival since November 2009.
Money multiplier
During 2008-09, the rate of expansion of M0 was lower than that of M3. Accordingly, the ratio
of M3 to M0 (money multiplier) showed an increase. In end-March 2009, this ratio was higher at
4.8 as compared to 4.3 in end-March 2008. During the current financial year, the increasing trend
in the money multiplier continued, with reserve money registering a lower growth than broad
money supply.
As on January 15, 2010, the money multiplier was 5.4The monetary easing in the aftermath of
the global financial crisis constituted the main theme of liquidity management during financial
year 2009-10 with periodic fluctuations in cash balances of the Central Government providing
temporary variations.
The Reserve Bank continued its active policy of assuring liquidity during 2009-10 through Open
Market Operations (OMO), Liquidity Adjustment Facility (LAF) and also unwinding (including
desequestering) of balances under the Market Stabilization Scheme (MSS) to maintain
appropriate liquidity in the system.
As a result, liquidity conditions remained comfortable during 2009-10. In its Annual Policy
Statement 2009-10, the RBI had reduced the LAF repo and reverse repo rates by 25 basis points
effective April 21, 2009 to 4.75 per cent and 3.25 per cent respectively. In recognition of the
easing liquidity conditions, the 14-day term repo facility, a daily facility hitherto, was converted
to a weekly facility effective April 27, 2009. The average daily net absorption under the LAF
continued to remain over Rs1,20,000 crore during June 2009, notwithstanding advance tax
collections around the middle of the month. This continued through July- August 2009 and the
LAF absorption under reverse repo reached a peak of Rs1,68,215 crore on September 4, 2009.
Liquidity conditions continued to remain in surplus mode in October and November 2009 with
average absorption under the LAF being around Rs1,00,000 crore. However, net LAF absorption
declined by end December mainly on account of advance tax outflows.During the year 2009-10,
liquidity was also facilitated through OMOs purchased aggregating Rs 57,000 crore .
Additionally, the decline in MSS balances and de-sequestering of around Rs 28,000 crore
provided liquidity of around Rs 81,000 crore Consistent with the changed tempo of forex
inflows, the ceiling for the MSS which was Rs 2,50,000 crore since November 2007 was scaled
down to Rs 50,000 crore in July 2009. The average weekly outstanding on account of the MSS
reflected the situation. From a level of Rs 75,146 crore in April, 2009 it steadily declined to
around Rs 18,773 crore by November 2009.
Price situation
The movements in the rate of inflation reflect changes in demand and supply conditions in the
economy. Inflation management therefore, involves controlling the demand situation as well as
reining in inflationary expectations through various monetary measures. On the supply side it
would encompass various administrative and fiscal measures. The first half of the financial year
2008-09 was marked by high wholesale price index (WPI)-based inflation, primarily due to the
rise in global commodity and fuel prices. The subsequent global economic meltdown starting
September 2008 reversed the trend and WPI inflation slipped into negative territory during June
to August 2009. This was due to the decline in commodity prices globally and the base effect. As
regards food inflation, the upswing noticed in the first quarter of 2008-09, continued during
2009-10 due to unfavourable south-west monsoon, the worst since 1972. Though the current
spectre of double-digit inflation in food articles is ascribable to supply-side constraints, it is
necessary to ensure that the monetary policy stance does not lead to pressure on prices. The RBI
has, therefore, initiated calibrated changes in rates to mop up the prevalent excess liquidity in the
system through the second and third quarter reviews wherein increases in statutory liquidity ratio
(SLR) and cash reserve ratio (CRR) respectively were announced. Suitable fiscal and
administrative measures are also being taken by the Government to contain the food price
inflation and preventing it from spilling over to generalized inflation.
Monthly changes in headline inflation, yearon- year, measured in terms of the wholesale price
index (WPI) exhibited significant volatility during financial year 2008-09 and varied from 1.20
per cent in March 2009 to 12.82 per cent in August 2008. The volatility continues during the
current financial year (2009-10). There is, however, fundamental difference in the reasons for
volatility observed last year and those seen this year. The volatility observed in the first half of
2008-09 was due to increasing international fuel and commodity prices which pushed WPI
inflation to a high of 12.8 per cent. The subsequent decline in WPI inflation in the second half of
2008-09 was due to falling international fuel and commodity prices. International fuel and
commodity prices stabilized in the first half of 2009-10 but at a relatively lower level than in the
corresponding period of the last year. WPI inflation, however, continued to fall during the first
half of 2009-10 due to the high base achieved last year during this period, and moved to negative
zone from July to August 2009. From September, 2009 onwards WPI inflation has been rising at
a very fast clip largely because of increase in the prices of food items, both primary and
manufactured, and nonfood agricultural items. Apprehensions of shortages in agricultural
production due to a deficient southwest monsoon this year are mainly responsible for\increasing
inflation. Average food inflation which was 7.56 per cent during fiscal 2008-09 increased to
13.54 per cent in the period April to December 2009. Overall food inflation in December 2009
was 19.77 per cent. However, it appears to have reached its peak in December 2009 and is
expected to moderate here from and also stabilize overall WPI on account of the likely impact of
several measures taken by the Government to contain food price inflation
Balance of Payments
Under current account of the BoP, transactions are classified into merchandise (exports and
imports) and invisibles. Invisible transactions are further classified into three categories,
namely(a) Services–travel, transportation, insurance, Government not included elsewhere
(GNIE) and miscellaneous, which latter encompasses communication, construction, financial,
software, news agency, royalties, management and business services, (b) Income, and (c)
Transfers (grants, gifts, remittances, etc.) which do not have any quid proquo.
Capital inflows can be classified by instrument (debt or equity) and maturity (short or long
term). The main components of capital account include foreign investment, loans and banking
capital. Foreign investment comprising foreign direct investment (FDI) and portfolio investment
represents non-debt liabilities, while loans (external assistance, external commercial borrowings
and trade credit) and banking capital including non-resident Indian (NRI) deposits are debt
liabilities.
India’s BoP exhibited considerable resilience during fiscal 2008-09 despite one of the severest
external shocks. The current account balance [ (-) 2.4 per cent of GDP in 2008-09 vis-à-vis
(–) 1.3 per cent in 2007-08] remained well within the sustainable limits and there was limited use
of foreign exchange reserves, despite massive decline in net capital flows to US$ 7.2 billion in
2008-09 as against US$ 106.6 billion in 2007-08. As per the latest BoP data for fiscal 2009-10,
exports and imports showed substantial decline during April-September (H1) of 2009-10 vis-à-
vis the corresponding period in 2008-09. There has been improvement in the BoP scenario
during H1 of 2009-10 over H1 of 2008-09, reflected in higher net capital inflows and lower trade
deficit. However, the invisible surplus declined and current account deficit widened vis-a-vis the
corresponding period last year
Inflation in India
 INDUSTRY ANALYSIS
An industry is generally described as a homogeneous group of companies. It may
be defined as a group of firms producing reasonably similar products that serve the same need of
a common set of buyers. The profitability of an industry depends upon its stages of growth.

At any stages of economy, there are some industries, which are growing while
others are declining. The performance of a company is thus a function not only the industry and
economy, but more importantly on its own performance. The market price of the company is
empirically found to depend up to 50% on the performance of the industry and economy.

Information technology (IT) is both a huge industry in itself, and the source of dramatic changes
in business practices in all other sectors. The term IT covers a number of related disciplines and
areas, from semiconductor design and production (also covered in the profile of the electronics
sector), through hardware manufacture (mainframes, servers, PCs, and mobile devices), to
software, data storage, backup and retrieval, networking, and, of course, the internet.
On top of this, there has been a convergence between IT and telephony, driven by transforming
voice traffic from an analogue signal to a digital packet, indistinguishable from other data
packets travelling through a computer network. IT in the leisure sector is already about enabling
interaction with video, movies, and TV, and this trend is increasingly carrying into the business
space.Each of the major sub-areas in IT is itself capable of being divided into its component
parts. Storage, for example, breaks down into disk drives, tape drives, and optical drives, and
into attached storage and networked storage. PCs break down into utility-business desktop PCs,
high-end work stations, and “extreme” gaming PCs for games enthusiasts—the computer and
console games industry has already produced “blockbusters” that outsell top releases from
Hollywood. Software subdivides into numerous specialist areas, from relational database
technologies to enterprise applications, to “horizontal” office applications characterized by
Microsoft Office 2007, for example. Somewhat off the main track of IT at present, but very
much related to both increases in processor power, and to work in simulation and artificial
intelligence, is the field of robotics. This lies outside the scope of this profile, but the linkages
between robotics and IT are already transforming both manufacturing and defense.
In addition, the IT arena is characterized by a number of key trends and emerging technologies
which, again, have the potential to transform the way businesses currently use IT, and carry out
their operations. An example of a trend would be the outsourcing of IT services, such as desktop
PC support, or whole IT supported functions, such as accounts processing. An example of a
technology trend would be virtualization.This refers to the ability of large servers to be
subdivided into a number of virtual machines, which can be either virtual PCs or virtual servers.
Virtualization carries with it a number of benefits, including stopping what, at one stage, looked
like an endless proliferation of servers inside companies. One large server can now be split into a
number of virtual servers, enabling the organization to reduce the number of boxes it has to
manage. Server virtualization should not be confused with another powerful trend, the creation
of virtual environments inside the machine. The fact that desktop processors are now powerful
enough to mimic real-world physics in computer space is transforming both design and
entertainment. All these trends have enabled the IT industry to continue to generate a strong
demand for the next generation of servers, PCs, and laptops. However, in a recession, companies
of all sizes generally postpone upgrading their IT, or implementing major IT projects that are not
already in hand. This makes the sector vulnerable to downturns in the economy, and the current
global downturn is already having a major impact on revenues in the sector worldwide.
Market Analysis
According to the IT market analysis firm, Gartner, worldwide server shipments and revenues
saw double digit declines in the fourth quarter of 2008. By comparison with the same quarter in
2007, shipment numbers declined by 11.7% while revenue dropped by 15.1%. Commenting on
the figures, Heeral Kota, a senior research analyst at Gartner, said: “The weakening economic
environment had a deep impact on server market revenues in the fourth quarter, as companies put
a hold on spending across most market segments. Almost all segments exhibited similar
behavior, as users sought to reduce costs and spending, deferring projects where possible

Gartner said that the fall in shipments and revenue was reported across all regions apart from
Japan, which managed a 4.7% revenue increase. Europe, the Middle East, and Africa (EMEA)
suffered the worst decline, with revenues falling by 20.6%. Even the emerging regions of Latin
America and Asia-Pacific suffered, with declines of 12.5% and 14.8%, respectively. North
America server revenue declined by 14.6%. The scale of the IT server sector as an industry can
be seen from the fact that IBM, the market leader, ended 2008 with revenues of US$4 billion
from server shipments, with almost exactly one-third of the global market. However, IBM saw
revenues decline by 17.4% as a result of the downturn. Hewlett-Packard was next, with
revenues of just under US$4 billion and with a 30% market share.
The figures in server shipments for 2008 chart the impact of the downturn fairly starkly. The
sector had been enjoying fairly strong results during the first half of 2008, but a severe decline in
sales set in as the intensity of the downturn began to bite, Gartner said.
If things are bleak on the server front, the outlook is just as bad for PCs. Gartner is predicting
that the PC industry will suffer its sharpest unit decline in history in 2009. Gartner expects some
257 million PCs to ship worldwide through 2009. This would represent an 11.9% contraction on
the numbers sold in 2008. Even after the dot.com bubble burst in 2001, global PC unit shipments
only contracted 3.2%.
To view these statistics in perspective, it is important to remember that setting up a new chip-
fabrication plant to make the next generation of PCs costs some US$3 billion. With margins on
PCs being at an all-time low, it is very difficult for the industry to sustain itself if companies and
households stop upgrading to the latest generation of PC.
According to Gartner, both developed market economies and emerging markets are forecast to
go through tremendous slowdowns. After the telecoms and dot.com crash in 2001, sales of PCs
in mature markets contracted by 7.9%, Gartner says, while sales growth in emerging markets
slowed to 11.1% in 2002. Both these low points will be substantially exceeded in 2009. The
impact will be deepened by hardware suppliers, who will act prudently and maintain inventories
at an all-time low to avoid losses. However, all is not total gloom. The trend for corporates and
home users to switch to mobile PCs, rather than desktop units, will keep growth going for
worldwide mobile PC shipments. Gartner is forecasting sales of 155.6 million units, up 9% from
2008. By way of contrast, desktop PC shipments will struggle to exceed 101 million, a drop of
almost 32% on 2008. The most popular form in the mobile space will continue to be the mini-
notebook, Gartner says. In particular, users are moving to higher-specification notebook PCs
with larger screens, of around 8.9 inches. Prices, however, will continue to fall. Gartner is
predicting that the price of a mid-specification mini-notebook PC with a large screen will fall,
from an average of US$450 in 2008 to under US$400 by the end of 2009.
Another plus point is that the industry as a whole learned some valuable lessons in the crash of
2001, and is already demonstrating that it is much more agile, and better able to react to
changing market conditions in 2009. Not surprisingly, with all this bad news about slowing
demand on actual “built” hardware, the downturn is also hitting demand for chip production. In
fact, Gartner’s prediction here is that it will be at least 2013 before the semiconductor industry
sees revenues comparable to those it achieved in 2008, when revenues peaked at US$256.4
billion. Over the course of 2009, the sector will see a drop in excess of 24%, with total global
semiconductor revenues estimated to top out at US$194.5 billion. There is a precedent for this
prediction, in that after the 2001 recession, the semiconductor industry took four years to get
back to the revenues it had generated in 2000.
The contraction predicted for 2009 is considerably more gloomy than a prediction made by
Gartner six months ago, when it was only predicting a contraction for the sector of 16%. On the
plus side, modest single digit growth should return in 2010.
Apart from semiconductor chip manufacturers, the other huge area in the field is memory chips,
or, more specifically, DRAM chips. According to Gartner, DRAM suppliers lost more than
US$13 billion in 2007 and 2008, due to massive overcapacity in the market and soft pricing. But
many suppliers are now reducing supply, which should push DRAM prices back up, and put the
industry on a better footing. While the industry is absorbing all this bad news, there are positive
trends that manufacturers, systems houses, value-added resellers, and consultancies can focus on.
The move to replace tens or even hundreds of individual servers with large virtual servers is
picking up pace, and is not going to be stopped by the recession. It is a cost-saver and efficiency
driver, so companies will press ahead with virtualization programs.
This, in turn, will drive sales of larger servers, and could drive applications upgrades as well.
According to Gartner, worldwide virtualization software revenue will increase by 43%, from
US$1.9 billion in 2008 to US $2.7 billion in 2009. Virtualization also plays well to the green
agenda, and greening up IT by lowering its carbon footprint is another unstoppable trend for
2009 and 2010. Virtualization plays to this on a number of fronts. First, it is more power-
efficient to run a single, large server than a number of smaller servers. Second, the
manufacturing carbon footprint is lower, and, third, if the virtualization exercise extends to the
desktop, then one server can replace dozens of PCs. Revenue from hosted virtual desktops
(HVDs) is expected to more than triple, from US$74.1 million to US$298.6 million through
2009, Gartner says. Storage systems in IT tend to be divided into external disk storage, where the
disks are being “managed” in some way independently of processor resources, and attached
storage, as in the typical PC or low-end server that comes with one or two hard drives already
installed. According to the market analysis company, IDC, the worldwide external-disk storage
market showed its first year-on-year fall for five years, for the last quarter of 2008. IDC reports a
fall of 0.5%, with revenues totaling US$5.3 billion that quarter. Total disk storage systems
capacity shipped amounted to 2,460 petabytes, a growth of just 27.3% on the volume shipped in
2007. (The point here is that with e-mail and, now, live video, demand for storage should be
vastly ahead of this figure).
Again on a positive note, one area where large and medium companies, as well as some service
providers, can be expected to continue spending through the downturn is on the new IT concept
known as “cloud computing.” IDC expects worldwide spending on cloud computing and cloud
services to reach US$42 billion by 2012. Cloud computing is a term that essentially refers to the
delivery of services to communities of users over the internet, instead of via a data centre located
in the same building. Access to the service is via a web browser, and everything from storage to
the processor power that drives the service is located remotely. The term itself comes from the
way the internet is depicted in computer network diagrams (a non-specific “cloud”), and points
to the fact that all the complexity of infrastructure that makes the service possible is hidden “in
the cloud.”
According to a survey IDC conducted with almost 700 IT executives across the Asia-Pacific
region, some 11% said they were already using cloud-based solutions. A further 41% indicated
that they are either evaluating cloud-based solutions, or are piloting such solutions. Gartner, on
the other hand, claims that cloud-computing application infrastructure technologies will still need
some seven years to mature. It sees three phases of evolution for cloud computing going up to
2015 and beyond. Up to 2011, applications will be mostly opportunistic and tactical in nature,
and will have little impact on mainstream IT, Gartner argues. By 2015, however, it expects cloud
computing to have been commoditized, and to have become the preferred solution for many
kinds of corporate applications that are now run in-house on standard IT equipment.
In summary, the immediate future for IT looks like being a period of tough belt-tightening.
However, the underlying innovation in the sector and its ability to transform mainstream
business processes while enabling new kinds of business practice is undiminished, and should re-
emerge to drive revenue growth once the global upturn starts to gain momentum.

The BSE IT index has been an underperformer for the second consecutive quarter in Q2FY08 by
23%. Having underperformed the Sensex by 17% in Q1FY08, BSEIT has had a lackluster
performance in H1FY08 when the sensex had gained 43% in the same period.The reason was a
fluctuating currency in the first quarter of FY08 that has dampened spirits and a spiraling effect
was witnessed in the second quarter of FY08.
➚ The rupee was however stable in the region of Rs.40-41 against a dollar in Q2FY08, thus
mitigating the effect of an exchange rate fluctuation for the results in Q2FY08. Going forward,
we have estimated our projections with Rupee at Rs.39 against a dollar.
➚ Most of the Indian IT companies have a stable mechanism of an efficient hedging policy
where almost 50% of the revenue for the quarter is hedged in dollars.
➚ The subprime crisis affects minimally (0.5% of Infosys’ Revenues, 1% in Wipro) to any of the
large caps and is rather more intensive for a few BPO players in Mortgage segment.
➚ We see the US slowdown, if any, as an opportunity for the IT players to instigate the US
companies to flow more work offshore. It is also well known that the large caps have their
revenues diversified across different geographies (Europe, close to 30%, Asia-Pac and Middle
East). The real impact of this however will be well pronounced by the end of the third quarter
FY08 during the annual budgeting sessions of the US companies.
Outlook
We therefore foresee a better second quarter for the IT sector with QoQ Revenue growth rates of
8-11%. Our sentiments for the sector remain positive in the long run.
Share of invoices in various currencies

Other
US$ GBP Euro s
TCS 65% 16% 8% 11%
Infosys 68% 14% 4% 14%
Wipro
Tech 77% 15% 6% 2%
Satyam 80% 7% 5% 8%
HCLT 60% 25% 8% 7%
 COMPANY ANALYSIS

Company analysis is the final stage of fundamental analysis. The economy analysis
provides the investor a broad outline of prospects of growth in the economy. The industry
analysis helps the investor to select the industry in which the investment would be rewarding.
Now he has to decide the company in which he should invest his money.

Company analysis deals with the estimation of return and risk of individual
shares. This calls for information. Information regarding companies can be broadly classified as
internal and external. The internal information consists of data and events made by companies
concerning their operations. It includes annual report of shareholders, public and private
statements of officers of the company, the company’s financial statements etc. external sources
of information are those generated independently outside the company. These are prepared by
investment services and financial press.

Ratio Analysis:

Ratio means numerical relationship between items or group of items. A ratio may
be expressed either as a quotient or a percentage or a rate. This technique is called cross-
sectional analysis compares financial ratios of several companies from the same industry. Ratio
analysis can provide valid information about a company’s financial health. A financial ratio
measures a company’s performance in a specific area. Eg: we would use a ratio of a company’s
debt to its equity to measure a company’s leverage. By comparing the leverage ratios of two
companies we can determine which company uses greater debt in the conduct of its business. A
company whose leverage ratio is higher than a competitor’s has more debt per equity. We can
use this information to make judgment as to which company is ready to take a better investment
risk.

However, we must be careful not to place too much importance on one ratio. We
obtain a better indication of the direction in which a company is moving when several ratios are
taken as a group
INFOSYS

Infosys was incorporated in Pune, in 1981, as Infosys Consultants Private Limited, a private
limited company under the Indian Companies Act, 1956. We changed our name to Infosys
Technologies Private Limited in April 1992 and to Infosys Technologies Limited in June 1992,
when we became a public limited company. We made an initial public offering in February 1993
and were listed on stock exchanges in India in June 1993. Trading opened at Rs. 145 per share,
compared to the IPO price of Rs. 95 per share. In October 1994, we made a private placement of
5,50,000 shares at Rs. 450 each to Foreign Institutional Investors (FIIs), Financial Institutions
(FIs) and body corporate. In March 1999, we issued 20,70,000 American Depositary Shares
(ADSs) (equivalent to 10,35,000 equity shares of par value of Rs. 10/- each) at US $34 per ADS
under the ADS Program and the same were listed on the NASDAQ National Market. All the
above data is unadjusted for issue of stock split and bonus shares. In July 2003, June 2005 and
November 2006, we successfully completed secondary ADR issues of US $294 million, US $1.1
billion and US $1.6 billion respectively. The address of registered office is Electronics City,
Hosur Road,Bangalore 560 100, Karnataka, India.
N. R. Narayana Murthy is the Founder-Chairman of Infosys Technologies Limited, a global
software consulting company headquartered in Bangalore, India. He founded Infosys in 1981.
Under his leadership, Infosys was listed on NASDAQ in 1999.Narayana Murthy articulated,
designed and implemented the Global Delivery Model (GDM) which has become the foundation
for the huge success in IT services outsourcing from India. He has led key corporate governance
initiatives in India. He is an IT advisor to several Asian countries.He serves on the boards of
Unilever, HSBC, Ford Foundation and the UN Foundation. He also serves on the boards of
Cornell University, Wharton School, Singapore Management University, Indian School of
Business, Hyderabad, Indian Institute of Management Technology, Bangalore and INSEAD.
The Economist ranked Narayana Murthy among the ten most-admired global business leaders in
2005. He topped the Economic Times list of India's most powerful CEOs for three consecutive
years – 2004 to 2006. He has been awarded the Padma Vibhushan by the Government of India,
the Légion d'honneur by the Government of France, and the CBE by the British government. He
is the first Indian winner of Ernst and Young's World Entrepreneur of the Year award and the
Max Schmidheiny Liberty prize, and has appeared in the rankings of businessmen and innovators
published by India Today, Business Standard, Forbes, Business Week, Time, CNN, Fortune and
Financial Times. He is a Fellow of the Indian National Academy of Engineering and a foreign
member of the US National Academy of Engineering.
Infosys Technologies Limited (‘Infosys’ or ‘the Company’) along with its majority owned and
controlled subsidiary, Infosys BPO Limited (‘Infosys BPO’) and wholly-owned and controlled
subsidiaries, Infosys Technologies (Australia) Pty Limited (‘Infosys Australia’), Infosys
Technologies (China) Co. Limited (‘Infosys China’), Infosys Consulting Inc (‘Infosys
Consulting’), Infosys Technologies S. de R. L. de C. V. (‘Infosys Mexico’), Infosys
Technologies (Sweden) AB (‘Infosys Sweden’), Infosys Tecnologia DO Brasil LTDA (‘Infosys
Brazil’) and Infosys Public Services Inc, USA (‘Infosys Public Servies’) and controlled trusts is
a leading global technology services corporation. The group of companies (‘the Group’) provides
end-to-end business solutions that leverage technology thereby enabling clients to enhance
business performance. The Group provides solutions that span the entire software lifecycle
encompassing technical consulting, design, development, re-engineering, maintenance, systems
integration, package evaluation and implementation, testing and infrastructure management
services. In addition, the Group offers software products for the banking industry, business
consulting and business process management services.

Table showing Earnings & Prices

2007-08 2006-07 2005-06 2004-05 2003-04
Book Value 126.58 78.8 59.51 91 73.14
Market Value -
Market High 7,180.00 3,180.00 1,694.00 2,045.25 1,617.00
Market Low 990.25 1,118.00 901.00 1,012.40 154.00
EPS 147.13 53.56 50.38 55.8 42.06
DPS 10.00 10.00 8.00 8.00 6.00
 Table showing Pay Out Ratio
2007-08 2006-07 2005-06 2004-05 2003-04
EPS 147.13 53.56 50.38 55.8 42.06
DPS 10.00 10.00 8.00 8.00 6.00
Payout Ratio
(%) 6.80 18.67 15.88 14.34 14.27

Average DPOR-13.99

Table showing ROE

2007-08 2006-07 2005-06 2004-05 2003-04

Net worth 542.04 340.82 283.66 229.19 167.92

PAT 191.75 70.47 66.03 72.84 54.9
ROE (%) 35.38 20.68 23.28 31.78 32.69
Average ROE = 28.76

Table showing P/E Ratio

2007-08 2006-07 2005-06 2004-05 2003-04
Share Price
High 7,180.00 3,180.00 1,694.00 2,045.25 1,617.00
Low 990.25 1,118.00 901.00 1,012.40 154.00
EPS 147.13 53.56 50.38 55.8 42.06
P/E 27.77 77.39 25.75 27.4 21.05
Average P/E = 35.87

Table showing Rate of Growth (%)

2007-08 2006-07 2005-06 2004-05 2003-04

Sales 90.08 9.71 14.71 22.84 19.06

PAT 172.09 6.72 -9.35 32.68 50.12

EPS (Rs) 147.13 53.56 50.38 55.8 42.06

DPS (Rs) 10.00 10.00 8.00 8.00 6.00

Table showing Ratios

2007-08 2006-07 2005-06 2004-05 2003-04
Current Ratio 2.78 2.23 2.59 2.38 1.74
 Debt Equity Ratio 0.28 0.44 0.23 0.28 0.25
Net Profit Margin (%) 25.94 17.99 18.12 22.97 21.18

Table showing Intrinsic Value Calculation

Average DPOR for 5 years 13.99
Average Retention Ratio
1-0.1399 86.01%
Average ROE 28.76
Normalized Average P/E Ratio 35.87
Long-term growth rate in dividend and earnings
Average Retention Ratio * Average ROE 24.73
Projected EPS 147.13*0.2473 183.52
Intrinsic Value 183.52*35.87 6582.86
Projected DPS 10*(1+0.2473) 12.47

PERFORMANCE AND OPERATIONS REVIEW

During the year, Divi’s achieved a turnover of Rs.72442 lakhs as against Rs.
38111 lakhs during the previous year reflecting a growth of 90%. As has been the norm for
NPIL, exports constituted 93% of total turnover and exports to advanced markets comprising
Europe and America accounted for 75% of business. Other Income earned during the year stood
at Rs.1361 lakhs as against Rs. 1062 lakhs in the previous year. Expenses for the year included a
charge of Rs.2411 lakhs on account of stock options granted to employees. Profit after Tax
(PAT) grew by about 172% to Rs.19174 lakhs as against Rs. 7047 lakhs during the previous
year. Earnings Per Share for the year works out to Rs.147.54 per share as against Rs. 54.98 last
year on absolute basis and to Rs.147.13 per share as against Rs. 53.56 last year on diluted basis.
Financial condition

1. Share capital
At present, Infosys has only one class of shares – equity shares of par value Rs. 5/- each.
Authorized share capital is Rs. 300 crore, divided into 60 crore equity shares of Rs. 5/- each. The
issued, subscribed and paid up capitals as at March 31, 2010 and March 31, 2009 were Rs. 287
crore and 286 crore respectively.
2. Reserves and surplus
Capital reserve
The balance as at March 31, 2010 amounted to Rs. 54 crore. The addition to capital reserve
account of Rs. 48 crore during the year is on account of transfer of profit on sale of investments
in On Mobile Systems Inc, U.S. of Rs. 48 crore, which is included in the net profit.
Share premium
The addition to the share premium account of Rs. 97 crore during the year is primarily on
account of premium received on issue of 9,95,149 equity shares, on exercise of options under the
1998 and 1999 Stock Option Plans of Rs. 87 crore. An amount of Rs. 10 crore (Rs. 10 crore in
the previous year) was credited to the share premium account arising due to tax benefits in
overseas jurisdiction of deductions earned on exercise of employees' stock options, in excess of
compensation charged to the Profit and Loss account.
General reserves
An amount of Rs. 580 crore representing 10% of the profits for the year ended March 31, 2010
(previous year Rs. 582 crore) was transferred to the general reserves account from the Profit and
Loss account.
Profit and Loss account
The balance retained in the Profit and Loss account as at March 31, 2010 is Rs. 13,806 crore,
after providing the interim and final dividend for the year of Rs. 573 crore and Rs. 861 crore and
dividend tax of Rs. 240 crore thereon. The total amount of profits appropriated to dividend
including dividend tax was Rs. 1,674 crore, as compared to Rs. 1,573 crore in the previous year.

Shareholder funds
The total shareholder funds increased to Rs. 22,036 crore as at March 31, 2010 from Rs. 17,809
crore as of the previous year end. The book value per share increased to Rs. 384.01 as at March
31, 2010, compared to Rs. 310.90 as of the previous year-end.
3. Fixed assets
Capital expenditure
We incurred a capital expenditure of Rs. 581 crore (Rs. 1,177 crore in the previous year)
comprising additions to gross block of Rs. 787 crore offset by a decrease of Rs. 206 crore on
account of decrease in capital work-in-progress. The entire capital expenditure was funded out of
internal accruals.

4. Investments
We made several strategic investments aimed at procuring business benefits and operational
efficiency for us. During the year, the Company sold 32,31,151 shares of OnMobile Systems Inc,
U.S., for a total consideration of Rs. 53 crore, net of taxes and transaction cost.
5. Sundry debtors
Sundry debtors amounted to Rs. 3,244 crore (net of provision for doubtful debts amounting to
Rs. 100 crore) as at March 31, 2010, compared to Rs. 3,390 crore (net of provision for doubtful
debts amounting to Rs. 105 crore) as at March 31, 2009. These debts are considered good and
realizable. Debtors are at 15.3% of revenues for the year ended March 31, 2010, compared to
16.7% for the previous year, representing a Days Sales Outstanding (DSO) of 56 days and 61
days for the respective years. Our largest client constituted 2.8% of sundry debtors as at
March 31, 2010.

6. Loans and Advances

Loans and advances as of 31st March, 2010 amounted to Rs.46 crore as against
Rs. 51 crore during the previous year.

7. Current Liabilities & Provisions

Current Liabilities and provisions as of 31st March, 2010 amounted to Rs.1763

crore as against Rs. 1507 crore during the previous year.
Debt-Equity Ratio

Debt-equity ratio as of 31st March, 2008 is at 0.28, based on total debt, as against
0.44 during the previous year.

Sales Turnover:

Divi’s has achieved a turnover net of taxes/duties of Rs. 72442 lakhs as compared
to Rs. 38111 lakhs during the previous financial year, reflecting an impressive growth of 90%.

Profit after Tax

Profit after Tax during the year declined by 0.3% to Rs.5803 crore from Rs. 5819
crore during the previous year.

Earnings per Share

Basic EPS declined by 1.3% during the year to Rs.100.37 per share from Rs.101.65 per share in
the previous year. Diluted EPS is Rs. 57, 11, 16,031 during the year from Rs. 57, 34, 63,181 in
the previous year.

TECHNICAL ANALYSIS
Technical Analysis is a process of identifying trend reversals at an earlier stage to formulate the
buying and selling strategy. With the help of several indicators they analyse the relationship
between price-volume and supply-demand for the overall market and the individual stock.
Volume is favourable on the upswing i.e. the number of shares traded is greater than before and
on the downside the number of shares traded dwindles.
Technical analysis is a method of evaluating securities by analyzing the statistics
generated by market activity, such as past prices and volume. Technical analysts do not
attempt to measure a security's intrinsic value, but instead use charts and other tools to
identify patterns that can suggest future activity.

Just as there are many investment styles on the fundamental side, there are also many
different types of technical traders. Some rely on chart patterns, others use technical
indicators and oscillators, and most use some combination of the two. In any case,
technical analysts' exclusive use of historical price and volume data is what separates
them from their fundamental counterparts. Unlike fundamental analysts, technical
analysts don't care whether a stock is undervalued - the only thing that matters is a
security's past trading data and what information this data can provide about where the
security might move in the future.

The field of technical analysis is based on these assumptions

1) The market value of the scrip is determined by the interaction of supply and demand.
2) The market discounts everything.
3) The market always moves in trend
4) Any layman knows the fact that history repeats itself.

The market discounts everything

A major criticism of technical analysis is that it only considers price movement, ignoring
the fundamental factors of the company. However, technical analysis assumes that, at
any given time, a stock's price reflects everything that has or could affect the company -
including fundamental factors. Technical analysts believe that the company's
fundamentals, along with broader economic factors and market psychology, are all
priced into the stock, removing the need to actually consider these factors separately.
This only leaves the analysis of price movement, which technical theory views as a
product of the supply and demand for a particular stock in the market.

The market always Moves in Trends

In technical analysis, price movements are believed to follow trends. This means that
after a trend has been established, the future price movement is more likely to be in the
same direction as the trend than to be against it. Most technical trading strategies are
based on this assumption.

History repeats itself.

Another important idea in technical analysis is that history tends to repeat itself, mainly
in terms of price movement. The repetitive nature of price movements is attributed to
market psychology; in other words, market participants tend to provide a consistent
reaction to similar market stimuli over time. Technical analysis uses chart patterns to
analyze market movements and understand trends. Although many of these charts
have been used for more than 100 years, they are still believed to be relevant because
they illustrate patterns in price movements that often repeat themselves.

Not Just for Stocks

Technical analysis can be used on any security with historical trading data. This
includes stocks, futures and commodities, fixed-income securities, forex, etc. Moreover
these concepts can be applied to any type of security. In fact, technical analysis is more
frequently associated with commodities and forex, where the participants are
predominantly traders.
 BASIC TYPES OF PRICE CHARTS

Price charts provide the fundamental building block in the analysis of market action. The use of
charts and technical indicators provide the average investor with the only real edge available in
trading the markets.

As you become familiar with viewing and using charts, readily identifiable patterns will become
apparent that can immediately give you a good notion of the profit potential for a particular
stock, mutual fund or commodity. See the discussion of the use of Trendlines and Three Simple
Rules.

The following basic types of price charts are the most commonly used. These charts provide the
"background" or "foundation" for most of the common indicators. In most cases indicators are
shown superimposed on the price chart itself or in a separate chart below the price chart. Most of
the analytical tools compare the action of an indicator against that of the price.

Bar: each bar represents a day's trading showing the lowest

to highest price, open & close. This is the most common
type of chart used. Time is factored into the price
movements. Volume charts often accompany bar charts.

Line: the line represents the closing prices only

for a given time. This tends to smooth out daily
fluctuations in price, sometimes giving a better
picture of the overall trend.
Point and figure: shows price changes with X
columns for rising prices and O columns for
declining prices. Unlike the other basic charts,
time itself is not a factor. Point and figure charts
plot only the direction of a price move and the
change in value. Proponents believe this gives
them a clearer view of the underlying actions of
supply and demand.
Candlesticks: use a wider bar to represent the
difference between open and closing prices - black
for a decline and white for a rise. Patterns of black
versus white (declining vs rising markets) readily
become apparent with candlestick charts.
Bar Chart: This is likely the most common type
of chart used. Bar charts simply plot the change in
price over time (daily, weekly, monthly or minute-
by-minute).

Chart Scales: Charts are graphed using two common types of scales: the arithmetic or linear
scale and the logarithmic scale. There doesn't appear to be any overall benefit to using one over
the other; trendlines, market patterns and indicators work with both of them. However, there may
be a benefit to using the logarithmic scale for long-term charts (2-3 years or more) since
trendlines tend to fit better.

1) Arithmetic (linear): chart scale that shows equal vertical distance for each unit of price change.

2) Logarithmic: chart scale that shows equal vertical distance for equal percentage moves;
considered by some as more effective for long range trend analysis.
BREAKOUT SIGNALS

A BREAKOUT IN PRICE THROUGH A LONG ESTABLISHED TREND LINE IS

ALWAYS SIGNIFICANT.

Overview

• When a price breaks out of a stable, established range, for whatever reason, the odds are high
that it will continue to move in the same direction
• The longer the trend, the greater the potential move
• An upward surge in trading activity, or volume, confirms the validity of the breakout.
• When the volume does not show a significant increase on the upside price breakout, the
price pattern should be questioned.

Interpretation

The breaking of an important trendline is often the first sign of an impending change in trend,
which is only sometimes a trend reversal. The breaking of a major upward trendline might signal
the beginning of a sideways price pattern, which would be identified as a reversal or
consolidation type later.

The stronger the trendline broken the more significant. Historically we know that if a strong or
"well-tested" trendline is broken and the price moves out of an established range something
important has happened to the psychology of the marketplace. We may not know what it is; it
will probably be a combination of influences or events. But, whatever the reasons, any pull
strong enough to break a long term trendline and carry the price into new ground is usually
strong enough to continue pulling the market in the new direction to establish a new trendline.

The odds that a market will continue in the direction of a breakout are high but, of course, there
are no guarantees. Remember, this is not a golden rule; it is a pattern which has been repeated
many, many times in the past and will be repeated many more times in the future. It gives us
something tangible to look for when considering the hundreds and thousands of potential trades
we could enter into.

BREAKOUT VALIDITY

Not every move out of the price pattern constitutes a valid signal of a trend reversal, or
resumption if the price is in a narrow trading range. It's helpful to establish valid criteria to
minimize the possibility of misinterpreting moves such as whipsaws. A wait for a 3 percent
penetration of the boundaries is traditionally necessary before determining that the breakout is
valid. The resulting signals are less timely, but a considerable number of misleading moves are
removed.

However, many short-term price movements barely exceed 3 percent in total. In short term trades
it will be difficult to make a profit if you wait for a 3 percent move to buy, and an additional 3
percent decline for a breakdown to sell. The 3 percent rate works well for longer-term price
movements where the fluctuations are much greater. Deciding whether a breakout is valid or not
depends on the type of trend being monitored, volume, momentum characteristics and your own
experience.
An upward surge in trading activity, or volume, confirms the validity of the breakout. A low
volume breakout is suspicious and should be disregarded. Increasing volume is not as essential
for a valid signal with downside breakouts, as it is for an upside breakout. Prices will often
reverse and put on a small recovery, following the downside breakout. This price increase is
regularly accompanied by declining volume.

DOW THEORY
Dow Theory is based on the philosophy that the market prices reflect every significant factor that
affects supply and demand - volume of trade, fluctuations in exchange rates, commodity prices,
bank rates, and so on. In other words, the daily closing price reflects the psychology of all
players involved in a particular marketplace - or the combined judgment of all market
participants.

The goal of the theory is to determine changes in the major trends or movements of the market.
Markets tend to move in the direction of a trend once it becomes established, until it
demonstrates a reversal. Dow theory is interested in the direction of a trend and doesn't offer any
forecasting ability for determining the ultimate duration of a trend.

Much of today's technical analysis is based on Dow's original "trend following' system -

• Classification of a trend
• Principles of confirmation or divergence
• Use of volume to confirm trends
• Use of percentage retracement
 • Recognition of major bull and bear markets
• Signaling the large central section of important market moves
• Dow theory has been successful in identifying 68% the major trends over the years

The three trends are:

• Uptrend: successively higher peaks (highs) and higher troughs (lows)

• Downtrend: successively lower peaks and troughs
• Sideways Channel: peaks and troughs don't successively rise or fall Each market trend
has three parts compared to tides, waves and ripples

• The primary (major) trend or tide is a long term trend lasting from a year to several
years

• The secondary trend (or mid-term trend) or wave lasts three weeks to three months and
represents corrections of one third to two thirds of the previous movement - most often fifty
percent of the movement.
• The minor trends (short-term trends) or insignificant ripples last less than three weeks
and represent fluctuations in the secondary trend.
 The major trend has three phases:

• Accumulation phase: knowledgeable investors buy issues with good potential

• Public Participation phase: Prices increasing rapidly and bullish markets are reported
• Distribution phase: Astute investors sell first, thereby leading the public

A Major or Long-term Stock Market Trend:

• Must be confirmed by the Dow Averages, calculated on closing prices only, not the daily
high or low (this provides the overall stock market trend)
• Should have volume increase/decrease in the direction of the trend
• Stays in effect until it gives definite reversal signals

Shortcomings of the Dow Theory:

• The major criticism of the Dow Theory is its slowness: It misses about 25% of a move
before giving a signal, primarily because it is a trend following system designed to identify
existing trends.
 TRENDLINES

TRENDLINES ILLUSTRATE THE DIRECTION OF THE MARKET MOVEMENT AND

PROVIDE A PRIMARY CONSIDERATION IN ANY ANALYSIS

• Uptrends consist of a series of successively higher highs and lows.

• Downtrends consist of a series of successively lower highs and lows.

Prices can only go in three directions; up, down, and sideways. A long line of past price ranges
together gives us a pattern. There will be plenty of dips and bumps along the line but you should
still be able to discern a general direction up, down, or sideways. We can help spot this direction
or trend by drawing in "trendlines".

2006 2007

Drawing trendlines during an up trending market: The trendlines above have been drawn by
connecting as many successive lows as possible (along the bottom of the price range). An up
trending trendline represents major support for prices as long as it is not violated.
 2006 2007

Trendlines connecting highs can also be drawn to indicate the top of the established trend or
channel (blue lines). These trendlines indicate the major zones of resistance. Drawing trendlines
in a down trending market. Down trending trendlines are drawn by connecting the successive
highs.

Trends can push and pull the price up or down. Markets can also enter a period of quiet stability
where the price forms a horizontal line sideways across the page. A sideways trending market is
normally a difficult market to trade for a profit. It can, however, set the stage for a sharp move
once the sideways trend is broken (signalled by a price break through a well-established
trendline).

A sideways pattern represents stability between supply and demand in the marketplace.
Trendlines in this type of market, often referred to as a narrow trading range or congestive phase,
are drawn by connecting both the highs and lows. Prices In this type of market can break upward
or downward so it is valuable to establish the top and bottom of the range (see the report on
Breakout signals)

Support and Resistance

An important concept in the use of trendlines is that of support and resistance. A continued trend
is based on underlying support for prices in the market, for whatever reason. Similarly, there’s
resistance to higher prices built into the market. The trendline is one way to capture and illustrate
these zones of support and resistance.

As long as the market stays within these zones of support and resistance, as shown by a
trendline, the trend is sustained. Any penetration through a trendline warns of a possible change
in trend. We may not know the reason behind such a change, but we do know that for some
reason the support or resistance for a market is changing.

6000

5500

5000

4500
The Rhino Theory of Support and Resistance: The upper and lower trendlines contain the
price the way a barbed wire fence might contain a rhino. Think of the prices as the rhino and the
trendline as a barbed wire fence. If a rhino leans against the wire, the fence will give a bit,
offering more and more resistance until either the rhino eases off or the wire snaps. If the rhino
has wandered along and leaned against the fence in several places without breaking through, we
will have more faith in the strength of the fence.

If the rhino only leaned against the fence once before moving along, it is less meaningful. In
charting practice, a line based on one high or one low means nothing. Two highs or lows is the
bare minimum. The more points you can connect the more significant the resulting line. And, the
more significant the trendline, the more significant any penetration will be.

Round numbers

Another aspect of resistance and support concerns the round numbers associated with price
levels, such as 10, 20, 25, 50, 75 and 100. Since the price reflects the psychology of the
marketplace, these levels offer “natural boundaries or targets.” With resistance and support
common along these levels, it makes sense to avoid placing orders right at these values. (If
buying on a short term dip in an uptrend, you’d place your order just above an important round
number). It also makes sense to place stop loss orders below the round numbers on long
positions, rather than exactly on the round number (i.e. Rs 4.90 rather than 5.00).

Duration of Trend

Short term trends are established over a few days. It may be in any direction and has little
potential over the long run (except if you’re a day trader). A strong thrust, however, may indicate
the beginning of a move into new ground. Particularly if it crosses a medium or long term trend
line. Think of it as an early warning system; a sign to be prepared for a larger move.
Short term trend -- always the current trend. It may not necessarily be in the same direction as
the mid or longterm trend.

Medium term trend -- a trend that occurs over weeks to 2 or 3 months. All big moves must start
with a short term thrust building to a medium term trend.

Long term trend -- a trend over three months is considered a long term trend. Long term trends
show stability.

Any trend which has continued unbroken for over 3 months is considered to be a long term trend,
and of some significance. This is the trend to trade with in the majority of cases. It can be
thought of as the driving force behind the price and, until a fundamental change occurs in the
marketplace, it will continue to do so.

Signals

Signals are generated primarily when trendlines are broken. A particularly strong signal is
generated any time a long term trendline is broken.

Some traders also use the price “bouncing” off a trendline as a signal. If an upward trendline
holds, for example, you may have a buying opportunity at a relatively low price. If the price is in
a well-established channel, the other side of the channel can give you an approximate price
target.
 2007

Triangle Patterns

Triangles provide one of the most useful price pattern indicators. The odds favour a continuation of
the trend following a breakout from the triangle pattern.

• When the top and bottom trendlines form a triangle a valuable indicator is formed, often
forecasting a sharp subsequent movement when the price breaks out.
• The wider the price fluctuations within the triangle, and the longer the triangle pattern
holds, the greater the following price change.
• Good triangles are an intermediate pattern, taking from one to three months to form.

Triangle patterns usually form part way through a strongly trending move and represent a
congestive phase in the marketplace. These patterns are important because they are typically
followed by sharp increases or declines in price. An established triangle pattern is a valuable
signal prior to a relatively predictable price change.

The vertical line measuring the height of the pattern becomes the base of the triangle. The apex is
the point of intersection where the two lines meet. There are typically 3 common types of
triangles - symmetrical, ascending, and descending:
Symmetrical Triangle

The symmetrical triangle is formed by two converging trendlines encompassing at least two or
more rallies and reactions with a breakout following the original trend. It is also called a coil
because fluctuation in price and volume decrease until both react sharply, like an unsprung coil.

To complete the pattern, volume should pick up noticeably at the penetration of the trendline

Ascending Triangle (Right Angle)

The symmetrical triangle is a neutral pattern, whereas the ascending right triangle is bullish and
the descending right triangle is bearish. The ascending triangle has a rising lower line with a flat
or horizontal upper line, indicating that buyers are more aggressive than sellers. This bullish
pattern usually results in an upward breakout.

This breakout should have a sharp increase in volume and the upper resistance line should act as
support on subsequent dips after the breakout. The minimum price target is equal to the height of
the base of the triangle measured upward from the breakout point.
The ascending triangle sometimes also appears as a bottoming pattern. Frequently, an ascending
triangle will develop toward the end of a downtrend.. Again, the pattern is considered bullish.
When demand remains weaker than supply, a bearish ascending pattern may form and is
confirmed with a breakout on the downside on good volume.

Descending Triangle (Right Angle)

The descending triangle is a flipped over ascending triangle with a flat bottom line and a
declining upper line. A close under the lower trendline, usually on increased volume, resolves
the pattern to the downside as bearish. Volume is less important on the downside than on the
upside.If a rally occurs it usually meets resistance at the lower trendline. The descending triangle
can also be found at the top of a market.
 REVERSAL PATTERNS
(Tops and Bottoms)

Reversal patterns, or tops and bottoms, signify a fundamental change in the long
term trend.

Overview

• Tops are usually less stable and shorter than bottoms.

• Bottoms usually have smaller price variations and are slower to establish.
• Volume is usually more important on the upside.
• Confirmation of a top or bottom is in a double top or bottom (or a short channel.)

The most popular Reversal Patterns include: head and shoulders, double tops and bottoms, triple
tops and bottoms, and V-formations.

Interpretation & Signals

Head & Shoulders

The well known head and shoulders pattern is formed by three peaks; the center peak, or head, is
slightly higher than two lower, and not necessarily symmetrical, shoulders. The line joining the
bottoms of the two shoulders is called the neckline. Due to fluctuations, the neckline is rarely
symmetrical or perfectly horizontal. The pattern isn't complete until the neckline is broken. It is
often good to wait for confirmation - for example, two successive closes below the neckline.
Remember, markets often bounce back to the Neckline after the breakout and this becomes a
new level of resistance.

Volume should be assessed to confirm the validity of these patterns. Volume is normally
heaviest during the formation of the left shoulder and also tends to be quite heavy as prices
approach the peak. The real confirmation of a developing Head and Shoulders pattern comes
with the formation of the right shoulder, which is invariably accompanied by distinctly lower
volume.

Some traders use the distance between the neckline and the top of the head to project a "price
objective." The price objective is determined by measuring from is the top of the head to the
neckline, and using this distance from the breakout point downwards.An Inverted Head and
Shoulders pattern is a mirror image of the Head & Shoulders pattern (forming a market bottom).

Double Tops are another reliable and frequently used reversal pattern. This pattern consists of
two tops of approximately equal height. A line is drawn below and parallel to the resistance line
that connects the two tops. The neckline is a strong support for price level but eventually fails.

As with a Head and Shoulders, after the two rallies and their respective reversals are completed
the double tops is confirmed only when the neckline is broken. The support line then becomes a
resistance line, which often holds a market rebound.

A Double Bottom pattern is a mirror image of a double top pattern: The average height of the
bottoms gives a good indication of the price objective.
Triple Top

A tnple top is a cross between a head and shoulders and double top. This formation consists of
three tops of approximately equal height. A line is drawn below and parallel to the resistance
line that connects the three tops. The neckline is a strong support for price level but eventually
fails. The support line then becomes a resistance line, which usually holds any market rebound.

Triple Bottom

A triple bottom pattern is a cross between an inverted head and shoulders and double bottom
pattern.

V- Pattern

The V pattern is an unusual pattern in that a sharp trend switches from one direction to the other
without warning and with high volume at or just after the turn around.

Further points

Trend reversals offer some of the most important opportunities for entering a market with a good
profit potential. They usually represent fundamental changes in the underlying character of a
particular market and often go on to yield big moves.

However, a market top or bottom is often difficult to identify. It is even more difficult to
choose appropriate entry and exit points. One problem is distinguishing between an actual
change in trend or merely a congestive phase in the middle of a move. It is usually advisable to
wait for prices to actually confirm a trend reversal by developing one of these well-tested and
reliable reversal patterns. The actual buy or sell signals are based on a breakout in the direction
of the new trend.

Here are some general observations about Reversal patterns:

• A breakout through a trend line is used in conjunction with a price pattern to yield
signals in terms of both price level and timing.
• The longer the time required to form a pattern and the greater the price fluctuations within it,
the more substantial the coming price movement is likely to be. The time frame is normally
from several days to several months - intraday patterns are not considered reliable.

Candlestick Patterns

Overview

Candlestick charting has been in use in Japan for the last 300 years and has received world wide
recognition. Each candlestick is composed of four values, the high, low, open and close. The
advantage to this form of charting is that it provides more visual information about the trading
day as well as many trading signals to help decision making.

The body of the candlestick (or jittai) is the open and the close of the trading day. The high and
the low of the day create the upper and lower shadows of the main candle body.
Types of Candles

With candlestick charting, there is quite a lot of terminology and meaning towards the types of
patterns encountered. Significance is given to the size ot the shadows, the size of the candles as
well as the pattern the candles form.

A marabozu, or "shaved head", is a candlestick with no

shadows. This is where the open and close prices are similar to the high and low.
An opening bozu in a white candlestick is when there is no lower shadow (opens at the low) and
in the case of the black candlestick an opening bozu has no upper shadow (opens at the high).

A closing bozo in a white candlestick is when there is no upper shadow (it closes at the high)
and in a black candle a closing buzo is when there is no lower shadow (it closes at the low).

Doji

A Doji candlestick is one of the more common candlesticks. The Doji signifies a balance of
buyers and sellers and shows an indecisiveness in the price. Doji's are not very significant by
themselves, but if a Doji occurs after a large candle a stronger signal is generated (see bullish and
bearish patterns).

Size of Candles
 The size of the candlestick gives the trader an indication of buying
(white candle) or selling (black candle) pressure. The larger the
candle, the more buying and selling pressure, short candlesticks on
the other hand represent a period of consolidation and weak buying
or selling pressure.

Size of Shadows

Upper shadows represent buyer action which

pushes the price up. Lower shadows represent
seller action which pushes the price down.

The size of the shadows tells us the amount of

price action that occured during the day as well as
the activity of buyers and sellers.

Short shadows show a balance of buyers and

sellers (a consolidation).

If both shadows are short (as well as the candle),

this represents a weak trading day where prices
had little movement. This shows a balance of
 sellers and buyers. If there is low volume with a
short small candle, this shows a weak market day.

Candles with a long upper shadows and a small

lower shadow represents a trading day were the
buyers forced the price up during the trading day
but sellers later won.

Candles with long lower shadows and small upper

shadows signifies that the sellers dominated the
opening while the buyers pushed the price up at
the end of the session.
"Wait and See" Candlestick Patterns
Certain signals give the trader an indication of a weak market or period of consolidation; these
patterns are referred to as wait and see patterns. Avoiding these situations can help traders avoid
unnecessary exposure until a clear trend has formed.

Komas or spinning top

This pattern refers to the idea that "the trend is not quite sure where to go". In this pattern the
price did not move much and therefore shows a period of indecision/consolidation. Buyer and
seller activity was equally matched throughout the trading day and neither the buyers or sellers
have established a trend.

Tonbo or dragonfly
This indicates a sign of trend reversal, yet it still may move either way. The tonbo or dragonfly
differ from the hangman and hammer in that the open and close are the same. In a hammer or
hangman there is a candle body.

! The tonbo or dragonfly differ from the hangman and hammer in that the open and close are the
same.

Harami candlestick

The harami is a two day candle pattern. The first day of the pattern consists of a long bodied
candle either black or white. On the second day a short opposite candle is formed. This generates
a "wait and see" signal since it appears that the market is focused on the first large day, and on
the second is waiting for more information. This is also seen since there should be lower trading
volume on the second day.

! This pattern is often mistaken for an engulfing pattern but it is important to note the order of the
candles.

Haramiyose candlestick

This two day pattern is similar to the harami, except it indicates a reverse in trend. The first day
opens with a tall candle of either color, the second day a doji candlestick appears. The doji in this
case opens at a different price from the previous day's close.
The reasoning to wait when this signal occurs is that the market is unsure of where to go. The
third candle will help us confirm.

Hoshi (star) candlestick

The hoshi pattern has the same candlesticks as the Harami pattern, except that the second candle
gaps up.

Waiting after this pattern is prudent since there should be a short correction to help fill the gap.

Shooting Star

In the case of a shooting star, it is identical to the hoshi except it has a long upper shadow. It also
signifies a "wait and see" situation.
Waiting after this pattern is prudent since there should be a short correction to help fill the
gap. Single day bullish patterns

For the most part, daily candlestick reversal patterns are quite subjective with the exception of
the "long-legged shadows' Doji" and the "hangman and hammer" which are more commonly
used and provide more significance to the trader

Yo-Sen (single white candle)

Reliability Rating: Very Low

The easiest type of signal is the single white candlestick (yo-sen). The longer the body (jittai) the
more bullish is the candle.
The Hammer

Reliability Rating: low/moderate

The Hammer, consists of a small body (either color) with a very long lower shadow. This pattern
is typically found at the top or bottoms of trends. When the pattern occurs at the top of a up trend
it is called a hangman (when it is found at the bottom of a down trend it is called a hammer).

The hammer can be either a black or a white

candle.
Bullish Candlestick Patterns

Two day bullish patterns

Bullish Doji

Reliability Rating: moderate

A bullish Doji starts with a large black candle and then a down gapping Doji.
Since on the second day is trades within a small range, it shows many
positions have changed and potential for a reversal.

Waiting for the next day to open into a white candle would be prudent to
confirm the trend however when the bullish Doji occurs it is worthwhile
having a look.

Kirikomi or Kirihaeshi or Piercing Line candlestick pattern

Reliability Rating: Low/moderate

This two day candlestick opens with a black marubozu candlestick and is followed by a kirikomi
candlestick ( a kirikomi candlestick is a marubozu candlestick which has opened lower than the
previous low and closes above the 50% level, but below the black marubozu's opening price.)
 The first candle shows a down. On the second day, the
candle opens lower than the previous day's low. This creates
an "overnight price gap". Typically the pattern does not
weaken further (if it does it's marginal), the market then fills
the gap.

By closing above the 50% level, the kirikomi candlestick is

considered a stong bullish signal.

Bullish Belt Hold

Reliability Rating: Low

The bullish belt hold pattern is when a white candle occurs in a

downtrend with no lower shadow and opens at a new low. This
pattern shows a rally from the buyers towards the end of the
trading session and gives some indication of a potential trend
reversal.

Bullish Meeting Lines

Reliability Rating: Moderate

The first candle in this pattern is a black candle, the second day a white candle gaps open with a
lower body closes at the same price as the previous black candle. This signifies that the price has
hit resistance and a short uptrend should ensure.
Bullish Kicking Pattern

Reliability Rating: High

This pattern consists of a black marabuzo followed by a gapped up white marabuzo.

This pattern is a strong sign that an uptrend will ensue.

The major trend is not as important with this pattern as
with other patterns and is considered a highly reliable
signal

Bullish Engulfing Pattern (Bullish Tsutsumi)

Reliability Rating: Moderate

This pattern composes of "a second day long white candlestick that opens lower and closes
higher than the preceding small black body."
 The name comes from the idea that the white candle "engulfs" the black
candle. This can also be know as a "bullish key reversal" and is a signal
to reverse and go bullish.

It is common to see a neutral period follow this pattern since it takes

time for the market to react to the large one day movement.

Bullish Tasuki Candlestick

Reliability Rating: Low

The bullish tasuki candlestick comprises of "a long black candlestick that opens within the range
of the previous day's long white body, and closes marginally below the previous day's low".
(Candlesticks do not have to have long bodies if the two days ranges are about the same size).
The second day of the formation, the candle opens lower than the previous close. (This black
candle occurs in an otherwise uptrending market). This move can be interpreted as profit taking.
At this point, the profit taking during an uptrend where the bullish tasuki occurs

Upside Gap Tasuki Candlestick

Reliability Rating: Moderate

The upside gap tasuki is "a second day black candle that closes an overnight gap opened on the
preious day by a white candle."

The pattern is similar to a common gap. It provides a

short term opportunity to sell to fill the gap. The
filling of the upside gap is an indication that the
uptrend will resume.

Three day bullish patterns

Bullish Sanpei (three parallel candlesticks / three soldiers)

Reliability Rating: high

This pattern is intented to singal either a trend reversal or the trend continuation. It consists of
three white candlesticks of similar increments and size. It signifies a continuation of the trend.

If the second and third day candlesticks open at or above the midrange of the previous day, this
signifies that the trend will continue.
Three River Morning Doji Star

Reliability Rating: High

This pattern start with a long black candle (part of a downtrend), it is followed by a gap down
doji and finally on the third day a white candle is formed with a gap up.

This pattern shows a potential rally. Many positions have changed for
seller to buyer in this instance. It is the third white candle where the
bullish signal can be confirmed. Be concious of the gaps since this will
give you information as to the strength of the signal.

Three River Morning Star

Reliability Rating: High

The three river morning star is the opposite of the three river evening star, this is it's bullish
equivalent.
Complex Bullish patterns

Bullish Sanpo (rising three methods)

Reliability Rating: high

The idea behind the sanpo pattern is that no price movement moves straight up or down, there
always exists some retracement before the movement makes a new high or low. Therefore this
pattern is to indicate whether a trader should "pause" during the trend (a short term consolidation
will occur with a direction opposite to that of the major trend).

Bullish Formation (rising three methods)

Bullish Breakaway

Reliability Rating: Moderate

This is a multiple day pattern. It starts with an established downtrend. On the second day the
stock gaps down with a smaller black candle. On day 3 and 4 the candles are small but closing
downward. On the last day of the pattern a large white candle is formed.

In this pattern, day 4 in not necessary, an equally valid pattern is

where days 1,2,3, and 5 occur.

This only shows the potential for a short term breakout and does not
give indication about the strength of the breakout

Bearish Candlestick Patterns

Single day bearish patterns

For the most part, daily candlestick reversal patterns are quite subjective with the exception of
the "long-legged shadows' Doji" and the "hangman and hammer" which are more commonly
used and provide more significance to the trader.

In-Sen (single black candle)

Reliability Rating: Very Low

The easiest type of signal is the single black candlestick (in-sen). The longer the body (jittai) the
more bullish is the candle.
The Hangman

Reliability Rating: low/moderate

The hangman (karakasa, or paper umbrella), consists of a small body (either color) with a very
long lower shadow. This pattern is typically found at the top or bottoms of trends. When the
pattern occurs at the top of a up trend it is called a hangman (when it is found at the bottom of a
down trend it is called a hammer).

The hangman can be either a black or a white

candle.
Long-legged shadows' doji candlestick

Reliability Rating: moderate

This candle has no body, the open and the close is identical. This signal shows that the trend has
run it's course and it will reverse. The trend will reverse quickly after this signal occurs. It is
considered a reliable signal.

Bearish Candlestick Patterns

Two day bearish patterns

Bearish Doji

Reliability Rating: moderate

 A bearish Doji starts with a large white candle and then an up gapping
Doji. Since on the second day is trades within a small range, it shows
many positions have changed and potential for a reversal.

Waiting for the next day to open into a black candle would be prudent to
confirm the trend however when the bearish Doji occurs it is worthwhile
having a look.

Bearish Belt Hold

Reliability Rating: Low

The bearish belt hold pattern is when a black candle occurs in an uptrend
with no upper shadow and opens at a new high. This pattern shows a rally
from the sellers towards the end of the trading session and gives some
indication of a potential trend reversal.

Dark Cloud Cover (Kabuse Candlestick)

Reliability Rating: Moderate

The dark cloud cover (Kabuse candlestick) has an white candle followed on the second day by a
black candlestick that opens at a higher price. The black candlestick should open approximately
half way up the white candle's body. It is the black candle which negates the previous day's
movement that gives the pattern it's name, a dark cloud cover (or kabuse candlestick). This
pattern is considered a bearish reversal (sell).
Atekubi (Ate) Candlestick

Reliability Rating: Low

The atkubi candlestick's second day small white candle which has opened lowed than the
previous day's low and then closes at a high. Typically the volume is lower and the current close
at the high is only equal to the previous day's low. This signal is seen most often in a down trend
and the appearance of this signal indicates the down trend will continue.
Irikubi Candlestick

Reliability Rating: Low

The irikubi candlestick is a modified atekubi candlestick, the difference is that the white
candlestick's high can be marginally higher than the black candlestick low. This pattern is
bearish an indicates futher selling ahead.

Sashikomi Candlestick

Reliability Rating: Low

The sashikomi candlestick is a alteration of the irikubi candlestick. This is where the white
candle opens lower than the black candle's low, and closes at the daily high. This is considered a
bearish signal.
Bearish Engulfing Pattern (Bearish Tsutsumi)

Reliability Rating: Moderate

This pattern is pretty much the opposite of the bullish engulfing pattern. The first day white
candle is engulfed by the second day black candle. Volume tends to be high during this signal
and indicates a change in sentiment.

Bearish Kicking Pattern

Reliability Rating: High

This pattern consists of a white marabuzo followed by a gapped down black marabuzo.

This pattern is a strong sign that a downtrend will ensue. The major trend is not
as important with this pattern as with other patterns and is considered a highly
reliable signal

Bearish Tasuki Candlestick

Reliability Rating: Low

The tasuki pattern has a second day white candle that has opened within the body of the first day
black candle's body. The white candle then closes slightly above the black candle's low. Either
candle can have varying body sizes as long as the range of both candles are of similar size. This
pattern is found in down trends and is viewed as a period of profit taking. This is a bearish
signal.

Downside Gap Tasuki Candlestick

Reliability Rating: --

This pattern has a second day white candle that closes an overnight gap from a black candle. This
provides a very short term opportunity to buy to fill the gap, however, it has no other
significance. It is typical for the down trend to continue after this pattern occurs.

Three day bearish patterns

Bearish Sanpei (three crows)

Reliability Rating: high

This pattern is intented to singal either a trend reversal or the trend continuation. It consists of
three black candlesticks of similar increments and size. It signifies a continuation of the trend.

If the second day gap is lower followed by a third candlestick which opens above the midrange
of the second day, this is also considered bearish. (also known as a "down gap three wings").

In the last variation, each black candlestick opens at the close of the previous day. This pattern is
extremely bearish and suggests a strong down trend.
Red three candlestick advance block or Skizumari

Reliability Rating: low

If the second and third day show decreasing higher high's following a long white marubozu, the
trend is reaching it's end and signifies a sell. This sell pattern is also known as a red three
candlestick advance block or skizumari, this indicates uncertainty and it would be advised to
assume the trend will break.

Three River Evening Doji Star

Reliability Rating: High

This pattern start with a long white candle (part of a uptrend), it is followed by a gap up doji and
finally on the third day a black candle is formed with a gap down.
 The uptrend builds stength and gaps on on the second day of this
pattern. On the second day, there is a small trading range showing an
erosion of the uptrend. Finally on the third day, it gaps down and
forms a black candle. It is the third day that gives the confirmation that
the trend has reversed.

Sansen / Three Rivers / The Three River Evening Star

Reliability Rating: Moderate

The sansen is a three day pattern. The first day consists of a long white candle, followed by a
small gapped white candle and ends with a long black candle. This pattern is considered a
bearish reversal.

Other variations of the sansen are

Complex Bearish patterns

Bearish Sanpo (falling three methods)

Reliability Rating: high

The idea behind the sanpo pattern is that no price movement moves straight up or down, there
always exists some retracement before the movement makes a new high or low. Therefore this
pattern is to indicate whether a trader should "pause" during the trend (a short term consolidation
will occur with a direction opposite to that of the major trend).

Bearish Formation (falling three methods)

Bearish Breakaway

Reliability Rating: Moderate

This is a multiple day pattern. It starts with an established uptrend. On the second day the stock
gaps up with a smaller white candles. On day 3 and 4 the candles are small but closing upward.
On the last day of the pattern a large black candle is formed.
 In this pattern, day 4 in not necessary, an equally valid
pattern is where days 1,2,3, and 5 occur.

This only shows the potential for a short term breakout and
does not give indication about the strength of the breakout.

Sanzan or Three Mountains

Reliability Rating: moderate

Similar to a triple top formation, the Sanzan (or three mountains) have three peaks of all similar
height.

Buddha top formation

Reliability Rating: moderate/high

The buddha top is similar to the sanzan except that the middle mountain is highter than the other
two (head and shoulders pattern).
 POINT & FIGURE PATTERNS

Overview

Point and Figure charting differs from other charting techniques by the fact that it only requires
price for analysis, not time. It is also plotted differently by using columns and rows using price
movement only.

Point and Figure was developed towards the end of the nineteenth century. This new form of
charting was referred to as the "book method". The book method was applied by entering the
actually prices into the rows and columns however this proved to be not very popular since it
was time consuming to enter the entire price. It was upgraded by the early twentieth century into
point and figure. Unlike the book method, point and figure uses the symbol X or O to describe
the price movement rather than writing the entire price into the field.

There is also a significance given to the number three in point and figure charting. When
movements hit the support or resistance line, extra attention should be spent on the third
collision. There is also quite a few patterns where the third hit is when the signal is generated.

Due to the accuracy of the signals provided by point and figure charting, interest in this form of
analysis is continuously growing.

Point and Figure patterns can be categorized by "bearish", "bullish", "reversal", and "wait
and see" (trend continuation).

Andrews' Pitchfork

The lines formed by Andrews' Pitchfork can help predict channels of support and
resistance in a trending market.

Overview

• Andrews' Pitchfork is a method of channel identification in a trending market.

• This technique, in effect, splits a major channel into two minor equidistant channels.
 • The lines in the Pitchfork tend to delineate lines of support and resistance.

Andrews' Pitchfork was developed by Dr. Alan Andrews, based on what he called his
"Action/Reaction" techniques. Originally called the "Median Line Study," this pattern is based
on a set of lines drawn from peaks and valleys on a price chart. When linked together, the
arrangement of lines closely resembles a farmer's pitchfork.

Dr. Andrews' median lines, and the pitchfork pattern, often indicate lines of support or resistance
where prices tend to stall out or reverse.

Interpretation

Andrews' Pitchfork is plotted on a price chart as follows:

1. First, identify a significant reversal point (high or low) and this becomes Pt. A.
2. Draw a line (shown in red) from this point to the next significant reversal point; at
Pt. B.
 3. Then plot a line from a significant point early in the trend (Pt. C) bisecting the
first line (in red) half way between Pts. A and B. This is the Median Line or "handle" of
the Pitchfork.
4. Now, draw two lines parallel to the Median Line, one starting from Pt. A and the
other from Pt. B. These form the "tines" of the Pitchfork.

This is a quick introduction to the Pitchfork technique; Dr. Andrews' price study methods were
typically much more complex than what I've shown here. He also counted waves using what he
called the "0-3/4 pivot count rule" and the "5 count probability rule."

Signals

Watch for reversals when the price approaches or penetrates the lines of the Pitchfork. As with
any trendline, the more often support or resistance is confirmed the more reliable the line can be
considered. In the example above, the lower channel managed to contain most of the price
activity - not perfectly - but enough to indicate that the channel was indeed providing important
support and resistance.
 BOLLINGER BANDS

Bollinger Bands provide several useful signals, including confirmation of trend and an
indication of volatility.

Overview

Bollinger Bands can provide an indication of:

• whether prices are relatively high or low

• whether current trends are likely to continue or reverse
• the volatility of a market, based on the width of the band.

Developed by John Bollinger, this technique is one of the most popular forms of envelope or
channel indicator. Two winding parallel lines above and below a central moving average (MA)
create a band that contains the majority of price movements within a channel. This is similar to
moving average envelopes. The difference is that Bollinger Bands are also sensitive to volatility
in the market. The bands spread further apart during volatile markets and come closer together
during calmer markets.

Technically speaking, moving average envelopes are plotted at a fixed percentage above and
below a moving average, whereas Bollinger Bands are placed two standard deviations above and
below the moving average, which is usually 20 days. Using two standard deviations ensures that
95% of the price data will fall between the two outside bands.

Interpretation

John Bollinger has written that, "Trading bands are one of the most powerful concepts available
to the technically based investor, but they do not, as is commonly believed, give absolute buy and
sell signals based on price touching the bands. What they do answer is the perennial question of
whether prices are high or low on a relative basis." He goes on to say, "It is the action of prices
near the edges of the envelope that we are particularly interested in."

As with most indicators, signals generated by Bollinger Bands should be confirmed using
complimentary indicators. According to Bollinger, one of the biggest mistakes in technical
analysis is the multiple counting of the same information. For example, using different indicators
all derived from the same series of closing prices to confirm one another.

The indicators he recommends to complement Bollinger Bands are:

• RSI or MACD -- based on price alone

• On-Balance Volume (OBV) -- combining closing prices and volume
• Money Flow -- combining price range and volume.
 VARIOUS TECHNICAL TOOLS
(Indicators & Oscillators)

INDICATORS

Indicators are calculations based on the price and the volume of a security that measure
such things as money flow, trends, volatility and momentum. Indicators are used as a
secondary measure to the actual price movements and add additional information to the
analysis of securities. Indicators are used in two main ways: to confirm price movement
and the quality of chart patterns, and to form buy and sell signals.

There are two main types of indicators: leading and lagging. A leading indicator precedes
price movements, giving them a predictive quality, while a lagging indicator is a
confirmation tool because it follows price movement. A leading indicator is thought to be
the strongest during periods of sideways or non-trending trading ranges, while the
lagging indicators are still useful during trending periods.

Indicators that are used in technical analysis provide an extremely useful source of
additional information. These indicators help identify momentum, trends, volatility and
various other aspects in a security to aid in the technical analysis of trends. It is
important to note that while some traders use a single indicator solely for buy and sell
signals, they are best used in conjunction with price movement, chart patterns and other
indicators.

As Technical analysis has become more & more computerized, several indicators have become
fairly popular. Indicators like MACD, Stochastics, RSI & momentum are now commonly used.
It would be useful if we divide technical indicators into two categories, namely:

 Trend following indicators , &

  Oscillators.

Also, more than the nuances of various indicators, what is more important to understand when to
use indicators.
Trend following indicators are used in trending markets & oscillators are used in trading
markets.
MACD & moving averages form part of the trending indicators while stochastics; RSI,
momentum etc are some of the trading indicators.

Relative Strength Index (RSI)

Developed by J. Welles Wilder and introduced in his 1978 book, New Concepts in Technical
Trading Systems, the Relative Strength Index (RSI) is an extremely useful and popular
momentum oscillator. The RSI compares the magnitude of a stock's recent gains to the
magnitude of its recent losses and turns that information into a number that ranges from 0
to 100. It takes a single parameter, the number of time periods to use in the calculation. In his
book, Wilder recommends using 14 periods.

Calculation
To simplify the formula, the RSI has been broken down into its basic
components which are the Average Gain, the Average Loss, the First RS, and
the subsequent Smoothed RS's.

For a 14-period RSI, the Average Gain equals the sum total all gains divided
by 14. Even if there are only 5 gains (losses), the total of those 5 gains
(losses) is divided by the total number of RSI periods in the calculation (14 in
this case). The Average Loss is computed in a similar manner.

Calculation of the First RS value is straightforward: divide the Average Gain

by the Average Loss. All subsequent RS calculations use the previous
period's Average Gain and Average Loss for smoothing purposes. See the
"Smoothed RS" formula above for details. The table on next page illustrates
the formula in action.

Here's how lines 14 and 15 were calculated:

Note: It is important to remember that the Average Gain and Average Loss are not true averages!
Instead of dividing by the number of gaining (losing) periods, total gains (losses) are always
divided by the specified number of time periods - 14 in this case.

When the Average Gain is greater than the Average Loss, the RSI rises because RS will be
greater than 1. Conversely, when the average loss is greater than the average gain, the RSI
declines because RS will be less than 1. The last part of the formula ensures that the indicator
oscillates between 0 and 100. Note: If the Average Loss ever becomes zero, RSI becomes 100 by
definition.

Oscillators:
Oscillators identify the emotional extremes of market crowds. They help in determining
unsustainable levels of optimism & pessimism. Professionals trade these extremes by betting
against them, ie: they bet on a return to normalcy . So long as oscillators keep making new
highs , it is safe to hold long positions. Correspondingly, so long as they keep touching new
lows, it is safe to hold short positions. When an oscillator reaches a new high, it shows that an
uptrend is gaining speed and is likely to continue. When an oscillator traces a lower peak, it
mains that the trend has stopped accelerating and a reversal can be expected from there, much
like a car slowing down to make a U-turn. An Oscillator have a range, for example
between zero and 100, and signal periods where the security is overbought (near 100)
or oversold (near zero).

Overbought & Oversold

 An oscillator becomes overbought when it reaches a high level associated with tops in the
past.
 An oscillator becomes oversold when it reaches a low level associated with bottoms in
the past.
When an oscillator rises or falls beyond its reference line, it helps a trader to pick a top &
bottom. Oscillators work splendidly in a trading range, but they give premature & dangerous
trading signals when a new trend erupts from a range.
An oscillator can stay overbought for weeks at a time when a new , strong uptrend begins, giving
buy signals. It can also stay oversold for weeks in a steep downtrend, giving premature buy
signals.

Stochastic Oscillator

Developed by George C. Lane in the late 1950s, the Stochastic Oscillator is a

momentum indicator that shows the location of the current close relative to the
high/low range over a set number of periods. Closing levels that are consistently
near the top of the range indicate accumulation (buying pressure) and those
near the bottom of the range indicate distribution (selling pressure).

Calculation:
A 14-day %K (14-period Stochastic Oscillator) would use the most recent close,
the highest high over the last 14 days and the lowest low over the last 14 days.
The number of periods will vary according to the sensitivity and the type of
signals desired. As with RSI, 14 is a popular number of periods for calculation.

%K tells us that the close (115.38) was in the 57th percentile of the high/low
range, or just above the mid-point. Because %K is a percentage or ratio, it will
fluctuate between 0 and 100. A 3-day simple moving average of %K is usually
plotted alongside to act as a signal or trigger line, called %D.

Slow versus Fast versus Full

There are three types of Stochastic Oscillators: Fast, Slow, and Full. The Full
Stochastic is discussed later. For now, let's look at Fast versus Slow. As shown
above, the Fast Stochastic Oscillator is made up of %K and %D. In order to avoid
confusion between the two, I'll use %K (fast) and %D (fast) to refer to those
used in the Fast Stochastic Oscillator, and %K (slow) and %D (slow) to refer to
those used in the Slow Stochastic Oscillator. The driving force behind both
Stochastic Oscillators is %K (fast), which is found using the formula provided
above.

In the ANDHRA BANK example, the Fast Stochastic Oscillator is plotted in the box just below
the price plot. The thick black line represents %K (fast) and the thin red line represents %D
(fast). Also called the trigger line, %D (fast) is a smoothed version of %K (fast). One method of
smoothing data is to apply a moving average. To smooth %K (fast) and create %D (fast), a 3-
period simple moving average was applied to %K (fast). Notice how the %K (fast) line pierces
the %D (fast) line a number of times during May, June and July. To alleviate some of these false
breaks and smooth %K (fast), the Slow Stochastic Oscillator was developed.
The Slow Stochastic Oscillator is plotted in the lower box: the thick black line represents %K
(slow) and the thin red line represents %D (slow). To find %K (slow) in the Slow Stochastic
Oscillator, a 3-day SMA was applied to %K (fast). This 3-day SMA slowed (or smoothed) the
data to form a slower version of %K (fast). A close examination would reveal that %D (Fast), the
thin red line in the Fast Stochastic Oscillator, is identical to %K (Slow), the thick black line in
the Slow Stochastic Oscillator. To form the trigger line, or %D (slow) in the Slow Stochastic
Oscillator, a 3-day SMA was applied to %K (Slow).

The Full Stochastic Oscillator takes three parameters. Just as in the Fast and Slow versions, the
first parameter is the number of periods used to create the initial %K line and the last parameter
is the number of periods used to create the %D (full) signal line. What's new is the additional
parameter, the one in the middle. It is a "smoothing factor" for the initial %K line. The %K (full)
line that gets plotted is a n-period SMA of the initial %K line (where n is equal to the middle
parameter).

The Full Stochastic Oscillator is more advanced and more flexible than it's Fast and Slow
cousins. You can even use it to duplicate the other versions. For example, a (14, 3) Fast
Stochastic is equivalent to a (14, 1, 3) Full Stochastic and a (12, 2) Slow Stochastic is equal to a
(12, 3, 2) Full Stochastic.

%K and %D Recap
%K (fast) = %K formula presented above using x periods
%D (fast) = y-day SMA of %K (fast)
%K (slow) = 3-day SMA of %K (fast)
%D (slow) = y-day SMA of %K (slow)
%K (full) = y-day SMA of %K (fast)
%D (full) = z-day SMA of %K (full)
Where x is the first parameter, y is the second parameter and (in the case of Full stochastics), z is
the third parameter. In the case of Fast and Slow Stochastics, x is typically 14 and y is usually set
to 3.
Use

Readings below 20 are considered oversold and readings above 80 are

considered overbought. However, Lane did not believe that a reading above 80
was necessarily bearish or a reading below 20 bullish. A security can continue to
rise after the Stochastic Oscillator has reached 80 and continue to fall after the
Stochastic Oscillator has reached 20. Lane believed that some of the best
signals occurred when the oscillator moved from overbought territory back
below 80 and from oversold territory back above 20.

Buy and sell signals can also be given when %K crosses above or below %D.
One of the most reliable signals is to wait for a divergence to develop from
overbought or oversold levels. Once the oscillator reaches overbought levels,
wait for a negative divergence to develop and then a cross below 80. This
usually requires a double dip below 80 and the second dip results in the sell
signal. For a buy signal, wait for a positive divergence to develop after the
indicator moves below 20. This will usually require a trader to disregard the first
break above 20. After the positive divergence forms, the second break above 20
confirms the divergence and a buy signal is given.
Relative Strength Index

Stochastic Oscillator